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U.S.: Leung may have tipped Chinese to spy investigation

From Kelli Arena
CNN Justice Correspondent

A defense attorney argues Leung was exploited by the FBI.
A defense attorney argues Leung was exploited by the FBI.

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An FBI informer, accused of being a Chinese double agent, may have compromised a nuclear espionage investigation by tipping off Beijing. CNN's Charles Feldman reports (April 17)
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WASHINGTON (CNN) -- An FBI informer in Los Angeles, accused of being a Chinese double agent, may have compromised a nuclear espionage investigation by revealing the identities of two FBI agents working on the case, according to U.S. government officials.

Officials said Katrina Leung also might have tipped off the Chinese government about the United States' bugging of China's version of Air Force One.

The continuing damage assessment in the Leung case includes an FBI internal review and the investigation of a second agent for possible misconduct.

Leung, recruited by the FBI in 1982 as an informer, has been charged with espionage. Her FBI handler, retired agent James Smith, has been charged with gross negligence.

Officials allege Leung also had an affair with another agent, now retired. That agent, William Cleveland, has not been charged.

Leung was denied bail Tuesday after prosecutors argued she was a flight risk.

The 49-year-old Leung is a well-known Republican activist in Los Angeles who raised thousands of dollars in political campaigns and arranged numerous California events -- including a 1997 state banquet for former Chinese President Jiang Zemin.

In a criminal complaint, prosecutors said they believe that in one case during their alleged affair, Smith came to Leung's home with classified documents, and then left his briefcase open where she surreptitiously photocopied them without his consent, intending to share them with Chinese officials.

One of the documents forming the basis of the felony charge is a June 12, 1997 memorandum about Chinese fugitives and the discussion of national defense information by a confidential FBI source.

Leung admitted to investigators she obtained information from Smith without his consent at times and turned them over to the Ministry of State Security, a Chinese intelligence service.

Smith, a 30-year FBI veteran who retired in 2000, remains free on $250,000 bond. He faces 10 years in prison if convicted.

Lawyers for Leung argued FBI agents fed information to her for nearly two decades and encouraged her to give it to the Chinese government in order to obtain the trust of the Chinese in return.

Prosecutors contend Leung established at least 2,100 Chinese government contacts, including top-level officials, during her 71 visits to the People's Republic of China.

In his ruling Tuesday, U.S. Magistrate Victor Kenton said he had "substantial and serious questions" about Leung's foreign assets after she acknowledged receiving $1.2 million dollars as a consultant to a Hong Kong business but admitted committing tax fraud by allegedly hiding the money in overseas accounts.

In denying bail, Kenton also said he cannot conclude Leung "does not still have classified information" that may be vital to U.S. national security and expressed concerns Leung may seek asylum.

Leung who is being held at the Metropolitan Detention Center in downtown Los Angeles faces 10 years in prison if convicted.

-- CNN Producer Stan Wilson and CNN Correspondent Charles Feldman contributed to this report.

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