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Former FBI agent indicted in double agent case

From Charles Feldman and Stan Wilson
CNN Los Angeles Bureau

Katrina Leung, an accused double agent, was an FBI
Katrina Leung, an accused double agent, was an FBI "asset" handled by Smith.

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An FBI agent who allegedly had an affair with a Chinese double agent was indicted on charges of wire fraud and gross negligence. CNN's Charles Feldman reports (May 8)
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LOS ANGELES, California (CNN) -- A former FBI agent in charge of U.S. counterintelligence on China was indicted by a federal grand jury Wednesday on charges related to his 20-year affair with an alleged Chinese double agent.

The six-count indictment returned against James J. Smith, 59, of Westlake Village, a Los Angeles suburb, included charges of wire fraud and gross negligence with national defense material, authorities announced.

If convicted of all the charges, Smith faces 40 years in prison. His arraignment is scheduled for May 12.

The charges stem from Smith's recruitment and nearly two-decade role as the "handler" of FBI "asset" Katrina Leung, who was tasked with obtaining information about the People's Republic of China (PRC) and its intelligence service.

During an FBI interrogation in December, Smith admitted having a 20-year sexual affair with Leung, a prominent Chinese-American businesswoman who had access to top Chinese leaders including President Jiang Zemin, Premier Zhu Rongji and the late President Yang Shangkun.

Leung, 49, was arrested last month and charged with obtaining an unauthorized, classified FBI document with the purpose of passing it on to China. She remains in jail without bail.

Allegations in the indictment against Smith allege that he:

• Had an improper sexual relationship with Leung

• Failed to disclose to the FBI his sexual relationship with Leung

• Failed to tell the FBI the full extent of Leung's admissions regarding her contacts with officials from the People's Republic of China

• Filed reports and caused other FBI agents to file reports that failed to report information about Leung

• Mishandled classified information and information relating to the national defense

FBI suspicious of couple's continued meetings

Smith allegedly was told in 1991 that Chinese intelligence officials had discovered that Leung was working for the FBI, but he did not make truthful and complete reports of this revelation to the FBI, according to documents.

The four wire fraud counts relate to the transmission of evaluations of Leung that Smith sent to FBI headquarters in Washington in 1998, 1999 and 2000.

According to the indictment, Smith improperly removed two documents from the FBI offices and took them to meetings with Leung, enabling her to get access to them.

One document concerned a classified location of an FBI investigation called "Royal Tourist." The second document concerned an FBI electronic communication that had been marked and classified as "secret" and concerned Chinese fugitives.

Smith, a married man, retired in 2000 after nearly 30 years in the FBI. He became the center of a criminal investigation after authorities began secretly monitoring meetings between him and Leung long after his official business association with her ended, according to court documents.

Authorities suspect Leung was a "double agent" who routinely stole unauthorized secret U.S. national defense documents and handed them to China's Ministry of State Security, the country's intelligence service.

One of the documents is a June 12, 1997 memorandum about Chinese fugitives and national defense information obtained by a confidential FBI source. Leung admitted to investigators that she got information from Smith and another FBI agent over several years without their consent and passed it on to Chinese agents.

Smith was charged with gross negligence in handling those documents. Wednesday's indictment superseded the previous gross negligence charge lodged against Smith in the criminal complaint. He was released from jail in April on $250,000 bail.

U.S. paid Leung $1.7 million

An attorney for Smith said he's disappointed that prosecutors decided to pursue more charges against him, but declined further comment.

Prosecutors say Leung may have provided PRC officials with other confidential details on FBI personnel, an array of secret intelligence cases and spying tactics that may have compromised U.S. intelligence gathering.

Lawyers for Leung argued that 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.

From 1983 to 2002, Leung was paid $1.7 million for providing information about China, according to affidavits. In 1991, prosecutors contend, a San Francisco-based FBI agent told Smith that Leung may be a double agent, but Smith continued using her as a working informant despite assurances that he would investigate the allegations.

That same San-Francisco-based agent, whose identity was sealed in the FBI indictments, also admitted having a long-term sexual relationship with Leung. He is not charged in the case.

"We put into place an asset validation program that has a number of aspects to it that will prevent this happening in the future," said FBI Director Robert Mueller on the CNN program "The Novak Zone."

"We are putting in place and have put in place over the last several months and year management reviews that will prevent this from happening again."

Smith joined the FBI in 1970 after serving in the U.S. Army. He was assigned to the Los Angeles bureau in 1971 and worked almost exclusively on foreign counterintelligence focusing on the PRC until his retirement.

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