Charges dropped in FBI 'spy case'
Judge throws out case against Chinese-American woman

LOS ANGELES, California (AP) -- A federal judge Thursday dismissed all charges against a Chinese-American woman accused of using a sexual affair with an FBI agent to gain unauthorized access to classified documents.

U.S. District Judge Florence Marie Cooper dismissed the case for prosecutorial misconduct, finding that the government had purposely made sure that Katrina Leung, a socialite with extensive China contacts, would not have access to her former lover, James J. Smith, for information regarding her case.

Smith, a former FBI agent, has pleaded guilty to a single count of making a false statement about the affair and agreed to cooperate with the government. He had been accused of mishandling classified material and allowing it to fall into Leung's hands.

Leung, of the Los Angeles suburb of San Marino, allegedly took the documents from his briefcase. She was not accused of transmitting them to China.

Thom Mrozek, spokesman for the U.S. attorney's office in Los Angeles, had no immediate comment on the court's decision, which the government can appeal.

Leung would have faced up to 14 years in prison had she been convicted of illegally copying and possessing national security papers that she intended to use, or could have used, to harm the interests of the United States.

"The government decided to make sure that Leung and her lawyers would not have access to Smith," the judge said in her decision. "When confronted with what they had done, they engaged in a pattern of stonewalling entirely unbecoming to a prosecuting agency."

"The courts have again made sure that truth and justice are not mere platitudes," Leung's lawyers, Janet Levine and John Vandevelde, said in a statement.

"She's gratified and excited about moving on with her life," Levine said of Leung. "She's reminded again about why this is such a great country."

U.S. Judge Dismisses Case Against Accused China Spy

By Dan Whitcomb

LOS ANGELES (Reuters) - Citing "willful and deliberate misconduct" by prosecutors, a federal judge on Thursday dismissed the charges against a Chinese-American informant accused of taking classified papers from her FBI agent lover.

U.S. District Judge Florence-Marie Cooper threw out the case against Katrina Leung, saying that prosecutors had barred Leung's onetime lover and co-defendant, FBI agent James J. Smith, from speaking to the defense, then "misrepresented" their actions in court.

The decision apparently brings an abrupt and embarrassing end to the case against Leung, a former FBI informant known as "Parlor Maid" who was portrayed at the time of her 2003 arrest as a double agent for China but ultimately charged only with taking classified documents from Smith.

Smith, a former FBI counterintelligence agent and for nearly two decades Leung's handler, pleaded guilty last May to lying to the FBI about the adulterous sexual relationship and was cooperating with prosecutors in their case against her.

"The evidence makes it abundantly clear to the court that the government, in negotiating and drafting a plea agreement for Smith, wanted to secure his promise that he would not talk to Leung or her lawyers," Cooper wrote in a 10-page ruling.

"When confronted with Ms. Leung's motion to dismiss, the government proffered an assortment of explanations and denials," she wrote, adding later: "The government has engaged in willful and deliberate misconduct, depriving the defendant of her right of access to a critical witness in her defense."

Cooper said an email sent to prosecutors from a Department of Justice lawyer proved that they had ordered Smith not to speak to Leung or her defense attorneys. She said that when confronted with the email, prosecutors "engaged in a pattern of stone-walling entirely unbecoming to a prosecuting agency."

The case, which spawned sensational press coverage when Smith and Leung were arrested and details of their 18-year affair disclosed, may deliver a black eye for prosecutors if it ends with Cooper's ruling.

U.S. Attorney Debra Yang said she would consider an appeal.

"We strongly disagree with today's ruling," Yang said in a statement. "Since the defense made its motion we maintained, and continue to maintain, that there has been no misconduct by any prosecutor related to this case."

Defense attorneys, who have accused prosecutors of shifting blame to Leung to cover up an embarrassing episode for the FBI, hailed Cooper's decision and said their client looked forward to moving on with her life.

"Katrina Leung's nightmare is over," her lawyers, Janet Levine and John Vandevelde, said in a statement. "The courts have again made sure that truth and justice are not mere platitudes."

The news of Leung's arrest left many agog in Los Angeles, where she was known as a prominent businesswoman, society hostess and political activist who rubbed shoulders with the city's movers and shakers.

On Wednesday, 7 March 2003, a federal grand jury returned a five-count indictment against former supervisory special agent James J. Smith. The indictment includes an allegation that he failed to report Katrina Leung's refusal to submit to a polygraph "test" in 1991 and instead represented to the Bureau that the credibility of her information was supported by polygraph results. Here is the relevant passage from the indictment:

 X. On or about May 31, 1991, defendant SMITH 
requested that Katrina Leung take a polygraph examination to 
establish her continuing bona fides and reliability. Katrina 
Leung refused to take a polygraph examination. Defendant SMITH 
never reported Katrina Leung's refusal to take a polygraph 
examination to the FBI. 
 
XI. On or about June 7, 1991, defendant SMITH 
submitted to the FBI a required periodic asset evaluation report 
relating to Katrina Leung. In this report, defendant SMITH 
stated that Leung was "reliable" and that her reliability and 
bona fides had been tested, checked, and reviewed in part 
through the use of a polygraph examination. Defendant SMITH 
failed to disclose material information in this report, 
including: (1) that he was involved in a sexual relationship 
with Katrina Leung; (2) that Katrina Leung had admitted secret 
unauthorized communications with an MSS officer "Mao"; (3) that 
Katrina Leung had stated that the MSS officer "Mao" had learned 
Leung was an FBI asset; and (4) that, in May 1991, Katrina Leung 
had refused to take a polygraph examination.

The full text of the indictment in U.S. v. James J. Smith may be downloaded here:

http://news.findlaw.com/cnn/docs/fbi/ussmith50703ind.pdf

AntiPolygraph.org has learned that William "Bill" Cleveland, Jr., a retired FBI counterintelligence agent who has admitted to having had a longterm sexual relationship with FBI informant and suspected Chinese double agent Katrina M. Leung, passed a Department of Energy (DOE) counterintelligence-scope polygraph examination. The "Test for Espionage and Sabotage" polygraph format used by DOE includes a question about unauthorized contact with any representative of a foreign government.

Cleveland became chief of counterintelligence and later, security, at Lawrence Livermore National Laboratory after his retirement from the FBI in 1993.

An informed source has told AntiPolygraph.org that Cleveland was among the first to be polygraphed under the expanded DOE polygraph screening program adopted in 1999. Cleveland was polygraphed in Albuquerque, New Mexico and passed.

See also:

• "Lab official quits in affair's wake," by Andrea Widener, Contra Costa Times, 12 April 2003
• "FBI: Ex-agents' suspected lover gave secrets to China," by Curt Anderson, Associated Press, 12 April 2003

A former F.B.I. agent arrested on Wednesday in an espionage case had not been given a polygraph test in his nearly 30 years with the bureau, and lax oversight of his relationship with an informer now accused of being a Chinese double-agent appears to have violated numerous policies, bureau officials said today.

The officials added that the informer, Katrina Leung, a Los Angeles political fund-raiser who was paid $1.7 million by the F.B.I. for information on her native China over the last two decades, had not been asked to take a polygraph test since the 1980's.

Ms. Leung and the former agent, James J. Smith, were arrested at their homes in Los Angeles. Mr. Smith, was charged with gross negligence in his handling of national defense documents. Ms. Leung, who officials said was Mr. Smith's longtime lover, was charged with the unauthorized copying of national defense information with the intent to injure the United States or benefit a foreign nation, in this case, China.

Historically, the F.B.I. has resisted the use of polygraph or lie detector tests for its employees, in part because many agents have viewed the procedure as a sign of distrust. In the mid-1990's, the bureau began broadening its use of polygraph tests for employees with access to secret intelligence after the espionage arrest of a C.I.A. official, Aldrich Ames, and it significantly increased their use again after the 2001 arrest of an F.B.I agent, Robert P. Hanssen, on charges of spying for Moscow.

An F.B.I. official, who spoke on condition of anonymity, said that because polygraph tests were not routinely used in the 1980's and 1990's, it appeared that Mr. Smith was never asked to take one, while Ms. Leung had not taken one for many years.

"We just didn't really do it much back then," the official said. "It wasn't a focus." 

F.B.I. Director Robert Mueller has requested internal reviews to determine what went wrong. 

Officials outside the F.B.I. questioned whether more aggressive use of polygraph tests by the bureau might have raised questions much earlier about whether Mr. Smith and Ms. Leung were having an affair and whether she was improperly gaining access to secret intelligence that could do damage to American national security interests in the hands of the Chinese.