Alleged Spy Compromised Nuke Probe

A prominent Los Angeles businesswoman accused of working as a double agent for China appears to have compromised a highly delicate nuclear espionage investigation by revealing to Beijing the identities of two F.B.I. agents working on the case, officials told the The New York Times.

A disclosure by the FBI informer, Katrina Leung, probably led the Chinese to trail one of the agency's counterintelligence agents on a trip to China around 1990, The Times reports.

The information revealed important and damaging information about American counterintelligence techniques.

On Tuesday, a federal judge ruled that she be held without bail pending trial, because the enormous financial assets held by Leung make her a potential flight risk.

U.S. Magistrate Judge Victor B. Kenton issued his ruling after a nearly four-hour hearing Tuesday at which Leung was alternately portrayed as a loyal American who was used by the FBI and a Chinese agent whose actions may have compromised national security.

Leung, 49, and retired FBI agent James J. Smith of Westlake Village were arrested last Wednesday.

Smith, 59, posted $250,000 bail after being charged with gross negligence in handling documents related to the national defense. Leung was charged with unauthorized copying of national defense information with the intent to injure the United States or benefit a foreign nation.

Defense attorney Janet Levine argued vehemently that her client should be treated the same as Smith.

"There was no indication she passed anything on without the complicity and knowledge of this FBI," said Levine. "That was the strategy decision of the FBI — to give her documents, to have her pass them on."

Assistant U.S. Attorney Rebecca Lonergan said there was no comparison between the two cases.

"She stole documents from the FBI," the prosecutor said. "She hid foreign trips from the FBI."

Prosecutors say Smith and a second FBI agent had long-term sexual affairs with Leung, a prominent Republican activist and successful businesswoman in Los Angeles.

CBS News reports that during a search of her suburban Los Angeles mansion, several bank accounts were discovered worldwide. The FBI alone paid her $1.7 million over two decades and now faces years of damage control to it's reputation and counterintelligence program.

"Where you have it over the course of 20 years, it multiplies exponentially: the level of difficulty in unscrambling and trying to figure out what happened, what investigation may have been tainted," former Inspector General Michael Bromwich told CBS News.

Smith, a now-retired FBI expert in counterintelligence, was her handler.

The New York Times reports Leung told Smith she gave Chinese intelligence officials the identities and travel plans of two FBI agents, officials said. But rather than turning her in or ending her career as a well-paid informer, Smith made her meet with one of the agents, William Cleveland, in a San Francisco hotel room and "apologize for what she had done," prosecutors said in a court filing in Los Angeles.

The Times reports Cleveland, who was secretly having an affair with Leung, was the lead F.B.I. agent on a 1980's investigation, code-named Tiger Trap.

The FBI was investigating accusations that the Chinese used a spy in the United States to steal neutron bomb secrets. Officials told The Times Cleveland was one of the two agents whose identities Ms. Leung admitted having revealed to the Chinese in connection with the investigation.

The investigation was considered critical to national security, because the nuclear information that American intelligence officials believe the Chinese stole would have allowed Beijing to modernize its nuclear arsenal, The Times reports

While no one was ever arrested in that investigation, the case led authorities to investigate Wen Ho Lee, a former scientist at Los Alamos National Laboratory.

Lee was arrested in 1999 on 59 counts related to accusations that he revealed classified nuclear data, but all but one of the charges were dropped after a judge found significant problems with the government's case.

The Times reports prosecutors also said Leung, a native of China, told interrogators that the Chinese government paid her at least $100,000 because former president Yang Shangkun "liked her." It was the first indication of a possible motive in the case.

A Chinese foreign ministry spokesman in Beijing declined to discuss Leung when asked about her Tuesday.

"My understanding is that the lady you mentioned is a very famous overseas Chinese in the United States, but for specific information you should ask the American FBI," said Liu Jianchao.

Testimony at the bail hearing showed the FBI paid for much of Leung's travel, which included 71 foreign trips.

Lonergan said there were 15 trips that Leung never reported to the FBI and that it has been impossible to ascertain the exact amount that she has in some 16 overseas bank accounts.

The judge said the documents Leung is accused of passing to the Chinese government appear to be "innocuous" and "viewed alone the offense itself does not provide a substantial reason to flee."

"The problem," the judge said, "is there is much about the defendant's assets overseas that has not been revealed,"

He said she has offered substantial assets to assure her bail, including $3 million in real estate.

"The court has to wonder if this is just the tip of the iceberg," he said.