Counterterrorism is more of an art than a science at times, it seems. When FBI special agents launched an investigation into an LA-based importer, they discovered she was feeding sensitive technology to the People’s Republic of China. So they did what any good counterintelligence agency would do: Discover her weaknesses and then flip her.
It seemed like the intelligence coup of a lifetime, at least, it was at first. After 20 years, the FBI discovered her intelligence reports were of little to no value and she was secretly flipped back to Chinese intelligence. The worst part was that no one knew because she’d been having an extramarital affair with her FBI handler.
Katrina Leung was definitely an intelligence win, just not for the FBI.
Leung emigrated to the United States in 1970, claiming to be a citizen of Taiwan. She was educated in New York City and earned an MBA from the University of Chicago. After that, she moved to Los Angeles, where moved into an apartment building the FBI called a “nest of spies,” filled with potential Chinese informants. She managed an import-export business that was known to have ties to illegal technology transfers to China. That’s where she first showed up on the FBI’s radar.
While running the business, some of her associates were passing technology to the Chinese government, something the FBI also knew. The FBI began to suspect she had a role in the same kinds of transfers. Leung left the business, and the bureau closed its case against her.
The investigation was reopened by FBI Special Agent James Smith, specialist in Chinese counterintelligence. He discovered a weakness and convinced her to supply information to the United States. Smith became her FBI handler in 1982 and code-named Leung “Parlor Maid.”
After Smith helped her gain legal American citizenship, the two hatched a plan to get Leung recruited by China’s Ministry of State Security (MSS) which came to fruition in 1984. The Chinese MSS paid Leung for low-level information on the workings of the FBI’s LA field office, while the FBI paid her expenses, including flights to and from China. It worked beautifully.
Leung became a high-profile member of the Chinese-American community and occasionally held diplomatic receptions for Chinese officials. The President of China, then Yang Shangkun, supported her involvement so much that she was asked to advise the Chinese government on where to locate its new Los Angeles consulate building in 1998.
Neither the FBI nor the CIA had any reason to doubt Leung’s bonafides. She had passed multiple polygraph tests and the information she provided was verified by Chinese defectors. In May 2000, the FBI received credible evidence that Leung was indeed spying on the U.S. for China. A month later, Smith retired and the FBI launched an investigation. What it found shocked the bureau to the core.
Its first revelation was that Smith, who was married, and Leung had been carrying on an intimate relationship for nearly the entire time he was her handler, more than 18 years. The investigation also found numerous red flags in Leung’s history with the agency that were never reported or investigated.
Smith was a star agent, according to the FBI’s Inspector General (IG) report of the incident, and required little supervision. Except neither he nor anyone else in the LA bureau at the time fully vetted Leung before taking her on as an asset. The IG criticized the field office for its early handling. But Smith had begun his sexual relationship with her in 1983, almost immediately after she was recruited.
The FBI also found that Leung began using untapped payphones to contact Chinese officials, an act that was not reported to higher authorities. Leung had also begun a sexual affair with another FBI agent in the bureau’s San Francisco office around this time, which the IG disregarded. It wasn’t until the 1990s that Leung’s loyalty should have been called into question.
In June 1990, Leung began reporting technical details of an American operation on the West Coast to officials in China. The evidence was lost or placed in multiple files, so the FBI never thought to do a full investigation. Leung continued providing information to the PRC, and the FBI knew it, but no one questioned how she knew the information.
She was getting it from her handler, Smith, who was talking openly about ongoing operations and bringing classified materials to their intimate sessions. Leung would photograph or make copies of these documents and send them to China. Smith knew about the disclosures, but kept quiet because he was afraid of being exposed. These failures went on for a decade.
When Smith was promoted in the bureau, he continued to keep Leung briefed about the FBI activities in Los Angeles. Her handler had become the intelligence asset. No one questioned Smith because his credibility was considered beyond reproach.
In 2001, Leung’s apartment was searched and the FBI found FBI phone directories and secret memos about Chinese fugitives. They later discovered she was providing the PRC with the photos of FBI agents still active in the field, along with more than a decade of updates about FBI counterintelligence ops in Los Angeles and the West Coast. When the investigation concluded in 2003, Leung and Smith were arrested.
The case against Leung was thrown out due to prosecutorial misconduct, but the FBI came back at her for tax-related crimes. She signed a plea deal for three years probation, 100 hours of community service, and a $10,000 fine. She also had to cooperate with FBI debriefings.
No one really knows the full extent of the damage done by Katrina Leung. It remains one of the biggest counterintelligence failures in American history.