Washington, DC, May 12, 1999

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Red-Handed: Caught in the Act, Several Chinese Spies Have Yet to be Brought
to Justice

The FBI has allegedly widened its probe of Wen Ho Lee, a fired Los Alamos
National Laboratory (LANL) scientist, to include other suspects. But this
is only the tip of the iceberg of investigations into Chinese espionage
activities targeting U.S. weapons technologies. The FBI and the CIA have
investigated numerous suspected Chinese spies during the last ten years,
and across administrations. These investigations even involved stings
against spies who paid thousands of dollars for what they thought was top
secret information. No arrests were made, however. Foreign policy appears
to have gotten in the way.

By Jerry Bohnen and Anthony Kimery

A relative of Wen Ho Lee (Lee is the scientist fired in March from a U.S.
weapons lab for failing a lie detector test in conjunction with an
investigation into whether he gave China information on a U.S. nuclear
warhead ten years ago) is allegedly being probed for a second time for
possibly having given China secrets about the U.S. stealth bomber. The
investigation of Lee’s relative is among perhaps dozens of probes of
Chinese spies conducted by the CIA and the FBI, some jointly, during in the
last ten years, none of which have resulted in any arrests, according to a
variety of federal officials and sources who recently spoke to SOURCES, on
condition of anonymity.

The sources say CIA and FBI counterintelligence (CI) agents have grown
increasingly frustrated over decisions by higher-ups not to prosecute
persons against whom they have painstakingly developed espionage cases.

According to the sources, most of the stings were supposed to have
culminated in arrests, but because they did not, CI agents and officials
are now worrying that they will be blamed for the FBI’s lack of action
given the growing furor over the seeming ineptness of Chinese spying
investigations.

The FBI is facing mounting criticism for the way it has handled Chinese spy
probes going back several administrations. The Bureau’s Chinese CI
operations are also under review by a special task force set up in recent
weeks by Attorney General Janet Reno, who is believed to be personally
overseeing details of the inquiry. The inquiry includes looking at how the
Justice Department has handled spy cases, and whether all such cases have
been vetted at the highest levels.

The investigations described by sources contradict President Clinton’s
statement in March that Chinese espionage during his administration has
been marginal, a claim Energy Secretary Bill Richardson finally admitted
isn’t true on NBC’s "Meet the Press" on May 9, 1999. "There have been
damaging security leaks. The Chinese have obtained damaging
information…during past administrations and the current administration,"
Richardson conceded.

A recent CIA assessment of Chinese spying, "Implications of China’s
Acquisition of U.S. Nuclear Weapons Information and the Development of
Future Chinese Weapons," had already called the President’s claim into
question. In light of the CIA’s findings, Senate intelligence committee
chairman Richard Shelby told reporters that Clinton’s assertion that only
marginal spying has taken place during his administration is "not true."

The number and nature of Chinese spy probes over the last ten years which
SOURCES was told about are significant, and include the FBI recently
re-opening the investigation of Lee’s relative, who is said to work for a
major California aerospace company involved in building the stealth bomber.
The sources say the relative, who is under electronic surveillance,
allegedly made frequent trips to China and has had contacts with
individuals there who make the FBI and CIA suspect sensitive information
was turned over to them.

Ironically, the Justice Department has come under fire lately for the
revelation that it turned down an earlier request by the FBI to place Lee
under electronic surveillance.

Sources say the FBI is also investigating a scientist (a former Midwest
university professor) who was recently in possession of classified
materials regarding nuclear processes.

The FBI is not commenting on the extent of or the subjects of its
investigations, but SOURCES has learned that the stings and related
investigations it has been told about have come under scrutiny by the
Attorney General’s office.

The Chinese spies at the heart of these FBI probes, many working in the
U.S., sought to acquire a "shopping list" of military weapons secrets
including information on the SR-71 spy plane, AWACS aircraft, ballistic
missile guidance systems, and nuclear attack submarines, according to the
sources.

According to the CIA report turned over to U.S. lawmakers recently, China
has, in fact, obtained information on a variety of U.S. weapon systems as a
result of espionage operations here. It is not known if classified portions
of the report acknowledge the CIA and the FBI’s counterintelligence
investigations. Regardless, mounting evidence indicates that Chinese
espionage has been pervasive, and that the stings SOURCES has been told
about are only the tip of the iceberg.

Classified information provided to SOURCES indicates that political
considerations may have played a role in preventing the probes from
culminating in arrests. The White House, FBI, and Justice Department are
increasingly looking as though politics indeed tainted how they managed
Chinese espionage investigations. This possibility was buttressed by Senate
Armed Services Committee hearings on April 12. Lawmakers were told that
Clinton Administration officials repeatedly downplayed or dismissed
evidence that China had stolen nuclear weapons secrets from a government
weapons laboratory.

In late 1988, the State Department did not consider China to be overly
concerned about technologically modernizing its military through this
decade, according to classified documents. The implication was that China
was not likely to engage in espionage to get U.S. weapons technologies.

While this thinking apparently drove foreign policy toward China, numerous
probes of Chinese spying went nowhere, according to sources. A number of
the probes involved undercover stings in which large cash payments,
sometimes in the tens of thousands of dollars, were given to U.S.
undercover operatives by Chinese spies who were trying to buy top secret
information on U.S. weapons systems.

"These were full-blown investigations -- wiretapping, videotaping, the
whole nine yards," said one of the sources familiar with the probes.

Since no arrests have been made, one source expressed doubt anything will
come out of the expansion of the FBI’s probe of Lee. In recent weeks, the
FBI let it be known that its investigation of Chinese espionage has indeed
been widened to include unidentified suspects other than Lee. "New
information is being evaluated and the focus of the probe has certainly
expanded," an official was quoted in The Washington Times on March 18.

The absence of arrests allegedly has frustrated both undercover operatives
and their FBI and CIA handlers. One undercover operative and his handlers
have complained that since the late 1980s, there has been a lack of
initiative on the part of the Reagan and Bush, as well as the Clinton
Administration to follow through with arrests.

For years, FBI field agents have been voicing concern to one undercover
operative who has shared his material and knowledge of operations with
SOURCES. The operative said FBI agents have complained privately for years
of not being able to get cases into court. They have voiced criticism of
the U.S. Attorney General’s office and Justice Department officials who
allegedly did not want to proceed against the Chinese.

Some of the stings SOURCES was told about were videotaped, showing Chinese
contacts meeting undercover operatives in motel and hotel rooms all over
the U.S. One undercover operative claims he arranged a videotaped meeting
for the FBI as far back as 1989. In many of the cases, Chinese operatives
were young women who freely exchanged sex, money, and interest in business
ventures with China for what they thought was secret information about
military bases, aircraft, and military technology. For these Chinese women,
sex seemed to be the most often used avenue to get at U.S. military
secrets.

In one instance, a Chinese spy promptly took information he obtained to a
nearby copy shop where he faxed it overseas and then returned the documents
to the undercover operative, a move which, the undercover operative told
SOURCES, took the FBI off guard.

According to sources, the infamous Chinese "masterspy" Ou Qiming, also
known as "Q", should have been arrested in Dallas in May, 1994, but was
not. Sources say Q was caught in an FBI/CIA sting in which he and another
Chinese national bought (with tens of thousands of dollars in counterfeit
bills) what they believed was classified information on the AWACS (Airborne
Warning and Control System) aircraft.

When Q was handed the information, some of which was stamped "CLASSIFIED,"
he told the undercover operative that "this makes my country happy." The
money Q paid for the documents was turned over to the FBI. "It was all
hundred dollar bills," the operative explained, saying he counted the money
while taking a rickshaw ride after departing the Hong Kong restaurant where
he met Q.

Scores of stings like this one have been conducted in the last ten years,
and in each case, the cash the Chinese agents paid turned out to be
exceptionally high quality counterfeit bills, sources report.

It is unclear whether lawmakers have been briefed on the spy probes
described to SOURCES, but they have complained that they were never briefed
about either the Lee case or about any suspicions on the part of
counterintelligence officials that spying was taking place at U.S. nuclear
weapons labs. In March, Senator John McCain said on a television news show
that "What is … incredibly disturbing is apparently the administration
didn’t take the charges seriously. The Congress was not informed."

Several past and present senior congressional staff members of committees
(whose members should have been briefed on the stings described to SOURCES)
said on background they are unaware of any investigations on suspected
Chinese spies.

"I damn sure haven’t been told about any of these stings, where the kind of
money you’re talking about -- counterfeit or not -- has been paid to buy
military secrets," one committee member said.

"The CIA has been involved? That’s serious business, and I don’t know
anything about it," said another staffer.

During the April 12 hearings by the Senate Armed Services Committee on
Chinese espionage in the U.S., concerns arose that both the FBI and the CIA
have not fully briefed appropriate congressional committees and lawmakers
on what their spy probes have really uncovered. The CIA has principal
responsibility for keeping Congress adequately informed on foreign
espionage investigations within the U.S.

The Cox Committee (chaired by Rep. Christopher Cox) investigation on
military and commercial deals with China was recently conducted in the wake
of allegations that U.S. satellite makers illegally gave China vital
ballistic missile technology. The committee’s report states that China has
aggressively pursued U.S. military secrets for more than 20 years.

Reprepresentative Heather Wilson, a member of the House Permanent Select
Committee on Intelligence, has said publicly that the Cox report lays out
the extent of Chinese espionage efforts in the U.S., but other sources
assert that the report discusses "allegations" of Chinese espionage.

Senator Shelby’s Senate Select Committee on Intelligence recently launched
a formal investigation into allegations that China stole secrets from U.S.
nuclear weapons research laboratories, and how the government handled the
matter. Shelby told reporters that Chinese spying in the U.S. is "more
serious than you can imagine."

"The Chinese do target our nuclear weapons laboratories, but they also
target other potential sources of the same information, including other
parts of the government, its contractors, and the military branches," said
Senator Pete Domenici of New Mexico recently after receiving briefings by
the FBI and the CIA.

"There is no question that [China’s] espionage activities are pervasive,"
Nick Eftimiades, a China specialist and counterintelligence analyst at the
Defense Intelligence Agency (DIA), was quoted as saying.

Eftimiades added that China’s intelligence services make use of not only
the 11,500 diplomats, trade representatives, and other Chinese visitors to
the U.S. each year, but also the 15,000 Chinese students who arrive on U.S.
campuses, and the hundreds of thousands of Chinese Americans around the
country.

China had 46,958 students in the U.S. in the 1997 to 1998 academic year,
more than any other country except Japan, according to the Institute of
International Education. Nearly 85 percent were graduate students, many in
science and engineering.

"The Chinese mostly deal with overseas Chinese, Chinese-Americans, or
somebody who’s got a link to China and is presumed to want to do what’s
right for the Chinese people," former CIA officer Milt Bearden has been
quoted as saying. "It gets into this kind of almost `don’t ask, don’t
tell,’ and the next thing you see is a lot of information passing." In
contrast, "Soviet espionage gets down to signing on the dotted line and
becoming a spy," Bearden explained.

A number of students strongly suspected of espionage were targeted during
the FBI/CIA investigations of Chinese spying in the U.S. in the last ten
years, sources said.

National Security Council official Gary Samore oversaw efforts to
investigate the theft of nuclear warhead secrets at LANL. When asked if the
U.S. government has ever detected or expelled any Chinese spies, Samore
declined to comment.

Republicans charge that the Clinton Administration has dragged its feet in
pursuing the Lee case and other evidence of widespread Chinese espionage in
the U.S. to avoid escalating tensions with China. China is one of the
biggest trading partners with whom the Clinton Administration has been
particularly accommodating when it comes to high technology sales.

In 1988, around the time Lee allegedly relayed nuclear bomb secrets to
China, the FBI and the CIA are said to have begun investigations of Chinese
spying in the U.S., sources report.

Henry Kissinger and other pro-China trade advocates, meanwhile, convinced
high-level officials of the State Department and Reagan Administration that
China posed no threat, Thor Ronay, former Chief of Staff of the General
Services Administration under Reagan, was recently quoted as saying.

According to the top secret State Department analysis, "Chinese Military
Modernization: Looking at the 1990s," (drafted in late 1988), China’s
military "still needs to develop the organization, doctrine, and tactics to
fight a modern war. These areas will probably see more progress in the next
decade than the PLA [People’s Liberation Army] arsenal -- which will
continue to suffer from China’s antiquated industrial base and lack of
technical expertise and funding."

The analysis further lays out the U.S. position that China had come to a
"relaxed" view of external threats and that this "account[ed] for the still
relatively low ranking of military modernization among China’s domestic
concerns."

However, China has identified the U.S. in its internal documents, military
planning stratagems, and war-fighting doctrine as a potential target,
according to U.S. intelligence agencies.

"They are quite specific about the U.S. being the greatest obstacle of[sic]
Chinese manifest destiny and sovereignty," said James Lilley, a former U.S.
ambassador to China, the first CIA chief of station posted to China in the
early 1970s, and later the CIA’s National Intelligence Officer on China.
Moreover, the CIA has determined that at least a portion of China’s ICBM
fleet has been aimed at the U.S.

The secret State Department report asserted that because China’s military
was "constrained by a lack of funds," PLA modernization initiatives
indicated that "China will continue to focus on less expensive, though
necessary, schooling, new training facilities, and more realistic
training."

Nowhere in the analysis was it ever suggested that because China was unable
to buy the modernized weapons systems it needed, or to conduct its own
expensive research and development, it would consider employing spies to
get what it could not afford.

"That seems to have been a foreign notion in the minds of [U.S.]
policymakers," said a Republican congressional source familiar with
Congress’ ongoing investigations of Chinese spying.

At the same time the policy paper was written (when Henry Kissinger and
pro-China trade advocates were urging the State Department to adopt a
pro-China stance), China was actively engaged in widespread spying
operations to procure U.S. weapons secrets, concluded the recent CIA
assessment and the Cox Committee report.

Michael Eddington, a former CIA military analyst, recently said publicly
that U.S. government policy "has been to let the Chinese slide" with regard
to espionage activities in the U.S.

During the Reagan and Bush administrations, officials are also said to have
overlooked the security implications of weapons lab scientists visiting
countries like China and giving presentations at scientific conferences.
These conferences were often attended by intelligence services of countries
potentially hostile to the U.S.

FBI Director Louis Freeh indicated to lawmakers recently that the
compromising information Lee gave to China might have been derived from
scientific talks he gave, or during private meetings between Lee and his
Chinese counterparts. Freeh told lawmakers that although Lee was a
principal suspect, the FBI was unable to find traditional physical evidence
of espionage. Information was quite possibly transferred during
professional meetings with little official scrutiny.

According to Dr. Stephen Bryen, Deputy Under Secretary of Defense for Trade
Security Policy under the Reagan Administration, there was indeed little
concern paid to the problem of weapons lab and other DoD scientists
exchanging information with their peers around the world.

When Bryen first began pushing for the requirement that scientists first
vet their proposed talks before his agency for approval, he ran into
considerable resistance.

"People just didn’t get it," Bryen said. "But at these conferences you had
the Chinese, you had the KGB, you had everyone wanting to get their hands
on all sorts of weapons, and here were our scientists talking freely about
what they were doing -- like it was no big deal."

Bryen considered scientists at the weapons labs as security risks because,
he said, they believed that they had the right to exchange scientific
information with their colleagues, whoever they were. This position is
often supported by lab officials, and is a potential problem that was
barely on the DoD’s radar screen, Bryen said.

In the case of Wen Ho Lee, he traveled to China to deliver scientific
papers in l886 and l988 as part of trips "pre-approved and encouraged" by
officials at Los Alamos and the DoE, which claims it "cleared the texts of
the papers given at these conferences." The FBI also approved the trips.

Former CIA military analyst Michael Eddington echoed Bryen in recent weeks,
saying the military scientific community does not see things the same way
counterintelligence experts do. For that reason, Eddington argues,
scientists did not presume that their Chinese peers were actively engaged
in spying on them during conferences.

The New York Times reported earlier this week that, according to court
documents, American scientist Peter Lee (who was assigned to a classified
Pentagon project in 1997), supplied China with secrets about advanced,
submarine-tracking radar in a lecture he gave in Beijing in May 1997.

Federal prosecutors wanted to charge Lee with espionage but the Navy did
not want testimony about the radar systems divulged in open court. The
Justice Department also reportedly blocked any prosecution of Lee.

Lee eventually plead guilty to filing a false statement about his 1997 trip
to China and to leaking classified laser data to Chinese scientists during
an earlier trip to China in 1985.

Congress, which in recent weeks has expressed considerable outrage over lax
security at U.S. weapons labs, ironically had raised very similar concerns
about security eight years ago.

In April 1991, for instance, during hearings by the House Subcommittee on
Oversight and Investigations into the failed efforts to curtail Iraq’s
nuclear weapons program, it was disclosed that in 1989, three employees of
the Al QaQaa State Establishment, identified by the international atomic
energy agency as Iraq’s main explosives complex involved in developing a
nuclear bomb, were permitted to attend a U.S. government sponsored seminar
on nuclear detonation.

A roster of the event also showed that at least one Chinese government
scientist attended the seminar, which was sponsored by the LANL, other U.S.
weapons labs, and more than a half-dozen DoD arms agencies, including the
Office of Naval Research and the Army Ballistics Research Laboratory.

John C. Browne, the director of LANL since 1997, told reporters recently
that while he does not "defend what was going on [at LANL] 10 to 20 years
ago, scientists at federal weapons labs must be allowed to freely exchange
ideas within the scientific community." Browne added that scientists
working for federal weapons labs "know how to draw the line" when talking
to outsiders, and that they should be given flexibility. "It is a campus.
It’s a campus behind a fence. We can’t just put everybody behind a fence
and lock them up."

On April 12, Notra Trulock, acting deputy director of the Department of
Energy (DoE), testified before the Senate Armed Services Committee. Trulock
stated it was the Clinton Administration’s policy that U.S. weapons labs be
open to free exchange of information, especially with visiting Chinese
scientists. He also told the Committee that his superiors repeatedly
downplayed or dismissed evidence that China stole nuclear weapons secrets
from government weapons labs.

"I must tell you that our warnings were ignored, they were minimized and
occasionally even ridiculed, especially by laboratory officials," Trulock
testified.

In 1988, Congress’ investigative arm, the General Accounting Office (GAO)
told lawmakers there were numerous problems with DoE’s control over foreign
visitors to its facilities.

"These problems included inadequate prescreening of foreign visitors, poor
identification and review of visits that could involve potentially
sensitive subjects, and insufficient practices for approving, monitoring,
and reporting foreign visits," the GAO found. The GAO further stated that
DoE’s counterintelligence programs were not fully effective in mitigating
foreign intelligence efforts. They lacked comprehensive threat assessments
to focus their efforts, as well as performance measures to evaluate their
effectiveness.

In a report to Congress last year, a subsequent GAO audit revealed that
these issues still had not been addressed.

"In our view, these problems could lead to the loss of sensitive
information to foreign countries regarded as posing a risk to our national
security or nuclear nonproliferation goals," Keith O. Fultz, Assistant GAO
Comptroller General, Resources, Community, and Economic Development
Division, told the House Select Committee on U.S. National Security and
Military/Commercial Concerns with the People’s Republic of China, and the
Subcommittee on Military Procurement, Committee on National Security.

"Our reports in 1988 and 1997 made recommendations to strengthen controls
over foreign visitors," Fultz continued. "While DoE is initiating actions
to improve the management and oversight of foreign visits to the weapons
laboratories, Mr. Chairman, DoE has not demonstrated a lasting commitment
to improving controls over foreign visitors. Additionally, DoE’s plan to
devolve the authority for approving foreign visits to the laboratories may
not be appropriate until significant recommendations that we have made are
addressed."

In October 1997, buttressing the GAO’s findings, FBI Director Louis Freeh
and CIA Director George Tenet met with DoE officials and stressed to them
that, despite politics and White House policies, DoE needed to immediately
move to strengthen security at its weapons labs.

Former Clinton Administration DoE secretary, Elizabeth Moler, testified
that the DoE had worked hard to clean up its act under the Clinton
Administration, but echoed Bryen and others by saying that weapons lab
security prior to 1992 was significantly lax. It wasn’t until that year,
she said, that the DoE’s counterintelligence office was created.

Intelligence and federal law enforcement officials immediately hounded the
newly created office for information vital to carrying out nuclear weapons
spying investigations, according to past and present officials. The
intelligence and law enforcement communities were hindered in their
investigations because they did not have a basic technical understanding of
what to look for in probing nuclear weapons espionage, sources report.

At the insistence of the CIA and the FBI, the DoE’s Office of Intelligence
and National Security prepared an unclassified handbook in 1993 describing
the types and uses of materials and processes involved in manufacturing
nuclear fuels and bombs. One of the agencies that desperately needed it was
the CIA. Its analysts ordered "dozens" of copies, almost depleting the
DoE’s stockpile, according to a source familiar with the episode.

With more revelations regarding Chinese spying activities in the U.S. fully
expected, federal law enforcement and intelligence agencies are bracing for
possible high-level resignations. Calls for ranking officials to step down
will assuredly soon be heard on Capital Hill, where oversight
investigations are expected to turn up evidence to support such calls.

And as the scandal continues to unfold, depending on its severity and
damage to national security, it could become a pivotal presidential
campaign issue.

(SOURCES has broken many elements of the Chinese spying story over the last
six months, to search our archives for previous reporting and purchase
those stories, please go to our search page at the URL below, and enter
China, Chinese, or Chin (search will be case sensitive until our new site
debuts in the next couple of weeks):
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