Ms. Leung was for years one of the most valued assets the U.S. had. She started off as the manager of an import-export company that was facilitating illicit technology transfers to the PRC in Los Angeles. She left this job just as the FBI was closing in on the company to shut it down.
FBI Special Agent James Smith opened an investigation into her, found that she was vulnerable, and eventually turned her as an asset for the FBI.
Katrina’s information proved to be invaluable. She was codenamed “Parlor Maid” and provided information on the PRC for 20 years. Much of her information was corroborated by multiple sources. She became one of the best sources on the PRC and traveled to and from China often, always coming back with good intel. Smith’s career was set, he had a high-performing asset, and was on-track for promotions and accolades for his work.
Special Agent Smith just happened to also be carrying on a 20-year extramarital affair with Katrina as well.
To add to his issues, Special Agent Smith also had a habit of talking about things that he shouldn’t have in front of Katrina. Smith would discuss ongoing operations she had no business knowing about, share files with her, and generally break every rule on handling assets.
Things started to go downhill in the early 90s. Katrina was noted on a recording talking to a known MSS operative regarding the FBI’s counterintelligence program. Telling Smith that the MSS had found out about her activities and she was giving them information to save herself.
The only problem was that this was a lie. Katrina had always been a double-agent, just for the Chinese, not the U.S.!
Somehow, miraculously, she remained an asset for 10 more years!
It all started to topple in 2001 when the FBI got warrants to look into her. They found an FBI telephone directory, information on an ongoing FBI counterintelligence operation at Lawrence Livermore Labs (Royal Tourist), and other classified materials in her home.
In 2002, they found that she had likely transmitted photos of FBI agents to Chinese intelligence, and copied a Top Secret document Smith had checked out overnight.
When Leung was arrested in 2003, she was already deemed one of the most damaging spies in FBI history. Some compared her to Hanssen (many consider him worse than Aldrich Ames).
The biggest fail?
Leung walked away free on espionage charges due to prosecutorial misconduct. She was eventually convicted on, of all things, tax evasion. She received a slap on the wrist.
The magnitude of all of these fails was impressive in scope.[1]
Leung’s disclosures to MSS should have disqualified her immediately. Instead, she stayed on board for 10 more years.
SA Smith was never questioned about his handling of Leung. He was seen as “above reproach.” He routinely deflected and ignored threats to Leung.
Derogatory reporting on Leung was never followed up. Multiple times.
SA Smith knew about her disclosures and hid them because he was afraid of his relationship with her being exposed.
In 1992, the FBI had information on a PRC double agent named Katrina that was working with an FBI agent. An inexperienced analyst left out the identifying information. Smith sat in on the debrief of this source and deflected the informer as a misogynist and liar.
FBI managers were reluctant to confront Smith. Leading to the tail wagging the dog, as Smith insisted that Leung was the FBI’s best PRC asset.
FBI Management repeatedly toned-down language regarding Leung, and refused to compel her to take a polygraph or be subject to more rigorous vetting.
SA Smith treated Leung like a member of his squad, often providing her information she had no business knowing.
There’s more, but that gives you an idea of the cluster that this was.
The effects of this case are still echoing through the FBI today. What started off as a classic counterintelligence operation, with excellent results, turned into one of the biggest counterintelligence failures in U.S. history. SOURCE
