Tiger Trap: America's Secret Spy War With China (29 page)

Hailin Lin was dubious, since she knew that ATMs only disbursed "a couple of hundred dollars" at a time. Wen did not deny it would be inconvenient. "Yeah ... you have to make several trips to get more money."

In another conversation on July 15, Qu and Hailin Lin discussed falsifying shipping documents. Qu reminded her that as long as the value "doesn't exceed $2,500" there would be no problem. Hailin Lin replied, "Yeah, I have to make up the figure every time."

On August 17, the wiretap picked up the most interesting conversation, between Wen and his wife. Hailin referred to tensions between China and Taiwan, saying that both sides were busy with "military maneuvers."

Wen replied, "China now is desperately purchasing weapons,
developing weapons." He then asked, "How is Qu Jian Guo's business? Well, if the war breaks out, his business will be booming."

From overhearing conversations on Wen's telephone, the FBI learned that Qu and his wife, Wang Ruo Ling, planned to take a trip to four US cities and then visit Wen and his wife in Manitowoc in September. Hailin Lin had made the plane and hotel reservations.

But on September 30, when the couple from Beijing, both Chinese nationals, got off a Greyhound bus in Milwaukee, the FBI arrested them. Other agents arrested Wen and his wife at their home in Manitowoc.
The government simultaneously seized their home and almost $1 million in assets in five different bank accounts.

A criminal complaint charged the four with using their businesses "to illegally transfer sensitive, national-security controlled items to the People's Republic of China ... without obtaining required export licenses." The products, the complaint said, "can be used in a wide variety of military radar and communication applications."

The Manitowoc Company lost no time in washing its hands of its star executive in China. "The charges against the Wens are unrelated to the Manitowoc Company or Mr. Wen's responsibilities as general manager of Manitowoc Hangzhou," Maurice Jones, the senior vice president of the parent firm, announced.

A month later, a federal grand jury handed down an eight-count indictment charging the four with conspiracy to violate the export laws and money laundering. Wen was later charged with making false statements as well.

In May 2005 Qu and his wife pleaded guilty to reduced charges, avoiding potentially long prison terms. Qu pleaded to a single count of conspiring to export restricted electronics without a license. He was sentenced to forty-six months in prison and fined $2,000. Wang, who admitted to a single count of undervaluing a shipment, was sentenced to six months, which she had already served, and a $1,500 fine.

Wen's wife, Lin Hailin, pleaded guilty to conspiracy and money laundering and was sentenced to three and a half years in prison and fined $50,000.
Wen alone decided to stand trial.

The case took an intriguing twist in July when Wen claimed diplomatic immunity
because he had been an official in the Chinese consulate in Los Angeles from 1987 to March 1992, part of the time covered by the conspiracy charges. His attorney filed a motion to dismiss the case on those grounds.

Once the diplomatic immunity gambit was raised, the case became entangled with the State Department. Wen's lawyers got a court order blocking the department from talking to the US Attorney's Office in Milwaukee. When Erica O'Neil, the assistant prosecutor handling the case, tried to find out whether Wen could validly claim diplomatic immunity, the State Department informed the Justice Department that it could not make a decision in the matter without discussing the case with the prosecutors—something it was prohibited from doing by the court order.

The prosecutors solved the problem with a simple stratagem—they obtained a superseding indictment that moved the export violations and other charges to Wen's actions after March 16, 1992, the date he left the consulate. That disposed of any diplomatic immunity issue.

Wen's decision to stand trial was a gamble he lost. The government's evidence was strong. During the trial, FBI agent Ryan Chun read parts of the transcripts of eight telephone calls intercepted by the FISA wiretaps. The prosecution presented extensive documentary evidence of the various dodges Wen and his wife had used to circumvent the law and export regulations. In September, Wen was convicted of violating export controls, money laundering, and making false statements.

On January 18, 2006, Wen stood before Judge William Griesbach in federal court in Green Bay for sentencing. He faced up to twenty-five years in prison. Griesbach was sympathetic, up to a point. He called Wen a "diligent, hardworking person," which he said made the sentencing "difficult."

But the judge rejected Hailin Lin's testimony at the hearing that she often did not tell her husband about the day-to-day operations of Wen Enterprises because he was "very busy" making ice machines in Hangzhou. "I do not find it credible," Griesbach said, "that he didn't know the violations going on."

He then sentenced Wen to five years in prison and fined him $50,000.
ANUBIS
was sent to the minimum-security federal prison camp in Duluth, Minnesota. His lawyers appealed. Chicago attorney James Geis argued Wen's case before the Seventh Circuit Court of Appeals.

When the Foreign Intelligence Surveillance Act was passed in 1978, the special FISA court it established was authorized to approve wiretaps if the government can show probable cause that the target is a foreign power, or an agent of a foreign power, and that "the purpose" is to obtain foreign intelligence. After 9/11, the Patriot Act amended that language to allow surveillance if "the significant purpose" was obtaining foreign intelligence.

Geis argued that under the broader language the government used FISA to conduct a criminal investigation of Wen. The district court, in refusing to throw out the wiretaps, Geis maintained, had disregarded the requirements of the Fourth Amendment.

In December 2006 the Chicago appeals court ruled against Wen, a decision that expanded the government's power to use wiretaps aimed at foreign targets in criminal cases unrelated to espionage. Less than a year later, however, in September 2007, a federal judge in Oregon struck down the expanded provisions of the Patriot Act that Geis had contested.

In the world of spies, nothing is entirely predictable. But in the annals of Chinese counterintelligence cases inside the FBI, the saga of
ANUBIS
is surely one of the strangest. Not every crime is prosecuted or presented to a grand jury. Prosecutors have discretion and great leeway with respect to whom they choose to go after. Wen Ning had been a secret FBI asset for fifteen years, yet that did not prevent the Justice Department from prosecuting him after another arm of the government, the Commerce Department, uncovered his sins. His five-year prison term was not likely to encourage others to risk their lives to become sources for the FBI.

But
ANUBIS
for more than a dozen years had been illegally sending computer circuits to China that could be used in missiles and other weapons systems. And that, in the words of Erica O'Neil, the assistant prosecutor, "will not be tolerated."

One FBI agent remarked, sorrowfully, "We brought him out, got him a job in Wisconsin, and he went sideways up there."

A few months before Wen was arrested, the local newspaper did a friendly feature story on him, as a Manitowoc resident whose unusual job took him to China most of the year. He did not then know that the full weight of the United States government was about to come crashing down on him. But in retrospect, the comment he made as he sat in the living room of his house was prescient.

"Of course, I am Chinese by birth," he said, "but I am not a Chinese citizen any more. I'm afraid sometimes China doesn't recognize me as Chinese and America doesn't recognize me as an American. Just who am I?"

Chapter 18

ENDGAME

T
HEY KNEW IT
would come, and on April 9, 2003, it did.
PARLOR MAID
and J.J. Smith were arrested at their homes by the FBI, taken downtown, and in handcuffs appeared separately in federal court. Both were charged under the espionage statutes.

Gail Smith had to cancel her trip to attend a reunion of the Daffodil Queens in Washington State. She had planned to go with her ninety-three-year-old mother. Her spunky mother insisted on going alone, and did.

US magistrate Victor B. Kenton ordered Katrina Leung held without bail after Rebecca Lonergan, an assistant US attorney, contended she was "a serious flight risk."
PARLOR MAID
sat in the courtroom with her head in her hands.
She was charged with unauthorized copying of national defense information with intent to injure the United States or benefit a foreign nation.

J.J. Smith was charged with "gross negligence in handling documents related to the national defense."
Magistrate Stephen Hillman set bail at $250,000 and ordered J.J. to surrender his passport. He was released that night after pledging his home as bail.

For the first time since the start of his investigation, Les Wiser surfaced publicly. "This is a sad day for the FBI,"
he told reporters. "Mr. Smith was once a special agent sworn to uphold the rule of law and the high ethical standards of the FBI." According to the charges, Wiser added, "he betrayed the trust we all placed in him."

In Washington, Robert Mueller, the FBI director, agreed. The charges that J.J. Smith "caused the loss of classified information, as well as his personal indiscretions with Ms. Leung, are very serious,"
he said.

The lawyers for Leung and J.J., as might be expected, had a rather different view.
PARLOR MAID
had hired Janet Levine, a smart, tough Los Angeles criminal defense lawyer, and her courtly older partner, John D. Vandevelde, to represent her. Levine knew her way around the criminal courts—she had defended drug dealers and other clients accused of fraud, money laundering, and racketeering.

"Katrina Leung is a loyal American citizen,"
the two defense lawyers said in a statement. "For over twenty years she has worked at the direction and behest of the Federal Bureau of Investigation. She repeatedly endangered herself in order to make significant contributions to the security and well-being of the United States and her fellow citizens." When "the full story" became known, they predicted, she would be cleared and "her heroic contributions to this country will be revealed." Understandably, they made no mention of her heroic contributions to the MSS or the $100,000 she received from the Chinese government.

J.J. Smith's attorney, Brian Sun, who later successfully represented Wen Ho Lee in his lawsuit against the government, called his client a "loyal, patriotic, and dedicated former agent."
He did not mention J.J.'s long-term affair with
PARLOR MAID
, but the FBI affidavits detailing their relationship and describing the bureau documents found in her home were released to the press.

The government took no action against Bill Cleveland, but the day after the arrests, Cleveland resigned from his job as chief of counterintelligence at the Lawrence Livermore lab and his office was sealed. While Cleveland "has not been charged with any wrongdoing, due to the seriousness of the situation, a thorough review of his work is now under way,"
Susan Houghton, the lab's spokesperson, announced.

It was a close call for Cleveland. While he had not initially volunteered his affair with
PARLOR MAID
, he later admitted it. He had worked in tandem with Leung, but the FBI had no evidence that she had obtained documents from him, although he had told her about his trip to China, which she then revealed to Mao Guohua, her MSS handler. "He was guilty of poor judgment," one FBI agent said, "but not a crime."

In J.J.'s quiet Westlake Village neighborhood, residents could not believe that he had been arrested. The Smiths were regarded as solid members of the community, fixtures at the annual barbecue block party.

A month later, on May 7, J.J. was indicted on charges of "gross negligence" for allowing classified documents to end up in Leung's hands.
Two counts of the indictment specifically cited the documents revealing a classified location used in the
ROYAL TOURIST
investigation—the Peter Lee case—and the June 12, 1997, electronic communication from the FBI legat in Hong Kong, classified
SECRET
and found in Leung's second-floor bookcase.

The indictment also accused J.J. of defrauding the FBI and United States of his honest services by having "an improper sexual relationship with Katrina Leung" and failing to report to the FBI her "unauthorized contacts with the PRC" and her admission "that she had secretly passed information to the PRC without authorization." In addition, the indictment charged J.J. with four counts of wire fraud for transmitting his periodic evaluation reports on
PARLOR MAID
assuring headquarters she was a "reliable" asset. J.J. was not accused of knowing that Leung was taking the documents from his briefcase or that she was passing information to China. The six-count indictment carried a possible maximum penalty of forty years in prison, although federal sentencing guidelines made a much shorter sentence likely.

The next day it was
PARLOR MAID
's turn. A federal grand jury handed down a five-count indictment,
accusing her of illegally copying classified defense documents with "intent and reason to believe" that the data would be used "to the injury of the United States" and to the advantage of a foreign power. As in the case of Smith, one of the documents cited revealed the classified location used in the
ROYAL TOURIST
investigation, and another was the 1997 report from the Hong Kong legat.

Three more counts charged that Leung had "willfully retained" three documents—the transcripts and summaries of her conversations with Mao, the
ROYAL TOURIST
document, and the 1997 report from Hong Kong. If convicted, she faced a possible maximum sentence of fifty years in prison, but more likely ten to fourteen years.