The Parlour Maid and her lovers leave the FBI with a Chinese puzzle

Agency's prize asset faces spying charges after 'secret' trips

Her code name was Parlour Maid and since the 80s she had been regarded as one of the most valuable assets in the FBI's Chinese espionage network.

Her life in Los Angeles seemed like the epitome of the American dream: she raised funds for the Republican party, worked as a venture capitalist and lived with her family in a handsome $2m home in a comfortable LA suburb.

But now, in a scenario that seems like a movie plot line, the FBI believes that Katrina Leung was not only the lover of her FBI handlers but a double agent working for the Chinese. Her arrest and the relationships she is said to have had with FBI agents have caused a major scandal within the bureau and are likely to lead to widespread changes in the handling of their thousands of informants.

As far as neighbours and friends were concerned, Ms Leung, 49, was a prominent financial adviser who worked from the San Marino home where she lived with her husband and son.

Born in China but an American citizen, she had helped the former LA mayor, Richard Riordan, in his unsuccessful attempt to win the Republican party's nomination for last year's California gubernatorial race.

A photo of her at a fund-raiser shows her standing at a podium decorated with the American flag. When Chinese dignitaries came to town, she would organise lavish receptions for them.

Since the 80s, however, Ms Leung had had another source of income. She had received around $1.8m (£1.2m) by working undercover as an FBI "asset". Travelling between LA and China, she had been in regular contact with Chinese officials and had been feeding back information to her two FBI handlers, James J Smith and William Cleveland.

What the FBI hierarchy was unaware of, however, was that she and Mr Smith had become lovers shortly after she started working and that their affair had continued beyond the latter's retirement in 2000. According to the FBI, she would take documents from Mr Smith's briefcase, photocopy what she wanted and pass the information to the Chinese.

Ms Leung had also reportedly become the lover of her other handler, Mr Cleveland, who was based in San Francisco, and their relationship was to lead to her slow but eventual downfall.

Listening in to some intercepts in the early 90s, Mr Cleveland recognised her voice and alerted her chief handler, Mr Smith, who promised to investigate. But it was not until after Mr Smith had retired that other agents started to investigate her and traced back the warning signs. She and Mr Smith were taped having sex in a hotel and the pair of them were confronted by the FBI.

Her home was raided and the FBI claims to have found documents which include the names of Chinese informants and FBI agents. In her safe were also found papers relating to the case of Peter Lee, a former defence worker who pleaded guilty in 1997 to passing secret information to China.

It transpired that Ms Leung had up to 16 foreign bank accounts in Hong Kong and China and that she had received $100,000 from the Chinese, because, according to court papers, she explained that President Yang Shangkun "liked her". She and Mr Smith were arrested last week. he was charged with gross negligence, which he denied, and was released on $250,000 bail.

To support their argument that Ms Le ung should not be granted bail, the FBI revealed a recent recorded phone conversation in which she tells an agent: "I think the perfect way to end all this ... if I just disappear, not disappear, oh, well, wouldn't that be nice? ... If I don't exist any more, would it help?"

The FBI claims that, although they were aware of many of her trips to China, she had not told them of at least 15 foreign journeys during the time she was working as an informant.

Her family claim she is being framed. "When Katrina can present the full story, you will know she has been abused and smeared by the FBI. She is a loyal and patriotic American and she is innocent of any crimes against America," they said in a statement.

The family added that she had put herself in great danger for the FBI, had done only what it told her to do, and was now being targeted because she was a Chinese-American woman.

Yesterday her attorney, Janet Levine, said a key question was why the FBI continued to provide her client with information for 12 years if it had genuinely had suspicions about her. She said a fresh request for bail would be made shortly. "The government are saying that a lot of the information is secret or top secret which makes it very difficult for us to review."

For the FBI, the case represents an enormous embarrassment, partly obscured by national attention on the war in Iraq.

The scandal will have ramifications far beyond the court case scheduled for later this year. FBI counter-intelligence agent Randall Thomas said in court papers: "The FBI must now reassess all of its actions and intelligence analyses based on her reporting."


Duncan Campbell in Los Angeles

The GuardianTramp

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