Tiger Trap: America's Secret Spy War With China (26 page)

Shapiro also testified that he had wanted to arrest Lee when he confessed, but that the Justice Department vetoed him, saying it wanted more time to study the evidence. Shapiro said he wanted "to put the cuffs on him and let him taste incarceration.... My frustrations in this case began when I wasn't allowed to hook Mr. Lee up."

But the biggest blow to the prosecution came from an unexpected quarter—the United States Navy. John G. Schuster, head of the Navy's submarine security branch, wrote a memo evaluating the damage caused by Lee's disclosures to the Chinese. Although the memo purported to give "classification guidance," it was all over the lot. The memo said the radar techniques were unclassified unless applied to "submarine wake signatures," in which case they were
SECRET
. But it also said that, on the other hand, Lee's discussion was taken from a document marked
CONFIDENTIAL.
And since the subject had been discussed in unclassified briefings and publications, "it is difficult to make a case that significant damage has occurred."

Then came the kicker: "Further, bringing attention to our sensitivity concerning this subject in a public forum could cause more damage to national security than the original disclosure." For that reason, Schuster urged that Lee not be prosecuted for talking about radar to track subs. Or, as Schuster testified, he opposed "a prosecution that might risk exposure of other non-acoustic ASW [antisubmarine warfare] information."

If Shapiro thought that Twogood was a problem, the Schuster memorandum was an exponentially bigger obstacle. The Navy was saying, in effect, yes,
ROYAL TOURIST
disclosed
SECRET
information, but we don't want any court trial that advertises how to track subs.

In an interview, Shapiro confirmed that "the Navy's reluctance was a problem."
It was, in fact, a huge obstacle, although only one among the many he faced.

The two principal espionage statutes are contained in Title 18 of the US Code. The penalties for each are very different.

Section 793, "Gathering, transmitting or losing defense information," is aimed at anyone who obtains defense information with the intent or reason to believe that it is to be used to injure the United States or help a foreign nation. It applies as well to anyone who has either lawful or unauthorized possession of such information and passes it to someone not entitled to receive it, or through "gross negligence" allows the data to be removed or lost. For violators, it provides fines or a ten-year prison sentence, or both.

Section 794, "Gathering or delivering defense information to aid foreign government," is much more draconian. It is aimed at anyone who, with intent or reason to believe that it is to be used to injure the United States or help a foreign nation, transmits to a foreign government information "relating to the national defense." Depending on the type of information passed, the penalty is either death or imprisonment up to and including life.

Shapiro believed he could convict Lee under 794. He reasoned that even though the secrets revealed in China by Lee were later declassified, he had broken the espionage law at the time he lectured to the Chinese scientists both in 1985 and 1997. But Shapiro's superiors at the Justice Department did not authorize him to move under that law. He was allowed only to threaten to use 794 for leverage in obtaining a plea bargain. If he failed to obtain a guilty plea, he was told he could come back to the department and the matter would be reconsidered.

On top of that, the FBI made it clear to the prosecutor that the bureau was more concerned with its counterintelligence mission than in convicting Peter Lee. Michael P. Dorris, a senior FBI official, said exactly that in a memo he wrote on November 25, 1997.

The memo emphasized that "the FBI is much more interested in the intel yet to be garnered than in punishing felons.
Therefore, any plea agreement must contain language permitting a thorough consensual search and complete cooperation by RT [
ROYAL TOURIST
]. He must also agree to tell all. Maybe even submit to a polygraph, who knows. Anyway, I think you get the idea."

In his testimony to the judiciary subcommittee, Shapiro made no secret of his frustration in trying to move the case forward. Part of the problem, he said, was that "there were individuals who weren't interested in prosecuting Peter Lee so much as they were interested in garnering intel, getting intelligence. I'm a one-trick pony.
I do one thing. I prosecute cases. They bring them to me. I prosecute them, I investigate them. I'm not an intelligence-gatherer."

Although in 1997 the ten-year statute of limitations on Section 793 had run out on his disclosures in 1985 Lee, perhaps to avoid a more drastic espionage charge, agreed to plead guilty to violating the lesser statute by having "willfully communicated" to China "information relating to the national defense" and having done so "with reason to believe that the information could be used to the advantage of the People's Republic of China." He also pleaded guilty to making a false statement on his travel form about his contacts with foreign officials during his 1997 trip. On the two charges combined, which the government recommended run concurrently, Lee faced ten years in prison and a fine of $250,000.

Lee thus was pleading guilty to revealing information in 1985 about his work with lasers on inertial confinement fusion. There was no mention in the plea bargain of the data he had revealed in 1997 about detecting submarines by radar.
The Navy had prevailed; there would be no trial and courtroom discussion about tracking subs.

The Navy, however, wanted to have it both ways. Two years later, as the draft of the Cox Report on Chinese espionage was circulating behind the scenes to government agencies, senior Navy officials became alarmed at what they had wrought. The Cox draft, as well as the published version, said that the information Lee disclosed on detecting subs underwater could enable China's military "to threaten previously invulnerable U.S. nuclear submarines."

It seemed a reasonable conclusion; if radar could be used to peer beneath the ocean waves to find subs, they would no longer be invulnerable. From the Navy's viewpoint, however, it would not do at all if the public thought that nuclear-armed submarines, one leg of the triad of America's nuclear deterrent, were no longer safe.

Stephen W. Preston, the Navy's general counsel, wrote to Cox and Norm Dicks, the ranking Democrat on the committee, objecting to the language of the report. As Preston put it to the judiciary subcommittee, the Cox Report "had the potential of creating a widespread misperception
that by virtue of Lee's disclosures the submarine force had been rendered vulnerable to adversaries."

As part of Lee's plea bargain, he had to agree to be debriefed by the FBI and answer all questions. In turn, the government said it would "recommend a short period of incarceration."

The deal was wrapped up by James D. Henderson, Lee's attorney, a former federal prosecutor in Los Angeles, and Shapiro. On the morning of March 26, 1998, Lee, Shapiro, and Henderson appeared before Judge Terry J. Hatter, in the federal district court in Los Angeles.

Henderson was at bat first. He did his best to try to persuade the judge not to send Lee to prison. "Not everybody needs to go to jail," he said. Lee, he argued, was "not the kind of person that belongs in a jail cell."

When Lee disclosed information in China, Henderson argued, he was in a teaching mode, just trying to aid other scientists and "was overcome by his desire to help them." It was just "a scientific thing."
Lee's "ego got the best of him."

Shapiro wasn't buying it. "He lied," he said. "He compromised the security of projects he worked on.... Rather than serving the United States as he swore he would, he tried to help China." Shapiro said Lee had engaged in "a pattern of deception." In a dramatic flourish, the prosecutor displayed a hohlraum in court,
linking it to "the design of nuclear weapons."

Finally it was Peter Lee's moment to speak. He admitted to an "egregious mistake" and added, "I got carried away with professional camaraderie.... I admit I violated a sacred oath not to discuss secrets. I am deeply sorry and regretful for my actions ... and I would like to beg for leniency. Please, your honor, don't put me in jail."

Hatter was skeptical of Lee's explanation
that he got "carried away" in speaking to the Chinese scientists. "Well, let me stop you for a moment," the judge said. "It isn't just an activity of thirteen years ago, but there is the other count, the false statement much more recently."

But Hatter, much to the open disappointment of Shapiro and the FBI agents in the courtroom, did not send Lee to prison. He sentenced Lee, instead, to one year in a halfway house, three thousand hours of community service, and a $20,000 fine. As a convicted felon, however, and without a security clearance, Lee's career as a scientist working for the nuclear weapons labs or defense contractors was effectively over.

Six months after Lee was sentenced, there was an odd postscript in the case. The Pentagon asked the Naval Criminal Investigative Service to conduct a "Project Slammer" interview with Lee.
The little-known project, run by the government's intelligence agencies, conducts interviews of convicted spies to find out what makes them tick. The FBI, possibly not looking kindly on the Navy's interference in the Lee case, told NCIS to go away. There was no Project Slammer interview of Peter Lee.

Looking back on the case, James Henderson, Lee's attorney, said that his client was convicted for disclosing information that "should never have been classified." According to Henderson, "the director of one of the programs Lee worked on said to me the only reason it was classified was to get funding from Congress."

The defense attorney had his own view of
ROYAL TOURIST
. "He was no real spy," Henderson insisted, "just a guy who did something stupid because he wanted to be a big shot."

Chapter 16

RICHARD NIXON AND THE HONG KONG HOSTESS

I
N
1967
DAN GROVE
was the FBI's man in Hong Kong, a key listening post for intelligence on China and Southeast Asia. Somewhat like Vienna after World War II, Hong Kong was a magnet for spies and intrigue.

Grove, like all FBI agents stationed overseas, had the title of legal attaché, or legat. He was later to play an important role in the
TIGER TRAP
case when the student he recruited was entrusted with the letter from Hanson Huang to Gwo-bao Min, the Livermore scientist.

In October 1967 Richard Nixon was in Hong Kong, a city he visited often as the senior partner in the New York law firm of Nixon, Mudge, Rose, Guthrie, Alexander & Mitchell, where he worked during the 1960s and plotted his way back to power. When Nixon traveled abroad, as a former vice president he could, if he wished, receive political and military briefings at US embassies in the countries he visited. He was briefed on China by officials at the US consulate when he traveled to Hong Kong in 1967.

As the FBI legat in the British colony, Grove sometimes worked with Pericles "Perry" Spanos, the senior Treasury special agent in Hong Kong. Spanos was primarily concerned with smuggling, counterfeiting, and narcotics. One of the watering holes he kept a close eye on was the Den, the bar in the old Hilton hotel.

The US consulate in Hong Kong is on Garden Road. The Hilton, a landmark until it was demolished in 1995, was four blocks down the hill, below the consulate, at the corner of Queens Central Road. There were two bars in the Hilton: the Dragon Boat, shaped like a boat, was the regular bar; the Den, in the basement, was the cocktail lounge. Marianna Liu, a beautiful young Chinese woman, was the head hostess at the Den.

The Den was a place where patrons could enjoy a Filipino band, dancing, and drinks. "When the fleet was in," said one American diplomat, "US officers and aviators would book suites at the Hilton and there would be a lot of partying at the Dragon Bar and the Den."

Chinese intelligence did not overlook the fleet's fondness for the Hilton, according to Milton Bearden, who spent five years in Hong Kong during two tours for the CIA. "Hong Kong, the Hilton, the Dragon Bar, and the Den were hugely rich targets for the PRC. Intelligence was a cottage industry in Hong Kong.
Everybody was involved. The Brits, the Americans, the Chinese, the fat cats. Everybody."

That included the FBI. "One day," Grove recalled, "Spanos comes across the hall to me about Liu. He says she's a source of mine on smuggling jewelry and different things out of China. He said there's all kinds of reports about her working for the other side.
He said you got to look at this."

Nixon was in town, and Spanos told Grove that Liu had visited the former vice president in his suite at the Mandarin Hotel. "Spanos said she spent last night with Nixon.
He said, 'I'm really concerned about this situation. Nixon spent the night with her at the Mandarin Hotel.' He said, 'He's shacking up with this girl and I know he got a security briefing.' That's what had Perry so distressed."

Grove resisted. "I said it's overseas, it's agency [CIA] jurisdiction. He said, 'Yeah, but Nixon is a US politician and just had a
TOP SECRET
briefing here.'"
Grove finally agreed to accompany Spanos to the Den.

"I'll never forget," Grove said. "It was a very hot day—you could fry an egg on the sidewalk—we walked down to the Den." They were greeted by Marianna Liu. "She gives us a nice seat and Spanos says, 'I understand you spent the night with the big man last night.' She giggles.
She laughed and giggled and said yes and pointed to the other girl and said she and the other hostess, Teresa, were with him and his friend. And the friend I found out was Bebe Rebozo."

Rebozo, a millionaire real estate developer who owned a bank on Key Biscayne, Florida, was Nixon's closest friend, his golfing, boating, and drinking partner, as well as his frequent travel companion. They both liked charcoal-broiled steaks and watching movies, which Rebozo would select.

Perry Spanos independently recalled the conversation about Nixon in the Den much as Grove had. "The main hostess was Marianna, a beautiful Chinese lady in her early thirties," Spanos said. "She was very coy, and said she and her friend Teresa met him, and she implied it was more than just a casual meeting. Teresa was nearby, Marianna pointed to her. She said, 'Myself and Teresa entertained Nixon.'
I don't think Nixon was a ladies' man. So it surprised me."