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From the New York Times, May 15, 1998


Democrat Fund-Raiser Said to Detail China Tie



A Democratic fund-raiser has told Federal investigators he funneled tens of thousands of dollars from a Chinese military officer to the Democrats during President Clinton's 1996 re-election campaign, according to lawyers and officials with knowledge of the Justice Department's campaign finance inquiry.

The fund-raiser, Johnny Chung, told investigators that a large part of the nearly $100,000 he gave to Democratic causes in the summer of 1996--including $80,000 to the Democratic National Committee--came from China's People's Liberation Army through a Chinese lieutenant colonel and aerospace executive whose father was Gen. Liu Huaqing, the officials and lawyers said.

General Liu was then not only China's top military commander but also a member of the leadership of the Communist Party.

Mr. Chung said the aerospace executive, Liu Chao-ying, told him the source of the money. At one fund-raiser to which Mr. Chung gained admission for her, she was photographed with President Clinton.

A special adviser to the White House counsel, Jim Kennedy, said today, `We had no knowledge about the source of Mr. Chung's money or the background of his guest. In hindsight it was clearly not appropriate for Chung to bring her to see the President.'

Mr. Chung's account, coupled with supporting documents like bank records, is the first direct evidence obtained by the Justice Department that elements of the Chinese Government made illegal contributions to the Democratic Party. Under American law, foreign governments are prohibited from contributing to political campaigns.

While the amount described is a tiny part of the $194 million that Democrats raised in 1996, investigators regard the identification of Ms. Liu as a breakthrough in their long search for confirmation of a `China Plan.' The hunt was prompted after American intelligence intercepted telephone conversations suggesting that Beijing considered covertly influencing the American elections.

Senator Fred Thompson, Republican of Tennessee and chairman of the Senate committee investigating campaign finance, sought evidence of the plan, but Mr. Chung's account did not come until the committee issued its report this year. Tonight, the Federal Bureau of Investigation briefed Senate staff members about Mr. Chung's cooperation, according to officials.

Mr. Chung, a Southern California businessman, began cooperating with investigators after he pleaded guilty in March to campaign-related bank and tax fraud. He is the first defendant in the Justice Department inquiry to agree to cooperate.

It is not clear whether other Chinese officials or executives were involved in the purported payments by Ms. Liu, or what her motivation or the Chinese military's might have been. At the time, President Clinton was making it easier for American civilian communication satellites to be launched by Chinese rockets, a key issue for the Chinese army and for Ms.Liu's company, which sells missiles for the military and also has a troubled space subsidiary.

The President's decision was valuable to Ms. Liu because it enabled her company to do more business with American companies, but it has also been sought by American aerospace corporations, including Loral Space and Communications and the Hughes Electronics Corporation, a subsidiary of the General Motors Corporation, seeking to do more business in China. It is not known, however, whether anyone in the Democratic Party or the Clinton Administration had reason to suspect the source of the contributions from Mr. Chung.

A lawyer for Mr. Chung, Brian A. Sun, declined to comment on his client's conversations with investigators, citing his client's sealed plea agreement with the Justice Department. `I'm shocked that sources at the Justice Department would attribute anything like that to my client.'

Mr. Chung has denied being an agent of the Chinese Government. `Nor did Mr. Chung ever try to lobby the American Government on any type of issue involving technology or anything else,' Mr. Sun said.

A National Security Council spokesman, Eric Rubin, said, `It is ludicrous to suggest there was any influence on the determination of U.S. policy on this matter.' He said he did not know whether any executives from Ms. Liu's company expressed an interest in the issue.

Ms. Liu did not return a message left with her office today.

Mr. Chung's revelations have opened an avenue of inquiry leading in a diplomatically sensitive direction: next month, Mr. Clinton goes to Beijing, where he hopes to announce increased space cooperation between China and the United States.

A representative of the Chinese Government denied that Beijing was behind the purported contributions. `China has always abided by the laws and regulations in this country,' said Yu Shu-ning, a press counselor for the Chinese Embassy. `We have nothing to do whatsoever with political contributions in this country.'

Mr. Chung, an American who was born in Taiwan, owned a floundering facsimile company in Torrance, Calif. He became involved with the Democratic Party in early 1995 through Asian-American contacts at the White House and was known for trying to use his connections in Washington with Chinese Government officials and executives.

Despite being labeled a `hustler' by one Presidential aide in 1995, Mr. Chung managed to visit the
White House at least 49 times. He and his company contributed $366,000 to the Democratic National Committee--most of it before he met Ms. Liu. The full amount was later returned after questions were raised about Democratic fund-raising.

A Democratic National Committee spokesman, Richard W. Hess, said, `We did not know and had no way of knowing the source of his funds.'

Mr. Chung met Ms. Liu in June 1996 in Hong Kong. She was not only a lieutenant colonel in the military, but a senior manager and vice president in charge of international trading for China Aerospace International Holdings Ltd., according to the company's 1996 annual report.

The company is the Hong Kong arm of China Aerospace Corporation, a state-owned jewel in China's military industrial complex with interests in satellite technology, missile sales and rocket launches.

Ms. Liu's father, General Liu, was China's senior military officer, and as vice chairman of the powerful Central Military Commission was in charge of China's drive to modernize the People's Liberation Army by selling weapons to other countries and using the hard currency to acquire Western technology. In that role, he oversaw his country's missile deals.

In addition, General Liu was a member of the Standing Committee of the Politburo of the Communist Party, the very top circle of political leadership in China. He retired from his official positions last fall at the time of the Party's 15th Congress.

China Aerospace sells satellites, launches them and owns a large part of a Hong Kong satellite operator, but the financial viability of many of these ventures depends on American satellites. In 1996 President Clinton made it easier for American satellites to be launched by Chinese rockets. The decision was announced in March but due to delays did not take effect until election day.

As Ms. Liu began her relationship with Mr. Chung, her company and father were trying to fix China's troubled rocket program. That spring, China Aerospace had brought in outside experts, including officials from Hughes and Loral to help analyze why a launch the previous February had failed. The Pentagon later concluded that the outside review harmed American national security by advancing China's rocket and missile capabilities. Both companies denied wrongdoing.

In 1991 and 1993 the United States barred all American companies from doing business with two China Aerospace units that had made illegal missile sales to Pakistan. In each instance, Mr. Liu was assistant to the president of the sanctioned company.

Writing about who in China may have benefited from the 1991 missile deal, former Secretary of State James A. Baker 3d, in his memoirs, said, `In all probability, several senior government and party officials or their families stood to gain from the performance of those contracts.'

The missile deals were part of General Liu's strategy of selling Chinese weapons to other countries to raise money to acquire Western technology.

`Liu was a proponent of P.L.A. modernization who was very much interested in obtaining Western technology,' said retired Rear Adm. Eric A. McVadon, the American defense attache in Beijing in the early 1990's. He said Mr. Liu constantly rebuffed American concerns about China's weaponry sales.

Those concerns were front and center in 1996, when General Liu was still in charge of the P.L.A. They included China's sale of missiles to Iran and of nuclear equipment to Pakistan, as well as its own bellicose military maneuvers near Taiwan.

Ms. Liu, Mr. McVadon recalled, was a `gladhander' who `brokered deals.' In 1990 she was granted a visa to visit the United States as a representative of a China Aerospace subsidiary.

At the first meeting between Mr. Chung and Ms. Liu in June 1996, Mr. Chung is said to have told investigators, Ms. Liu told him she was interested in again visiting the United States. Soon learning that Mr. Chung could arrange meetings with the President, she expressed an interest in meeting Mr. Clinton.

Mr. Chung helped Ms. Liu obtain a visa on July 11, 1996, according to a law-enforcement official. Five days later, he wrote the Democratic National Committee that he wanted to bring Ms. Liu and a Chinese medical executive to a July 22 fund-raising dinner to be held at the Brentwood, Calif., home of the financier Eli Broad.

Both of his guests' names were placed on the guest list after Mr. Chung wrote a check for $45,000 to the Democratic National Committee on July 19. A week later, Mr. Chung set up a California corporation for Ms. Liu and himself, records show.

Ms. Liu arrived in Los Angeles on July 21, and the next day Mr. Chung accompanied her to two fund-raising events attended by Mr. Clinton, according to a law-enforcement official. The first was an early evening $1,000-per-plate gala at the Beverly Hilton.

Later that night, Mr. Chung and Ms. Liu attended a $25,000-per-couple dinner at Mr. Broad's home that raised more than $1.5 million for the Democrats. The President was photographed with Ms. Liu, a routine courtesy at such events.

Mr. Sun, Mr. Chung's lawyer, said, `I don't think she was any different from any of his business contacts--they thought Johnny was influential and someone they would like to know as they furthered their business dealings in the United States.'

The previous year, photos from another Chung visit with Mr. Clinton had caused a problem. The President had expressed concerns about some of Mr. Chung's Chinese business clients--unrelated to Ms. Liu--whom the fund-raiser brought to a March 1995 radio address by Mr. Clinton.

Mr. Clinton's director of Oval Office operations, Nancy Hernreich, in testimony taken by Senate investigators, said Mr. Clinton told her later the visit shouldn't have happened. She took that to mean that Mr. Clinton thought Mr. Chung's clients were `inappropriate foreign people.'


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