Chinese army funds linked to '96 campaign Democrats received thousands of dollars, fund-raiser says; Top commander involved; Telephone intercepts lead to concrete proof of foreign connection

THE BALTIMORE SUN

WASHINGTON -- A Democratic fund-raiser has told federal investigators that 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 female aerospace executive whose father was Gen. Liu Huaqing, the officials and lawyers said.

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

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

A special adviser to the White House counsel, Jim Kennedy, said yesterday: "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."

Chung's account, coupled with supporting documents such as 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 U.S. 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 Liu Chao-ying as a breakthrough in their long search for confirmation of a "China Plan." The hunt was prompted by secret telephone intercepts which suggested that Beijing considered covertly influencing the U.S. elections.

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 Liu, or what her motivation or the Chinese military's was.

At the time, Clinton was making it easier for U.S. civilian communication satellites to be launched by Chinese rockets, a key issue for the People's Liberation Army and for Liu's company, which sells missiles for the military and also has a troubled space subsidiary.

The president's decision was valuable to Liu for enabling her company to do more business with U.S. companies, but it had also been sought by U.S. aerospace corporations, including Loral Space and Communications and the Hughes Electronics Corp., a subsidiary of the General Motors Corp., seeking to do more business in China.

It is not known whether anyone in the Democratic Party or the Clinton administration had reason to suspect the source of the contributions from Chung.

A lawyer for Chung, Brian 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," he said.

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," 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 Liu's company expressed an interest in the issue.

Liu did not return a message left with her office in Hong Kong yesterday.

Chung's revelations have opened an avenue of inquiry that leads in a diplomatically sensitive direction: Next month, 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 media counselor for the Chinese Embassy in Washington. "We have nothing to do whatsoever with political contributions in this country."

Chung, a U.S. citizen 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 constantly trying to use his connections in Washington with Chinese government officials and executives.

Despite being labeled a "hustler" by one presidential aide in 1995, 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 Liu. The full amount was later returned after questions were raised about Democratic fund raising.

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

Chung met Liu in June 1996 in Hong Kong. She was a lieutenant colonel in the military and 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 Corp., a state-owned jewel in China's military-industrial complex with interests in satellite technology, missile sales and rocket launches.

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

China Aerospace sells satellites, launches them and owns a large chunk of a Hong Kong satellite operator, but the financial RTC viability of many of these ventures depends on U.S. satellites. In 1996 Clinton made it easier for U.S. satellites to be launched by Chinese rockets. The decision was announced in March but did not take effect until Election Day.

As Liu began her relationship with Chung in 1996, her company and her 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 U.S. national security by advancing China's rocket and missile capabilities. Both companies denied wrongdoing.

In 1991 and 1993 the United States barred U.S. companies from doing business with two China Aerospace units that had made illegal missile sales to Pakistan. In each instance, 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 III, 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 sons and daughters of China's elite -- sometimes referred to as "princelings" -- have developed lucrative businesses based on their family connections.

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

In 1990, Ms. Liu was granted a visa to visit the United States as a representative of a China Aerospace subsidiary.

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

Chung helped 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 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 Chung wrote a check for $45,000 to the Democratic National Committee on July 19.

A week later, Chung set up a California corporation for Liu and himself, records show.

Pub Date: 5/15/98

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