By Producer
NBC News
updated 2/17/2004 1:07:49 PM ET 2004-02-17T18:07:49

Senator John Kerry, D-MA, unwittingly tried to help a Chinese espionage agent and arms dealer in 1996 in return for campaign contributions for his Senate reelection campaign, according to congressional and other documents, interviews, and photographs.

The arms dealer, the daughter of the man who was then the second-highest ranking official in China's military, did not get what she wanted -- a listing for her company on a United States stock exchange -- but Kerry was able to get her a meeting at the Securities and Exchange commission, after a business associate of hers provided him with campaign contributions and the promise of more help.  

The woman, Liu Chao Ying, worked in high ranking positions for two companies responsible for brokering one of the biggest and most controversial arms sales of the 1990's -- a $300-million missile deal with Pakistan.  The two companies were sanctioned by the United States for their deals with Pakistan.

In 1996, Senator John Kerry was locked in a hard-fought and close reelection campaign with Massachusetts Governor William Weld.  Kerry was the policy wonk, noted for his expertise in international crime, arms and drug dealing, and intelligence.

Although America's richest public servant -- married to a woman, Teresa Heinz, then worth an estimated $800-million -- he could not use that wealth in his campaign.

So, he relied on doing what every political candidate does:  seeking big bucks contributions from people with deep pockets.  And, in 1996, few had more money to burn than Johnny Chung, a Taiwanese-American entrepreneur from Artesia, California. 

Chung gave $10,000 to Kerry's campaign -- most of it illegally -- hosted a fund-raising party in Beverly Hills, and threw in an extra $10,000 to honor Kerry at a Democratic Senate Campaign Committee event.  Kerry eventually returned all the Chung money.

In return, Kerry opened a door for a friend of Chung: Liu Chaoying.

"Who is Colonel Liu?" asked William Triplett, a former Senate Foreign Relations Committee staffer and author of two books on Chinese influence in US politics.  "She began her military intelligence career with Chinese Navy intelligence.  She has been, in succession, assistant to the President of the China National Precision Machinery Import-Export Corporation and the China Great Wall Industries Corporation, both of whom have been sanctioned twice -- in 1991 and 1993 -- by the United States for ballistic missiles sales to Pakistan.  She later became president of China Aerospace Industrial Holdings Ltd. and she made illegal campaign contributions to the Clinton Gore ticket and John Kerry in 1996.

"She is a communist,” says Triplett; she is a high-tech spy; she is an arms broker and she met Bill Clinton at a fund raiser and John Kerry in his Senate office."

More than anything else, the saga of John Kerry, Johnny Chung and Liu Chao Ying, as laid out in a series of interviews, court records, campaign finance disclosure forms and bank documents obtained by NBC News, is a story of what can happen when the pursuit of campaign cash gets out of hand. 

Sightseeing tour
The story begins with a sightseeing tour.  Chung took Liu Chao Ying, then vice president of China Aerospace International Holdings (CASIL), and three other Chinese business people to Washington in late July, 1996 for a general tour of nations capital.  Chung had helped Ms. Liu get a United States visa on July 16 and on July 22 -- the day after she arrived in California from Hong Kong -- an introduction and a picture with President Bill Clinton at a Democratic National Committee fundraiser.  Chung had paid $40,000 to bring her and others to two events that night, just as he had in the past with other Chinese officials.

Chung was paying Ms. Liu's way in hopes that they could do business.  "It was upfront money for him", said a source close to Chung. "It was always his M.O.."

Chung had been introduced to Liu by someone who knew of Chung's connections with the Clinton White House.   And Chung did indeed have connections, visiting the executive mansion on 52 occasions from 1994 to 1996.

The trip to Washington, following the introduction to Clinton in Los Angeles and a sightseeing tour of New York, was one way for Chung to show those connections and his high style.  Chung was showing off, matching his "guanxi" – the Chinese concept of business relationships -- with one of China's "princelings" -- the sons and daughters of the Peoples' Republic.

Ms. Liu was part old China, part new.  A lieutenant-colonel in the Chinese Peoples' Liberation Army, she was the daughter of China's most powerful soldier, who also sat on the Central Committee of the Chinese Communist Party.  But  she is also U.S. educated, an English speaker with a fancy for Chanel suits bought on Rodeo Drive, and an inveterate gambler who could be found in Macau's better casinos.

To U.S. intelligence, she is also "player" in the arms trade -- and not small arms, but nuclear-capable missiles.   Senior U.S. intelligence officials note that she helped put together the 1991 sale of Chinese M-11 missiles to Pakistan – a $300-million deal that led to United States sanctions against both her Chinese company and Pakistani companies.

"She has been around for a long time... one of the cadre's kids," said one US intelligence official.  "She hasn't been selling sewing machines."

Chung has told investigators, while he knew her money came from the China’s Peoples Liberation Army’s intelligence arm, he was unaware of her arms dealings, thinking instead she was interested in consumer goods, like auto parts.  But he did know she was a serious businesswoman… and the daughter of a powerful Chinese general who was so powerful, the Defense Intelligence Agency described him the year before as “vice chairman of the Communist Party”…“the senior most Peoples Liberation Army officer on the party’s powerful Military Commission”… “The PLA’s preeminent expert on military research and development, technology acquisition and equipment modernization” and “the primary spokesman for military modernization with the PLA.”  In short, General Liu was one of a handful of people who ran China.

Whatever Chung knew, Ms. Liu knew what she was interested in…getting a foothold in the United States.  Another of Chung’s guests, a "Mr. Yao", asked Chung to help him get "general information" on how to bring Chinese companies to the New York Stock Exchange.

Chung realized he needed to request a meeting with the Securities and Exchange Commission, but didn't know how.  So he called a Kerry aide who had been "hitting him up for campaign cash," as one of Chung's friends recalled.  Kerry's people had learned of Chung's largesse from DNC's Richard Sullivan.  Sullivan had been the party's point man in dealing with Chung, who by that point had delivered $351,000 to the DNC and Democratic candidates.

The Kerry campaign aide was only too happy to answer Chung's question, "Who would we call?"  Luckily, Kerry was on the Senate Banking Committee, which has jurisdiction over the SEC.  

So Chung arranged for a meeting in Kerry's office on Capitol Hill for his guests, including Ms. Liu, sometime in the last week of July -- he doesn’t have the date.   It was a 10-minute meeting.   Kerry agreed to fax a request to SEC asking that they meet with the group.   Chung watched as Kerry's office faxed the letter.  It worked.

Mr. Yao and Ms. Liu got their meeting at the SEC, who had two of its international finance officials meet with them and Chung promised to help Kerry in an unspecified way.

In a handwritten note written the next week, Kerry thanked Chung for being willing "to help with my campaign" and added, “it means a lot to have someone like you on my team”.     

Kerry initially denied he'd met Chung before the fundraiser, then called the timing of the SEC meeting and the fundraiser "totally coincidental."

As time passes
Within weeks, things began to happen.  Chung and Liu agreed to do business together, setting up a company called Marswell Investments.  On August 9, Chung and Liu filed incorporation papers in California, listing Liu as president and Chung as registered agent.  In the first week of August, Ms. Liu wired $300,000 to Chung's Hong Kong bank account.  On August 15, Chung has told investigators he moved $80,000 from Hong Kong to his California Federal account in Los Angeles, transactions that show up on Chung bank records obtained by NBC News.

Chung, who was always a soft touch for the Democrats, quickly put Ms. Liu's money to work.   Did Chung know at the time that the money he was giving to the Democrats came from the People's Liberation Army... as he later told investigators?

Three days later, after the money arrived at Cal Fed, Chung gave $20,000 to the DNC to buy tickets to Clinton's 50th birthday party at Radio City Music Hall in New York.  Then, the next week, on August 28 and 29, Chung was in Chicago at McCormick Place for the Democratic National Convention, giving two more checks totaling $15,000.  On the 29th, he gave $1,000 to the Loretta Sanchez congressional campaign.  Also at the convention, Kerry asked Chung to host a fund-raiser in California, following up on the commitment Chung had made during the meeting in Kerry's office a month before.

On September 9, Chung hosted a Beverly Hills party for Kerry.  The price of admission: $2,000 a person -- the maximum anyone can give to an individual Senate candidate.   But Chung wanted to give more.  So, as he admitted in his guilty plea earlier this year, Chung had four of his employees give $2,000 each and then reimbursed them -- illegal under the campaign finance laws.  He later pled guilty to the illegal bundling.  [There is no evidence Kerry knew of the illegality.]

On September 28, Chung gave another $10,000 to the Democratic Senate Campaign Committee at a Boston dinner honoring Kerry and President Clinton.  The entertainment that night: Whoopi Goldberg, Don Henley, Carly Simon, Crosby Stills Nash & Young and Peter Paul & Mary.  It was Kerry's campaign fund that solicited Chung's help, faxing him an invitation two weeks earlier.

Were these contributions part of the $300,000 Ms. Liu gave Chung the first week of August?  It would appear to be, but there is no clear answer.  Chung has told investigators that the total drawn from Ms. Liu's deposits came to only $35,000, but admits there is no way to tell, since all of Chung's money by that point was commingled with that of his new partner, Ms. Liu.  There was money coming in from a variety of sources.

And what was the ultimate source of the money?  Chung later told investigators and an open Congressional hearing that General Ji Shengde, the number two in Chinese military intelligence might have been the ultimate source, describing a meeting in the basement of a Hong Kong restaurant where Ji told him of a plan to funnel $300,000 to the Clinton campaign, explaining “we like your president”.  

Kerry could not have known, until Chung pleaded guilty and began talking to investigators in March, 1998, that the money he needed so desperately back then was tainted -- perhaps even the product of arms-dealing.  Now, however, he may be asked new questions as he runs for President. 

Robert Windrem is an investigative producer for NBC News, based in New York.

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