The China Card: Evidence of Beijing’s Involvement in Democratic Fund-raising Raises Anew Security Concerns

(Washington, D.C.): For some time, the
Center for Security Policy has been
concerned that the activities of John
Huang — the Chinese-born former
Taiwanese fighter pilot, Indonesian
businessman and Democratic fundraiser who
served as a Principal Deputy Assistant
Secretary for International Economic
Policy in the Bill Clinton/Ron Brown
Commerce Department — might entail much
more than breaches of campaign finance
law. In fact, as the Center noted on 1
November 1996,⁽¹⁾
Huang’s actions may have
constituted a serious breach of “the
most fundamental measures for protecting
sensitive information bearing on the
national security” that could
“translate into vulnerabilities that
would be exploited by America’s enemies
and/or its commercial competitors.”

Do All Roads Lead to
Beijing?

A front page story in today’s Washington
Post provides fresh and
disturbing evidence that such
concerns may justified. According to the
article, written by Bob Woodward and
Brian Duffy:

“A Justice Department
investigation into improper
political fund-raising activities
has uncovered evidence that representatives
of the People’s Republic of China
sought to direct contributions
from foreign sources to the
Democratic National Committee
before the 1996 presidential
campaign, officials
familiar with the inquiry
said….The information
gives the Justice Department
inquiry what is known as a foreign
counterintelligence component,
elevating the seriousness of the
fund-raising controversy…”
(Emphasis added.)

In light of this information, it is worth
revisiting observations made by the
Center in its 1 November Decision
Brief. These include the
following points concerning John Huang’s
access to classified information and his
suspicious connections, including those
derived from his pre-Commerce employment
with the Indonesia-based Lippo Group and
several of its subsidiary companies and
banks. One of Lippo’s enterprises is the Hong
Kong Chinese Bank, Ltd. Mr.
Huang’s biography indicates that he was
the bank’s Vice President for
International Banking between March 1985
and September 1986.

The
China Connection?

• On 7 November 1992, four days
  after Bill Clinton’s election in
  1992, the Lippo Group sold 15% of
  its interest in the Hong Kong
  Chinese Bank to China
  Resources (Holdings) Company Ltd.
  — the commercial arm of
  Communist China’s Ministry of
  Foreign Trade and Economic
  Cooperation. China Resources is
  used by Beijing to control its
  investments and trade abroad. It
  has been called one of the PRC’s
  largest and most influential
  enterprises in Hong Kong.
• The Hong Kong Chinese Bank
  transaction was reportedly
  structured in such a way as to
  avoid the requirement to obtain
  approval from the Hong Kong Stock
  Exchange. On 17 July 1993, China
  Resources increased its holdings
  from 15% to 50% —
  paying a 50% premium over the net
  asset value and realizing a cool
  $164.8 million profit for Mr.
  Huang’s employer at the time,
  Mochtar Riady, chairman of Lippo
  Group.

A Connection to Chinese
Intelligence?

• As noted by William Safire in his
  28 October 1996 column in the New
  York Times, China
  Resources also has another
  important function: providing a
  cover for Chinese espionage.
  In 1994, Nicholas Eftimiades, a
  former naval and State Department
  intelligence officer now employed
  as a Defense Intelligence Agency
  analyst, authored a book entitled
  Chinese Intelligence
  Operations. In it, Mr.
  Eftimiades wrote:

“[Chinese
intelligence] case
officers make extensive
use of commercial covers.
For example, a
vice president of the
China Resources
(Holdings) Company Hua
Ren Jituan in Hong
Kong is traditionally a
military case officer
from Guangzhou.
This officer coordinates
the collection activities
of other intelligence
personnel operating under
Hua Ren
cover.”

• Mr. Safire called attention to an
  alarming op.ed. article that
  appeared in the Toronto Globe
  and Mail on 5 September
  1995. Entitled “Beware the
  Threat of Chinese Spy Games”
  and authored by David
  Harris, a former chief
  of strategic planning with the
  Canadian Security Intelligence
  Service, this article describes
  the multifaceted effort being
  made by Chinese agents to: divert
  Western high technology, acquire
  other militarily relevant and
  commercial secrets, cultivate
  agents of influence and coerce
  overseas Chinese students to
  serve as “sleeper
  agents.”
• While aimed at a Canadian
  audience, the following excerpt
  from the Harris op.ed. just
  as easily applies to the United
  States — and is of
  particular interest in the
  present context:

“In dealings with
Chinese officials,
Canadians should
understand that PRC
diplomatic, cultural and
intelligence activity is
a seamless
web….Canadians of
Chinese ancestry must be
warned of the
PRC’s strong preference
for recruiting ethnic
Chinese using leverage
and ‘help China’ appeals.
China’s use of guanxi
networks — social
relationships built on
favors — is the bedrock
of Chinese intelligence
collection. The approach
reflects [Beijing’s]
tendency to rely on a
great many sources, each
collecting small — and
not very incriminating —
amounts of
information.”

• Mr. Harris also made a point of
  spotlighting China Resources
  (Holdings) Company as a front for
  Chinese intelligence. “U.S.
  intelligence even says Hong
  Kong’s China Resources Holding
  Company traditionally reserves
  one vice-presidential position
  for a Military Intelligence
  Department (MID) intelligence
  officer.” Mr. Harris
  has described the China Resources
  involvement with the Hong Kong
  Chinese Bank as a “textbook
  Communist Chinese influence
  operation.”

What Background Check?

• Given U.S. intelligence’s
  knowledge of the nature and
  activities of China Resources,
  one would have thought that a
  Commerce Department request to
  grant a Top Secret security
  clearance to an ethnic Chinese
  who, although a naturalized
  American citizen, was formerly
  employed by organization in
  partnership with China Resources
  (Holdings) Company would have
  triggered red flags. In fact, it
  appears that no foreign
  background check was conducted on
  Mr. Huang at all before he was
  issued an “interim Top
  Secret clearance.
• Instead, on 31 January
  1994, Mr. Huang received a
  “waiver of background
  investigation prior to
  appointment” from
  the Commerce Department’s
  security office. This was done on
  the grounds that “there
  was a critical need for his
  expertise in the new [sic]
  Administration for Secretary
  Brown.“
• Although “final
  clearance” was “held in
  abeyance pending the results of
  Huang’s background
  investigation,” according to
  congressional experts, it appears
  that no overseas checks
  were ever conducted of
  Mr. Huang’s extensive
  international travel, his
  extended stays abroad, his family
  overseas or his foreign employers
  either during the five-months
  between his waiver and his first
  day on the job (18 July 1994) or
  in the subsequent three months
  until his final clearance was
  adjudicated (18 October 1994).

Business As Usual in the
Clinton Administration?

• The Washington Times on
  31 October 1996 quoted Commerce
  spokeswoman Anne Luzzatto as
  saying that a “foreign
  background check was not required
  under security rules because Mr.
  Huang did not reside abroad in
  the previous five years before he
  took the Commerce Department
  position.” This appears to
  be inconsistent with a 1991
  directive signed by
  then-President George Bush
  requiring foreign background
  checks on anyone who has lived
  overseas within the previous ten
  years — which Mr. Huang
  certainly did. After the Huang
  Affair burst into public view,
  then-House Intelligence Committee
  Chairman Larry Combest (R-TX),
  wrote Secretary Brown’s
  successor, Mickey Kantor, saying
  “[The approach taken to
  streamline Mr. Huang’s clearance]
  was contrary to standard
  procedures.” (Emphasis
  added.)
• Commerce and Office of Personnel
  Management representatives
  nonetheless told the Baltimore
  Sun on 30 October 1996 that
  Mr. Huang’s “background
  investigation was as thorough as
  it was required to be.” The Sun
  said Ms. Luzzatto claimed
  “investigators were able to
  gain the needed information
  without interviews
  overseas.”
• David Harris, however,
  has described the placement of a
  person with Mr. Huang’s
  background in a position of
  Deputy Assistant Secretary of
  Commerce without an FBI security
  clearance as
  “horrendous” and
  something that “sends
  shudders through any intelligence
  officer’s body.”
• Interestingly, according to the
  31 October 1996 Wall Street
  Journal, the Commerce
  spokeswoman also averred that
  “Mr. Huang couldn’t have
  used his security clearance
  before he officially joined the
  agency as a top international
  trade policy official in July
  1994.” (Emphasis added.) In
  view of the “critical
  need” Secretary Brown
  apparently had for Mr. Huang’s
  expertise, it stands to
  reason that he may have been
  involved in meetings,
  conversations, briefings, etc. in
  which he was exposed to
  classified information while
  still on the Lippo Group’s
  payroll.
• There is no dispute,
  however, that Mr. Huang was
  exposed to highly sensitive
  intelligence data and competition
  sensitive trade information once
  he collected his “golden
  handshake” severance package
  from Lippo and joined the
  Commerce Department —
  becoming what Mr. Riady called
  “my man in the Clinton
  Administration.”

Who Was John Huang Working
For?

Today’s Washington Post sheds
new light on the extent of the contact
Huang had with Chinese officials while he
had access to classified information at
the Commerce Department:

“During Huang’s 18 months at
Commerce, Huang was scheduled to
attend 37 intelligence briefings,
including briefings on China, and
saw more than two dozen
intelligence reports. From his
Commerce department office, Huang
made more than 70 phone calls to
a Lippo-controlled bank in Los
Angeles….Huang’s message slips
from the Commerce Department also
show a call from one Chinese
Embassy official in February 1995
and three calls from the
embassy’s commercial minister in
June and August of that year.
According to Huang’s Commerce
Department desk calendar
entries…he had three meetings
scheduled with Chinese government
officials. He was slated to go on
a U.S. government-sponsored trip
to China in June 1995 that was
canceled. He attended a policy
breakfast at the Chinese Embassy
in October 1995 and a dinner
there the same month.

“One of the many
unexplained records from Huang’s
files shows an unusual travel
pattern in the fall of 1995.
His expense account records show
he left his Commerce Department
office to visit the Indonesian
Embassy…claiming a $5
reimbursement for taxicab fare.
The expense records indicate
Huang did not return to his
office at Commerce until the
following day — when he took
another $5 cab ride, not from the
Indonesian Embassy, but,
according to his records, from
the ‘residence of the Chinese
ambassador.'”

The Bottom Line

Today’s revelations in the Washington Post
only intensify the Center for Security
Policy’s longstanding fears that the
Clinton Administration’s insouciance
about personnel and information security
are an invitation to foreign penetration
and suborning.⁽²⁾
Perhaps the most important insights that
will emerge from the ongoing Department
of Justice investigation of the
Clinton/Democratic National Committee
fund-raising operation — and the
congressional inquiries that will shortly
get underway — may be the dangers posed
by such practices and the urgent need to
hold those responsible fully accountable
and to implement at once the necessary
corrective actions.

– 30 –

1. See the
Center’s Decision Brief
entitled ‘High Crimes and
Misdemeanors’? The Huang Caper Reinforces
Concerns About Clinton Malfeasance on
Security Matters ( href=”index.jsp?section=papers&code=96-D_109″>No. 96-D 109,
1 November 1996).

2. See, for
example, the Center’s Decision
Brief entitled The
Clinton Security Clearance Melt-Down:
‘No-Gate’ Demonstrates ‘It’s the People,
Stupid’ ( href=”index.jsp?section=papers&code=94-D_32″>No. 94-D 32,
25 March 1994).