A Break in the Case: The FBI Zeroes in on Exactly How China Secretly Funneled Money into American Politics

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THE MONEY CAME FROM BEIJING, approved by China's highest governing body: the State Council. In a series of covert 1995 transactions, federal law-enforcement officials tell NEWSWEEK, Beijing channeled nearly $1 million into the United States. Five hundred thousand dollars went to the Chinese Embassy in Washington; $150,000 found its way to consulates in Los Angeles, San Francisco and Houston. The Feds say that this money, along with other new evidence, provides a remarkably clear and detailed blueprint of a secret plan to influence American politicians and policy.

The urgent new offensive was China's attempt to settle a decades-old political score with Taiwan. Beijing was jealous of Taiwan's successful U.S. lobbying. National Security Agency intercepts of conversations between Chinese officials in Beijing and Washington plainly show China's obsession with Taiwan's superior skills. "They were whining about the strength of the Taiwan lobby," says one official. Beijing denies any wrongdoing, but law-enforcement sources tell NEWSWEEK they have strong evidence the Chinese pursued a three-prong strategy to win influence: exploit a network of pro-Beijing intermediaries in the United States to illegally funnel money to politicians, mount an aggressive propaganda campaign and offer the relatives of targeted politicians "economic advantages"--lucrative business deals on the mainland. The Feds say Beijing didn't expect immediate results. Instead, the Chinese took "the long view," says one source, identifying promising local and state politicians--"comers" they believed would one day rise to national prominence.

It's not yet clear just how successful the Chinese were in carrying out the plan. But investigators working under FBI Director Louis Freeh believe the story of one politician-California Treasurer Matt Fong--is a case study in what the Chinese were up to. A young star in the Republican Party, Fong has aggressively promoted trade with China and regularly advises House Speaker Newt Gingrich on Asia policy. He recently announced his candidacy for the U.S. Senate. Just as the Taiwanese once tried to entice a young governor named Bill Clinton with trips to Taipei, the Chinese, the Feds believe, wanted to support Fong, a politician they believed was on his way up. Investigators are particularly interested in three contributions totaling $100,000 that Fong's campaign received in 1995' money that investigators believe was part of the Chinese influence scheme. There is no evidence Fong knew about the questionable source of the contributions. In fact, investigators believe, the Chinese went to great lengths to conceal it from him.

Face time: How that worked sheds light on the second part of the suspected Chinese plan: the use of foreign nationals as conduits for money and propaganda. …