MILNET Intelligence Topics - Spy Money

Allegedly, John Huang (pronounced wong) worked with several small companies to bring in funds from the People's Republic of China via a majority relationship between the Lippo Group and a national corporation owned by the People's Republic of China. Lippo is a conglomerate of Banks and firms managed/owned by members and confidents of the Lippo Bank Corporation of Indonesia. The Lippo Group holdings at some point became owned in the majority by THE operating company of the People's Republic of China (Mainland China).

Prior to the 1994 election, the Lippo Group established a bank in Los Angeles area, as well as several small companies (Hip Hong is a good example). Hip Hong, a company which owns a parking lot in L.A. worth $1-2 million, was obviously not a major revenue generating entity for the Lippo family. However, large money transactions were tracked during the 94 campaign, to the U.S. Democratic National Convention. U.S. Law requires that U.S. companies which invest in elections must do so from U.S. earned funds. However, the Lippo Bank of Indonesia was allegedly transferred funds to the Lippo Bank in the U.S., or directly to Hip Hong. The funds were then donated, through various means to the DNC.

And while the DNC was unable to vet the funds enough to detect the problem, it is clear that foreign funds were being used to contribute. And while no quid-pro-quo (reciprotive action) could be found, it is clear that the method COULD be used to get favors from politicians by using huge sums of money to curry favor. This is the reason for concern by the Senate Committee. For our purpose, however, the transactions create an additional problem for national security.

Espionage Viewpoint

This method, combined with the source company, an entity fully owned by the Chinese Government is also known to fund gun deals, and perhaps smuggling. In the Committee hearings we saw a frightening list of "bad boys" associated with the PRC company, with implications that the PRC company engages in smuggling, drugs, and perhaps even espionage. This leads us to look at how this particular operation could be adapted to espionage activities.

For instance, assume someone else were managing the movement of these funds. Suppose the goal was to fund to clandestine action within the U.S. Using the alleged Lippo Group methodology, a foreign nation could simply set up a chain of companies like Hip Hong, and instead of making campaign donations, use these transactions to pay for secret information, buy guns, explosives or other material for sabotage, or simply to pay for resident agents (sleepers). Clearly, this kind of financial activity would be extremely hard to detect, thus would prevent U.S. counter-intelligence operations from spotting it unless they stumbled onto the transactions by accident.

In this case, a private citizen, Mr. Fireman, decided for a number of reasons not all that important to the case study, to use the foreign funds connection to mask third party (and coeerced) donations to a number of campaigns, both Democratic and Republican. Since the funds were being sent by U.S. citizens, this particular method would have gone undetected unless someone complained (according to U.S. Attorney Stern in public testimony before the Public Affairs Committee, this was the case...someone complained to a reporter).

The method is fairly simple actually. Mr. Fireman transferred funds to a Hong Kong bank, and then used funds from that bank as the means to reimburse cash given to employees who were instructed to make donations to the various political campaigns. The reasons are clouded, but clearly the transactions themselves masked the source of cash...cash wasn't taken directly from Mr. Fireman's account and paid out to the employees. The funds were further masked by the foreign trail of money.

Espionage Viewpoint

Again, there does not appear to be an espionage link in this case. However, if there were, look how difficult the transactions would have been to spot. In this case, cash was taken from an account of a U.S. bank, where those funds had been transferred from a Hong Kong bank. Details of the actual accounts used in the U.S. are confidential, but clearly one could set up an account in a false name, then take cash out on a regular basis to buy supplies, fund resident agents, or acquire explosives for sabotage. No direct link could be made until an counterintelligence agent trailed the agent to the bank. This is extremely important for domestic terrorism. A domestic terrorist organization could use this method to mask funds intended to be paid to a nationwide organization of terrorist agents. Similarly, a combination of all the transactions discussed in this report could easily be used to further mask movement of funds into the U.S.

A similar event, obstensibly alleged to have been driven by Charlie Trie, is the case of a cult leader SUMA Chaing Lin. In this circumstance, the leader of a Taiwan based (later moved to Cambodia) buddist cult, came to the U.S. and requested each of the members donate $1000 to the President Clinton Presidential Legal Expense Trust a private trust to help the President and the first lady with personal legal expenses. Charlie Trie delivered on two occasions, checks and money orders amounting to totals of $460,000 and $120,000 respectively. This nearly $700.000 was rejected eventually by the trust, however, it appears the receipt of the funds might have been perfectly legal, since it would extremely hard to prove any coercion was used, and the trust did not come under Election Laws prohibiting third party funds movement.

Espionage Viewpoint

This particular case is almost comical in its inability to be a foreign agent's plot due to the way in which Charlie Trie tried to insert the funds. However, an intelligent agent might find a more clandestine method of providing the funds to the trust. For instance, mailing in funds in un-alike envelopes over a several month span might have gotten many of the funds by the vigilant trustees and their investigators.

In that case, the agent's use of this technique would be interesting. The agent could convince folks they were giving to a Presidential fund, but then vector the funds elsewhere. It appears those donating had no clear understanding of what it was they were investing in...One may have been able to convince many that their checks were to be written to a false fund name, and then distributed to other agents country-wide. However, the possiblities of fraud investigation would add a large risk to the venture, and thus might be prohibitive for espionage use.

In this particular case, no illegal activity was detected. However, the trail of money is interesting in the scope of our discussion. A Hong Kong financier was asked to help an independent entity, the Republican Policy Forum, a think tank, public issues non profit corporation, get a loan to repay funds owed to the Republican National Committee, the Republican campaign organization in the U.S. The RPF, in debt by better than $3.5 million to the RNC's state (non-federal) campaign account, was faced with the possibility of no longer receiving needed credit to continue operation. The RPF, at first requested a loan, but then later, the lawyers decided a better method would be a loan guarantee. A U.S. company already in existence in Florida (a wholly owned subsidiary of the company in Hong Kong), was used to transfer funds to the U.S., which bought Certificates of Deposit in the U.S. This was then used as collateral as the guarantee for the loan by the RPF. The RPF then used $1.6 million of the $2.0 million loan (loaned by a clearly U.S. bank using the CDs as collateral) to pay back a portion of the loan to the RNC. The RNC (state and local account) was then able to use these funds at will in state and local campaigns (the RNC has a separate account that isolates these funds from funds used in federal campaigns... perfectly legal and in fact required by the Federal Elections Campaign Act). The hope (one would assume) was that the RNC might continue to lend funds to the RPF as needed, the RPF having established their good faith by repayment. Sometime later, the load was defaulted, the CDs cashed to repay the defaulted loan, and the source financier was out some $700,000 a "donation" the source never intended to make.

Espionage Viewpoint

Clearly, a foreign espionage agent would love this transaction. Suppose that the source of the funds was that same People's Republic of China company that is already believed to fund illegal activities worldwide. They could use this method...transfer funds to a wholly owned subsidiary, use those funds to guarantee a loan, and then use the proceeds of the loan to pay agents and provocateurs. In the meantime, the CDs would continue to collect interest. At some point, the loan could be defaulted, and the CDs lost as collateral and a dummy corporation (the loanee) simply gets bad credit. Eventually the dummy corporation goes out of business and no one is the wiser...especially if the there are no appreciable assets. The only one who loses is the initial source of the funds and if they intended for the funds to be transferred in the first place, then they wouldn't care...in fact they would be delighted at the outcome.