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(CBS)  John Slattery, who oversaw the case for the FBI, told us the bureau didn't make arrests until six month later, in February 2008. The FBI says Kuo and Bergersen had made plans to meet later that day in the Washington area and they feared more secret material would be exchanged.

"But I mean this is drop dead evidence. And espionage is occurring. Why didn't you arrest them sooner than that?" Pelley asked.

"Well these investigations are tremendously complex and tremendously difficult to begin with," Slattery explained.

"The Department of Defense wants you to stop it right away," Pelley pointed out.

"Please. Sooner than later. But the FBI says, 'Well listen, we wanna make sure we can sustain a conviction here. And are there other players in this?'" Slattery replied.

It turns out there were other players: Kuo had another source inside the Pentagon and Kuo was connected to spies on the West Coast who were giving up U.S. space and naval technology. Presumably the U.S. is doing the same kind of spying in China, but Michelle Van Cleave says America has so much more to lose.

"I think we're a real candy store for the Chinese and for others in terms of technology, and commercial products, or other proprietary information and so we will always be the principal target for them," she explained.

Asked what the most serious damage is Chinese espionage has done to the United States, Slattery said, "It's the totality of the collection effort. Take a case like this or cases like this. Traditional espionage. Penetration of the interior. Couple that with industrial and economic collection. Couple that with cyber. It greatly concerns me. It greatly concerns me."

"Well, I hope this all works out, I mean you are helping me a lot here?but, but, but I don?t want anyone to know about our?relationship or anything because ah, it could get me in a lot of trouble," Bergersen told Kuo inside the bugged car,

Bergersen kept saying, "I could go to jail" and both men did.

In 2008, prosecutors showed them this tape and they pleaded guilty. Bergersen got almost five years for communicating national defense information; Kuo, a naturalized American citizen, is in a U.S. federal prison doing 15 years for espionage.

Prison may have been the best option Bergersen had. After he left the car, Kuo could be seen on the video pulling out his own tape recorder. We'll never know why he taped the damning conversation but it is classic spy craft to use blackmail to get at ever deeper and deeper secrets.

"For every case that is broken, like the Bergersen case for example, how many others are there that we have no idea about?" Pelley asked Van Cleave.

"Oh, isn't that the important question? You never know what you don't know. But we certainly we have seen such an extensive range of activities by the Chinese that it should make you very uncomfortable," Van Cleave replied.



Produced by Henry Schuster
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