(CBS) We're used to spy novels about the Russians, but today's reality in espionage is different. China has just as good a spy network in the United States. And you are going to see a Chinese spy caught red-handed taking American military secrets from an employee of the Defense Department. If China is the Asian dragon, then it has awakened to compete with the United States all around the world for resources, markets and strategic advantage. The Chinese are shopping for information ranging from U.S. nuclear weapons designs to the inside deliberations of the Obama White House. Because of the nature of espionage, you never get a look at this clandestine underworld but recently the FBI recorded a Chinese agent stealing America's secrets. The video we obtained is being made public for the first time on "60 Minutes."
In the video, the man driving the car is Gregg Bergersen. He's a civilian analyst at the Pentagon with one of the nation's highest security clearances. His companion is Tai Shen Kuo, a spy for the People's Republic of China.
Kuo was born in Taiwan, but he's a naturalized American citizen who owns a number of businesses in Louisiana; Bergersen worked at the Pentagon's Defense Security Cooperation Agency which manages weapons sales to U.S. allies.
Bergersen knew a secret the Chinese desperately wanted to know: what kind of weapons America was planning to sell to Taiwan, the rebellious Chinese island that mainland China wants to reclaim. It was July 2007 when they were driving outside Washington, D.C. Neither man knew that what they are about to do was being recorded by two cameras the FBI has concealed in their car.
As the FBI cameras were rolling, Kuo reached over and put a roll of bills in Bergersen's shirt pocket. A hundred dollar bill was clearly visible on the outside of the bundle of money.
"I’ll give you, let you have the money," Kuo told Bergersen.
"Whoa, oh, are you sure that's okay?" Bergersen asked.
"Yeah, yeah, fine," Kuo replied.
Bergersen asked, "You’re sure?"
"60 Minutes" correspondent Scott Pelley watched the tape with John Slattery, the FBI agent at headquarters who oversaw the case. He recently retired as a deputy assistant director and is now a vice president at BAE Systems, a major defense and security contractor.
Asked what's going on in the tape, Slattery explained, "Information has been passed prior and this is reward for that, or there is expectation that passage of information is forthcoming so that's what's happening here."
Slattery estimated that Kuo gave Bergersen about $2,000.
Tai Shen Kuo's money and contacts came to the FBI's attention while the bureau was investigating a different Chinese espionage case. They followed him, tapped his phone, monitored his e-mail and all of that led them to Bergersen.
In the car, the Pentagon employee and Chinese spy were plotting the handover of secret documents that listed future weapons sales to Taiwan and details of a Taiwanese military communications system called Po Sheng.
"I'm very, very, very, very reticent to let you have it because it’s all classified," Bergersen told Kuo, as the cameras continued to record their conversation. "But I will let you see it."
"And you can take all the notes you want," Bergersen told Kuo. "Which I think you can do today. But I if it ever fell into the wrong hands, and I know it’s not going to, but if it ever."
"Okay, that's fair, that's fair, yeah, yeah," Kuo replied.
"Then I would be fired for sure. I'd go to jail," Bergersen warned. ""Because I violated all the rules."
"He just described them as classified documents," Pelley remarked. "He knows precisely what he's doing."
"Exactly," Slattery agreed.
"He's almost going down your list of requirements for an indictment by a grand jury, Pelley pointed out.
"And we thank him for that," Slattery joked.
"When it comes to espionage against the United States, is China now the number one threat that we face?" Pelley asked Michelle Van Cleave, who was America's top counter intelligence officer.
"I would be hard pressed to say whether it's the Chinese or it's the Russians, but they're one, two, or two, one," she replied.
Working for the director of national intelligence, she was in charge of coordinating the hunt for foreign spies from 2003 to 2006. Van Cleave’s position as National Counter-Intelligence Executive was created by Congress after a series of spy cases, including those of CIA agent Aldrich Ames and FBI agent Robert Hanssen, embarrassed the intelligence community. Both those men spied for the Russians, but the threat has changed, says Van Cleave.
"The Chinese are the biggest problem we have with respect to the level of effort that they're devoting against us versus the level of attention we are giving to them," Van Cleave explained.
Asked what the Chinese want from America, Van Cleave told Pelley, "Virtually every technology that is on the U.S. control technology list has been targeted at one time or another by the Chinese. Sensors, and optics, and biological and chemical processes. These are the things, information technologies across all the things that we have identified as having inherent military application."
(CBS) The Chinese have stolen technology used in the Space Shuttle and in submarine propulsion systems. And in the late 1990s, a Congressional commission, known as the Cox Commission, found China now holds the most closely guarded secrets America had.
"We learned, and the Cox Commission reported, that the Chinese had acquired the design information for all U.S. thermonuclear weapons currently in our inventory," Van Cleave explained.
According to Van Cleave, the Chinese possess today the designs of all of America's nuclear weapons.
How did they get that?
"The questions of how they acquired it remain to some extent unknown," she replied.
How the U.S. lost its atomic secrets may be unknown but there are fewer mysteries in the case of Tai Shen Kuo and Gregg Bergersen. The FBI says that Kuo wanted to expand his Louisiana business into China. When he sought permission from Beijing, the Chinese asked for a few favors for their intelligence service.
The $2,000 was only part of Kuo's development of Bergersen. Kuo wined and dined his spy and Bergersen seemed to have an appetite for espionage.
At one dinner in Alexandria, Va., Kuo's tab came to $710. Kuo took Bergersen to Las Vegas for some shows. And the day of the ride that was caught on tape, Kuo brought a box of expensive Cuban cigars.
All the while, Kuo lied to Bergersen by telling him the information was being passed to Taiwan, the U.S. ally. That's a technique known in intelligence circles as "false-flagging."
"Does that make any difference in the law, whether you're spying for a hostile government or a friendly one?" Pelley asked John Slattery.
"Of course not," he replied. "Classified information's not allowed to be passed without, you know, certain approvals, to any foreign government."
"But I think when you see the information you can get out of it what you need," Bergersen told Kuo in the undercover tape. "You know, you can write all the, you can take all the notes you want."
"It's just, I cannot…ever let anyone know……because…that's my job," he said.
"I'd get fired for sure on that. Well, not even get fired, I'd go to *** jail," Bergersen added.
(CBS) The recruitment of Bergersen has a familiar ring to Fengzhi Li. He recruited spies for China as an officer in the Ministry of State Security. The M.S.S. is their CIA.
"Give me a sense of all the different ways you would persuade someone to spy for China?" Pelley asked Li.
"That will be a long story," Li replied.
In our interview, Li switched between English and Mandarin. He worked for Chinese intelligence 14 years, recruiting spies in Russia. He is now seeking political asylum in the U.S.
"Let me say this. Intelligence work is different from other kind of work. When I target a hundred people, even if 99 people have refused me, if there is one I persuade…that's enough," Li told Pelley.
Li told us he recruited spies through blackmail and sometimes greed, especially if someone wanted to do business in China. Once, he says his agents recruited the official photographer for a European head of state that he still won't name.
"Would you say the M.S.S. spends most of its effort on the United States?" Pelley asked.
"Definitely. Without a doubt," he replied.
"What would some examples be of some of the kind of information that M.S.S. was interested in getting a hold of?" Pelley asked.
"For example, what President Obama thinks right now," Li replied. Li said such information is of critical importance to the leaders of China’s Communist Party, which rules that country.
Thanks to Gregg Bergersen, the Chinese were about to find out just what sort of weapons America intended to sell to Taiwan. That day in the car, Bergersen drove Kuo and the secret documents to a restaurant in suburban Washington. After lunch, Kuo stayed in the restaurant and copied the secrets by hand.
Out in the parking lot, Bergersen waited with a glass of wine, one of those Cuban cigars, and the FBI in tow. They photographed him as he waited for Kuo to finish.
Once they got back in the car and began driving, Bergersen just couldn’t stop talking. He talked about another business arrangement he wanted to get into with Kuo.
"But I will be very careful to keep my tracks…clean," Bergersen told Kuo. "And no, no fingerprints. It’s just like these documents…no fingerprints, I can't afford to lose my job."
Later, Kuo left the U.S. for Beijing. But while he waited for his flight at Chicago's O'Hare Airport, federal agents got into his bags, photocopied his handwritten notes and put them back - without him finding out about them.
When they did a side-by-side comparison of his notes with the secret document, they discovered that they matched.
(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.