Maybe not the whole time, but…
There are some hints that she might have actually been aware that Varrick was behind the conspiracies.
One of the issues that Mako had as a rookie cop was constantly barging in on Lin with his evidence in public; she’s in a meeting with the president, “Chief! I think I know what’s up!” She’s interrogating the captain while Varrick is in the area…”Chief! I have important evidence to present to you!”
Procedures exist for a reason.
And Lin’s not stupid. When Mako started spouting about how he was “set up,” I think Lin immediately went, “Okay. Something’s wrong here.” But unlike Mako, she knew not to play her hand and go around parading the evidence; she had Mako locked up, but in the nice cell, and kept out of the way. If there was another attack, he couldn’t be the one responsible; if the person who framed him wanted to get to him, they would have to bust into the prison, so Mako’s safe; also, he can’t scare off the prey by loudly waving the alarm bell.
And the moment that Varrick was exposed, she was at the door arresting him. Either Lin can teleport, or she was already on her way to secure him. She had already sent men to protect the president, she didn’t go down to help Bolin with the thugs—she was already moving on Varrick. Mako had presented her with all of his theories and evidence…but she didn’t have a rat. She needed someone to point the finger before she went after him. After all, Raiko had established already that her job was in a shaky place—if she believed Mako’s hints and accused Varrick and he weaseled his way out of it, her career would be over. She would be disgraced, and she would have lost all of her progress. If Varrick was eventually exposed, she might be reinstated…but not if she was assassinated by thugs because she knew too much.
And when Varrick and Zhu Li were led off in the van, she was happily explaining everything to Raiko—and reminding him that Mako knew about everything. Not once does she show surprise in that episode. She keeps a level face, and has a proud smile when she’s talking to Mako.
Because I think Lin was just that skilled at the game.
This was my headcanon of the situation.
Unfortunately I don’t think it was the writers intention due to the scene at the end where she was applauding Mako. It would have been easy enough to write her saying “You’re a smart kid, Mako, but next time you need to follow orders rather warning suspects we’re on to them.”
The issue with a line like that, though, would be that you would risk one of two things:
1. Necessitating further extrapolation (meaning more time and animation needed for this and less on other parts, in an episode that is ALREADY CRAMMED) to avoid confusing the audience, which also might make things seem a little clunkier in the dialogue department…
2. Ruining Mako’s arc by revealing that she knew the whole time. As fun as those revelations are, it can also be disappointing and take away from the significance of a character’s plotline if you find out that it was pointless all along. I do believe that Mako was very influential in cracking the case, of course, but the writers knew that Mako was too perfect of a person last season, so they made sure that this time certain characters shut him down (which was the problem last time). Lin chewed him out because otherwise he would have been “too perfect” (and people would have complained that she was just bowing down to the perfect rookie Mako), Bolin called him out for being a jerk, and Asami just kind of glared at him when all was said and done because she actually wanted to like him (but this time he didn’t dance his way to happiness). Mako’s arc needed to be one that garnered sympathy and not admiration, and the writers pulled it off.