Meese Probably Broke Law 4 Times, McKay Concludes

Times Staff Writers

Independent counsel James C. McKay concluded in a report released Monday that Atty. Gen. Edwin Meese III probably committed four violations of federal conflict-of-interest and tax laws while serving as the nation's chief law enforcement officer.

But McKay cited several grounds for his decision not to prosecute Meese. In an 814-page report, McKay said there was no evidence that Meese had acted "for personal gain" or "out of self-interest."

Meese, in a rare display of public anger, said he was "outraged" and "appalled" that McKay had publicly accused him of probable violations. The attorney general, who recently announced that he would resign by early August, said that the Justice Department would fire a prosecutor for doing what McKay had done.

Nathan Lewin, Meese's lawyer, denounced McKay's conclusion of probable violations as "a cheap shot . . . born of frustration" from having spent 14 months investigating Meese without finding an indictable offense. Lewin likened McKay to "a hit-and-run driver," contending that he had tarred Meese "in a way to which he has no legal response."

In addition, McKay, who was appointed by a special three-judge panel, found no evidence to prosecute Meese for his actions in a $1-billion Iraqi oil pipeline project in which his longtime friend, E. Robert Wallach, was involved. And he found no wrongdoing in Meese's role in obtaining an Army contract for Wedtech Corp., a Bronx defense contractor for which Wallach later worked.

The probable illegalities cited by McKay stemmed from other matters. The conflict-of-interest allegations centered on actions by Meese in 1985 and 1986 on matters affecting the so-called Baby Bell telephone companies, in which Meese and his wife, Ursula, owned stock.

The tax allegations involved a felony--willfully filing a false tax return--and a misdemeanor--failing to pay tax at the time required by law. The taxes were $3,479 on a capital gain of $20,706 on securities the Meeses sold in 1985 to avoid conflicts that could arise from their private investments.

White House spokesman Marlin Fitzwater said that President Reagan still regards Meese as "an outstanding attorney general" and took comfort from McKay's decision not to prosecute his longtime adviser on the Baby Bell and tax matters.

Criticism in Congress

But members of Congress from both parties used the McKay report to issue sharp criticisms of Meese.

Sen. Strom Thurmond (R-S. C.), the senior Republican on the Senate Judiciary Committee and usually a strong Administration supporter, said: "It appears from the special counsel's report that the attorney general did not exercise good judgment in a number of instances." He said he hoped McKay's report "finally puts this matter to rest."

Sen. Carl Levin (D-Mich.), whom Meese has accused of making false statements critical of him, hailed the report as "fair . . . factual . . . and devastating."

"Far from 'vindicating' the attorney general, the McKay report details numerous ethical improprieties," Levin said. Meese, in announcing his intention to resign, had said that he was vindicated by McKay's decision not to prosecute him.

In explaining his decision not to prosecute Meese, McKay cited "prosecutorial discretion." "Congress has not sought to limit the discretionary role of the prosecutor to determine whether or not a probable violation of the statute warrants prosecution," he said.

Deterrence Rejected

McKay said in his report that he had considered prosecuting Meese to "serve as a significant deterrent" to wrongdoing by other public officials. But he rejected that argument, he said, because a decision to prosecute should not depend on Meese's high government position.

In the Baby Bell case, McKay said a full investigation "has determined that a trier of fact would probably conclude beyond a reasonable doubt" that Meese's actions constituted felony violations of the conflict-of-interest law.

However, McKay said, not only was there no evidence that Meese had acted for personal gain, but there was no indication that Meese's participation had changed government decisions relating to the phone companies formed when a federal court broke up AT&T.;

McKay noted that Meese had obtained a legal waiver earlier, while serving in the White House as counselor to President Reagan, to take part in telecommunications matters despite his stock ownership. Meese obtained another waiver before taking his final action as attorney general on the Baby Bell case, McKay said.

But Meese took some actions on the Baby Bell case as attorney general before the second waiver took effect, McKay said. The second waiver, he said, "could not retroactively relieve Mr. Meese of criminal responsibility."

Pipeline Case Cited

Although Lewin contended that McKay's investigation had run far too long, McKay insisted that the Iraqi pipeline issue raised the possibility of "a very, very serious violation" of the Federal Corrupt Practices Act, which forbids bribing of foreign officials.

McKay said that a memo sent by Wallach to Meese on the project "indicates that a bribe was going to be made, or had been made" to the Israeli Labor Party in exchange for Israel's pledge not to attack the pipeline. In a Sept. 25, 1985, memo to Meese, Wallach wrote: "What was also indicated to me, and which would be denied everywhere, is that a portion of those funds will go directly to Labor."

McKay said that, apart from Wallach's memo, which would be inadmissible in court as "hearsay," there was no direct evidence of a bribe.

But he said the evidence showed that Meese, on learning of the possible covert payment to the Israeli Labor Party, did nothing to terminate U.S. involvement in the pipeline project or "even to notify other United States government authorities of the possible existence of an illegal scheme."

"Instead, he took acts to further the commercial enterprise," McKay said in the report. "Thus, if an illegal bribery scheme actually was afoot, as the Wallach memoranda suggested, Mr. Meese's actions would have furthered the scheme."

Lobbied by Friends

McKay reported that Meese, while he was White House counselor in 1982 and 1983, was lobbied on behalf of Wedtech by two old friends, Wallach and former White House political director Lyn Nofziger.

Ultimately, the report said, "the combined efforts of Mr. Meese and his staff" were instrumental in the Army's decision to award Wedtech a $32-million contract to produce field engines.

McKay said that his investigation of the Wedtech matter "is incomplete" because four key witnesses have refused to testify on grounds that they might incriminate themselves. However, McKay stated that "the currently available evidence does not show any criminal wrongdoing by Mr. Meese."

Wallach, in a written response to the report submitted by his attorneys, called it "a complete vindication." He said McKay had acknowledged that there was no evidence that anyone had ever made "a direct or indirect payment" to Meese.

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