Funds Probe Unfairly Spared White House, ’98 Report Says

A confidential report by the Justice Department’s former chief campaign finance investigator, kept sealed by Atty. Gen. Janet Reno for nearly two years, accused senior Justice officials of engaging in “gamesmanship” and legal “contortions” to avoid an independent inquiry into Clinton-Gore campaign fund-raising abuses.

According to an edited version of the 94-page document, former task force supervisor Charles G. LaBella also faulted Reno’s top advisors for using “intellectually dishonest” double standards: endorsing independent counsels to investigate Cabinet-level administration officials while opposing them for similar or stronger cases involving senior White House figures.

Among those getting special treatment, the report said, were President Clinton, Vice President Al Gore, First Lady Hillary Rodham Clinton and former White House aide Harold M. Ickes. It is the first indication that the task force was considering Mrs. Clinton’s conduct in the fund-raising scandal.

The bluntly worded July 1998 report also called for a sweeping outside investigation into “the entire landscape” of campaign finance allegations, referring to the possibility of broad schemes “conjured up by sophisticated political operatives to circumvent” election finance laws during the 1996 presidential race.

Senior Justice Department officials strongly rejected LaBella’s assertions, saying that the report leaped to “outrageous” conclusions and personalized policy differences. According to Justice Department spokesman Myron Marlin, Reno “based her decision on the facts and the laws without regard to politics, the pundits or pressure.”

It has long been known that LaBella, as well as FBI Director Louis J. Freeh, supported the appointment of an independent counsel, but the previously undisclosed documents provide an extraordinary glimpse behind the scenes of a Justice Department storm that swirled around Reno’s controversial rejections of outside counsels.

They also include LaBella’s stinging indictment of a campaign finance system that he said encourages abuse by both major parties and of enforcement of fund-raising laws that he said is so weak it is “a bad joke” on the American public.

Since receiving the report, Reno has kept it within the Justice Department and defied congressional pressure to release it, even under threat of contempt action. A handful of Congress members and aides have been allowed to read the report under strictly controlled circumstances. The Times reviewed an excised version of the report and related documents.

Ammunition for Reno’s Critics

The disclosures are certain to provide Reno’s critics, including Republican lawmakers, with powerful ammunition to renew charges that she acted to protect the White House. Already, last week’s conviction of longtime Gore fund-raiser Maria Hsia on campaign finance violations resurrected Republican charges that the Justice Department has failed to get to the bottom of the scandal.

And questions raised about Gore and Hillary Clinton in the long-sealed documents could ricochet across the 2000 political landscape as well, as Gore seeks the Democratic presidential nomination and the first lady bids for a U.S. Senate seat in New York. Ickes, a former White House deputy chief of staff who spearheaded the Clinton-Gore reelection effort, is a key figure in Mrs. Clinton’s Senate campaign.

LaBella’s accusations are particularly troubling for the Clinton administration because the career prosecutor was hand-picked in September 1997 to bolster public confidence in the Justice Department-controlled investigations of political fund-raising abuses.

It was Reno who chose LaBella to head the Campaign Financing Task Force and salvage much-criticized investigations then run by the department’s Public Integrity Section. He arrived with a reputation as an aggressive prosecutor from high-profile cases in New York and San Diego, where he served under both Republican and Democratic U.S. attorneys in such positions as chief of the criminal and public corruption divisions.

“The failure of Reno to listen to LaBella seems to me to put a cloud on the impartiality of the top of the Justice Department in what was supposed to be the most ethical administration in the history of the United States,” said Henry Ruth, a former Watergate special prosecutor and criminal defense attorney. “I can’t remember . . . someone at that level, plus the FBI, saying ‘go’ and the attorney general vetoing it without satisfactory explanation.”

Responding on behalf of Clinton, Gore and the first lady, White House spokesman Jim Kennedy said: “We’re not going to comment on selectively leaked information that’s allegedly from a sealed report we’ve never seen. However, this whole matter has been investigated repeatedly at a cost of millions of dollars with absolutely no finding of wrongdoing on the part of the president, the vice president or the first lady.”

LaBella Stands by His Conclusions

LaBella said it would be “inappropriate to comment” on his report while it remained confidential. However, the former task force chief said that he stands by its conclusions.

“It was the right advice then and it’s the right advice today,” he said. “I still believe it’s the only way to avoid even unwarranted appearances of a political fix.”

He said that Reno could yet refer the matter to an outside special prosecutor under existing Justice guidelines, a move that he recommends.

Ten months into his tenure with the task force, LaBella filed his report to Reno, warning that numerous conflicts of interest made the Justice Department’s insistence that its own lawyers handle the inquiry into the 1996 Clinton-Gore campaign “a recipe for disaster.” LaBella was joined on what he called an “interim report” by James V. DeSarno Jr., an assistant FBI director who supervised agents assigned to the task force.

Under the independent counsel act, the attorney general was required to seek an outside prosecutor upon receiving credible information that the president, vice president or other senior officials may have violated the law or when an investigation by the Justice Department “may result in personal, financial or political conflict of interest.”

LaBella maintained that both circumstances applied and that Justice officials “resisted a common-sense . . . application” of the law.

No Specific Criminal Accusations Made

In singling out Clinton, Gore, Mrs. Clinton and Ickes, LaBella’s report did not accuse them of specific criminal violations. Rather, it cited questionable actions by them and “a pattern of conduct worthy of investigation” by an independent counsel.

For example, LaBella noted administration dealings with various Asian American fund-raisers for the Democratic National Committee as well as with wealthy foreign nationals that it said “suggests a level of knowledge within the White House--including the president’s and first lady’s offices--concerning the injection of foreign funds into the reelection effort.”

The report said that one of the common themes among various cases under review at the time was “the calculated use of access” to the White House and high-level officials, “including the president and vice president.”

The previously secret documents contradict Reno’s assurances to Congress that no serious rifts divided her Justice Department advisors. Indeed, documents and interviews with a number of former task force members reveal a bureaucratic brawl that went well beyond the commonplace tensions between hard-nosed field prosecutors and seasoned Washington superiors.

“They didn’t want us to succeed. It made them look bad,” said one former task force attorney who described “unprecedented hostility” from senior Justice officials.

Another former task force prosecutor, Steve Clark of San Diego, complained in a scathing internal memo in December 1997 that his efforts to investigate possible corruption by both major parties was frustrated by “behind-the-scenes maneuvering, personal animosity, distortions of fact and contortions of law” by high-level Justice officials.

Top Justice lawyers took strong exception to the LaBella report. Its frank language privately outraged some of Reno’s closest advisors.

Lee J. Radek, chief of the Public Integrity Section, responded with a blistering letter to Reno. He called LaBella’s legal arguments “flawed,” challenged the grounds for implicating the first lady and ridiculed the underlying elements of LaBella’s case for an independent counsel. He said that, given one legal standard LaBella sought to apply, “every member of Congress would be under criminal investigation.”

Radek, a 29-year Justice Department veteran and staunch foe of independent counsel referrals for Gore, Ickes and the Clintons, also said that he was furious over LaBella’s suggestion that the motivations of some Reno aides were “colored by bad faith, a deliberate twisting of the law and an effort to protect the White House.”

LaBella, who was a senior field prosecutor in San Diego, replaced one of Radek’s staff attorneys who was dumped after a series of investigative embarrassments and accusations of mismanagement put the task force under heavy political fire.

Radek said in an interview that he and LaBella had “an honest disagreement” about the application of the independent counsel act but that “the attorney general’s standing order was to leave no stone unturned.”

In fact, he said, “because of the sensitivity of this we went beyond the normal parameters of a criminal investigation and tried to find out all the facts, whether or not they were included in what is traditionally a criminal investigation.”

Since the fund-raising controversy broke in newspaper headlines in late 1996, Reno repeatedly has rejected outside prosecutors for narrowly focused investigations of alleged White House wrongdoing. She did so following preliminary reviews of such matters as fund-raising telephone calls by Gore from the White House, so-called issue ads funded by the Democratic National Committee and congressional testimony by Ickes.

She also opposed requests for sweeping inquiries as proposed by LaBella and Freeh.

Since becoming attorney general in 1993, Reno has requested appointments of seven outside prosecutors, including one in the Whitewater scandal. After that inquiry by Kenneth W. Starr evolved into the Monica S. Lewinsky case, concerns rose over whether excessive power had been given to overly zealous independent counsels. Congress let the statute expire last year, a move endorsed by Reno.

LaBella left the task force voluntarily days after filing his report to return to San Diego as acting U.S. attorney. But, when he was passed over for the permanent federal appointment in 1999, he ended his 17-year government career and joined Decision Strategies Fairfax International, a private investigation firm. Reno’s Republican critics accused the administration of denying LaBella the U.S. attorney’s job as punishment for recommending an independent counsel.

Underlying LaBella’s argument for an outside prosecutor was criticism of what he called an excessively narrow “stovepipe approach” to myriad campaign finance allegations. His report urged a broader investigation, in part, because seemingly innocent conduct in one inquiry could take on a more sinister gloss when viewed in the context of other cases.

“This is especially true with respect to the conduct of senior White House officials and key DNC and Clinton/Gore officials,” the report said.

At the same time, the report seemed to minimize the likelihood of a single, centrally controlled or highly disciplined conspiracy. It said: “The campaign finance allegations . . . present the earmarks of a loose enterprise employing different actors at different levels who share a common goal: Bring in the money.”

Appointment of Trie Questioned

Although half of the report reviewed by The Times was excised to protect grand jury secrecy and ongoing investigations, some of the deleted material was pieced together from other documents. Most of that missing information relates directly to the task force cases against Clinton, Gore, Ickes and Mrs. Clinton.

In one instance, documents show, task force investigators regarded as suspicious the timing of Clinton’s appointment of friend and fund-raiser Yah Lin “Charlie” Trie to a U.S.-Pacific trade advisory panel in 1996. That appointment came shortly after Trie delivered $460,000 in donations from a Taiwan-based Buddhist sect to the president’s legal defense trust fund, set up to help defray the Clintons’ private legal bills. An investigative document called this “a potential quid pro quo” that should be probed by an independent counsel.

Ultimately, Trie acted as a self-described “mailman,” delivering a total of $639,000 in checks and money orders from the Buddhist group. The entire amount was rejected by the trust, however, on grounds that it was from foreign sources.

Both Ickes and Mrs. Clinton met with the defense fund trustee to discuss Trie’s donations, and the first lady and president agreed that the money should be returned. According to the report, none of the three--the president, Mrs. Clinton or Ickes--informed the DNC, where Trie was a major fund-raiser, that he was bringing in foreign donations to the Democrats, which was illegal.

The report said that each had, at least arguably, a fiduciary responsibility to alert Democratic officials and said that Mrs. Clinton’s “potential criminal involvement” grew out of this failure. Trie continued to raise large sums for the Democrats. He pleaded guilty to campaign finance violations last May.

While the report acknowledged that the task force information against the first lady was “not overwhelming at this time,” it said it was sufficient “to warrant further inquiry.”

In his response to LaBella’s report a few days later, Radek countered that, based on these facts, he was unaware of any legal theory under which Mrs. Clinton could be prosecuted and said that LaBella failed to supply one.

Ickes, who declined to be interviewed, told Senate investigators that he “never connected” Trie with fund-raising for the DNC until his name surfaced in news stories in October 1996; he then contacted a party official.

The report also contended that Clinton knew or should have known some of his supporters were bringing in foreign money. It cited circumstantial evidence suggesting “a conscious avoidance of the truth concerning some of the more flamboyant fund-raisers such as Trie.”

Radek dismissed such arguments as vague and said that he found Clinton’s professed lack of knowledge believable because it was “very unlikely” that notorious fund-raisers informed anyone they were making illegal donations.

Regarding Gore, task force documents indicate skepticism of the vice president’s “failure of recollection” and other inconsistencies in his story. The report said that Gore “may have provided false testimony.”

The allegation stems from a marathon fund-raising effort launched over White House phones in late 1995, purportedly to raise unrestricted “soft money,” which was outside the election law ban on political fund-raising conducted from a federal workplace. The money was for ads to help the DNC and state party organizations.

Gore told investigators he believed that no “hard money” was raised or used in the media fund. Democratic records later showed that some money Gore raised did, in fact, end up in hard-money accounts.

Soft money refers to unlimited contributions by individuals, corporations and labor unions to political parties that are not regulated by federal election law. Hard money refers to restricted donations that can be spent directly on behalf of candidates.

Gore denied any wrongdoing. In his initial defense of the calls in March 1997, he maintained that he broke no laws because there was “no controlling legal authority” covering such fund-raising solicitations. Later, the DNC said that funds were allocated to hard-money accounts without Gore’s knowledge.

Confronted with notes and memos indicating that a November 1995 meeting Gore attended in the Map Room of the White House included discussions about raising hard money, the vice president said he did not recall such conversations or the memos.

Previously undisclosed documents show that former White House Chief of Staff Leon E. Panetta told FBI agents that he remembered Gore “attentively listening” to discussions about the hard money aspects of the media fund and “walking through the papers” as the November 1995 meeting progressed. These documents also indicate that the task force obtained photographs from that meeting showing Gore looking at papers that he said he did not recall reviewing.

Reno ordered an initial 90-day review of the Gore phone calls in 1997 before deciding there was not sufficient grounds to ask for an independent counsel. When a new memo from the 1995 meeting was discovered, however, Reno launched a second 90-day review to determine if outside counsel should investigate perjury allegations against Gore.

Radek and Public Integrity opposed the referral. In November 1998, in a statement and detailed 19-page court submission citing “clear and convincing” evidence that Gore did not lie about the matter, Reno again decided against asking for an outside prosecutor. The action spared Gore an investigation likely to overlap his presidential campaign.

In contrast, independent counsel referrals in cases involving Labor Secretary Alexis M. Herman and Interior Secretary Bruce Babbitt were based on “a lower quantum” of information than that available on Gore and other top White House officials, the report said.

A substantial portion of LaBella’s report cited flaws in campaign finance laws and suggested legal and policy reforms.

Among major obstacles to enforcement, it said, are laws that make serious campaign finance offenses misdemeanors rather than felonies, a truncated statute of limitations that forces prosecutions within three years instead of five and the absence of credible civil remedies when criminal sanctions are not appropriate.

“The fact is that the so-called enforcement system is nothing more than a bad joke,” the report said, blaming “loopholes . . . , opportunists and the elected officials in desperate need of funds to fuel media campaigns” for undermining the system.

LaBella called for overhauling the Federal Election Commission to create an agency comparable to the Securities and Exchange Commission, staffed to conduct sophisticated investigations and empowered to levy heavy financial sanctions on campaign finance violators.

Both the Republican National Committee and the DNC “pay lip service . . . but nothing more” to complying with federal fund-raising laws, the report said.

In fact, during the 1996 campaign, each party spent less to assure that its fund-raising was legal, the report said, than it did securing “red, white and blue balloons for release on election night.”