Internal Justice Memo Excuses Loral From Funds Probe

When Sen. Arlen Specter recently obtained the internal Justice Department memo of former campaign finance task force chief Charles G. LaBella, the Pennsylvania Republican used it to resurrect a favorite partisan target: President Clinton’s approval for Loral Space and Communications Corp. to launch a satellite from China two years ago. At the time, Loral Chairman Bernard L. Schwartz was among the Democratic Party’s biggest individual donors.

During a May 2 hearing, Specter commented that LaBella had pushed, in his still-sealed memo, to have an independent counsel investigate the Loral matter, suggesting that the case remained ripe for serious criminal inquiry. And Specter reinforced that impression, urging the Senate to subpoena Loral-related documents.

But the impression was wrong.

The LaBella report and related documents, which were obtained earlier this year by The Times, tell quite a different story. In fact, by the time LaBella delivered his report to Atty. Gen. Janet Reno in the summer of 1998, the task force had effectively excused Schwartz and Loral from the campaign finance investigation.

LaBella’s team of federal prosecutors turned up “not a scintilla of evidence--or information--that the president was corruptly influenced by Bernard Schwartz,” according to one internal document.

Far from urging an investigation of Schwartz, the documents show, LaBella regarded the Loral executive as a victim of Justice Department overreaching. He criticized ranking Justice officials for relying on “a wisp of information” to justify their initial Schwartz inquiry.

And in an addendum to his original report, LaBella flatly advised that the Schwartz case “was a matter which likely did not merit any investigation.”

“Poor Bernie [Schwartz] got a bad deal,” one former task force investigator said in an interview. “There never was a whiff of a scent of a case against him.”

Loral officials welcomed this news. A spokesman issued a brief statement repeating the company position that there was no wrongdoing by Schwartz or Loral, and “there are no grounds for an investigation.”

LaBella testified at the Senate hearing convened by Specter but declined to discuss specific cases and commented only “hypothetically” on the Loral matter.

Two years ago, the Loral case was among the most sensational allegations to emerge from the campaign finance scandal. Press accounts revealed that a presidential waiver permitting the cooperative satellite launch with China had benefited a major Democratic supporter.

Such waivers were required on all satellite ventures in China as a lever against human rights abuses by Beijing after the Tiananmen Square massacre in 1989. But, while similar waivers were granted routinely by both Clinton and Republican President Bush, key circumstances fanned the Loral controversy.

First, Loral already was under investigation over allegations it had improperly shared restricted technology with Beijing. Second, the waiver came to light amid the mushrooming campaign finance scandal.

There were charges that Schwartz had bought White House influence with his donations to Democrats exceeding $1.3 million. Congressional hearings were scheduled. And the Justice Department ordered its campaign finance task force to investigate the Loral chairman.

Amid partisan wrangling, Republicans questioned whether the White House had risked national security to advance a political supporter’s commercial interests. Rep. Dana Rohrabacher (R-Huntington Beach) called the Loral waiver “this possible violation of law, this betrayal of our country.”

However, the Justice task force investigation produced no further legal actions.

GOP congressional leaders have since pressed for access to LaBella’s report. Those efforts were renewed in March after The Times obtained a copy of the restricted document and reported that it also accused senior Justice officials of engaging in “gamesmanship” and legal “contortions” to avoid an independent inquiry of top White House officials.

The report cited information LaBella called sufficient to justify an outside probe of Clinton, Vice President Al Gore and even First Lady Hillary Rodham Clinton, but the task force chief took a decidedly different view of only one case--the Schwartz matter.

While advising that a Schwartz investigation was unmerited from the outset, LaBella did recommend that the case be disposed of by a special counsel. He told Reno that, because the underlying allegations of a possible quid pro quo ultimately involved the president, an independent prosecutor should act on the matter to spare Justice from accusations of “a political motive for its determination.”

LaBella reserved his harshest criticism on the matter for Justice officials who ordered the Schwartz probe while specifically excluding Clinton from the investigation.

Specter seized on that point in the hearing but omitted any reference to LaBella’s debunking of the merits of the Schwartz investigation. Consequently, the Specter hearing prompted misleading stories and headlines about LaBella’s failed efforts to get an outside prosecutor to investigate Schwartz and the president.

The Washington Times described it as “a startling revelation.” An editorial headline called it “LaBella’s Bombshell.” Associated Press and the New York Times published more cautious but still significantly incomplete accounts.

Nonetheless, an aide to Specter, who is spearheading a Senate inquiry into Justice’s handling of campaign finance investigations, said that Senate subpoenas for presidential waiver-related documents will be pursued. And he insisted that the Loral portion of the Senate probe “is still alive.”