The Consortium

'Silver Bullet' (Part 2):
Whitewater's Long Haul

WASHINGTON -- For more than two years, Sen. Alfonse D'Amato has dragged the Whitewater ship of scandal behind him like some modern-day Humphrey Bogart pulling the African Queen. Even to D'Amato, it must now be clear that the Whitewater scandal's sluggish pace and muddy facts will never match the fast-flowing crystal-clear image of its name.

But the swampy reality has not discouraged the New York Republican, who has slogged through an ethical morass or two of his own. D'Amato wants to continue the hearings that have hauled dozens of Clinton appointees before the klieg lights, often to quibble about their memories of arcane details. D'Amato, it seems, has never met a Whitewater question that didn't deserve a full week of televised hearings. Except one.

In the opening round of Whitewater hearings in August 1994, D'Amato pounced on a line of questioning that Sen. John Kerry, D-Mass., had begun with William Roelle, vice president of the Resolution Trust Corp. under President Bush. Roelle testified that word about the first Whitewater criminal referral, submitted on Sept. 2, 1992, quickly spread to top levels of the Bush administration. Roelle recalled that RTC chief executive Albert Casey mentioned getting a call from White House counsel C. Boyden Gray.

Gray, a gangly patrician and one of George Bush's fiercest partisans, wanted more information about the referral. September 1992 was the time when the Bush campaign desperately searched for a "silver bullet," a nasty scandal, to drop Democratic nominee Bill Clinton once and for all.

In mid-September, Bush's chief of staff, James A. Baker and Gray were discussing what to do with a rumor that Clinton had sought to renounce his U.S. citizenship while a Rhodes scholar at Oxford University, a smear that got national attention in early October, though it was completely baseless. (See The Consortium, March 28)

Roelle's testimony suggested that Bush's White House had its eye on Whitewater, too, as another "silver bullet." So Kerry asked the former RTC official to elaborate on what appeared to be an inappropriate inquiry by a political appointee about a criminal referral, which by law is secret.

No sooner had Kerry's question left his mouth than D'Amato bounced from his seat. The New Yorker objected that Kerry was out of order on the grounds that the query reached back into the prior administration. The slow-witted Democratic chairman, Donald Riegle of Michigan, sustained D'Amato's objection, presumably so he would appear impartial. Kerry relented.

But Roelle's testimony had pulled back a curtain on the origins of the Whitewater scandal, a part that has received remarkably little attention in one of the most over-covered stories of recent American history. What Roelle offered was a peek at the gritty behind-the-scenes political reality of how Washington scandals are made or unmade, regardless of their intrinsic merits.

Slip-Sliding in Arkansas

Without doubt, the Whitewater real estate deal was a sorry and sleazy affair. In 1979, Bill and Hillary Clinton seem to have plunged into the partnership to purchase 200 acres of forest land along the White River in the Ozarks with dollar signs dancing in their heads. Whitewater was a way to augment Bill Clinton's small salary as state attorney general and meet Hillary Clinton's desire for a family nest egg. Their partners, Jim and Susan McDougal, were a freewheeling business duo always on the look-out for a quick buck.

Hillary also was dabbling in the commodities markets, profiting off the advice of lawyer-friend James Blair, who worked for Tysons Foods. Hillary Clinton parlayed a $1,000 original investment into $99,537 and closed her account just before a market crash. In 1980, Bill Clinton was elected governor and began to build a national reputation.

In the years that followed, the Whitewater Development Corp. floundered, hit by a slack demand for vacation property. It passed through a series of shady bank loans as the Clintons and the McDougals stayed one step ahead of foreclosure. McDougal bought a small savings-and-loan called Madison Guaranty, which made other risky loans to his friends. Like many S&L owners freed by de-regulation, McDougal gambled his investors' money and lost. The Madison clean-up cost the U.S taxpayers about $50 million.

In 1989, the Republican U.S. Attorney in Little Rock, Charles Banks indicted McDougal on fraud charges, but after an eight-day trial, a jury acquitted McDougal. The late 1980s were kinder to the Clintons, however. Bill Clinton's political career brought talk of a possible presidential bid, and Hillary Clinton's law practice at the prestigious Rose firm prospered. But the Whitewater land deal didn't. It remained a financial nuisance.

Whitewater surfaced as a nuisance, too, in Clinton's presidential campaign. On March 8, 1992, Jeff Gerth of The New York Times wrote a dense front-page story about the land deal and its connection to the failed thrift, Madison Guaranty. Typically, Bill Clinton brushed the question aside with the unsatisfying explanation that Whitewater lost money.

Gerth's story had other consequences inside the RTC. According to a chronology prepared by RTC criminal investigator L. Jean Lewis, the Gerth article prompted "inquiries regarding these ties ... from RTC Investigations in Washington, D.C., and the former Director of the Tulsa (Okla.) Consolidated Office" to the Kansas City office where Lewis worked. Though a criminal review of the Madison case was not scheduled until late 1992, it was advanced to April 1992 with a team of investigators dispatched to Little Rock.

To Republicans, Lewis's determination to link the Clintons to the Madison failure has made her a hero of the Whitewater case. But she is also an acknowledged conservative with a strong animus toward Clinton. Her accounts of her investigations have left troubling questions about whether she cut corners to promote a political cause.

For instance, the exact genesis of the Madison investigation doesn't square with her story. The Tulsa director, Virginia Kingsley, told me in a telephone interview that she had no recollection of either reading the Gerth story or ordering a follow-up. RTC was unable to supply me any written documentation to support Lewis's account. (The other initiator in Lewis's version was Jon Parnell Walker who committed suicide on Aug. 15, 1993, before the Whitewater story broke.)

But whatever her reasons, Lewis went to extraordinary lengths to dig up dirt on Whitewater and Madison. For several weeks, she pored through the warehoused Madison files in Little Rock, but could find nothing to connect Whitewater with the Madison failure. Despite Madison's relatively small size, Lewis returned for a second in-depth search in late April 1992.

Finally, Lewis discovered a tenuous link between Whitewater and Madison. "Included in one of the development work sheets marked 'Maple Creek Farms' was an item denoting a $30,000 charge to Whitewater for the cost of an engineering survey," Lewis wrote in her chronology. "This was the first indication of a relationship between [Madison] and Whitewater beyond the existence of the Whitewater checking account" at Madison.

A 'Silver Bullet' Named Clinton

In summer 1992, as Clinton won the Democratic nomination and built a double-digit lead over Bush, Lewis put the finishing touches on the Madison criminal referral. The new referral sought a full-scale federal investigation of "an alleged $1.5 million check-kiting scheme between McDougal and/or McDougal business partners controlled entities, including Whitewater," Lewis wrote. The referral was sent to the FBI and to U.S. Attorney Banks on Sept. 2, 1992.

Despite the supposed secrecy of a referral, word of the Madison case spread along the Bush administration's political grapevine. That is why the testimony of RTC vice president Roelle was significant. If the White House counsel had called RTC chief Albert Casey to inquire about a secret criminal referral, the act would suggest that the Bush re-election team was considering an illegal act, either pushing a political prosecution to embarrass Clinton or leaking the news as a dirty trick.

For his part, Gray denied to me that he discussed the Madison case with Casey. And Casey declined requests to be interviewed. But Roelle's testimony about improper Bush pressure on bank regulators did not stand alone.

RTC official, Michael J. Koszola, testified before the Senate in 1993 that the RTC was riddled with political favoritism. "Before the presidential election in 1992, the RTC/OIG (Office of Inspector General) was actively seeking criminal or other negative information from RTC/OIG special agents on the Clinton family," Koszola recalled.

Gray's hand could be found in other politically sensitive inquiries, too. William Seidman, former chairman of the Federal Deposit Insurance Corp., wrote in his book Full Faith and Credit that in 1990 Gray asked about the possibility of moving the Silverado complaint against Neil Bush, the president's son, from the tougher Office of Thrift Supervision to a friendlier venue in federal court.

Gray's inquiry led to a inspector general's investigation, but no official sanction against Gray. "Here was a neat little story for some investigative reporter," Seidman wrote. "I could even write the headline: 'White House Tries to Influence Neil Bush Case.'"

White House Dirty Trick?

While the Madison criminal referral was winding its way through Justice and the FBI, Bush's White House and State Department were manufacturing another "silver bullet" with Bill Clinton's name on it. Baker was talking again with Gray about what could be done to search Clinton's passport records for a rumored letter about renouncing his citizenship.

That strategy led an assistant secretary of state, Elizabeth Tamposi, to order aides to paw through Clinton's files on the night of Sept. 30, 1992. They never found the apocryphal letter, but they did discover a slight tear and staple holes in the corner of Clinton's passport application.

The little tear led the State Department to make a criminal referral to the FBI over the wildest speculation that some Clinton friend might have tampered with the file to remove the letter. Though there was no evidence to support this fantasy, the Bush people promptly leaked the referral to Newsweek which put out the story on Oct. 4.

That Newsweek item , in turn, gave Bush an opening to pound Clinton again for his supposed lack of patriotism. But this time, congressional Democrats got wind of the dirty trick and blew the whistle. The FBI also rejected the "staple hole" referral and the passport gambit boomeranged.

The Madison-Whitewater referral never got that far. In the campaign's final days, U.S. Attorney Banks complained to the FBI that he was being pressured to initiate criminal proceedings. But Banks said he refused to seek an indictment because the Madison-Whitewater case was weak and an indictment right before the election could be "prosecutorial misconduct." Like the passport case, Whitewater was a dud, not a "silver bullet."

After Bill Clinton became president, however, Lewis groused about the failure of the Little Rock U.S. attorney to "offer any standard response to the [Madison] referral." But on March 19, 1993, Justice's criminal division agreed with Banks that the RTC referral does not "appear to warrant initiation of a criminal investigation."

But Lewis saw a cover-up. According to her chronology, the RTC intensified its probe of Madison in spring 1993 by diverting investigators from other cases. On Oct. 8, 1993, this intense RTC investigation prompted nine more criminal referrals against the McDougals and their business associates. Not surprisingly, those referrals were leaked to The Washington Post, which disclosed them on Oct. 31. A press frenzy followed.

By the end of 1993, the Whitewater scandal had become a Washington cause celebre, with dark suggestions of murdered witnesses and dirty secrets in the hills of Arkansas. But when a Republican special prosecutor, Robert Fiske, poured cold water on some of the overheated theories, conservatives in Washington demanded his removal. A conservative-dominated three-judge panel in Washington complied, replacing Fiske with a conservative legal activist named Kenneth Starr.

Meanwhile, Lewis decided to develop her own evidence of a cover-up. To that end, one of her assistants lured an RTC official from the civil division to Lewis's Kansas City office, where Lewis secretly tape-recorded the largely innocuous conversation. Lewis turned the tape over to Starr, and Republicans made a public issue out of some ambiguous language.

Inside the RTC, however, the trickery caused Lewis some grief. She was disciplined for secretly tape-recording a colleague. She responded by claiming that the tape recorder had turned itself on. Lewis later repeated this highly implausible claim under oath before Congress.

A Media Stampede

Also lost in the media stampede of late 1993 and early 1994 was any sense of proportionality about the charges. Without doubt, the Clintons deserved criticism for their clumsy influence-peddling in Arkansas. But no previous President ever had his pre-election finances scrutinized as Clinton had -- and there were legitimate questions about how Ronald Reagan's land sales had built his wealth or how George Bush had dealt with the notoriously corrupt Mexican national oil company.

But by early 1994, the Republicans felt their "silver bullet" was finally ready to fire. When I called a senior Republican staff aide on Capitol Hill, the aide boasted about Whitewater's potential. "We think we can indict and convict everybody who was close to Clinton in Arkansas," the GOP aide exulted.

The Republicans even had plans for former Sen. J. William Fulbright, a Clinton mentor who had some business deals with McDougal. "We hope to make Fulbright the Clark Clifford of Whitewater," the GOP aide said. The aged Fulbright, however, died before the Whitewater investigation could bring him disgrace.

But the fate of others from Clinton's Arkansas circle has matched the Republican's prediction. Associate Attorney General Webster Hubbell was convicted of over billing at the Rose Law Firm. Clinton's successor, Gov. Jim Guy Tucker, is on trial now with Jim and Susan McDougal for fraud charges. Still others have faced personal bankruptcy from the cost of lawyers.

Despite its murky history and uncertain direction, Republicans still hope Whitewater can drain public enthusiasm away from Clinton as it did in 1994 -- and maybe swallow him in a muck of suspicion. Whitewater may be a meandering route to Bob Dole's election in November, but it may be the Republican's best course. In the meantime, D'Amato, waist deep in the Big Muddy, wants Senate permission to keep pulling the lumbering Whitewater vessel ahead into summer.

(c) Copyright 1996 -- Please Do Not Re-Post

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