'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
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
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
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
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
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.
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