The Electronic Telegraph Sunday 11 December 1994 World News
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Whitewater could engulf the Clintons, reports Ambrose Evans-Pritchard in Washington
DECEMBER is the cruellest month for Bill and Hillary Clinton. Last year it was the Troopergate scandal, which gave the world a devastating glimpse of life inside the Arkansas governor's mansion. This year it is the criminal indictment of some of their friends and associates in the first phase of the Whitewater investigation.
Hopes of political rehabilitation for America's First Couple were dashed the moment Webb Hubbell lumbered into a federal court in Little Rock on Tuesday and pleaded guilty to felony counts of false billing of clients and tax evasion.
Mr Hubbell had been a pivotal figure in the first year of the White House administration of the former Arkansas Governor, running the Justice Department from behind the scenes as assistant attorney-general. He had also been Hillary Clinton's partner at the Rose law firm in Arkansas. The two of them had a joint securities brokerage account called "Midlife Partners", along with the late Vince Foster.
Mr Hubbell's guilty plea was yet another indication of a disturbing culture in the circle around Mrs Clinton. But the question that has everybody on tenterhooks is what Mr Hubbell plans to tell Kenneth Starr, the special prosecutor, in exchange for lenient sentencing. He could get as much as 10 years in prison - or as little as six months in a halfway house. It is widely believed that he is co-operating extensively, revealing the inner workings of the Clinton machine.
But not everybody agrees that he will "roll over" so easily. "He'll fall on his sword and go all the way down the blade rather than betray Bill Clinton," said a lifelong friend of Mr Hubbell. The old friend described him as a kindly, gentle bear of a man who had no interest in money himself but cut corners to meet the extravagant demands of his wife's powerful Arkansas family. If he talks, Mr Hubbell may be able to shed light on some suspicious goings-on after the inauguration of Bill Clinton as President in 1993.
First is whether or not the Justice Department tried to quash a criminal referral from the Treasury to the Justice Department that mentioned the Clintons.
Second is whether the unprecedented decision to fire all US prosecutors around the country in early 1993 was a tactical manoeuvre to distract attention from the fact that the US Attorney in Little Rock was being sacked and replaced by Paula Casey, a friendly Clinton campaign worker who showed no appetite for pursuing the Whitewater property and money scandal.
In other words, did the White House try to orchestrate a major cover-up?
WHITEWATER has been dragging on for so long that it is hard to remember what the scandal is all about. Superficially it is a "nickel and dime" affair, a 1978 property investment that lost money and served as a tax write-off for Mr and Mrs Clinton. But those who have studied Whitewater closely suspect that the property partnership may have been a conduit for illicit money.
Jim Leach, incoming chairman of the House Banking Committee, believes money was skimmed from an Arkansas savings and loan bank, Madison Guaranty, and diverted into the Whitewater account. Madison went bankrupt in 1986, costing taxpayers about $60 million (#39 million). Federal regulators had wanted to close it down, but it was kept open by state regulators appointed by Governor Clinton.
The owner of this "piggy bank" was Jim McDougal, the partner of Bill and Hillary Clinton in the Whitewater deal. Mr McDougal has been notified by the Whitewater special prosecutor that he is the target of multiple investigations. His lawyer expects an indictment.
A property surveyor has also pleaded guilty to inflating values for Madison Guaranty - a sign that the Starr investigation is pursuing a "bottom-up-strategy" that picks off minor players and forces their co-operation.
The Clintons say they were passive investors in Whitewater and played no role in the day-to-day finances. They also deny using their political muscle to keep Madison Guaranty afloat.
There is also a contentious $300,000 loan from the Small Business Administration, a federal agency that makes subsidised loans to under-privileged groups.
The money was lent to Mr McDougal's wife, even though she was not eligible. About $100,000 made its way into the Whitewater account. The rest disappeared. None of the money was ever repaid. The US taxpayer had to foot the bill.
Judge David Hale, who authorised that loan, has alleged to the Special Prosecutor that it was a scam cooked up by Mr McDougal and Governor Clinton in order to get an emergency infusion of funds.
Judge Hale is now in the witness protection programme and has been living outside Arkansas for safety reasons. An Arkansas state trooper, L. D. Brown, has also given testimony that corroborates the gist of the judge's allegations.
If the accusation is true - and both Mr Starr and the former prosecutor, Robert Fiske, have treated the allegation with great seriousness - it amounts to a conspiracy to defraud the federal government. It is possible that the statute of limitations for criminal liability has passed, but that is far from certain.
These allegations are the heart of what was originally known as Whitewater. But the tentacles of the scandal keep reaching ever further into new areas of the commercial and political life of Arkansas.
The special prosecutor is now looking into the mysterious assassination of Jerry Parks in 1993. He was the man who provided building security for the Clinton-Gore headquarters in Little Rock during the US Presidential election campaign.
The Starr investigation is spreading its net wide. It is looking at money-laundering allegations, with possible links to narcotics trafficking. Dennis Patrick, a Kentucky truck-driver first interviewed by The Sunday Telegraph in May, has been flown to Little Rock for extensive interrogation.
Tens of millions of dollars - one figure has it as exactly $107 million - were put through a fictitious account in his name at Lasater & Co, a brokerage house in Little Rock. Dan Lasater, a major moneyman for Bill Clinton, was convicted for "social distribution" of cocaine in 1986.
The Arkansas Development Finance Authority is coming under scrutiny. It was set up in 1985 by Mr Clinton as a hip-pocket bank under his direct control, and raised more than $300 million a year for housing loans.
Warren Stephens, chairman and chief executive officer of the multinational investment house Stephens Inc, based in Arkansas, told The Sunday Telegraph that the Arkansas Development Finance Authority was created as a financial instrument to steer patronage to Lasater & Co. Attempts to verify the exact amount of the Arkansas Development Finance Authority's business brokered by Lasater have been met with polite but persistent obstruction by all the different parties involved.
The West Coast FBI, which includes the Las Vegas office, has also been conducting its own longstanding investigation of alleged bank fraud by Mr Lasater and his associates.
There is also a separate probe involving the Internal Revenue Service and other agencies in an organised-crime task force that is looking into money-laundering in Arkansas and related off-shore bank accounts.
Investigations are raining down from all sides. In addition, congressional hearings will soon be opening in Washington.
A big difference this time is that the Republicans will control the House and Senate Banking Committees. They will have subpoena power. Documents that were withheld last summer will have to be provided by the federal agencies.
The Senate expects to start hearings in late January. The focus will be limited at first to the raiding of Vince Foster's office in the White House on the night of his death and the mysterious removal of the files relating to Whitewater to the upstairs chambers of Hillary Clinton.
But it is likely to expand by degrees. Al D'Amato, the pugnacious chairman of the Senate Banking Committee, has on his desk a book called Compromised: Clinton, Bush, and the CIA, which has become a Bible for "Whitewater Rafters" intrigued by allegations of arms and drug-running in Arkansas in the 1980s. It is not yet clear how far Mr D'Amato intends to go in that direction.
Republicans are cautious about throwing themselves into Whitewater. Excessive zeal would be seen as vindictive.
Also, as one Senate staffer involved in the investigation said: "We don't want to kill Clinton. We want him alive but fatally wounded, so he's ripe for the picking at the next election."
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