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THE INSTRUCTIONS TO WHITE House aides in the Friday-evening memo were chillingly specific. All computer records were to be preserved. No "burn bags," normally used to handle papers earmarked for destruction, would be removed. "If you have any doubt about whether a particular document is called for. . .," wrote deputy presidential counsel Joel Klein, "you must save it."
The Whitewater affair entered a new and potentially explosive realm last week. Suddenly, the mind-numbing tales of obscure land dealings and state-capital intrigue are something more alarmingly recognizable. Each day's revelations unfolded with queasy familiarity, carrying hints of cover-up: stories of shredded documents; subpoenas served on presidential aides; talk of congressional hearings; the forced resignation of the White House counsel, whose parting letter to the president snipes bitterly at ". . . those who do not understand, nor wish to understand, the role and obligations of a lawyer." It all finally raises the question: is Whitewater a chronic case of political ineptitude and inattention to appearances, or the biggest legal mess to enmesh the White House since Iran-contra? Or is it both?
Inside the administration there is a looming sense that its entire domestic agenda is at risk. At a time when the president's health-care-reform plan is facing serious setbacks, questions involving Hillary Rodham Clinton's Whitewater role (page 24) have diminished her effectiveness as its most passionate defender. A messy series of congressional hearings now appears inevitable. Democrats on the Hill have told the administration that holding off Republican demands any longer would jeopardize Clinton's legislative plan. The only question, says one top aide, is "how open-ended the hearings will be, and whether the Republicans will learn from the Democrats' mistakes on Iran-contra." Those mistakes include granting immunity in exchange for testimony, a strategy that compromised criminal prosecution of Iran-contra figures. As the week wore on, glum aides worried about how they would afford pricey criminal attorneys. The New York Times editorialized that it had not seen such casual disregard for ethics since the Nixon era. "That," said one senior White House official, "went through my gut like a sharp knife."
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So far, no one has proven any criminal wrongdoing. But with a three-year lease on a Little Rock office, a burgeoning staff of ambitious prosecutors and a grand jury in Arkansas ready to hear evidence, special counsel Robert Fiske has made it clear that he intends to pursue the case wherever it might lead. As Klein's directive circulated on Friday night, FBI agents acting on Fiske's orders served six senior Clinton aides and four current and former Treasury Department officials with subpoenas to appear in federal court on Thursday. Those summoned include some of the president's top advisers, like deputy chief of staff Harold Ickes and Treasury Deputy Secretary Roger Altman. Another subpoena called for any information on what appears to be a series of grossly inappropriate contacts between White House aides and federal investigators examining Madison Guaranty, the Arkansas S&L that foundered in 1989. Its former owner, James McDougal, was Bill and Hillary Clinton's partner in Whitewater, the unsuccessful vacation-home development on northern Arkansas's White River. Fiske's volley of subpoenas came as Whitewater claimed its first Washington casualty: presidential counsel Bernard Nussbaum. The former Wall Street litigator, a principal player in a string of political misadventures from Zoe Baird to the firings in the White House travel office, finally lost the support of his patron and legal soul mate, Hillary Clinton.
It is possible Fiske may yet come up with hard proof that the Clintons knew of funds passing illegally from Madison to Whitewater or to Clinton's 1984 gubernatorial reelection campaign. The Clintons also could conceivably face civil actions stemming from Madison's losses, or back taxes on Whitewater land transactions. And the First Lady's stature will almost certainly be tarnished by her decision to represent her friend and Whitewater partner James McDougal before a state regulator appointed by her husband. But far more troubling than any Whitewater revelations have been the White House's attempts to conceal and control the story. Like a string of administrations before them, the Clintonites ignored the cardinal rules of Washington scandal management: dispose of damaging information early, and don't look as if you have something to hide.
THE MOST STARTLING NEW REVELATIONS involve Little Rock's Rose Law Firm, where Mrs. Clinton was a partner from 1977 to 1992. Once a staid and respected white-shoe practice, it is looking more like a real-life version (minus the mob ties and mayhem) of Bendini, Lambert & Locke, John Grisham's fictional firm set 140 miles to the east in Memphis, Tenn., where document shredding and overbilling of clients were prevailing practices. According to The New York Times, a Rose courier told a Little Rock grand jury that he and a colleague used a shredder in the firm's basement earlier this year to destroy files belonging to Whitewater's most tragic figure-former Rose partner and White House counsel Vincent Foster. Before his death by suicide last July (a finding also being reviewed by Fiske), Foster had handled a variety of private legal matters for the Clintons, including the sale of their interest in Whitewater.
The account described how document dumping at the firm accelerated as Clinton edged closer to the presidency. Rose managing partner Ronald Clark said it was to protect clients from reporters caught scavenging trash behind the firm's building. Law firms shred documents all the time, for reasons no more nefarious than to free up storage space. Rose says the only Foster-related documents destroyed were internal materials such as notes from firm committee meetings. But given the circumstances of Foster's suicide and the suspicion surrounding it, why rush to shred anything at all? According to the Times account of the courier's testimony, the shredding took place on or around Jan. 20, when Fiske became special counsel. One of his first moves was to serve notice on Rose that all documents relating to Foster be preserved. If relevant documents were destroyed after Fiske's order, the firm could be in serious trouble. Clark would not return phone calls.
Rose took another hit last week when The Washington Post reported that the firm is investigating Associate Attorney General Webster Hubbell, an ex-partner, for overbilling clients. Hubbell, Clinton's golfing buddy and the third-ranking official at the Justice Department, denies any impropriety. He believes he's the victim of a vendetta waged by younger partners angry over Rose's Whitewater notoriety. But law-firm documents obtained by NEWSWEEK suggest that Hubbell may well have overbilled the government while suing Madison's former accountants. In one instance, he charged the government his $140-an-hour partner rate for a call that a likely witness in the case says was made by a Rose paralegal.
But the most damaging development by far was last week's disclosure that senior Treasury Department officials briefed Clinton aides at least three times in the last five months concerning the regulatory agency's investigation into Madison Guaranty. The Resolution Trust Corporation (RTC) is an ostensibly independent agency charged with recovering funds lost by insolvent S&Ls. But vacancies in the senior ranks forced Treasury officials to cross over to take care of RTC business.
Altman, acting RTC chairman, told the Senate Banking Committee on Feb. 24 that he arranged a "heads-up" session for Nussbaum and other aides on how the agency would proceed with potential civil claims regarding Madison. He also told the panel he knew of no other contacts between the White House and regulators. But last week the White House confirmed reports of two other liaisons. On Sept. 28, Treasury counsel Jean Hanson briefed Nussbaum on RTC's plans to refer its Madison investigation to the Justice Department for criminal action. Moreover, she told Nussbaum, the Clintons were mentioned in the document-not as investigative targets but as potential beneficiaries of Madison misconduct.
Such documents, known as criminal referrals, are normally kept confidential from potential subjects or others who might compromise the investigation. Hanson, who reported to Altman, seems to fit the description. Treasury sources say she got her information from William Roelle, then RTC senior vice president, who declined to comment. What Nussbaum did with the information supplied by Hanson is not known. Fiske will surely want to find out.
Altman, a favorite of the Clintons', is expected to survive the fallout, although his contention that he was unaware of the other gatherings is a stretch. "He'll have to eat this for a while, but he's OK," says one White House aide. Hanson may be another story. She sat next to Altman during last month's Senate hearing and did nothing to correct the record when her boss-inadvertently or not-misled committee members. "She's going to get it straight in the eye," says one Treasury source.
Word of the RTC meetings all but sealed Nussbaum's fate. As the week went on, said one White House aide, there was "a growing tom-tom on this. You could just hear the drums." A combative corporate litigator, Nussbaum never developed the fingertip political touch necessary for survival in Washington, where appearances count for everything. His poor judgment in the aftermath of Foster's death (withholding a note from investigators, shipping Whitewater records to the Clintons' private attorney) only inflamed suspicions.
AT A FRIDAY-MORNING MEETING, Clinton finally agreed with aide George Stephanopoulos, chief of staff Mack McLarty and Ickes that Nussbaum had to go. Later that day, signals were sent in the usual Beltway shorthand: Clinton passed on several opportunities to defend him. At a 5 p.m. Oval Office meeting, he fired him. Even then, Nussbaum was reluctant to go. To soften the blow, McLarty offered him a 30-day grace period. Sources tell NEWSWEEK that Washington attorney Charles Ruff, a candidate for attorney general last year, leads the list of possible replacements.
Before last week's parade of subpoenas, Clinton seemed to be in sound political condition. A Washington Post-ABC News Poll found him with the highest approval ratings of his presidency, 58 percent. It also showed that Americans have more confidence in Democrats than in Republicans to handle the country's problems. But with the advent of a formidable prosecutor and bipartisan momentum for bearings, that margin could well dwindle. That's because Whitewater is no longer a periodic irritant. It is trouble.
Vince Foster is found dead on July 20, an apparent suicide. Investigators are miffed when, two days later, Nussbaum claims Foster's files without disclosing their contents. Nussbaum later finds a note in Foster's briefcase but waits 30 hours before turning it over.
After denying knowledge of Whitewater files found in Foster's office, the White House admits some files were sent to the Clintons' lawyer, David Kendall. House Republican Jim Leach calls for hearings to study the affair. Under pressure, Clinton orders the files to be handed over. But it's soon revealed that justice was already preparing a subpoena and that Kendall negotiated a broader subpoena in order to seal more documents from public inspection.
After damage-control efforts fail, Clinton asks Reno to name a special counsel. A week later, Fiske (right) is appointed.
Reports appear of document shredding at the Rose Law Firm. Jeremy Hedges (right) testifies before a Whitewater grand jury that he shredded documents marked with Foster's initials. Before Congress, Altman admits he briefed senior White House aides, including Nussbaum, on the status of the RTC investigation into the collapse of Madison Guaranty. Press reports then detail earlier meetings between White House aides and Treasury officials to discuss the RTC investigations.
Clinton pledges to build a "firewall" between the White House and federal agencies examining Madison. Ten White House aides and Treasury officials who discussed the RTC probe are subpoenaed to appear before a Whitewater grand jury. Nussbaum resigns.
The photomontage captioned "The Lawyers" that accompanied our March 14 cover story "Whitewater Torture" included a photo of Treasury Deputy Secretary Roger Altman, the acting chairman of the Resolution Trust Corporation. Altman is not, in fact, a lawyer. NEWSWEEK regrets the misidentification.
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