Culture of Deception

By Michael Duffy/Washington

For the 29 current and former officials of the Clinton Administration who raised their right hands and swore to tell the whole truth and nothing but the truth, last Friday was supposed to be an end, not a beginning. They had already been interviewed by federal attorneys, testified to a grand jury, told their stories to a government ethics board and explained their actions to the White House counsel. In every instance, they had been cleared of wrongdoing. As they completed their disjointed testimonies in congressional hearings last week, senior White House officials were relieved to have put the half-year of scrutiny behind them.

But then, just hours after the hearings had come to a close, the nightmare began again. A three-judge panel in Washington stunned the White House by replacing independent counsel Robert Fiske, who had been chosen by Attorney General Janet Reno in January, with Kenneth Starr, a tough, conservative lawyer who served as solicitor general under George Bush. The panel, acting under a law passed by Congress earlier this year, wanted to guarantee that the Whitewater investigation would be truly independent.

While congressional Republicans had praised Fiske when he was first appointed, lately many of them have complained about a lack of aggressiveness in Fiske's investigation and his ties to some members of the Administration. Leading the chorus was Senator Lauch Faircloth of North Carolina, who pointed out last week that former White House counsel Bernard Nussbaum had once recommended Fiske for a job with the Iran-contra independent counsel.

The investigation's fresh start is certain to distract the already embattled Clinton Administration for another six months and to push the probe's conclusion into the middle of Clinton's 1996 re-election campaign. The official White House reaction to Starr's arrival was a polite, two-sentence statement of welcome. The real reaction was different. "This is awful," said a Clinton adviser.

Starr's arrival could also mean that the White House officials whom Fiske cleared of criminal wrongdoing in June may find themselves under fresh scrutiny. More time may have to be spent preparing for depositions. More money may have to be raised for legal fees. Contact between officials in different departments will remain out of bounds. "Jesus," said one of last week's key witnesses, "a new prosecutor means I might have to go all through this again." Another witness said simply, "It's Kafkaesque."

In fact, the tangled web was spun by the Administration itself. What emerged from more than 100 hours of complex testimony about the Whitewater scandal was evidence of a persistent pattern of deception among White House staff members. By last week it was clear that both Democrats and Republicans on Capitol Hill felt they had been misled by the Clinton White House. Roger Altman demanded that lawmakers believe his own recollections of meetings, rather than those of seven other officials who contradicted him under oath. Joshua Steiner, the 28- year-old Treasury chief of staff, insisted that his diary was no longer a reliable source of information. Senior policy adviser George Stephanopoulos, whose memory is legendary among his colleagues, used the expression "I don't remember" 31 times in his Senate deposition. The parade of failed memories, studied evasions and half-truths by White House aides goes a long way toward explaining why Clinton's presidency has stalled and why so many voters -- as well as the lawmakers on Capitol Hill who control the fate of his agenda -- don't trust the President or his men.

As seen on TV last week, the endless bits and pieces of testimony tended to give viewers a chaotic picture of what happened among Administration staff members. While many Americans think something improper took place, their appreciation of just how much of it went on has been blurred by White House accounts designed to keep the story contradictory and confusing. But when testimony and events uncovered by Senate investigators are assembled into a running narrative, the story paints a complex but disturbing portrait of a White House gripped by a culture of deception. TIME has reconstructed events of the key month of February to show how half a dozen Clinton aides, including those closest to the President and his wife, pressed officials at the Treasury Department and the Resolution Trust Corporation earlier this year to maintain or wrest control of the RTC's probe of Madison Guaranty, a failed Arkansas savings and loan linked to the Clintons.

At the end of that month, on March 1, after 28 days of maneuvering by sundry officials, White House Deputy Chief of Staff Harold Ickes forwarded a memorandum to the First Lady that sheds light on a central question of the Whitewater affair: What deep, dark secret would compel so many senior Administration officials to attempt intervention in a probe that should have been immune from politics? The memo, written by White House associate counsel Neil Eggleston, warned that the RTC could sue "the President and Mrs. Clinton" if Clinton's 1984 campaign "knowingly received diverted Madison assets" or if "the Clintons knowingly received other diverted Madison Guaranty assets through Whitewater."

Most likely, not a single White House official knows whether that happened. But just because it may be true, the Clintons' campaign-tested damage-control team swung into action in February. Even White House counsel Lloyd Cutler got into the act, withholding the Eggleston memo from lawmakers until last Monday night, releasing it only under pressure from Congress.

Like so much else about the Clinton operation, the February effort to steer the RTC probe was informal, haphazard and sometimes desperate. It appeared to accelerate every time Altman, who oversaw the RTC, tried to remove himself from management of the Madison probe. The key events:

FEB. 1. The Clinton damage-control team had one opening advantage: Roger Altman, a longtime friend of the President. As acting CEO of the RTC Altman was nominally independent, but as Deputy Treasury Secretary he was answerable to Clinton. On this day, however, Altman was about to tell White House officials he would recuse himself from any oversight of the Madison investigation. The reason was obvious: staying in place would create a conflict of interest as the RTC investigated a case involving his friend, the President. But stepping aside would mean that responsibility for the investigation would fall entirely to RTC general counsel Ellen Kulka, who had no ties to the Clintons. Kulka and Treasury counsel Jean Hanson had urged Altman to recuse himself. Treasury Secretary Lloyd Bentsen agreed but left the decision to Altman.

FEB. 2. Altman went to the White House, where he intended to present his / recusal at the conclusion of a meeting designed to bring Clinton aides up to speed on procedural aspects of the Madison investigation. But White House counsel Nussbaum urged Altman to stay. Nussbaum worried aloud that Kulka was a smart, tough lawyer. At the hearings last week, Hanson recalled Nussbaum saying that Altman, if he did not recuse, could impose "discipline on the process and lead to a fairer result." After the meeting, Nussbaum pulled Hanson aside and asked how Kulka had been hired. (During the hearings, Nussbaum denied making such an inquiry.)

FEB. 3. Altman called Margaret Williams, Mrs. Clinton's chief of staff, and asked her to assemble a group of people quickly so he could inform them of his decision. At a meeting in Williams' office, Altman told Nussbaum, Ickes and Eggleston he would not recuse himself. Hanson arrived at the meeting late, after Altman left, and learned then of her boss's decision. Hanson recalled that Ickes asked her how many people were aware that she had advised Altman two days earlier to step aside. When Hanson replied that only three people knew, Hanson said, Ickes pronounced this good. "If it gets out," she recalled him saying, "it will look bad." (Testifying under oath, Ickes could not recall saying this.) Later in the day, Altman told Hanson to tell Kulka to brief the Clintons' private attorney, David Kendall, on the RTC's probe. Kulka refused. Sometime that day, Nussbaum called Hanson and asked why Kulka's hiring had not been cleared with him.

FEB. 4. Nussbaum called Hanson again, this time with a new idea: Isn't it true, he asked, that the RTC could transfer its civil probe of Madison into the hands of special prosecutor Fiske, who had been chosen two weeks earlier by Reno to launch the criminal inquiry into Whitewater? If so, Nussbaum told Hanson, she might want to inform Altman, still fully in charge of the Madison case, that such a transfer was possible under Fiske's charter. (Under oath, Nussbaum recalled suggesting this to Hanson, but insisted that he did so to help Altman get out of his conflict-of-interest problems.)

FEB. 5. Hanson called the RTC's Kulka at home the next day with Nussbaum's request. Kulka brushed her off, telling Hanson that while Nussbaum was correct about the charter, Fiske didn't want any part of the civil case.

THE WEEK OF FEB. 14. New worries emerged. Clinton aides began to hear that the RTC had hired the law firm of Pillsbury, Madison & Sutro to investigate the < Madison civil case. The White House was particularly interested in the participation of Pillsbury partner Jay Stephens, a former federal prosecutor appointed by Ronald Reagan and a vocal critic of the Clinton Administration.

FEB. 23. More bad news. Two weeks earlier Congress had extended until December 1995 the statute of limitations for civil lawsuits against those associated with the collapse of insolvent thrifts -- a group that potentially included the Clintons. At this point, Altman told Ickes he would be stepping down as interim RTC chief when his term expired March 30. With the deadline for lawsuits extended, the White House had only five weeks to find a suitable replacement for Altman.

FEB. 24. In testimony before the Senate Banking Committee, Altman was asked to list the contacts between Treasury and White House officials about the Madison case. Though the actual number was more than 20 by this point, Altman recounted only the Feb. 2 session, omitting the fact that his recusal came up in that session. Hanson, who had had more of these contacts than Altman, sat behind her boss and failed to correct his testimony. Eggleston, who also attended the Feb. 2 session, left the hearing and called the White House with a report on the shortcomings in Altman's testimony.

Senate investigators believe Altman's performance triggered a White House reaction. During the next 24 hours, Hanson recalls, she had at least three separate conversations with Steiner and a fourth with Eggleston regarding the Madison probe. Neither Hanson nor Senate investigators can pinpoint the order or the timing of the calls, but Hanson maintained last week that Steiner told her that his calls were prompted by the White House. As Hanson said in her deposition, "I don't know who."

Eggleston phoned Hanson to ask how Stephens was hired; Steiner called Hanson to ask if there was anything "irregular" in the way Stephens was hired. At this point, Hanson testified last week, Steiner reported to her that the White House wanted Stephens disqualified. (Last week Steiner could neither remember nor deny the conversation.) Yet another time, Hanson testified, Steiner told Hanson that he thought Kulka should be fired for hiring Stephens.

FEB. 25. Faced with losing control over the RTC probe, White House panic reached a peak. In a conversation with a New York Times editorial-page editor, Altman announced publicly that he was recusing himself from the Madison case immediately -- a month earlier than the end of his term. This put Kulka, the lawyer Nussbaum feared, in charge. Meanwhile, Stephens, the hated Republican, was doing some of the legwork, and there was no deadline in sight for filing a case. An angry Stephanopoulos called Steiner and complained about the manner of Altman's recusal as well as the Stephens appointment. Steiner reported in his diary a few days later, "George then suggested to me that we needed to find a way to get rid of ((Jay Stephens)). Persuaded George that firing him would be incredibly stupid and improper."

It was around this time that Ickes, in a one-on-one chat, told Clinton about Stephens' new role as RTC sleuth. Clinton, Ickes admitted in his deposition, was "gravely concerned." In testimony last week, Ickes hastened to add that Clinton did not direct him or anyone else to do anything about Stephens' appointment. Stephanopoulos and Ickes later called Altman from Stephanopoulos' office and complained about "the manner" of Altman's recusal. During this conversation, Altman maintained last week, Ickes and Stephanopoulos pressed Altman to remove Stephens. Later Altman told Steiner, who was in the room during the call, that Ickes and Stephanopoulos must be "crazy" to try to pressure him to remove Stephens. Testifying under oath last week, both Stephanopoulos and Ickes denied telling Altman to get rid of Stephens. "I never directed anyone to impede with that investigation in any way," said Stephanopoulos.

FEB. 28. With Altman out and Stephens not budging, the hunt for a new RTC chief began. Associate counsel Eggleston completed a six-page memo, addressed to Ickes but bound for Hillary Clinton, in which he asked, "Now that Mr. Altman has recused himself from further involvement in the Madison Guaranty matters, who at the RTC will be the decision maker on whether to bring a civil action arising out of the failure of Madison Guaranty?" Noting that the White House would soon nominate a replacement for Altman, Eggleston added, "If the person refuses to recuse and is confirmed, then that person will become the decision maker." (Eggleston said last week that he presumed anyone Clinton appointed would "be forced" to recuse himself.)

Veteran bank regulator John Ryan is now the acting chief of the RTC and Bentsen has promised to name a permanent CEO quickly. But there are likely to be farewells soon. Altman is a marked man, seeming too anxious to please his White House superiors but less than candid with the Banking Committee. Also departing soon may be Hanson, too slow to correct Altman's Senate testimony and too quick to do Nussbaum's bidding. Steiner's odds of survival are better, but Treasury Secretary Bentsen may want to sweep clean.

What got the White House in trouble in the first place was that it worried too much about people it could not control at the RTC: first Altman, then Kulka, then Stephens. Now, partly as a result of seeking control, the White House has lost control. And it has Kenneth Starr to worry about.

With reporting by Nina Burleigh and Suneel Ratan/Washington and Michael Kramer/New York