The Special Committee's Whitewater Report

Majority Report
Of The Special Committee
To Investigate Whitewater
Development Corporation
And Related Matters

CONTENTS

PART 1: THE FOSTER PHASE 8

Conclusions of the Special Committee 13

Background 39

Summary of the Evidence 63

Findings of the Special Committee 168

PART 2: THE WASHINGTON PHASE 254

Conclusions of the Special Committee 259

Conclusions of the Special Committee on the Discovery of the Rose Law Firm Billing Records 291

Background 303

Summary of the Evidence 309

The Handling of Federal Investigations 309

The White House Intervention in Federal Investigations 359

White House Interference with Congressional Inquiries 420

The Rose Law Firm Billing Records 446

PART 3: THE ARKANSAS PHASE 556

Conclusions of the Special Committee 560

Summary of the Evidence 582

Whitewater Development Corporation 582

Governor Clinton and James McDougal 634

Governor Clinton and Dan Lasater 697

David Hale and Capital Management Services 716

Perry County Bank and the 1990 Clinton Campaign 724

Endnotes for Part One

Endnotes for Part Two

Endnotes for Part Three

PREFACE

On May 17, 1995, the United States Senate, by a vote of 96-3, adopted Senate Resolution 120, which established the Special Committee to Investigate Whitewater Development Corporation and Related Matters (hereinafter the "Special Committee"), to be administered by the Committee on Banking, Housing, and Urban Affairs (the "Banking Committee"). Resolution 120 charged the Special Committee with the responsibility to conduct an extensive investigation into and to hold public hearings on specified matters relating to the President's and Mrs. Clinton's investment in Whitewater Development Corporation ("Whitewater") along with James and Susan McDougal, Madison Guaranty Savings and Loan Association ("Madison Guaranty"), and related matters.

In discharging its responsibilities under Resolution 120, the Special Committee deposed 274 witnesses and held 60 days of public hearings, during which 136 witnesses testified. The Committee also reviewed approximately 1 million pages of documents produced by the President and Mrs. Clinton, the White House, various federal agencies, and a number of individual witnesses.

Resolution 120 authorized the Committee to investigate and to hold public hearings into three general subject areas. Section 1(b)(1) authorized investigation into whether White House officials engaged in improper conduct in handling papers in Deputy White House Counsel Vincent Foster's office following his death on July 20, 1993--the so-called Foster Phase of the Special Committee's inquiry.

With respect to the Washington Phase of the inquiry, Section 1(b)(2) authorized investigation into whether the White House improperly interfered with any investigations or prosecutions by various federal agencies relating to, among other things, Whitewater, Madison Guaranty related entities, and Capital Management Services, Inc. ("CMS").

Finally, in the Arkansas Phase, § 1(b)(3) of Resolution 120 authorized the Special Committee to investigate, among other things, the activities of Whitewater, Madison Guaranty, CMS, Lasater & Co., and the work and billing practices of the Rose Law Firm relating to Madison Guaranty. 1.

The Foster Phase.

During the 103d Congress, the Banking Committee, pursuant to Senate Resolution 229, conducted an inquiry into the cause of Mr. Foster's death and the conduct of the subsequent investigation of his death by the United States Park Police. On July 15, 1994, Special Counsel Robert B. Fiske, Jr. advised the Banking Committee that "public hearings on the subject of the handling of documents in Mr. Foster's office while this investigation is continuing could prejudice our investigation."1 Accordingly, the Banking Committee's public hearings on July 29, 1994 into the cause of Mr. Foster's death excluded inquiry into the handling of documents in Mr. Foster's office.

At the conclusion of the Banking Committee's hearings in the summer of 1994, the following matters, among others, were identified for future inquiry relating to Mr. Foster's death:

*

the White House interference into the Park Police search of Mr. Foster's office;

*

the presence of White House counsel staff during standard Park Police investigatory interviews;

*

the White House insistence that the Park Police investigation proceed with Department of Justice involvement to the extent that DOJ was "calling the shots" and "setting up protocol" and the Park Police were "stand[ing] and waiting for permission to do our job"; and

*

the late delivery of the note in Mr. Foster's office to Park Police, discovered by White House counsel.2

On April 22, 1995, Independent Counsel Kenneth W. Starr advised the Chairman and Ranking Member of the Banking Committee that his investigation would not be hindered or impeded by a Senate inquiry into the way in which White House officials handled documents in Mr. Foster's office following his death.

Accordingly, the Special Committee commenced its investigation and public hearings into whether White House officials engaged in improper conduct in handling documents in Mr. Foster's office at the time of his death. The Special Committee recognizes that Mr. Foster's death remains a source of much grief to his family and friends. In conducting its inquiry under section 1(b)(1) of Resolution 120, the Committee sought to balance carefully the need to protect the privacy of the Foster family and its duty to carry out fully the mandate of the Senate. 2.

The Washington Phase.

Resolution 120 directed the Special Committee to review the handling of several federal investigations relating to the Whitewater real estate venture; Madison Guaranty McDougal's S&L, the failure of which cost American taxpayers more than $60 million; and CMS, a small business investment company owned by David Hale, who made illegal loans to James and Susan McDougal in part to finance the Whitewater investment. Specifically, section 1(b)(2) of the Resolution authorized the Special Committee to conduct an investigation and public hearings into the following matters:

(A)

whether any person has improperly handled confidential Resolution Trust Corporation ("RTC") information relating to Madison Guaranty or Whitewater, including whether any person has improperly communicated such information to individuals referenced therein;

(B)

whether the White House has engaged in improper contacts with any other agency or department in the Government with regard to confidential RTC information relating to Madison Guaranty or Whitewater;

(C)

whether the Department of Justice has improperly handled RTC criminal referrals relating to Madison Guaranty or Whitewater;

(D)

whether RTC employees have been improperly importuned, prevented, restrained, or deterred in conducting investigations or making enforcement recommendations relating to Madison Guaranty or Whitewater; and

(E)

whether the report issued by the Office of Government Ethics on July 31, 1994, or related transcripts of deposition testimony --

(i) were improperly released to White House officials or others prior to their testimony before the Committee on Banking, Housing, and Urban Affairs pursuant to Senate Resolution 229 (103d Congress); or

(ii) were used to communicate to White House officials or to others confidential RTC information relating to Madison Guaranty or Whitewater.3

In conducting the inquiry mandated during this so-called "Washington Phase" of the investigation, the Special Committee examined whether the President and Mrs. Clinton -- or their agents -- misused the power of the presidency in responding to a series of investigations of the Whitewater matter. As in the past, the Senate sought to serve as the public's watchdog, to expose abuses of the public trust.

Of necessity, the Special Committee inquired into the investigative and prosecutorial processes of Executive Branch agencies to determine whether the laws were properly and faithfully executed. Congress has a duty to investigate allegations that the normal investigative and prosecutorial processes of the Executive Branch have been compromised.4 More important, Congress has the constitutional obligation to ensure that the President's private interests have not been elevated above the public good. 3.

The Arkansas Phase.

This is the beginning of the Whitewater matter. In this phase of its inquiry, the Senate charged the Special Committee with investigating the complex web of intermingled funds, fraudulent transactions, political favors, and conflicted relationships which comprise the "20 years of public life in Arkansas" that Mrs. Clinton did not want an independent counsel, among others, to look into.5

Specifically, Section 1(b)(3) of Resolution 120 authorized an investigation and public hearings into the following matters:

(A) the operations, solvency, and regulation of Madison Guaranty Savings & Loan Association, and any subsidiary, affiliate, or other entity owned or controlled by Madison Guaranty Savings and Loan Association;

(B) the activities, investments, and tax liability of Whitewater Development Corporation and, as related to Whitewater Development Corporation, of its officers, directors, and shareholders;

(C) the policies and practices of the RTC and the Federal banking agencies (as that term is defined in section 3 of the Federal Deposit Insurance Act) regarding the legal representation of such agencies with respect to Madison Guaranty Savings and Loan Association;

(D) the handling by the RTC, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the Federal Savings and Loan Insurance Corporation of civil or administrative actions against parties regarding Madison Guaranty Savings & Loan Association.

(E) the sources of funding and the lending practices of Capital Management Services, Inc., and its supervision and regulation by the Small Business Administration, including any alleged diversion of funds to Whitewater Development Corporation;

(F) the bond underwriting contracts between Arkansas Development Finance Authority and Lasater & Company; and

(G) the lending activities of Perry County Bank, Perryville, Arkansas, in connection with the 1990 Arkansas gubernatorial election.

These various subjects, seemingly disparate, are nevertheless woven together by common and recurring themes of abuse of power, fraud on federal institutions and theft of public funds, and frequent neglect, if not deliberate disregard, of professional, ethical, and, at times, legal standards.

* * *

The Special Committee completed its task under Resolution 120 in a bipartisan manner. With few notable exceptions, the Special Committee conducted its investigation and public hearings by mutual consent between the Chairman and Ranking Member, thus obviating the need for votes by the Special Committee.

Because the testimony of witnesses before the Special Committee was often contradictory, incomplete, or inaccurate as to important events and actions, the Committee placed particular emphasis on available documentary evidence. Unfortunately, throughout its inquiry, the Committee was hindered by parties unduly delaying the production of, or withholding outright, documents critical to its investigation. Although the White House was most often and most notably engaged in this course of action, the pattern of noncooperation extended to other parties, as this Report lays out more fully in the Washington Phase of the Special Committee's inquiry.

This Report of the Special Committee is divided into three separate but interrelated parts. Part 1 focusses on the Foster Phase of the inquiry, into whether White House officials engaged in improper conduct in the handling of documents in Mr. Foster's office at the time of his death. Part 2 summarizes the Special Committee's investigation into the Washington Phase and discusses the handling of federal investigations into Whitewater and related matters, the Administration's attempts to interfere with these investigations, and the White House's attempts to interfere with Congressional inquiries into the Administration's alleged improprieties. Part 3 centers on the Arkansas Phase and details the transactions and activities that comprise Governor Clinton's web of political, personal, and business relationships--a web that includes, among others, Whitewater, Madison, CMS, James McDougal, David Hale, and Danny Ray Lasater. Each Part begins with a separate, detailed outline and concludes with respective endnotes.

These three parts are interrelated because the entire story of Whitewater is not simply the sum of its parts. Rather, seeping through the pages that follow are clearly identifiable patterns of motivation, conduct, and, at times, concealment. Beyond discrete judgments of impropriety in particular instances, therefore, the Special Committee has examined the evidence and reached conclusions that transcend any individual persons, actions, or events but rather illuminate patterns of conduct behind the Whitewater affair.

The Conclusions of the Special Committee are summarized at the beginning of each Part. They do not answer all questions and allegations that have surfaced, but, taken together, they provide a comprehensive survey of the facts uncovered by the Special Committee in its 13 months of investigation. And they offer a full, fair, and often troubling picture of the inner workings of government that the Senate, by an overwhelming mandate, charged the Special Committee to present to the American people.


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