This entry contains information applicable to United States law only. Whitewater is the name given to the scandal involving President Bill Clinton, First Lady Hillary Rodham Clinton, members of the Clinton administration, and private individuals and public officials in Arkansas. Though the alleged wrongdoing took place before Clinton was elected president in 1992, investigations by an independent counsel continued into Clinton's second term of office. As with President Richard M. Nixon's Watergate scandal, the focus of the independent counsel's investigation shifted from the underlying event to the question of whether the president and members of his administration participated in a cover up. The role of Hillary Clinton in all of these events also became a target of investigators. As in Watergate, the Whitewater scandal quickly became politicized. Democrats accused Republicans in Congress as well as the Republican independent counsel of conducting a political witch hunt.
Whitewater is the name of a failed resort development on the White River in the Ozark Mountain region of Arkansas. In 1978 Bill Clinton, then Arkansas attorney general, and Hillary Clinton joined a partnership with James and Susan McDougal to form Whitewater Development Corporation, a real estate development firm that built vacation homes near the White River. When Clinton was elected governor that year, he appointed James McDougal his top aide.
In 1980 Clinton lost his re-election race. McDougal bought the Madison Bank and Trust in 1980 and in 1982 purchased a small savings and loan company and renamed it Madison Guaranty. In 1982 Clinton was again elected governor.
By 1984 Madison Guaranty Savings and Loan was in financial trouble, with federal regulators questioning its lending practices and its financial stability. Under Arkansas law, the state's securities commission could have closed Madison Guaranty. However, in January 1985, Clinton appointed Beverly B. Schaffer to head the commission. She approved two stock sale plans to raise money to keep Madison Guaranty solvent. Madison had retained the Rose Law Firm of Little Rock to help it secure approval of its stock sale applications. Hillary Clinton, the wife of the governor, worked as an attorney at Rose and was also a partner of McDougal in the Whitewater development. In addition, McDougal held a fund-raising event for governor Clinton in 1985 to help pay off a Clinton campaign debt. Investigators later determined some of the money was improperly withdrawn from depositor funds.
Despite the stock sales, the bank failed to raise enough capital, and by 1986, the Resolution Trust Corporation (RTC), the federal agency responsible for handling savings and loan failures, took over the bankrupt thrift. McDougal was charged with bank fraud. Four years later, McDougal was acquitted of the charge, based on an insanity defense. Meanwhile, the Whitewater development proved a financial disappointment, providing the Clintons with losses rather than profits. The Clintons sold their interest in the Whitewater corporation before Bill Clinton was sworn in as president in 1993.
The Whitewater scandal is grounded in these events of the 1970s and 1980s. It appeared that McDougal had been helped by his business partner Hillary Clinton, the wife of the governor. She had appointed the securities commissioner who allowed the failing thrift institution to stay open. By the time Bill Clinton was running for president in 1992, the national news media was investigating whether favors had been granted and conflicts of interest had been overlooked in apparent disregard for Arkansas state law.
The news media and members of Congress pursued Whitewater during the first months of Clinton's presidency. The July 1993 suicide of Deputy White House Counsel Vincent Foster heightened interest in Whitewater, as Foster had several links to it. Foster had worked at the Rose Law Firm with Hillary Clinton, had handled the sale of the Clintons' interest in Whitewater, and had talked to an attorney who had previously prepared a report for the Clintons on the investment just hours before his suicide. Finally, after Foster's death, White House staff removed Whitewater files from Foster's office. Critics suspected that the removal of files was part of a White House cover up, while others speculated that Foster had been murdered to prevent the disclosure of damaging information.
In October 1993, the RTC asked the Department of Justice to investigate whether Madison's funds had been illegally siphoned into the Whitewater corporation and whether Madison illegally gave money in 1985 to pay off Clinton's campaign debt. Though President Clinton steadfastly denied any wrongdoing by himself or the first lady, Attorney General Janet Reno came under intense pressure to appoint an independent counsel. She at first refused, noting that the independent counsel law had expired in 1992 (5 U.S.C.A. § 1211). Any counsel appointed by her would appear to be politically tainted.
Nevertheless, in January 1994, Reno appointed Robert B. Fiske, Jr., a former U.S. attorney and Wall Street lawyer, special prosecutor to investigate the Clintons' involvement in Whitewater and any potential links between Foster's suicide and his intimate knowledge of the Whitewater scandal.
Fiske surprised the Clinton Administration in March 1994 by serving subpoenas on White House and Treasury Department officials. The investigation had shifted from one solely concerned with past deeds in Arkansas, to one that included current official behavior. Fiske discovered that senior Treasury Department officials, who oversee the work of the RTC, had discussed the Madison Guaranty probe with White House Counsel Bernard Nussbaum and other aides. This appeared improper, as it is highly unusual for regulatory agencies to discuss their probes with the parties they are investigating. As a result, the Treasury Department officials resigned.
Despite this embarrassment, the Clinton administration was pleased with Fiske's first report, issued in June 1994. He concluded that Foster's suicide had nothing to do with Whitewater and that the Treasury Department and White House meetings were not illegal. Fiske's report recommended that no criminal charges be filed and generally supported the administration's position on Whitewater.
During the summer of 1995, Senate and House committees held hearings on Whitewater. The hearings were mostly concerned with the propriety of the Treasury-White House meetings. The committee reports that followed cleared administration officials of any wrong- doing.\
The course of the special counsel's investigation changed dramatically in August 1994. In July Congress had enacted the Independent Counsel Act (28 U.S.C.A. §§ 591-599), which meant that a three-judge panel of the U.S. court of appeals had to appoint an independent counsel for Whitewater. Attorney General Reno sought to have Fiske appointed, but the three-judge panel refused, citing a possible conflict of interest because he had been appointed by Reno, a member of the Clinton Administration. Instead, the panel appointed Kenneth W. Starr, a Bush administration solicitor general, a former federal appeals court judge, and a conservative Republican. Starr reopened all aspects of the investigation and reissued a subpoena for the Rose law firm billing records of Hillary Clinton. The first lady informed Starr that the records could not be located. In April 1995, Starr interviewed the Clintons privately.
In January 1996 Hillary Clinton's billing records were found on a table in the White House residence book room after two years of searching. An aide claimed she had found them in August 1995 but did not realize their significance until coming across them again. The discovery of the records was met with skepticism, with Starr subpoenaing Hillary Clinton in a criminal probe to determine if the records were intentionally withheld. The first lady testified before a grand jury about the billing records.
Meanwhile, a Senate Special Whitewater Committee, chaired by New York Senator Alfonse D'Amato, conducted hearings in the last half of 1995, examining Whitewater and Foster's suicide, and the actions of White House staff. In June 1996, the committee divided along party lines in making its final report. Republican senators concluded that White House officials abused their power by trying to monitor and derail investigations of the Clintons, and that Hillary Clinton may have obstructed justice by concealing the Rose law firm billing records. Democratic senators dissented, finding no evidence to support the Republican allegations.
In 1996 President Clinton testified on videotape in two Arkansas criminal trials brought by Starr's prosecution team that concerned bank fraud. In the first trial James and Susan McDougal and Arkansas Governor Jim Guy Tucker were convicted of fraud and conspiracy in connection with questionable loans made through Madison Guaranty. In the second case bankers Herby Branscom, Jr., and Robert Hill were acquitted of illegally using bank funds to reimburse themselves for political contributions, including contributions to Clinton's gubernatorial and presidential campaigns.
Starr continued to investigate Hillary Clinton's role in the Rose law firm's work for Madison Guaranty and the missing billing records. She had stated several times she had done little work on Madison, but at least one associate in the firm disputed her accounts. In 1997 Starr subpoenaed the notes of government attorneys who had met with the first lady prior to her grand jury testimony. The White House refused to comply with the subpoena, arguing that disclosure would violate the confidentiality of the attorney-client relationship. Starr took the matter to court and won court approval to enforce the subpoena from the Eighth Circuit Court of Appeals. In re Grand Jury Subpoenas Duces Tecum, 78 F.3d 1307 (1996). The appeals court agreed with Starr, ruling that the government attorneys were not the first lady's private counsel, but rather administration officials. Therefore, there was no attorney-client relationship and the notes were ordered surrendered. When the Supreme Court refused to hear an appeal from the Clinton Administration on this issue, the notes were given to Starr.
In 1997 Democrats and the Clinton administration escalated their criticisms of Starr and his investigation, arguing that Starr's conservative Republican affiliation had tainted the objectivity of the probe. Starr's credibility was hurt by his announcement in February 1997 that he would leave his position to become dean of the Pepperdine College law school and the head of a new public policy school. The new school was funded by a conservative Republican with ties to persons who had asserted a White House conspiracy concerning the death of Foster and subsequent events. Starr, who was criticized for leaving an unfinished investigation, reversed his decision, announcing he would not take the Pepperdine positions until the probe was concluded. Even Senator D'Amato was critical of this reversal, concluding that Starr's indecision about staying hurt his credibility.
