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McDougal Indicted for Silence on Whitewater Investigation

By Susan Schmidt and Peter Baker
The Washington Post
WASHINGTON

Susan McDougal, the former Whitewater business partner of the Clintons who has refused for nearly two years to testify before a grand jury about the president's financial dealings, was indicted Monday by independent counsel Kenneth W. Starr on charges of criminal contempt and obstructing his investigation.

The indictment, handed up by the Little Rock Whitewater grand jury just days before it is set to expire, includes a new allegation: that McDougal obstructed justice by refusing to answer questions about a cryptic handwritten note she wrote on a $5,081 check in 1983 that said "Payoff Clinton." McDougal was also charged with two felony counts of contempt for twice refusing to testify - in 1996 and again last month - despite a court-ordered grant of immunity.

The indictment could mean years more behind bars for the 43-year-old McDougal. She has already served 18 months for civil contempt for refusing to testify in Starr's investigation, is just starting a two-year term for a bank fraud conviction Starr won against her in 1996 and faces a state trial in California on unrelated embezzlement charges.

McDougal has refused to testify about the Clintons' financial dealings, she has said, because Starr is trying to force her to falsely implicate the president and the first lady. If she doesn't do so, McDougal insists, Starr will charge her with perjury.

Minutes after Monday's indictment, Starr's spokesman told reporters outside the federal courthouse in Little Rock that President Clinton had "inject[ed]" himself into the feud between McDougal and prosecutors. "The Office of Independent Counsel requested that the president urge his former business partner, Mrs. McDougal, to testify truthfully before the grand jury. That request was rejected," said Starr aide Charles Bakaly, adding that Starr wrote to the White House counsel's office five separate times after hearing Clinton refer in interviews to Starr's efforts to obtain McDougal's testimony.

But lawyers for Clinton quickly bristled at the suggestion that the president had implicitly encouraged McDougal to stay silent, with White House counsel Charles F.C. Ruff calling that idea "reckless and irresponsible."

Some legal experts called the indictment heavy-handed, and McDougal attorney Mark Geragos said of Monday's indictment, "Not only is it unprecedented, it's shameful." Geragos argued that Starr "has got no business investigating anything to do with Whitewater," citing allegations that the independent counsel has a conflict of interest related to charges that cooperating witness David Hale was paid off by conservatives.

Geragos dismissed the handwritten notation Starr's office produced about Clinton as "more of their nonsense, I'm sure."

The new charges against McDougal come as Starr wraps up the Arkansas phase of his long-running Whitewater inquiry. The grand jury in Little Rock is scheduled to expire Thursday, and Monday's action follows by less than a week a new tax evasion indictment of Webster L. Hubbell, another Arkansan who has figured centrally in the long-running Whitewater investigation. However, Starr has another grand jury in Washington that will continue to hear Whitewater testimony.

Starr's prosecutors have been frustrated in their efforts to gain the cooperation of both Hubbell and McDougal as they investigate real estate dealings involving the Clintons and legal work that Hillary Rodham Clinton did for the McDougals' now-defunct savings and loan, Madison Guaranty, owned by Susan McDougal and her late husband, James B. McDougal.

Prosecutors have tried to learn whether the Clintons told the truth about those dealings under oath, including President Clinton's videotaped testimony at the McDougals' 1996 bank fraud trial. Clinton said then he had no role in helping Susan McDougal obtain a fraudulent $300,000 loan, part of which went to benefit the Whitewater Development Corp., which was jointly owned by the Clintons and the McDougals. Clinton also testified he never had any loans or financial dealings with Madison Guaranty.

Included in the indictment is a partial transcript of McDougal's appearance before the grand jury two weeks ago, during which prosecutors questioned her about the $5,081 check, drawn on her then-husband's account and signed over to Madison Guaranty. The memo section of the check had the notation "Payoff Clinton."

Prosecutors told McDougal they were interested in the check because it relates to Clinton's videotaped trial testimony.