Federal court resurrects tax-evasion case against Hubbell in Whitewater land deal

But judges require Starr to meet tough standards on use of key evidence

January 27, 1999|By Lyle Denniston | Lyle Denniston,SUN NATIONAL STAFF

WASHINGTON -- A federal appeals court, in the latest legal setback for President Clinton's confidant Webster L. Hubbell, revived yesterday a broad tax-evasion case against Hubbell that a judge had dismissed last summer.

At the same time, however, the court added a serious new complication to independent counsel Kenneth W. Starr's opportunity to win a conviction when the case goes to trial.

Starr, it indicated, may not be allowed to use Hubbell's financial records as evidence. Those 13,120 pages are the core of the case. But the court said Starr could use them only if he could prove he knew enough about them in advance that forcing Hubbell to turn them over would not amount to self-incrimination in violation of the Fifth Amendment.

Widening probe

In another facet of the complex ruling, the court broadly expanded the power of a special federal court to allow Starr to widen his probe if he requests it -- as he did in the Hubbell tax case. Any expansion, the appeals court said, would be allowed if it was a "reasonable" addition to anything Starr is already investigating -- a fairly easy standard to meet.

Hubbell, the court said, may have evaded taxes on consulting fees to cover up evidence that he was getting "hush money" -- that is, payments to ensure his silence or noncooperation with Starr's investigation of the Whitewater Arkansas land deal involving the Clintons, Hubbell and others.

That suspicion, the court said, tied the tax charges sufficiently to the investigation Starr already had authority to pursue in the Whitewater matter.

2-1 votes

All facets of the ruling were decided by differing 2-1 votes among the three judges on the panel.

Circuit Judges Patricia M. Wald and Stephen F. Williams were in the majority on Starr's power to investigate the tax case, and Circuit Judge David S. Tatel dissented. Wald and Tatel voted to limit Starr's chance to use the Hubbell records, and Williams dissented on that point.

Both parts of the ruling overturned a decision by U.S. District Judge James Robertson of Washington last July. The judge ruled that Starr had no authority to investigate Hubbell for tax evasion, and that Starr acted unconstitutionally in leveling charges on the basis of records Hubbell had been forced to hand over after being granted immunity from prosecution.

The court majority said Robertson was wrong on Starr's authority, and should reconsider the issue of whether Hubbell was forced to incriminate himself, using a different constitutional standard than Robertson had applied.

Hubbell and Starr have been jousting legally for nearly five years, and Hubbell has usually fared badly in those encounters. He has served 18 months in prison after pleading guilty to two counts of bilking his former Arkansas law firm and its clients, and has faced two separate, sweeping indictments -- the tax-evasion case, which was dismissed in July, and a charge of lying during another probe.

Implication of ruling

As a result of yesterday's ruling reviving the tax charges, Hubbell now faces the prospect of two trials, and potentially long prison terms if convicted. It was unclear whether either side would appeal the decision to the full appeals court or to the Supreme Court.

Hubbell told reporters he was pleased with the part of the new ruling that made it more difficult for Starr to prosecute the tax charges.

He said he was hopeful "that this matter will come to an end real soon." He added: "We're innocent, not only myself but my wife and my friends." In addition to Hubbell and his wife, Suzanna, their tax lawyer and accountant were accused in the case.

Hubbell is a longtime friend and golfing partner of Clinton and was the president's first deputy attorney general. A former law partner with Hillary Rodham Clinton in a Little Rock law firm, Hubbell pleaded guilty in 1994 to two counts of mail fraud and tax evasion based on his billing and expense account practices in the firm.

As part of that plea agreement, he was required to cooperate with Starr in the Whitewater investigation.

While Hubbell was in prison in 1996 on the basis of the 1994 guilty plea, Starr subpoenaed all of Hubbell's financial, business and tax records for three years. Starr had discovered that Hubbell was getting large sums as consulting fees, and suspected that this was "hush money" causing Hubbell to resist the Starr inquiry into Whitewater.

Hubbell refused to hand over the records, citing his Fifth Amendment right against self-incrimination. Starr then went to court and, in return for an immunity grant to Hubbell, got an order requiring that the records be produced.

Crucial records

It was with those records that the independent counsel mainly built his new tax-evasion case. Starr, in the meantime, had obtained permission from the special court that had named him to expand his Whitewater inquiry to include the new tax offenses.

Two months after the tax indictment, Judge Robertson threw out the charges, and Starr appealled to get them reinstated.

Last November, while the appeal was pending, Starr obtained a new, 15-count indictment of Hubbell for allegedly lying to federal banking regulators and the House of Representatives during investigations of another Arkansas savings and loan and land deal.

Those charges, which Hubbell has denied, have not yet gone to trial.

Pub Date: 1/27/99

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