LEGAL TENDER

By NANCY GIBBS AND MICHAEL DUFFY

Sometimes," President Bill Clinton mused on Friday afternoon, "there is a difference between what is legal and what ought to be done." And with that he offered a guided tour of Washington's favorite hideaway--the fertile, foggy valley that lies somewhere between what is wrong and what is illegal. You don't have to be a lawyer to get in, but it helps to think like one.

Hillary Clinton's top aide, Maggie Williams, was spending the day there in March 1995, when California businessman Johnny Chung walked into her White House office one morning and handed her a check for $50,000. It was just "a rather unusual circumstance," Clinton explained last week. She didn't actually ask Chung for the money as the price of admission to sit in on the President's radio address two days later. She wasn't "receiving" contributions on federal property; she was just passing them along. And she certainly didn't "solicit" them, which federal law forbids.

Or does it? Or did she? Chung's lawyer, Brian Sun, told TIME that Chung had approached Williams' aide Evan Ryan the day before, hoping to arrange a cozy lunch in the White House mess for some Chinese businessmen and a later meeting with the First Lady. Somehow the subject turned to Democratic Party needs. Ryan remarked that the President's party had to cover the costs of political events held by the First Lady at the White House, although Ryan "does not recall" that conversation. So Chung came back the next day and handed Williams that "unsolicited" $50,000 check for the Democratic National Committee. According to Sun, Chung did so with the understanding that it would help him gain access for his guests, who indeed dined in the mess and had their pictures taken with Hillary the next day.

But what makes last week's spectacle truly rich is that the President doesn't have to make excuses for Ryan or Williams. And as a lawyer, he doesn't even have to parse the legal delicacies of their actions. Based on what has come out so far, nothing they did that day or the next in the White House appears to have broken the law. What's more, when Vice President Al Gore sat in his office calling up businessmen whose careers and companies depended in part on decisions the White House could make, urging them to support his party's efforts, he wasn't breaking the law either.

The President and his top lieutenants behaved last week as if they were not fully aware of their good fortune. In one press conference after another, they tried to explain that they were proud of what they had done, and now that they had been caught, promised never to do it again. It was as if they had come to believe the headlines that implied someone might soon be going to jail, that Attorney General Janet Reno had no choice but to appoint an independent counsel.

But at week's end Reno was instead left struggling to explain that the problem was not how the laws had been broken but how they had been written in the first place. The rules covering fund raising on federal property, as amended over the years, are now so elastic that they are virtually impossible to break. The biggest loophole of all was the one nearly everyone missed--not that Gore was using a Clinton-Gore campaign credit card when he went dialing for dollars; not that the Hatch Act's limits on fund raising don't apply to Presidents and Vice Presidents; not that there is no case law (no "controlling legal authority," in the phrase Gore invoked seven times in 24 minutes) to proscribe his behavior. It was a loophole big enough to drive Air Force One, the Lincoln Bedroom, Johnny Chung and most of Gore's telephone logs through.

For days Reno had been meeting privately with her top lawyers to figure out if she had grounds to appoint an independent counsel. The fact that everyone from editorial-page editors to Trent Lott to Common Cause reformers was hollering for one meant little to her. Reno's critics were reading the independent-counsel statute; she was reading the criminal code. And she saw a big, fat exception to the law making it a crime to raise money on federal property. The loophole opened in 1979, when Congress inadvertently tightened the definition of "contribution" from money donated for "any political purpose" to the much narrower one of money donated "for the purpose of influencing any election for federal office." That retooling essentially made it a crime only to raise on federal property the small amounts of "hard money" that go straight to the candidates ($1,000 or less per donor) and exempted the huge amounts of "soft money" funneled to the parties.

Nothing sinister was at work. Soft money had hardly been minted in those days; lawmakers simply wanted to reconcile the wording in two different statutes. "They weren't trying to do anything sneaky," says Fred Wertheimer, former head of Common Cause. But even if the loophole was opened by accident, Reno and her lawyers concluded, the restrictions did not apply to the hundreds of millions of dollars in unregulated, soft-money contributions.

Reno didn't want to come right out and say so, for fear of looking like the President's personal defense lawyer. So she resorted to smoke signals at her press conference last week and hoped someone would get it.

"As you know," she said, "I've made it a practice not to comment on pending investigations, and I'm not going to do that now. But I think it's very important that as you make these allegations and as you portray them in television or on your headlines, you try to clarify just what the issues are." Then she proceeded to read the "significant" passages aloud in an effort, a Reno aide later explained, to say, "There is no crime here." Or at least not so far. "The plain fact of the matter," the aide says, "is that Congress changed this law and made it very easy to do a lot of fund raising at those buildings."

That doesn't mean the process is pretty to watch, which helps account for Gore's extraordinary performance last week. His suggestion that he wasn't pressuring donors for soft money struck other fund raisers as ludicrous. Given his position, they allege, the call itself is a form of shakedown. When a Vice President phones potential donors, the White House operator comes on the line and says, "Hold for the Vice President," or a steely-toned military aide barks, "Hold for Sawhorse," using Gore's code name. It's not as if they have much choice.

And then there's the concern about what Gore might be able to do if a donor refused. "Getting a call from Al Gore and getting a call from me are two completely different things," says Wayne Berman, who last year raised more soft money than any other Republican financier. "If I ask a guy for $100,000, the donor can tell me to go jump in the lake. When Al Gore does it, the donor can't say that, and he has to wonder, Does he have my privates in his hand? Now most people in Washington know that a Vice President can't do very much in the way of revenge. But the guy on the other end of the line doesn't know that."

Not until Monday, after reports of Gore's calls made headlines, did his counsel, Charles Burson, provide the triple-layered legal defense Gore recited so faithfully in his press conference: It wasn't wrong; it has been done before; I'll never do it again. When that wasn't enough, Gore made his stand on higher ground: he needed to be re-elected for the good of the country: "Our economy is roaring. Inflation is low. Crime is down." But the bulk of the press conference was a painful litany of legalisms and evasions and long pauses while his moral hard drive rebooted. "Everything that I did I understood to be lawful," the Vice President whirred. "I think the entire episode constitutes further reasons why there should be campaign-finance reform."

Just not in his lifetime. Ever since the revelations of Indonesian influence peddling and itinerant Chinese businessmen began dominating headlines last fall, Clinton and Gore have made a great show of support for the McCain-Feingold reform bill, which would ban soft money altogether. This is one time they can hide behind the bully pulpit, since the decision now rests with Congress.

With the exception of a few brave souls, the law- makers who would need to rewrite the laws have the greatest interest in preserving them. So whatever pleasure the Republicans felt in watching the White House thrashing was offset by fear that Senator Fred Thompson's investigation of campaign finance would wind up biting them too. After all, the Republicans raised $200 million more than the Democrats last year without Air Force One or any presidential bedrooms to proffer. And while Bill Clinton may have sold tickets to his radio address, a minority whip called Newt Gingrich in 1990 offered Republican donors special briefings at the Bush White House and a chance to consult on policy.

After much debate, the Senators last week struck a deal to make sure that Thompson never gets close enough to do them any harm. Only "illegal activities" during the 1996 race would come under scrutiny, which, we now know, takes the most unseemly hustling--all the soft money and all the independent expenditures--off the table and leaves only questions like whether Beijing secretly funded anyone's campaign.

In the meantime, Clinton appeared to be laying the groundwork for a disclosure of his own when he said he could not remember whether he too had solicited campaign money at the White House. The President seemed eager to avoid a trap of his own making, telling reporters he could not flatly rule out ever saying "while I was talking to them [supporters], 'Well, we need your help' or 'I hope you'll help us.'" But after the press conference, a White House aide told TIME that Clinton has been overheard asking donors in receiving lines and at informal gatherings for "support" and another longtime associate said Clinton had pitched for funds over the phone.

So after a week in which nearly everyone repented but no one confessed, things seemed to be returning to normal. A new independent counsel was, for the moment, a distant prospect. Janet Reno was content to let her own task force of 25 lawyers and FBI agents look into whether foreign money was funneled illegally into either party's coffers last year. "When the independent-counsel statute is triggered," Reno said once more, "I will take appropriate action." Even Kenneth Starr, the once and future Pepperdine law-school dean, was back in Little Rock, Arkansas, working an old angle: trying to discover how Indonesia's Lippo Group and seven other enterprises friendly to Clinton put his good pal, Webb Hubbell, on the payroll for a total of more than $400,000 after he resigned from the Justice Department in 1994. Starr wants to know if the White House or its agents urged Lippo and others with links to the Administration to hire Hubbell so he wouldn't cooperate with Starr's investigation into Whitewater.

Making that charge stick would be difficult. Starr would have to show that any White House-organized work for Hubbell was intended not simply to help an old friend but also to buy his silence. Obstruction of justice is hard to prove. But it is one of those things that are both wrong and illegal.

--With reporting by Karen Tumulty and Michael Weisskopf/Washington

With reporting by KAREN TUMULTY AND MICHAEL WEISSKOPF/WASHINGTON