RENO'S NEW FOCUS

By Richard Lacayo

Janet Reno's parents were both newspaper reporters. Her brother Robert is a columnist. So it's fair to suspect she has a journalist's instinct in her blood. That could explain what it was that got her last week to jump-start her department's investigation of campaign fund raising: sheer fury at being scooped. Earlier this month she read in the Washington Post that $120,000 in "soft money" solicited by Al Gore for general party activities last year had somehow found its way into "hard money" accounts that financed individual campaigns. Reno was outraged that reporters had uncovered this potential crime by using public records, papers her own Justice Department investigators possessed but somehow had not finished combing through. Determined not to be scooped again, last week she replaced the head of the slow-motion Justice Department probe and added 40 investigators to the team.

Reno had already launched a 30-day review to determine whether to ask for an independent counsel to investigate Gore. All by themselves, these developments would have moved the desultory Democratic fund-raising scandal out of the summer doldrums. But Reno has started moving on to the biggest target of all. Government sources told TIME that late last week the embattled Attorney General launched an inquiry centered on the President himself. Prompted by a task-force analysis that found the President's own telephone calls may have raised funds that ended up in proscribed "hard money" accounts, Reno opened a formal 30-day review into whether Bill Clinton may have violated the federal law against soliciting campaign money on official property.

All last week, nervous White House aides were wondering why they were getting so many requests from Justice for presidential phone records. Finally, sometime after 6 p.m. on Friday, David Kendall, one of Clinton's personal attorneys, phoned Reno's office and learned that the Attorney General had indeed taken the fateful step. Kendall then called White House counsel Charles Ruff. On Saturday afternoon, after TIME called for comment, the White House publicly confirmed the inquiry and promised its cooperation, adding, "We are confident that no laws were broken."

Under the terms of the Ethics in Government law, at the end of the initial 30-day review, Reno must determine whether the probe has dismissed the possibility of criminal conduct. If it hasn't, a 90-day preliminary inquiry must go forward. After that, if questions of fact or law remain, Reno will have no choice but to apply to a special three-judge panel for the appointment of an independent counsel. Reno has already made public the fact that she has started the 30-day clock ticking against Gore. The Vice President last week hired two lawyers, former Watergate prosecutors James Neal and George Frampton. The move comes just in time. Justice's 30-day deadline on the Gore review falls next week.

For Clinton, the mere prospect of an investigation means a serious deepening of his permanent state of legal siege. If Reno eventually calls for an independent counsel, this one would be the first to investigate Clinton himself, not just a member of his Cabinet or a wide-ranging mess like Whitewater that may or may not center on him. And unlike the Whitewater probe, with its endless sifting of a land deal that started in the days of sideburns and bell-bottoms, this one would be investigating actions that Clinton undertook while President.

For the battered, isolated Reno, all of this means a collision course with a President who brought her to Washington, then kept her at arm's length. Ever since April, when she declined a Republican request to appoint an independent prosecutor, she has lived and worked under a question: Was she merely protecting the President? By last week some Republicans in Congress were even suggesting that she should be impeached for not naming one. This kind of attention has been hard for Reno, who is so touchy about ethical appearances that she bought her car at list price so no one could say she got a special deal. It's harder still for a woman who has never been a favorite in Clinton's White House, and not just because she has a personal manner so impassive it makes Al Gore look like Jim Carrey. From her first months in the Administration, when she took responsibility for the tragedy at Waco, Texas, that her boss seemed to dodge, Clinton loyalists have complained that Reno had a way of burnishing her own reputation at the expense of the President's. One can imagine what their mood is now.

What prompted Reno to act was an analysis from the Justice-FBI campaign task force that landed on her desk in the second week of September. Alerted by the Post story on Gore's telephone solicitations, the task force decided to compare Clinton's phone logs with "call sheets"--memos drawn up by the Democratic National Committee to suggest telephone talking points with donors--and records of the Federal Election Commission that show where the money went. It discovered about a dozen links that look suspicious: call sheets preceding donations that landed partly in hard accounts. Staff members at the D.N.C. were shifting the cash because soft money, designated for general party-building activities, is easier to come by: donations aren't as strictly limited in size as they are with hard money for individual races. But moving that money pushed many donors, who had already made hard-money contributions, over their legal limits. Once it was apparent that Clinton's calls suggested the same problem as Gore's, Reno decided she could not treat the President any differently from the Vice President. She ordered the review. But she did extend the President one consideration. Though she promptly made public the Gore review, her office kept silent on Clinton's until TIME asked for official comment.

Just as with Gore, no analysis of the President's phone log can prove Clinton knew the D.N.C. staff was mingling hard and soft accounts. Gore has already said he didn't know about the practice. Then there is the question of whether Clinton's calls were made from the White House family quarters, a bit of hairsplitting required because of disputes over whether the residential areas of the Executive mansion qualify as space used for official government duties under the law in question. Most Democrats say no. Most Republicans say yes. A final dispute: whether a phoned request for money "occurs" where the President placed the call or where the would-be donor received it. Presuming that's at some nongovernment site, like the donor's home, Clinton would be in the clear.

It was in late 1995 that Clinton's aides pressed him into service to pay media bills for promoting his re-election. Harold Ickes, then his deputy chief of staff, handed him a list of 12 heavy hitters culled by D.N.C. fund-raising officials. Ickes returned with another list of 12 donors in the spring of 1996. Although Clinton promised both times to make calls, White House phone logs show he probably did not follow through on most names. All the same, some of the people identified in the presidential call sheets did send in checks. Some of what they contributed ended up in the D.N.C.'s hard-money account. But in many cases there is a considerable gap between the dates on the call sheets and the eventual donations. For example, call sheets obtained by TIME show that on Feb. 6, 1996, Clinton was urged to contact Gail Zappa, widow of the musician Frank Zappa. Whether or not the President made the call, five months later she contributed $30,000 to the D.N.C., of which $20,000 was shifted into the hard account.

For a while, the obvious distance between Clinton and Reno worked in his favor, if only because it was hard to believe she would betray her principles to shield a President to whom she didn't seem much attached. But her public vote of no confidence in her task force's probe makes it harder now for her to argue that a special counsel isn't necessary, despite her latest effort to whip the team into shape. Washington was surprised in March when Reno chose Laura Ingersoll, a lower-echelon prosecutor in the department's public-integrity section, to head the politically sensitive investigation. From the start there were tensions between Ingersoll and the FBI agents she worked with. Building on her experience with low-level government graft, she wanted to construct a step-by-step case, starting with small players like the Buddhist nuns who gave questionable donations at a Democratic fund raiser and leading from there to higher-ups. FBI Director Louis Freeh, through his man on the task force, Jeffrey Lampinski, was pushing to go simultaneously after top players, including Clinton, Gore and Ickes.

The investigation split into antagonistic camps, with Ingersoll and her allies from public integrity on one side, the FBI on the other. The FBI finally gained the upper hand over Ingersoll two weeks ago, in the wake of a second embarrassing episode that followed the Post's Gore scoop. Reno was infuriated to find out from cia Director George Tenet, rather than her own staff, about an important document that raised questions about Ted Sioeng, an Indonesian-born businessman who has lived in Los Angeles. The papers indicated that Sioeng may have acted as a conduit for money from the government of China. It was bad enough that the document had been misfiled in the bowels of Justice and the FBI. Then when Reno, Tenet and Freeh went before the members of two Senate committees to give a secret briefing on the document, Senators confronted the mortified Reno with questions that led her to discover even more internal bungles.

For Reno, that was the last straw. Last Tuesday she met with a select group, including Freeh, Eric Holder (the Deputy Attorney General) and a few others to plot a new course. Once it was decided that Ingersoll had to go, Freeh deputy Bill Esposito proposed Charles LaBella, the top career prosecutor in the U.S. Attorney's office in San Diego. In him Reno got someone from outside Washington who has experience in handling large investigations into government corruption. But Reno's critics lost no time in pointing out that LaBella also headed the spectacularly unsuccessful New York prosecution of Imelda Marcos in 1990. Worse, as far as Enemies of Bill are concerned, in San Diego he was the lieutenant of U.S. Attorney Alan Bersin, not just a Clinton appointee but an Oxford classmate who went on to run Clinton's 1992 campaign in San Diego. "That means nothing to me," retorts LaBella. "I'm a career prosecutor. I'm a straight shooter." He says Reno told him, "Where it goes, it goes. Get the job done."

Even if Reno remains unconvinced that she has a strong case against Gore or Clinton, she has a potential back-door route into the whole Democratic fund-raising mess. In August Reno began a 30-day probe of former Energy Secretary Hazel O'Leary. When that ended last week, the Attorney General decided to move on to the second, 90-day phase. The question in this case is whether O'Leary sold access for cash when a Washington lobbyist and one of O'Leary's assistants suggested that California businessman Johnny Chung donate $25,000 to O'Leary's favorite charity, Africare, in exchange for a meeting with the Secretary. If this investigation eventually results in a special prosecutor, Reno could add a wider-ranging probe of Democratic fund raising to the prosecutor's duties.

It would be a fascinating treasure hunt, no matter where it begins, if the performance of the swashbuckling Roger Tamraz is any indication. In his appearance last week before Senator Fred Thompson's investigating committee, Tamraz, an international businessman with a manner just this side of cocky, and sometimes just the other side, happily insisted that he paid for the President's ear. He is convinced, Tamraz said, that his $300,000 in campaign contributions to the Democrats got him into the party banquet where he briefly pitched to Clinton his idea for an oil pipeline across Central Asia. The President later asked his longtime aide Mack McLarty to look into it. Though he didn't get his pipeline, Tamraz told the committee, he was satisfied. "I think next time I'll give $600,000," he declared.

Nonetheless, the Senate hearings remain a mixed blessing for the Republicans. However much the Republicans have hoped to keep the focus on the dirty minds of the Democrats, the rest of the country keeps drawing the conclusion that they all do it. Republicans were discouraged last week by a Los Angeles Times national poll in which 70% of those questioned thought both parties were guilty of campaign-finance sleaze.

Sensing that they could lose whatever advantage the Democratic embarrassments have given them, Republicans have come around to the idea that they have to embrace campaign reform of some kind. Fred Thompson has decided to change the agenda of his committee over the next two or three weeks to focus on campaign financing in general, not just the sins of the Democrats. Meanwhile, Arizona Republican John McCain and Wisconsin Democrat Russ Feingold, sponsors of the reform bill, have offered a scaled-back version in the hope of gaining Republican support. It would still ban soft money, but not political-action committees. On Friday morning an agreement that would bring the bill to the Senate floor appeared to be within reach among Feingold, McCain and majority leader Trent Lott, the same man who just a few days before had declared there was "no chance" it would pass this year. But that bargain was scuttled in part because Lott still refused to set a date for bringing the bill to the floor.

Even if modified reform legislation does land there, it's still two votes short of what it needs for passage. And that number is 12 short of the total necessary to break a filibuster, which opponents of the bill have threatened. Now Republicans can also hope Reno will saddle the President with a special prosecutor, turning the whole focus of the scandals back on the White House. At a press briefing last week, Reno offered no hint of where she was headed. "No matter what I do," she said, "people say there are consequences." She never breathed a word about the task-force report on Clinton, but when she spoke the word consequences, it may have crossed her mind.

--Reported by James Carney, John F. Dickerson, Michael Duffy, Elaine Shannon and Michael Weisskopf/Washington

With reporting by JAMES CARNEY, JOHN F. DICKERSON, MICHAEL DUFFY, ELAINE SHANNON AND MICHAEL WEISSKOPF/WASHINGTON