WHY THE RENO-FREEH SPAT RUNS DEEP

By Michael Duffy/Washington

Every time Attorney General Janet Reno tries to close the door on the case against Bill Clinton and Al Gore, something else slips out. Which is exactly what happened last week when a new piece of paper threatened at the last minute to upend Reno's conclusion that the President and the Vice President did nothing wrong when they dialed up donors for cash. This time the lead came not from news reports or Republicans but from Democrats. Just days before, Democratic National Committee lawyers turned over a document prepared for D.N.C. finance chairman Alan Solomont that named 30 fat cats who, in exchange for a telephone call from the White House, might be lured onto the party's finance board. The price of entry: a donation of $100,000 or a promise to raise $250,000. Next to each name was a tiny box indicating whether the call should be made by Clinton or Gore.

Reno's team immediately telephoned the donors themselves: Had they heard from Clinton or Gore? Was there a pitch for hard money or soft? The hurried checking continued right until Tuesday morning--just hours before Reno announced her decision. As it turned out, Solomont never sent the document to the White House. But the last-minute scramble over a belatedly discovered document was just another reason Reno's own FBI has clamored openly for an independent counsel to investigate the entire mess.

Reno refused to take that step last week, saying she did not yet see evidence that the President or the Vice President had broken any laws. Republicans immediately condemned Reno as a White House stooge, but the real damage to the Attorney General was internal. Her decision exposed a private fight with FBI Director Louis Freeh, who believes Reno has an inherent conflict of interest when it comes to probing her boss. And it may have emboldened some Justice officials into broadening the investigation to explore a simple but far-reaching premise: that the Democrats engaged in a widespread conspiracy to evade the nation's weak campaign-finance laws.

For more than a year Reno has viewed the scandal as a series of narrow, unrelated legal questions, not a massive plot. That's partly because Reno's a careful prosecutor and partly because the stories of Asian money, fake donors and trading favors for cash have often dribbled out in incomprehensible pieces. But Reno's reluctance to view these parts as belonging to a larger whole may also be the product of the curious way she has managed the department's internal probe. Three months ago, Reno brought in Assistant U.S. Attorney Charles LaBella from San Diego to shake things up, but there was a catch, officials told TIME. Reno put LaBella in charge of the Asian connection and many other suspected campaign-law violations but kept a department veteran, public-integrity chief Lee Radek, in charge of pursuing the most politically sensitive question: whether Clinton and Gore broke the law with their dialing for dollars.

This division of labor has bred a lot of resentment. Reno has created two competing teams of prosecutors. Add to that FBI agents who, like Freeh, believe that an independent counsel is the wisest course, and the result is a squabbling muddle. Lines of responsibility are blurred. LaBella has tried to maintain a "detente" with Radek, but as a Justice Department official puts it, "it's not warm and fuzzy between them." The disputes are left for Reno to settle, which she does, but only after free-for-all senior staff meetings.

The chaos spilled into the open as Reno prepared her decision on the White House phone calls. Arguing on one side was Radek, who advised against an outside counsel. On the other was LaBella, who said Radek's legal reasoning amounted to "pablum." Last Tuesday, before her announcement, Reno tried some shuttle diplomacy. She took a hard-to-miss walk across Pennsylvania Avenue to FBI headquarters, both to consult Freeh and to be seen consulting him. And Reno was careful to say a few hours later that the investigation proceeds. Just where it will lead has a lot to do with whether Labella pushes Radek aside--and whether Reno lets him.

Already, LaBella has let it be known that he is closing in on the Asian-money connection, eyeing transactions by Charlie Trie, Pauline Kanchanalak and Johnny Chung, all of whom may have raised funds for the Democrats from overseas sources. Those cases could help LaBella tighten the screws on fund raiser John Huang, who enjoyed the closest ties with White House officials, including Clinton and Gore.

But as long as Reno resists appointing an independent counsel, she may be doomed to second-guess her own decisions. Just last week her aides said they were reopening another aspect of the case Reno has already closed. Justice investigators want to probe whether "issue ads" prepared by the d.n.c. and the White House in 1995 were Clinton campaign ads in disguise. If so, such ads would violate campaign giving and spending rules. Reno rejected that idea in the past, but release of White House videotapes of fund-raising events--including footage of Clinton boasting about a legal end run--have prompted investigators to take another look. Reno's likely to be doing a lot more of that, each time her department--or anyone else--turns up another surprise.

--Reported by Viveca Novak, Elaine Shannon and Michael Weisskopf/Washington

With reporting by VIVECA NOVAK, ELAINE SHANNON AND MICHAEL WEISSKOPF/WASHINGTON