The FBI has begun a preliminary investigation to determine whether Attorney General William French Smith's acceptance of a $50,000 severance fee from a California steel company violated the law and requires the appointment of a special prosecutor.
Under the special prosecutor provisions of the Ethics in Government Act of 1978, the Justice Department must start a preliminary investigation whenever "specific information" is received charging that a senior official may have violated a federal law.
Because this case involves the attorney general, and his two top deputies have recused themselves, officials said the FBI will report its findings to Solicitor General Rex Lee.
Spokesmen for Smith and the FBI declined to comment on the matter.
The inquiry began last month after a press report about the $50,000 Smith received as severance pay for serving on the board of directors of the Earle M. Jorgensen Co.
Officials said yesterday that the Justice Department's Office of Professional Responsibility received a complaint about two weeks ago. It alleged that Smith's receipt of the money might violate a federal law that prohibits certain salary supplements to federal officials.
In addition, officials said that attorneys at the Office of Government Ethics, the independent agency that oversees the required financial disclosure forms from senior federal officials, concluded that the office could not approve Smith's acceptance of the $50,000. One official said the finding reached by staff attorneys and an outside consultant was passed on last Thursday to Kenneth W. Starr, Smith's senior aide, and then Smith decided to return the money.
Thomas P. DeCair, Smith's spokesman, disputes this account. He said last night that when J. Jackson Walter, the head of the ethics office, called Starr, "He gave no indication he decided anything. He only asked if the attorney general was considering any action about the money."
When Smith announced last Friday that he would return the $50,000, he said, "I am voluntarily eliminating those features of his financial disclosure that have been the basis of concern."
Smith said he didn't feel the action was "required by propriety or law," but that he was returning the money because he wanted to avoid "even an inaccurate appearance of impropriety."
He also said he would not take about $100,000 in tax deductions from two tax shelters the Internal Revenue Service and tax authorities had described as adventurous.
Officials said the FBI investigation of the $50,000 will focus on whether the company intended to give the money to Smith to supplement his federal salary. Section 209 of the federal criminal code prohibits a federal official from getting compensation for his government services from sources other than the government. Previous Justice Department legal opinions have disapproved similar severance payments.
In his statement last week Smith said the severance payment was given for "past not future services" to the Jorgensen firm, including his work on an audit committee. The $50,000 fee is more than Smith made during his six years as a director and the three years he served on the firm's audit committee.
John F. Watkins, senior vice president for administration for the Jorgensen company, said that retiring outside directors have been given "a fine gift," generally a gold watch, but that this was the only time the company has given a cash severance to an outside director.
Watkins said yesterday that he was interviewed recently by FBI agents and that he and other company officials were cooperating with the preliminary investigation. "We are answering their questions. We are working with them," he said.
If the FBI investigation finds no evidence of criminal conduct, Smith still faces an internal inquiry by the Office of Professional Responsibility on whether his actions violated any internal department rules or regulations, officials said. That office conducts internal investigations of allegations involving Justice employes and officials at all levels.
Normally, under the special prosecutor law, the attorney general has to tell a special court within 90 days whether an allegation is "so unsubstantiated that no further investigation or prosecution is warranted." If he can't, a special prosecutor has to be appointed.
But since Smith, his deputy Edward C. Schmults, and the department's number three official, Rudoph W. Giuliani--who approved the financial disclosure statement--have been recused in this case, the FBI will report its findings through the criminal division to the Office of Professional Responsibility, which is supervising the case for the solicitor general, officials said.
Last year, Smith said he had serious reservations about the constitutionality of the special prosecutor act. Other Justice Department officials in the Carter and Reagan administrations have complained that it is too easily triggered. The Reagan administration has urged its repeal.
The Senate Committee on Governmental Affairs has instead proposed amending the law to give the attorney general more flexibility in deciding when to seek appointment of a special prosecutor, but no final action has been taken.
The Smith inquiry is at least the third during the Reagan administration. A special prosecutor was appointed in December to pursue allegations that Labor Secretary Raymond J. Donovan and his company were involved in labor payoffs, bid rigging and ties to organized crime.
A month earlier, after a preliminary FBI investigation, Smith concluded that the act hadn't been triggered when $1,000 in cash was discovered in a envelope in the office of Richard V. Allen, then Reagan's national security affairs adviser. A department report said there was no evidence that Allen intended to keep the money.