A protected government witness told the FBI last year that he had seen Labor Secretary Raymond J. Donovan on several occasions with a New Jersey gangland figure who allegedly helped provide "labor peace" for Donovan's construction company.
The FBI was given the information on Feb. 6, 1981, three days after Donovan was confirmed by the Senate as a member of President Reagan's Cabinet. But the report remained in the files of the FBI's Newark office until this year, when it was provided to special prosecutor Leon Silverman.
The gangland figure, Phillip (Brother) Moscato, was reputedly one of northern New Jersey's "top loan sharks," according to the FBI. At Donovan's final confirmation hearing before the Senate Labor Committee on Jan. 27, 1981, senators repeatedly asked about his and the FBI's knowledge of Moscato or a company bearing that name.
Donovan denied that his firm, Schiavone Construction Co., had ever done any business with a company "having the name Moscato." Donovan indicated that he had never even heard the name Moscato before.
After Donovan was sworn in as secretary of labor, however, a persistent FBI agent in Newark named John Marshall Hearsh contacted one of his sources, Joseph G. Szapor.
Szapor was at the time a protected government witness waiting to testify in a major labor racketeering case in New Jersey involving a mob-dominated Teamsters local. Szapor was a former commodities freight agent, and also operated a business called Joe's Truck Stop in Jersey City, N.J., from 1960 through 1979.
According to informed sources, Szapor told the FBI that "it was 'common knowledge' in the northern New Jersey area that Schiavone Construction made payoffs to obtain preferred treatment through bid-rigging."
Szapor, according to sources, told the FBI he had had no dealings with Schiavone "in a business sense," but he said he knew of Donovan "from having observed Donovan in the presence of Phillip 'Brother' Moscato along with his brother Joey in the Lil' Red Buggy, an Italian restaurant off Kennedy Boulevard in Jersey City."
Finally, sources said, Szapor reported having "observed Donovan in Moscato's presence on several occasions" around 1966 or 1967.
The account conflicted sharply with the testimony of both Donovan and the FBI at the Senate confirmation hearings. Moscato's name came up because the committee had been apprised, by the FBI, of reports that a racketeer named Salvatore (Sally Bugs) Briguglio had once described "Moscato Contractors" as a firm that was run by "organized crime elements."
According to those same reports, which came from another government-protected witness named Ralph Picardo, the Moscato company had served as a subcontractor for Schiavone Construction, "frequently as a means of ensuring labor peace."
Francis M. Mullen, FBI executive assistant director, was the first to be questioned about the matter at the Jan. 27, 1981, hearings. Senate Labor Committee Chairman Orrin G. Hatch (R-Utah), evidently reading from an FBI report provided to the committee four days earlier, said:
"A Phillip Moscato has been reported to associate with organized crime elements. The Newark division of the FBI has no information indicating his association with Moscato Contractors or any connection between him and Schiavone Construction or Mr. Donovan; is that correct?"
Mullen replied: "That is correct, senator."
Hatch, as it turned out later, didn't have the name of the company quite right, but he tried to make his questioning of Donovan broad enough to cover any variations.
Hatch: "Are you familiar with a company by the name of Moscato Contractors or any similar company having the name Moscato?"
Donovan: "Not until I read that name in the FBI report, I wasn't."
Hatch: "Has SCC Schiavone Construction Co. ever used a company called Moscato Contractors or a company with a similar name as a subcontractor on SCC-related construction contracts?"
Donovan: "We have not, senator."
That, it seemed, ended the matter. The FBI did not bother to tell the committee just who Moscato was.
But according to the FBI's files and informers, he was "known to be one of the top loan sharks" in northern New Jersey, a man who worked for the same two mobsters who allegedly had been extracting payoffs from Schiavone Construction.
The FBI also failed to discover that Moscato had done some work for Schiavone Construction. The company hired "Moscato Brothers Inc." and another Moscato firm, "City Construction," in the early 1970s for small amounts, totaling about $6,100.
One job involved the demolition of a two-story frame building on the Schiavone premises that reportedly caught fire when someone accidentally left a hot plate on. Senate investigators had been concerned that the fire might have destroyed some relevant business records, but the FBI said it was satisfied that only blueprints had been lost.
Moscato's associates at the time were Briguglio, a reputed Mafia "hit man" who was killed in 1978 after becoming a prime suspect in Jimmy Hoffa's presumed murder, and Armand Faugno, whose body, authorities believe, was stuffed into a tree shredder in 1972.
Now living in Florida, Moscato became a subject of publicity in 1975 when the FBI obtained a warrant to search a New Jersey dump he operated under the Pulaski Skyway. The unsuccessful search was for Hoffa's body.
According to a 1972 FBI memo, Faugno and Briguglio had also been financing Muscato's loan sharking activities. Moscato, the report said, embellished those operations by "arbitrarily adding an extra tax or sum of interest when a borrower has his loan almost paid."
Contacted yesterday about Szapor's statements, Moscato said: "I have no comment on that."
Asked if he had been interviewed by the special prosecutor or called before the federal grand jury investigating Donovan's alleged ties to organized crime, he said, "I don't want to talk about it."
A spokesman for Donovan has said it is the secretary's current policy to not comment on allegations.
The FBI report by special agent Hearsh, which was written on Feb. 9, 1981, was apparently never transmitted to FBI headquarters until this month, weeks after it was sent to Silverman. The Senate committee was provided with copies last Monday.
Hearsh was also the FBI agent whose work resulted in Picardo's testimony and in the discovery of other allegations linking Donovan to Briguglio and charges of bid-rigging. Hearsh was transferred this spring to another FBI office several hundred miles away, but the FBI denies that this was done because of the Donovan case.
"He was not transferred in connection with this matter," said FBI spokesman David Divan. "He's a damn good agent . . . but it happens sometimes that agents need to be moved for their own protection or similar reasons."