Justice Department officials are reviewing a U.S. attorney's recommendation that the federal government seek an indictment of Rep. Charles E. Schumer (D-N.Y.) for allegedly misusing New York state funds to pay the salaries of workers in his 1980 congressional campaign, according to department sources.
As an alternative to federal prosecution, department sources said officials are considering the possibility of giving the details of the investigation to local authorities.
The use of publicly paid staff in campaigns, from congressional to presidential, long has been a sensitive political issue and one that law enforcement officials sometimes have ignored.
Justice Department sources said that a number of attorneys are watching the Schumer matter for the precedent it may set for the Reagan Justice Department.
At issue for some prosecutors is the broader question of the degree to which federal authorities will probe financial and other practices in political campaigns, according to Justice officials.
During the administration of President Carter in 1978, former representative Frank Clark (D-Pa.) was indicted on federal mail fraud and tax evasion charges for putting people on his congressional staff to do private and campaign work. He pleaded guilty and was sentenced to two years in prison.
The question of how to handle the Schumer matter currently is in the hands of Associate Attorney General Rudolph W. Giuliani. A decision is expected within a week.
Giuliani declined to comment.
Schumer, 32, has been under investigation by the U.S. attorney's office in Brooklyn for more than a year because of allegations that he used staff on the payroll of the New York state Assembly's Committee on Oversight and Investigation, which he then chaired, to work in his congressional campaign.
Neither Schumer nor his New York attorney, Arthur Liman, could be reached for comment.
Sources said that Raymond J. Dearie, the U.S. attorney for the eastern district of New York, forwarded a recommendation to seek an indictment of Schumer to Washington for review several weeks ago. This is normal procedure in sensitive political matters before asking a grand jury to vote an indictment.
If the federal case is not approved, one official said, the evidence could be turned over to a local prosecutor, perhaps Manhattan District Attorney Robert Morgenthau, who would have jurisdiction because Schumer's campaign headquarters is in Manhattan.
It would be "awkward," another Justice official said, to turn it over to the Brooklyn district attorney, Elizabeth Holtzman, who held the same congressional seat before Schumer.
Morgenthau said yesterday that he hadn't been approached by anyone at the Justice Department about Schumer.
The internal Justice debate on the matter centers on the use of the federal mail fraud statute where state money is involved, sources said. "There's nothing political about it," one official said. "It's a close policy decision. There are good arguments on both sides."
A decision is expected in the next week or so.
The mail fraud statute might apply because Schumer's aides were allegedly sent vouchers and state checks through the federal mails and Schumer allegedly signed statements affirming that they had done the work for which they were being paid. The mail fraud statute has been used often by federal prosecutors trying to reach allegations of local or state crimes.
Then-U.S. Attorney Edward R. Korman began the investigation of Schumer after The Village Voice published a story in December, 1980, entitled "Chuck Schumer's Staff Scandal," sources said. The article said several members of his campaign staff were hired and paid as members of the legislative committee staff--which was charged with tracking down abuse of state funds--although they did little work there.
Schumer was reelected for his second term last fall.
He is a graduate of Harvard Law School, served in the New York state assembly from 1974 to 1980 and during the last session of Congress was a member of the House Banking, Finance and Urban Affairs Committee and the Post Office and Civil Service Committee.