Former deputy chief of staff Michael K. Deaver was still working in the White House when he first talked with Canadian government officials about signing up Canada as a client for the Washington lobbying firm he planned to establish, according to a knowledgeable Canadian source.
"Yes, I know there were discussions, certainly before Deaver left the White House," the source said.
The source said he thinks that the discussions took place between the March 1985 U.S.-Canada summit in Quebec City and the May 1985 summit of industrialized nations in Bonn, West Germany. Deaver left the White House on May 10, 1985, after the Bonn summit and President Reagan's trip to Europe.
William Fox, chief spokesman for Canadian Prime Minister Brian Mulroney, said yesterday, "That is an unsubstantiated allegation," which he described as "not true."
Fox said that "the very first discussion about this contract" between Deaver and Canada "occurred on May 16, 1985," when Canada's ambassador to the United States, Allan E. Gotlieb, approached Deaver.
Asked whether there were any discussions about Canada retaining Deaver before then, he said, "My information is no."
Deaver signed a $105,000-per-year contract with Canada on July 1 to provide advice to Canadian officials on matters involving the United States, including acid rain pollution, an issue that Deaver had been involved in before the Reagan-Mulroney meeting.
Yesterday, five Democratic members of the Senate Judiciary Committee, including Minority Leader Robert C. Byrd (W.Va.), asked Attorney General Edwin Meese III "to determine whether or not to apply for an independent counsel to investigate allegations of possible violation of federal criminal statutes by Mr. Michael Deaver."
The senators were referring to conflict-of-interest legislation governing the conduct of senior officials and former officials.
Asked for comment yesterday, a Deaver spokesman said, "Michael Deaver has provided the White House with all requested information in compliance with the Ethics in Government Act. Mr. Deaver is confident that a presentation of the complete set of facts will show his absolute integrity while in public service and private business.
"We are seeing a familiar process starting up in which anonymous statements by so-called knowledgable sources are portraying events in a false or distorted fashion," the statement said. "We prefer to deal with these allegations in the official investigations that are now pending."
The spokesman said Deaver would not respond to specific questions about his business relationship with Canada.
Federal law prohibits officials who leave the government from lobbying on issues in which they were personally and substantially involved while in office.
The law also bars any government official from making recommendations, rendering advice or otherwise substantially participating in decisions affecting an outside interest "with whom he is negotiating or has any arrangement concerning prospective employment." Both provisions carry criminal penalties.
The Canadian source said he thinks that Deaver had sought the Canadian contract as his first client because Canada does not have a negative image, unlike several other countries seeking representation in Washington, including South Africa or Chile.
Several Canadian officials said the discussions with Deaver came as Canada was casting about for a high-powered Washington lobbying firm. They said Canada had previously been represented by Robert K. Gray's firm, Gray & Co., but terminated the contract.
Deaver was attractive to Canada because of his White House connections and because Canada was considering a major promotional campaign in the United States, the officials said.
Several Canadian officials insisted that there was not an expectation that Deaver would deliver something on acid rain in exchange for Canada's contract when he left office. But the officials also said Deaver was involved in the discussions on acid rain before the March 16-17, 1985, meeting between Reagan and Mulroney.
Deaver has said his involvement in these internal White House discussions was part of his regular duties.
The Canadian officials said Deaver's interest in acid rain stemmed from his desire to have a successful summit meeting. "He didn't want Reagan to come up to Canada and look like a bum," said one official.
Fox, the spokesman for Mulroney, said the Deaver contract was dated July 1, 1985, but was not made final until September. He said Canada spends about $518,000 annually for lobbying and consulting in Washington.
Deaver met Feb. 28, 1985, with Fred Doucet, a top policy adviser to Mulroney, to discuss acid rain and the upcoming U.S.-Canada summit, sources here said earlier this week.
At the March 16-17 summit, Reagan and Mulroney announced the appointment of special envoys to study the acid rain problem. On Oct. 25, after he was representing Canada, Deaver took part in a meeting with the envoys in New York.
In their letter to Meese about an independent counsel, the five Democratic senators -- Byrd, Joseph R. Biden Jr. (Del.), Patrick J. Leahy (Vt.), Howard M. Metzenbaum (Ohio) and Paul Simon (Ill.) -- said news reports of Deaver's activities were "sufficiently specific to trigger the ethics statute."
Their letter cited four areas that the senators say they think deserve investigation: Deaver's actions in the acid rain issue, his role in government decisions on Rockwell International's B1 bomber, his contacts with a major South Korean steel-maker involved in a trade dispute and his representation of Puerto Rico on tax breaks for businesses there.
Under the independent counsel law, the senators' request means that Meese must determine whether there is enough evidence to warrant an FBI investigation or tell the senators why not. If a preliminary investigation is done, Meese would then have to decide whether there is enough evidence for him to ask a special court to appoint an independent counsel.
The General Accounting Office and the Office of Government Ethics also are examining whether Deaver violated conflict-of-interest laws in the acid rain matter. The GAO is acting at the request of Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce Committee.
Congressional sources yesterday said White House counsel Peter J. Wallison told the GAO in a letter April 15 that he did not want to respond to part of the GAO's inquiry on the Deaver matter. The reason, the letter said, is that "certain unsubstantiated statements were made" to GAO investigators, which, if disclosed, "could adversely affect our relations" with Canada. But Wallison offered to disclose the information in an oral briefing to the GAO. Congressional sources said Wallison was referring to unsubstantiated claims that Deaver may have discussed the possibility of working for Canada while he was still in the White House.
In his April 15 letter, Wallison reported on interviews with White House officials about Deaver's role on acid rain. Participants have said Deaver played a key role in the appointment of the special envoys. The envoys' report resulted in Reagan's position on acid rain becoming more favorable toward Canada.
White House officials confirmed a report in The Washington Times that a copy of Reagan's private appointments schedule has been delivered every day to Deaver.
Deputy Press Secretary Peter Roussel said Deaver receives the schedule that is distributed to the White House staff. He said it includes no secret national security information. CAPTION: Picture, Michael K. Deaver . . . signed $105,000-a-year contract