By Philip Shenon and David Johnston
The Justice Department has accused Richard Holbrooke, President Clinton's choice to be the top American diplomat at the United Nations, of a civil violation of federal ethics laws involving business contacts three years ago with the American Embassy in South Korea, government officials said.
Friends of Holbrooke said he had balked at paying a fine of several thousand dollars demanded by the Justice Department because he believed he had done nothing wrong. They said he was also concerned that a financial settlement of the case might be seen as an admission of wrongdoing that could derail his nomination.
The Justice Department investigation began last year as a result of allegations that Holbrooke had improperly lobbied officials at the U.S. Embassy in Hungary in 1995. But officials disclosed Wednesday that prosecutors had turned up no evidence of wrongdoing by Holbrooke in that case.
Prosecutors later turned their attention to allegations involving contacts in 1996 with the embassy in Seoul, South Korea. Government officials said those allegations proved to be more serious. They said that if Holbrooke refused to pay a fine to settle those charges, the Justice Department would consider filing a civil lawsuit against the veteran diplomat, delaying his nomination to the U.N. post indefinitely.
The allegations against Holbrooke involve contacts he had with at least one former State Department colleague at the embassy in Korea within months of his resignation from the department in February 1996 to join the investment banking company Credit Suisse First Boston in New York.
A friend of Holbrooke would not describe the nature of the contacts with the embassy in Korea but said they were "ridiculously minor" and offered no financial reward for Holbrooke or his employer. Under federal ethics laws, former government officials are barred from a variety of lobbying contacts with their former colleagues.
Holbrooke, who is known for his accessibility to reporters, and his lawyers did not return repeated phone calls seeking comment.
A Justice Department official, speaking on condition that he not be named, would say only that "the case is in the process of negotiation, and the negotiations hinge on a civil penalty."
Spokesmen for the Justice Department and Credit Suisse First Boston had no comment Wednesday on the negotiations.
The nomination of Holbrooke, the architect of the Dayton peace agreement of 1995 that ended the war in Bosnia, was initially sidetracked last summer by the anonymous allegations involving the American Embassy in Hungary.
Apparently while still employed at the State Department in 1995, according to the allegations, he illegally contacted the Embassy in Hungary on behalf of Credit Suisse First Boston. The company had sought his help in securing a consulting contract with the Hungarian government.
Officials said none of the the evidence gathered against Holbrooke by the Justice Department involving his business contacts in Korea suggested criminal wrongdoing. Instead, they said, prosecutors believe that the infractions were civil violations of the law, and that Holbrooke should pay a fine to settle the issue.
One official compared his situation to that of Anthony Lake, the former national security adviser, who paid $5,000 to the Justice Department in 1997 to settle a civil inquiry regarding his stock holdings, an investigation that arose after he had been nominated by Clinton to become director of central intelligence.
Holbrooke might find the comparison discomforting, since Lake withdrew his nomination only a few weeks after paying the fine, which settled allegations that he violated federal ethics laws by failing to sell energy stocks whose value could have been enhanced by his decisions as national security adviser.
Other government officials and friends of Holbrooke said the comparison with Lake was unfair. While Lake may have withdrawn his nomination in part because of the dispute over the energy stocks and the Justice Department investigation, he also faced far more intense criticism in the Senate over policy decisions made while he was national security adviser.
The negotiations between the Justice Department and Holbrooke's lawyers come at an awkward time for Holbrooke, who remains a special envoy to the White House on the Balkans and who has been actively involved in shaping an American response to last weekend's massacre of dozens of ethnic Albanians in Kosovo.
Clinton administration officials say that despite the Justice Department investigation, Clinton remained firmly committed to the nomination of Holbrooke.
"Nobody's giving up on this," said a senior official, speaking on condition of anonymity. "The multiple crises at the United Nations recently -- Iraq, the Balkans, Africa -- make clear why we need someone of Holbrooke's stature and intelligence leading our delegation at the United Nations."
A. Peter Burleigh, a respected career diplomat who holds the rank of ambassador, has been leading the American delegation in the interim. He will likely continue in that post for a number of months. Even if Holbrooke is able to reach a settlement soon with the Justice Department, his nomination must still be reviewed by the Senate Foreign Relations Committee and confirmed by the full Senate, which is now consumed with the impeachment trial of Clinton.
