Independent Counsel Releases Report

WASHINGTON--Attorney General Edwin Meese III probably broke two tax laws and violated a criminal conflict-of-interest statute, but won't be charged with a crime, Independent Counsel James McKay concluded in an 814-page report unveiled to the public yesterday.

An attorney for Meese, Nathan Lewin, called the assertions "a very cheap shot."

In a report which concluded his 14-month investigation, McKay wrote that "a trier of fact would probably conclude beyond a reasonable doubt that Mr. Meese violated" a section of the Internal Revenue Code by filing "a materially false tax return." McKay added that Meese probably also violated a section of the Internal Revenue Code for "willfully failing to pay tax at the time required by law."

Meese announced July 5 that he will step down as attorney general later this month or in early August. He said then that McKay's report, which he had not read at the time, "completely vindicated" him. The report originally was filed under seal that day with a three-judge court.

Institute of Politics Director Richard L. Thornburgh, named by President Reagan to succeed Meese, has said he will pursue any evidence against Meese wherever it may lead.

McKay said that the Meeses failed to report a net capital gain of $20,706 on the sale of $54,581 in securities in 1985.

McKay noted that Meese finally filed an amended return on February 6 of this year, "shortly after the scheduling of the grand jury appearances for the Meese's accountants" in connection with McKay's criminal investigation of the matter.

At that time, the Meese paid $ 2875 in overdue federal tax payments and interest with the amended return, declaring a capital gain on the securities sales of $ 14606. McKay said, however, that Meese's accountants had made an error in calculating the basis of AT&T stock sold in 1985, under which $1000 in additional tax was due the government on an added $6000 in capital gains.

The proceeds from the 1985 sales were invested for the Meeses by the attorney general's financial manager, W. Franklyn Chinn, who is currently under indictment for alleged racketeering in the Wedtech scandal. Meese had been referred to Chinn by Meese's longtime friend, E. Robert Wallach, who also figures prominently in the report.

"Mr. Meese had a duty to report the securities sales and to declare his capital gains income on his tax return filed Oct. 15, 1986," said McKay.

"Because that return did not disclose any information about the 1985 securities sales, it was materially false," McKay declared.

McKay also disclosed that Wallach, who is under indictment for alleged racketeering in the Wedtech scandal, facilitated two loans to Meese totalling $340,000.

The independent counsel examined the transactions in trying to determine whether Meese had accepted a bribe or a gratuity. But he concluded, "There is no direct evidence that Mr. Meese accepted anything of value from Mr. Wallach with the requisite state of mind for a gratuities violation."

At Wallach's behest, Meese intervened on behalf of the Wedtech Corp. in 1981, resulting ultimately in the defense contractor being awarded a $32 million contract. Meese also assisted Wallach in connection with a $1 billion Iraqi oil pipeline project, setting up a meeting between the San Francisco lawyer and then-National Security Adviser Robert McFarlane.