WASHINGTON — A lengthy investigation by a court-appointed prosecutor into dealings between Wedtech Corp. lawyer E. Robert Wallach and Atty. Gen. Edwin Meese III has been widened to include an ill-fated Mideast oil pipeline project in which Wallach sought to enlist Meese's aid, authorities said Friday.
The newly broadened probe came to light as the prosecutor, independent counsel James C. McKay, was reported close to finishing the part of his case that deals with Wedtech, a scandal-plagued New York defense contractor.
In the newest development, sources familiar with the matter said that Wallach, a longtime friend and personal attorney of Meese, used Meese's name with Reagan Administration appointees in 1985 to promote U.S. construction of a proposed pipeline to carry Iraqi oil to a Jordanian port near the border of Israel. However, the project fell through.
Smoothing the Way
McKay was said to be investigating allegations that Meese helped Wallach in at least one instance by introducing him to Robert C. McFarlane, then President Reagan's national security adviser, to help smooth the way for eventual White House support for the project.
The sources, who refused to be identified, said Wallach represented Swiss businessman Bruce Rappaport, who was in partnership with Bechtel Group Inc. of San Francisco, the giant engineering firm, in hopes of building the $1-billion pipeline. They said they did not know whether Wallach had any financial stake in the pipeline beyond representing Rappaport.
A year earlier, Wallach, of San Francisco, had helped Meese by serving as his personal defense attorney during Meese's protracted Senate confirmation battle and lengthy inquiry into his financial affairs by another independent counsel.
Wallach and an associate later excused Meese from paying approximately $300,000 of their legal fees, the part of their $700,000 legal bill that was not covered by the federal government. Meese was cleared in that inquiry of violating any laws in the conduct of his financial affairs.
Invested in Trust Fund
Subsequently, Meese and his wife, Ursula, invested $55,000 in a trust fund with W. Franklyn Chinn, a Wedtech director and a friend of Wallach. Meese withdrew his investment from Chinn's control last June after learning the businessman was under criminal investigation in the Wedtech case.
Wallach has acknowledged lobbying Meese on behalf of Wedtech, a small defense contractor that ultimately won a $32-million Army engine contract without competitive bidding. Meese, then White House counselor, has said he instructed his aides only to make sure Wedtech received "a fair hearing" in its effort to obtain Army work.
First word of the pipeline inquiry was carried in Friday's editions of the New York Times and later was confirmed by former government officials and others. Wallach, through a spokesman, refused to comment except to deny any wrongdoing. Terry Eastland, director of information for the Justice Department, said any comment from Meese would be inappropriate.
McFarlane said through an aide that "it is always difficult to comment when such matters are under investigation by an independent counsel."
Clark's Backing Sought
Another former Reagan Administration official said that William P. Clark, McFarlane's predecessor as national security adviser, also was asked by Wallach in 1985 to lend his support to the pipeline undertaking. Clark, reached at his California law office, refused to comment.
This official said Wallach invoked Meese's name in contacting Administration officials and arguing that such a pipeline "would promote peace and stability in the Mideast" by providing the West with more secure access to petroleum.
Tom Flynn, a vice president of Bechtel, said the firm ultimately gave up on the project after Wallach failed to obtain Israeli guarantees that it would not attack the pipeline, which would run just outside its borders. Flynn added that by July, 1986, Iraq was building two other shorter pipelines that would make the larger project less valuable.
Asked if Bechtel had brought Wallach into the project, Flynn said: "Quite the contrary. We had been advised by some overseas contacts that Rappaport's organization might be perfect for this project. Rappaport later presented Wallach to us as representing his interests."
Wanted Israelis to Pay
Wallach wanted funds to be paid in advance by the Israelis to guarantee that they would not attack or disrupt the proposed pipeline, other sources said. Toward this end, Wallach decided that support from the Reagan Administration for the project was crucial, they said.
In October, 1985, the Overseas Private Investment Corp., which insures investments abroad by American corporations, asked the Justice Department to determine if Israel could legally use congressionally appropriated foreign aid funds toward such a financial guarantee, authorities said.
But despite personal lobbying by Wallach, who contacted Allan Gerson, the deputy assistant attorney general assigned to write the opinion, the department concluded that no such funds could be used, the sources said. This appeared to have discouraged Wallach from further lobbying on the project.