Now, a New Probe of Donovan

Did the FBI withhold evidence at his confirmation hearings?

When Raymond J. Donovan was confirmed as Secretary of Labor by the Senate last February, Utah Senator Orrin Hatch called his nomination "one of the most rigorously scrutinized in our country's history." Perhaps so, but the information given to Hatch's Labor and Human Resources Committee by the FBI and the Justice Department is turning out to be curiously incomplete. Indeed, the Justice Department last week opened a new investigation into old charges that Donovan was present when officers of the New Jersey construction company that he partly owned allegedly paid a bribe to a union leader. The new probe, launched by Attorney General William French Smith at the urging of Brooklyn Prosecutor Thomas P. Puccio, is the first step required under the 1978 Ethics in Government Act to determine whether the Justice Department must appoint a special prosecutor to examine the evidence against Donovan.

Under scrutiny is an allegation by Mario Montuoro, a former official of New York City's Local 29 of the Blasters, Drillers and Miners Union, many of whose 400 members work for Schiavone Construction Co., where Donovan was an executive vice president in charge of labor relations. In the autumn of 1977, Montuoro contends, Donovan was present at a New York restaurant when another Schiavone official gave $2,000 to the local's president, Louis Sanzo, in a successful effort to prevent trouble with the union.

The accuser, Montuoro, has obvious credibility problems. He has been convicted of possession of heroin and firearms. He has worked near explosives on tunnel-digging jobs for so long that he does not hear well. But jurors tend to believe him. He was a principal Government witness when Sanzo was convicted last June of income tax evasion for failing to report bribes received from another construction company. Claims one federal prosecutor about Montuoro: "What he says turns out to be true."

Through a Labor Department spokesman, Donovan last week told TIME: "I will not discuss any aspect of this investigation while it is in progress." The spokesman also said that Donovan "has no direct knowledge of these allegations. He will obviously cooperate with the appropriate Government officials in this matter, and is anxious to put this whole thing to rest."

Even if the allegation involving Donovan is ultimately discounted, the fact that the details of Montuoro's account of the alleged payoff were not presented at his confirmation hearings indicates a disturbing lapse by federal investigators. Corruption in Local 29 had been under multiple investigations, beginning as early as 1978, by the FBI, the Department of Justice, the Internal Revenue Service and even by the Labor Department that Donovan now heads. Yet none of those agencies had informed the Senate that Donovan's name had turned up in these probes.

Federal investigators also failed to pass along all the information they had concerning allegations that Donovan's construction firm had cozy relations with a Mafia-dominated subcontractor. The FBI did give the Hatch Committee a 19-page memo about various claims that Schiavone had done business with racketeers, but contended that it could not determine whether the charges were true or false. Neither the FBI nor the Justice Department informed the committee that federal agents had been bugging the offices and tapping the telephones of one such mobster, William Masselli, for seven months before Donovan's confirmation. What the official eavesdroppers overheard would surely have been of interest to the Senators.

TIME has learned that the recordings establish a strong link between Donovan's company and Masselli, whom the FBI describes as "a self-admitted soldier" in the Genovese Mafia family. Although he had virtually no expertise in the construction business, Masselli nevertheless in 1976 muscled a longtime acquaintance, Louis Nargi, out of control of a company that was helping Schiavone excavate subway tunnels in Long Island City and Manhattan. The takeover was a typical Mob operation. Nargi had run into unexpectedly difficult excavation problems, which made his subcontracting work for Schiavone more expensive than he could handle. He made the mistake of twice borrowing $50,000 from Masselli. When Nargi could not repay the loans on time, Masselli took over Nargi's trucks, loaders and other equipment, began writing checks on Nargi's bank accounts, and hired Nargi's workers.

Masselli did so in the name of a company he created in 1976 called Jo-Pel Contracting and Trucking Corp. Masselli became president of Jo-Pel. Joseph L. Galiber, a Bronx Democrat who is still a New York state senator, was vice president. Masselli put $3,600 into forming the company, and Galiber invested $3,800. In the past four years, their firm was paid more than $8 million on its contract work for Donovan's firm.

Even by Mob standards, that is not petty cash. When the Bonanno family protested within Mafia circles that Masselli had violated a territorial agreement, the Genovese and Bonanno factions held a council "sitdown" to hear the dispute. Masselli argued that he had simply foreclosed on bad loans. The council absolved him of infringing on a Bonanno jurisdiction. Salvatore (Sally Blind) Frascone, a Bonanno soldier specializing in vending machines, made the fatal mistake of continuing to protest the pro-Masselli decision. Frascone was openly executed in October 1978 by Mob hit men as he got out of his car in The Bronx.

All of that may show that Donovan's company had been doing business with a most unsavory gangster when it was dealing with Masselli and that Masselli associated with racketeers and murderers in the Mob. But it certainly does not demonstrate that Donovan had any personal knowledge of Masselli's criminal connections. The only mention of Donovan in the FBI eavesdropping that has been acknowledged so far by the Justice Department seems innocent enough. Masselli is heard telling his son Nat that he planned to attend some type of unexplained "affair," requiring admission tickets and an airplane trip, with "Ronnie [Schiavone] and Ray Donovan."

The FBI contends that it did not inform the Senate committee about this conversation because "it was known that Jo-Pel and SCC [Schiavone Construction Co.] did business together and, therefore, it was not considered surprising and/or particularly significant that Secretary Donovan's name was mentioned in the conversation between Mr. Masselli and his son." Following up earlier requests for more information about the Donovan investigation, Senators Hatch and Edward Kennedy wrote to FBI Director William Webster last July asking for details of the mysterious "affair." Webster replied that answering such questions "might jeopardize current litigation or violate existing protective court orders." Wiretap results, he insisted, must be kept secret. Said Webster: "All the information currently available in our files concerning the relationship between Secretary Donovan and William Masselli has already been provided to the committee."

Webster's explanation may be totally candid. Still, the phrase "currently available in our files" could also be a key qualification, since the transcripts of the overheard conversations are now technically under protective custody of the courts. They thus could be considered not "currently available" to the FBI.

By the unusual way it has prosecuted Masselli, the Justice Department has virtually ensured that those full transcripts will not become public. The FBI surveillance turned up enough evidence for the U.S. Attorney's office in New York to charge Masselli with leading a hijacking ring and conspiring to sell $100 million worth of synthetic cocaine. However, if Masselli went to trial, the transcripts most likely would have to be produced. Instead, he was allowed to plea bargain. This is a rare concession to a Mafioso who is not, in turn, revealing Mob secrets to investigators. Masselli ended up pleading guilty to the lesser charges of receiving stolen goods and using interstate telephone lines to discuss a cocaine deal. Assistant U.S. Attorney Michael Ross even let Masselli take a vacation in Italy without seeking an increase in his bail and went along with his request to postpone imprisonment until after Christmas. Federal Judge Lawrence M. Pierce was not so obliging: he gave Masselli seven years in prison.

Why permit the plea bargaining? An FBI official in New York claimed that it was done to protect an informant whose identity might have to be revealed in a trial. He said that the decision had been approved at the "highest level of the FBI and the Department of Justice." In Washington, Associate Attorney General Rudolph W. Giuliani contended that the New York prosecutors had acted on their own and that "the department's approval was not sought or required."

The Justice Department now finds itself in the uncomfortable position of deciding whether to appoint special prosecutors to investigate two top officials in the Reagan Administration. In the case of National Security Adviser Richard Allen, the department is trying to determine whether he may have violated any laws by accepting two watches valued at $270, or by misreporting the date when he sold his consulting business. Both Donovan and Allen have survived previous inquiries into their conduct. But this time, the whiff of scandal has become so politically damaging that the Administration may cut them loose no matter what the Justice Department decides.

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