What Was the Whitewater Scandal?

The political scandal which became known as Whitewater reached a boiling point during the first term of former president Bill Clinton. In the end, several business associates and personal friends of the Clintons were indicted on various counts of fraud and other financial misdealing, but neither President Clinton or First Lady Hillary Clinton ever faced formal charges for their involvement in what was essentially a failed business venture in Arkansas.

The Whitewater controversy is a very broad subject to cover, so this article will only present a general outline of the chain of events and the people involved in the scandal. There are a number of excellent resources both online and in libraries which can provide more specific details if desired.

During the late 1970s, Bill Clinton was the young governor of Arkansas and Hillary Rodham Clinton was an entry-level legal aid in a small but locally prominent law firm. Neither position offered a substantial salary commensurate with the title and responsibility they inferred. Governor Clinton wanted to supplement his $35,000 US Dollars annual salary through legitimate investment opportunities, such as the purchase of real estate for future resale and profit.

Clinton knew of a friend from his college days who might be in a financial position to assist with such an investment in Arkansas real estate. That college friend was a man named James McDougal. McDougal and his wife Susan were also looking for investment opportunities, so the idea of pooling all of their financial resources into a single real estate seemed logical for the McDougals and the Clintons. The property that caught their eye was several hundred acres of undeveloped land located on the banks of the White River in Arkansas.

The four investors decided to form a legal business partnership called the Whitewater Development Corporation, inspired by the name of the river bordering the property. The hope was to develop the land by building hunting lodges and vacation homes which would attract outdoor sportsmen and others to Arkansas. The Whitewater investment would eventually pay off handsomely for the four original investors, or so they had hoped.

Instead of realizing a substantial profit on the Whitewater investment, however, a downturn in the general economy and a seeming lack of interest from potential lot buyers turned the entire project into a major loss. The Clintons decided to cut their financial losses and became little more than passive partners in the Whitewater Development Corporation. Their names would still be associated with the business on paper, but they would no longer be involved in any future business ventures.

By the time Bill Clinton was elected in 1992, Whitewater Development Corporation and their friends the McDougals were ostensibly more of a remnant of the Clinton's past life in Arkansas than a part of their current political or social lives. Their direct associations with the failed Whitewater project were little more than names on legal papers dating back to the 1970s. However, the Clintons failed to realize how far certain political rivals and journalists would delve into their past business and personal histories once they became national public figures.

James McDougal remained actively involved in the Whitewater Development Corporation even after the Clintons pulled out, and he began to look for more complex but rewarding ways to increase his profits from a number of dubious investments and financial schemes. Eventually he found himself under investigation for committing financial fraud and violating other banking and investment rules. During the forensic accounting portion of the investigation against McDougal, the names Bill and Hillary Clinton appeared on a number of Whitewater-related documents.

Even though the Clintons had effectively distanced themselves from the Whitewater Development Corporation years before James McDougal's alleged criminal actions, the discovery of these documents triggered the investigation later called the Whitewater scandal by the press. It was unclear to investigators if the Clintons were aware of McDougal's illegal activities, or even worse, if they actively participated in or profited from the illicit financial dealings.

Eventually the Clintons were exonerated, since investigators could not prove any active participation in the Whitewater Corporation during the years McDougal was under suspicion. The lieutenant governor of Arkansas at the time was indicted, however, along with James and Susan McDougal. In a controversial move, President Bill Clinton officially pardoned Susan McDougal for her peripheral involvement in her husband's financial dealings.