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Dan Balz, a correspondent on the Washington Post's national staff, gives a report on the week's developments in the Starr Investigation.

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ELIZABETH FARNSWORTH: And for a report on this week's developments we return to the Washington Post newsroom and to Dan Balz, a correspondent on the Post's national staff. Dan, the independent prosecutor, Kenneth Starr, yesterday brought a new set of tax evasion charges and fraud charges against Webster Hubbell, the president's close friend and former law partner of the First Lady and a former high Justice Department official. What's in the indictment?

DAN BALZ, Washington Post: Elizabeth, there's a series of things in the indictment in a week in which we've had a flurry of activity as the Little Rock grand jury begins to wind down. The Hubbell indictment is a 10-count indictment on tax evasion and fraud against not only Webster Hubbell, who's the former associate attorney general, a close friend of the president and Mrs. Clinton, and a former law partner of Mrs. Clinton, also indicted were Mr. Hubbell's wife, his Little Rock attorney, and his accountant. They are charged with having evaded payment of taxes and interest and penalties amounting to about $890,000 over the last several years.

ELIZABETH FARNSWORTH: What does this have to do with the earlier go-around between Starr and Hubbell?

DAN BALZ: There's a couple of direct connections. One is--as you recall--Mr. Hubbell pleaded guilty several years ago to having embezzled more than $400,000 from his law partners at the Rose law firm in Little Rock, subsequently served 17 months in jail as a result of that conviction. What this new charge says is that he evaded paying taxes on some of the money he embezzled from his partners, as well as about $700,000 in income he received in payments from friends and supporters of President Clinton in the White House subsequent to that conviction.

ELIZABETH FARNSWORTH: And what wasn't in the indictment that was important? I understand that is important too?

DAN BALZ: Well, that is important. All through the Hubbell investigation, if you will, has been this question of whether the $700,000 was used to buy his silence as part of a broader pattern of obstruction of justice that the Starr investigators have been trying to prove. In this indictment he was not charged with any obstruction of justice, so at this point it suggests (a) that he has not provided any damaging information about President Clinton--this latest indictment is clearly an effort to try to compel his testimony to get him to tell more than they believe he has told at this point--but second, that at this point they do not yet feel they can prove an obstruction of justice case against him.

ELIZABETH FARNSWORTH: Now, they want to compel testimony on Whitewater-related issues, and there were developments this week in that too in that the First Lady testified over the weekend last weekend about that.

DAN BALZ: That's correct.

ELIZABETH FARNSWORTH: Now, bring us up to date on that.

DAN BALZ: Hillary Clinton testified last Saturday in the White House--in the Yellow Room at the White House for more than four hours. This marked the sixth time that she has provided testimony to the independent counsel's office. This was another matter in which she was questioned at greater length than in the past about her involvement with the Madison Guaranty Savings & Loan, work she did with them as an attorney at the Rose law firm. And what the Starr investigators have been attempting to determine is whether she has been truthful in what she has said about her representation in that matter.

ELIZABETH FARNSWORTH: Now, in those five hours she did not answer in response to two questions, is that right, and she claimed the marital privilege.

DAN BALZ: That's right. Over the course of more than four hours there were two questions that she did not answer. In each case she declined to testify because of the spousal privilege that anyone has.

ELIZABETH FARNSWORTH: Now, the grand jury, as you just mentioned, in Little Rock is about to go out of business. It expires next week, and Kenneth Starr wants Susan McDougal, who is the Clintons' partner in the Whitewater venture, to come before that committee. Bring us up to date on that and also remind us about Susan McDougal and who she is and what's happened with her in the past.

DAN BALZ: Susan McDougal is a former business partner of the Clintons, as well as the wife of the late James McDougal, who died earlier this spring. She and her husband were both convicted of fraud in an earlier investigation by the independent counsel. She was later called before the Little Rock grand jury about Whitewater and refused to testify even after she was given a grant of immunity. She has spent about 18 months in prison in contempt of court as a result of that. They are now threatening her with criminal contempt, a new indictment which could come down in the next week as this grand jury closes down. This and the Hubbell investigation are all part of this larger effort, as I said, by the Starr investigators to try to compel testimony from people they believe who have not been forthcoming in this investigation and to try to get that testimony out of both Mr. Hubbell and Ms. McDougal as they try to wrap up the grand jury part of this investigation in Little Rock. That grand jury, as you noted, is due to go out of business next week. Now, if they were to obtain further information from either of these two witnesses, they could impanel another grand jury and easily deal with it that way. But they are clearly trying to wrap this part of the investigation up.

ELIZABETH FARNSWORTH: Dan, what is criminal contempt exactly? How does it differ from the civil contempt?

DAN BALZ: Well, you know, I don't know all the legal details that it's the next--it's the next and more punitive step obviously in this. Legally, he has every right to do so. If you are called before a grand jury under these circumstances that she's been and given a right--the grant of immunity--you are required to testify, and the failure to do so initially results in civil contempt. But in a case like this, where he is pushing very hard to get her to talk and she is resisting mightily, not talking, criminal charges can be brought, and she faces another prison term as a result.

ELIZABETH FARNSWORTH: Now, finally, the other development this week is news that a U.S. district judge has rejected Monica Lewinsky's claim that Kenneth Starr's office had granted her immunity. Bring us up to date on that.

DAN BALZ: That is in many ways the longest running dispute of the whole Lewinsky matter that has been raging since literally the day that Starr's attorneys first detained her at a suburban Washington hotel back in mid January before this entire episode broke. The dispute is fairly simple. William Ginsburg, who is Monica Lewinsky's attorney, has claimed that Ken Starr's office sent them a letter offering a grant of immunity in exchange for her testimony. And, as we understand it, she was prepared to testify under those terms that she had a sexual relationship with the president. What she was prepared to say about whether the president or any of his friends urged her to lie about that is somewhat murkier. The independent counsel's office claims that the letter was not a formal offer but part of an ongoing negotiation that still needed several further steps, including a possible interview with Monica Lewinsky before any formal grant of immunity was made. Mr. Ginsburg took this to Federal District Judge Norma Hollaway Johnson, who oversees the Starr grand jury, and as we all learned this week, she has indicated to both sides that she's rejecting Monica Lewinsky's claim, although she has not, as we understand it, filed the formal legal finding at this point.

ELIZABETH FARNSWORTH: And where does this lead Kenneth Starr, what options?

DAN BALZ: It leaves him very much where he's been from Square One. He can call her before the grand jury. He can offer her limited immunity, and he can compel her testimony. Or he can go ahead and indict her for perhaps perjury or obstruction of justice and put her on trial in a courtroom.

ELIZABETH FARNSWORTH: And how important is Monica Lewinsky's testimony at this point, or are there other--are there other places to go for evidence?

DAN BALZ: Well, Mr. Ginsburg said at the beginning of this whole matter that Ken Starr essentially has a one-witness case on this part of the investigation. Since then, it's clear that the Starr team has developed considerably more evidence than simply what Monica Lewinsky might be able to provide. But I don't think there's any question that other than the President of the United States Monica Lewinsky is the most important person whose story has not been told to the grand jury. And whatever she has to say will have a great bearing on the outcome of this whole investigation.

ELIZABETH FARNSWORTH: Well, Dan, thank you very much.

DAN BALZ: Thank you.

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