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Published: December 24, 1981

Publication: The New York Times

By Michael Oreskes

Attorney General William French Smith asked yesterday that a special prosecutor be appointed to investigate an allegation made against Raymond J. Donovan, the Secretary of Labor.

Mr. Donovan was said to have witnessed the payment of a bribe to a union official in 1977, when he was an executive of a construction company in New Jersey.

Mr. Smith’s request was sent to a special three-judge panel set up under the 1978 Ethics in Government Act. The act requires the Justice Department to conduct a preliminary investigation of any allegation made against a high government official, and then refer the allegation to the special court if it warrants further investigation.

‘Damnable and Contemptible Liar’

Mr. Donovan has denied the allegation, has called for the appointment of a special prosecutor and has denounced his accuser, Mario Montuoro, as a ”damnable and contemptible liar.” Mr. Montuoro has been convicted of possession of drugs and weapons.

A spokesman for the Justice Department, Thomas P. DeCair, said it might be several weeks before the court acted. Mr. Smith’s announcement said that the special prosecutor would be asked to investigate ”an allegation” of corruption against Mr. Donovan.

Mr. Montuoro, a former official of the New York City blasters’ union, Local 29 of the Laborers’ International Union, has said that Mr. Donovan was present at a luncheon when an envelope that Mr. Montuoro said contained $2,000 was passed to the president of the union by an official of the construction company with which Mr. Donovan was associated.

Mr. Montuoro’s lawyer, Arthur Z. Schwartz, issued a statement earlier this week saying that Mr. Montuoro had been found by judges to be a credible witness in several criminal and civil cases.

Mr. DeCair, who read the Attorney General’s statement, said that its language had been chosen intentionally. This left unclear whether a special prosecutor would be precluded from looking into other allegations of corruption that have recently surfaced against the concern Mr. Donovan was associated with, the Schiavone Construction Company of Secaucus. Federal Investigation of Union

Mr. DeCair said the decision to request a special prosecutor had been made Tuesday morning, before Mr Donovan issued a statement Tuesday requesting such action. President Reagan had been told of the decision on Tuesday, Mr. DeCair said, and Mr. Donovan was informed yesterday morning through his attorney.

The allegations against Mr. Donovan grew out of a Federal investigation of the blasters’ union conducted by the Organized Crime Strike Force in Brooklyn.

Mr. Montuoro has said he made his allegations against Mr. Donovan and the company as long ago as 1978, when he first became a Government witness in a racketeering investigation of key officials of the blasters’ union.

The Government has not brought any charges against Mr. Donovan or his company based on any of the allegations. Mr. Montuoro’s statements were not called to the attention of the Senate Labor and Human Resources Committee at the time of Mr. Donovan’s confirmation hearings last January.

At the confirmation hearings, Senators questioned Mr. Donovan at length about a number of other allegations that his company had been involved in corrupt activities. Mr. Donovan firmly denied all the allegations. He said neither the company nor any of its employees had ever made payoffs. In recommending the confirmation of Mr. Donovan, the committee cited his forceful denials. Won’t Take a Leave

Mr Donovan said that he did not plan to take an administrative leave of absence during the investigation. Mr. Donovan was the executive vice president of the construction company at the time that, according to Mr. Montuoro, the $2,000 was given to Louis Sanzo, the president of the blasters’ union.

The payment of anything of value by an employer to a union leader is a violation of the Taft-Hartley Act. Mr. Donovan, in his statement Tuesday, denied that he had attended the luncheon or even been in the restaurant, Prudenti’s in Long Island City, Queens, at the time the luncheon was said to have taken place.

In addition to the $2,000 payment, Mr Montuoro has said that the construction company gave trips, trucks, building materials and equipment to officers of the blasters’ union. Mr. Montuoro also said that no-show jobs had been set up by the company, and that the paychecks were cashed by union officers. This allegation has been corroborated by two former bookkeepers for the blasters’ union.

Mr. Donovan, who is 51 years old, joined the company in 1959, when, by his account, the concern was worth a few thousand dollars. He and the other principal owner, Ronald Schiavone, built the company into a multimillion-dollar business. Mr Donovan said at the time of his appointment as Labor Secretary that he was severing all ties with the company.

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