Hiring Immigrant Kills 2nd Bid for Attorney General : Cabinet: Wood withdraws name from consideration. She admits she employed undocumented worker as nanny, as did Zoe Baird, but insists actions were legal.

WASHINGTON — The Clinton Administration suffered another embarrassing setback Friday in its star-crossed search for an attorney general as federal Judge Kimba M. Wood withdrew her name from consideration, admitting that she too had hired an illegal immigrant to serve as a nanny.

Wood’s withdrawal came just two weeks after Clinton’s first choice for the job, Zoe Baird, withdrew because of public outrage over her revelations that she had hired an illegal Peruvian couple for domestic help and had failed to pay their Social Security taxes. Unlike Baird, Wood violated no laws, having hired her nanny at a time when the law did not prohibit employing illegal immigrants. She also paid all taxes due on the nanny’s salary. The nanny is now a legal resident.

Angry White House aides, however, said that Wood repeatedly failed to disclose the politically damaging facts about her baby-sitter’s immigration status.

Although both Clinton and his aides insisted Thursday night and Friday that the President had never offered Wood the job--contrary to reports carried by several news organizations--aides conceded that the New York judge had emerged in recent days as a leading candidate for the post and that her withdrawal will further delay a search for a candidate to fill the one remaining vacancy in Clinton’s Cabinet.

In a statement issued by her lawyers, Wood argued that her case was different from Baird’s because she hired her baby-sitter in the spring of 1986, several months before the current law went into effect that makes it a crime to hire illegal immigrants.

In addition, she said, she had paid all her taxes on the earnings of her baby-sitter, who was born in Trinidad and came to the United States illegally in 1980. The baby-sitter became a legal resident in December, 1987, under the amnesty provisions of the 1986 immigration reform law.

But that explanation, although legally sound, left White House aides nearly speechless in disbelief. “How could she be living in this country for the last month and not know this was a problem?” demanded one senior official. “What was going through her head?”

During the roughly 10 days in which Wood had been under serious consideration for the job, she had three times told Clinton and his White House counsel, Bernard Nussbaum, that she did not have a “Zoe Baird problem,” White House spokesman George Stephanopoulos said.

The fact that Wood and her husband, Time magazine political columnist Michael Kramer, had hired an illegal worker came to light only Thursday, when Wood turned over household records to White House officials conducting the background check, officials said.

After Wood’s withdrawal, Clinton issued a terse statement saying: “I understand and respect Judge Wood’s decision” and adding he “was greatly impressed with her as a lawyer, a judge and a person.” The brief statement stood in marked contrast to the lengthy, flowery praise Clinton gave to Baird when she withdrew her candidacy.

Wood was first asked about her situation by Nussbaum before she flew to Washington to meet with Clinton on Jan. 29, Stephanopoulos said. In that conversation, the spokesman said, Nussbaum asked her “is there an issue” that might cause problems were she to be nominated. Wood said no. When Clinton met with Wood, he asked her, “Do you have a Zoe Baird problem?” again eliciting a negative response. In a third interview, after the meeting with Clinton, she was asked, “Is there an illegal alien problem?” Stephanopoulos said. “It was very specific.”

“I’m not saying there was bad faith,” he added, “but clearly those questions deserved a different answer.”

White House officials began examining Wood’s financial statements and other documentation Thursday and raised questions about the baby-sitter that evening, aides said.

Friday afternoon, Wood met with Nussbaum and decided to withdraw. Asked if Clinton wanted Wood to withdraw, White House Press Secretary Dee Dee Myers said, “Absolutely.”

“The process worked,” Stephanopoulos said, noting that the background checks had discovered Wood’s problem. But, he admitted, “it worked in an unfortunate way.”

In her withdrawal statement, Wood defended her conduct, saying that “all of my acts were lawful” and that “I have fulfilled every legal requirement with respect to the employment of our baby-sitter.”

“Nevertheless,” she added, she had concluded “after further consultation” that “in the current political environment, proceeding further with the possibility of my nomination would be inappropriate.”

Immigration lawyers said that Wood was on solid legal ground with her argument.

“Clearly she was not violating the law,” said Warren R. Leiden, director of the American Immigration Lawyers Assn. “It was unlawful for people to be in the country illegally, but it was not unlawful for employers to hire them until 1986.”

The law also specifically allowed workers hired before the employer sanctions took effect to stay in their jobs.

But, politically, White House and congressional aides agreed that Wood’s argument justifying her conduct would never have survived.

“Maybe a year from now, after the dust settles,” said one Senate aide familiar with the confirmation process. “But not now.”

Where Clinton will turn next for an attorney general remained unclear Friday. The President has interviewed several other candidates for the job, and had seemed to be looking most seriously at two others in addition to Wood: former Virginia Gov. Gerald L. Baliles and Washington attorney Charles F.C. Ruff. He also is said to be considering federal District Judge Diana Murphy of Minneapolis, a protege of former Vice President Walter F. Mondale. Aides have said recently that Clinton may now look at other candidates as well.

“I think there’s a considerable pool,” said one White House official. “I don’t know when he’ll make a decision. He obviously wants to proceed very deliberately.”