The Liberal Democrat, who died in 2010, is alleged to have used his status to sexually abuse boys as young as eight at Knowl View School in Rochdale, Yorkshire, despite 144 complaints by victims.
Despite numerous previous allegations and past police investigations, Smith and other suspects have never been prosecuted.
A separate investigation is continuing to identify suspects who took part in the alleged sexual abuse.
Now police say they are to investigate alleged corruption by its officers and local politicians as part of a cover-up of what was going on at the time.
The inquiry has been sparked by current Rochdale MP Simon Danczuk, who claimed in a recent book that 29-stone Smith raped boys at the residential school.
Police, spies and politicians helped to hide the historical child abuse carried out by Smith, said Mr Danczuk.