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CNN Live Event/Special

9/11 Commission Hearing Under Way; Interview With Michael Vatis; Interview With Howard Safir

Aired April 13, 2004 - 9:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


BILL HEMMER, CNN ANCHOR: Good morning. Live from Capitol Hill, here's the picture: the 9/11 Commission back at work today. Top officials in law enforcement from the past two administrations taking the oath in public. Will they get some of the toughest questions to date? Answers this hour here on AMERICAN MORNING.
ANNOUNCER: From the CNN Broadcast Center in New York, this is AMERICAN MORNING with Bill Hemmer and Soledad O'Brien.

SOLEDAD O'BRIEN, CNN ANCHOR: Good morning. Welcome back, everybody. Lots to get to as we get ready for the testimony this morning.

First up today is former FBI Director Louie Freeh. His remarks are going to begin in just about 30 minutes. We're going to keep an eye on what is happening in the Hart Senate Building and bring it to you live when the former director starts talking.

HEMMER: And while we wait on that, we'll talk this hour with Michael Vatis, one of Fret's former senior deputies. We'll also talk to Howard Safir, former New York police commissioner who has known and worked for Freeh for about 20 years. Their perspectives on today's testimony. Louis Freeh goes today, Janet Reno. John Ashcroft in the afternoon.

O'BRIEN: Mr. Cafferty, hello.

JACK CAFFERTY, CNN ANCHOR: Good morning.

Presidential news conference tonight, 8:30. It will be live here on CNN. Check it out. I think we only get half of Paula Zahn now tonight, then we'll get some of Paula Zahn later, the rest of Paula Zahn later. Half of Paula Zahn now, the rest of Paula...

If you were a reporter -- I don't know why I did that. If you were a reporter in the news -- in the White House tonight asking the president a question, what would you like the president to answer? Submit your questions to AM@CNN.com. We'll read a few of them a little later.

O'BRIEN: (UNINTELLIGIBLE) very good this morning, I think.

CAFFERTY: Paula Zahn now, Paula Zahn...

O'BRIEN: Yes, we all followed you. Yes. It was OK.

CAFFERTY: I'm very tired.

O'BRIEN: I know. Go take a break and work on some more material. We'd appreciate that.

Let's start with some serious news as we update our stories this morning.

It has been a brutal 24 hours for U.S. troops in Iraq. In Fallujah, at least two Marines were killed, eight wounded in an intense firefight last night. The battle lasted about an hour. It began when insurgents attacked a building housing the Marines.

This morning, outside Fallujah, witnesses tell The Associated Press that a helicopter was hit by a rocket and crashed. No word yet on any casualties.

And here are some new pictures taken today of wanted radical cleric Muqtada al-Sadr. He was spotted leaving a mosque in Najaf. Earlier, U.S. forces had obtained one of al-Sadr's top aides. They later released him, saying that he actually wasn't behind any of the recent violence.

This morning, here in the U.S., coach Gary Barnett will address a panel about allegations against his University of Colorado football program. Yesterday, the panel heard from a business owner who said Colorado players had hired strippers from his company for recruiting parties. Since 1997, at least eight women have accused CU athletes of rape, though no charges have been filed.

Supreme Court Justice Antonin Scalia is apologizing for a U.S. marshal's actions. The marshal had ordered two reporters to erase audio recordings of the justice's speech last week. Justice Scalia says the marshal wasn't acting at his direction. The justice's policy does not allow recordings at his speeches, but now he says he's going to make an exception for print media.

More older Americans are going blind. A new study in the Archives of Ophthamology says more than three million Americans over 40 cannot drive or perform other tasks because of impaired vision. The study says that number is expected to jump to 5.5 million by the year 2020. Researchers also found that blacks over 40 are three times more likely to go blind than whites.

And say, "Hey, Willie, here is Barry." Yesterday, baseball star Barry Bonds tied Willie Mays for the third place on the all-time homerun lift. Bonds hit his 660th homer in front of the home fans in San Francisco home fans. Mays, who is Bonds godfather, congratulated the slugger and presented him with a big old torch covered in diamonds.

Incidentally, his 660th hit, he got a gigantic, expensive diamond-encrusted torch.

HEMMER: And they've been waiting for that one in San Francisco. Nice, too, opening day in Pac bell park. And a beautiful day, too. And that was a shot, huh? I mean, gone. (WEATHER REPORT)

HEMMER: That 9/11 Commission hearing is just under way, in fact. As we speak, the panel sure to have tough questions for America's leading law enforcement officials. The heads of the FBI and the Justice Department under the current and former administrations will testify over the next two days.

David Ensor high above his perch inside that room.

David, good morning. What do we expect?

DAVID ENSOR, CNN NATIONAL SECURITY CORRESPONDENT: Good morning, Bill.

Well, as you say, there should be some rather pointed exchanges today with both the Clinton and the Bush law enforcement teams. The questions are likely to be especially pointed about the FBI and what it did or did not do in the summer of 2001.

(BEGIN VIDEOTAPE)

TIM ROEMER, 9/11 COMMISSIONER: It is crescendo-type activity that is causing the CIA director to have, so to speak, his hair on fire. Why aren't we seeing the commensurate reaction out of FBI and Justice to try to meet this threat?

ENSOR (voice-over): Commissioners want to know about the 70 FBI al Qaeda-related investigations in the summer of 2001, referred to last week by National Security Adviser Condoleezza Rice and contained in the now famous August 6 presidential daily brief from the CIA. Also, why didn't law enforcement connect the dots between Zacarias Moussaoui and the flight training mentioned in the FBI's Phoenix memo? Why didn't the CIA share its information about two al Qaeda suspects in the United States?

According to commission sources, Attorney General John Ashcroft will face criticism from then acting FBI director Thomas Picard. He has said Ashcroft had little interest in counterterrorism before 9/11, a charge the attorney general's aides reject.

The Bush and Clinton law enforcement teams may also be asked whether the U.S. should set up a British style MI5 domestic spy agency and take that job away from the FBI.

JOHN LEHMAN, 9/11 COMMISSIONER: Their whole internal systems and culture was not to share anything.

ENSOR: With the commission staff having seen thousands of classified pages, officials say new revelations can be expected.

(END VIDEOTAPE)

ENSOR: And the staff study on law enforcement, the staff of the commission, has just been made public. Two things that are striking in it. First of all, that clearly we're going to see some rather pointed exchanges today between Thomas Picard, the former acting FBI director, and Attorney General Ashcroft. Mr. Picard has apparently told the commission that Mr. Ashcroft did not seem to be interested very much at all in counterterrorism prior to 9/11.

That is something, of course, that Mr. Ashcroft and his staff strongly disagree with. We may see some fireworks on that.

Secondly, in the staff report it notes that if Zacarias Moussaoui's name -- now, Zacarias Moussaoui, of course, had been arrested in mid August -- if that name had been run through British intelligence computers at the time he was arrested in August, rather than just after the 9/11 attacks, it would have come up because it was in the British files that Moussaoui had been training at al Qaeda training camps in Afghanistan.

That would have set off alarms. It's one of those "what might have beens." If they had had that done prior to 9/11, they just might have stopped the attacks -- Bill.

HEMMER: David Ensor, thanks. Live on Capitol Hill.

We'll wait for that to begin. Louie Freeh starts at 9:30 a.m. Eastern Time, 22 minutes from now. A statement now being read there on Capitol Hill. We'll get you back there in a moment.

As we continue here, when President Bush responded yesterday to questions about that declassified PDB, he indicated that he is not troubled with the FBI's pre-9/11 performance.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: They included the fact that the FBI was conducting field investigations, which comforted me. You see, it meant the FBI was doing its job. The FBI was running down any lead.

And I will tell you this, Scott, that had they found something, I'm confident they would have reported back to me. That's the way the system works.

(END VIDEO CLIP)

HEMMER: Michael Vatis worked under both Louis Freeh and Janet Reno. He is here this morning to talk about it on AMERICAN MORNING.

Nice to see you. Good morning.

MICHAEL VATIS, SECURITY AND INTELLIGENCE CONSULTANT: Good morning.

HEMMER: There was an extensive piece done yesterday. David Ensor just mentioned it in his story, too, about what happened as a result of the investigation on the Cole, October 2000. How at least two hijackers' names had surfaced during that investigation but they were not tracked down, whether it was in Yemen, whether it was Malaysia, or whether it was California. What can you say looking back now as to why these men slipped through?

VATIS: Well, I think the biggest problem both in that situation, and overall, when you're talking about the FBI and the CIA, is the failure to share information, to connect the dots, as people have come to call it. Because there was pieces of information about those two people before they came into the United States, and there was pieces of information about others, such as Moussaoui, as we are now learning, in British intelligence files that, had those pieces of information been connected, had the Phoenix memo and the information in Minneapolis about Moussaoui been connected, alarm bells would have gone off and people could have responded more quickly.

But that, to me, is the fundamental problem that needs to be fixed. Not moving around more boxes, making new agencies, and creating more bureaucracy.

HEMMER: You're saying it's a structural problem, which is the same thing Condoleezza Rice said last week.

VATIS: But with a significant difference. Condoleezza Rice talked about legal impediments to sharing. And on that she was absolutely incorrect. In fact, throughout the Reno Justice Department and the Freeh FBI, there were extensive efforts that I was involved in to make sure that there were no legal impediments.

There were cultural impediments. The fact the FBI has focused on making specific cases and doesn't do a good job of sharing with other agencies, that is the central impediment. But there are really very few legal impediments that have any legal impact on this. So that to me is a side show.

HEMMER: Let me take it a step deeper here. Senator Bob Kerrey on that commission, and a big-time critic on both sides of the entire investigation, said the problem was not necessarily connecting dots. He said the problem was the follow-up and the follow-through. Why not go deeper as an FBI agent to find the source that we now know hit this country?

VATIS: Well, I think there's some truth to the lack of follow- up. And certainly there needs to be extensive follow-up of leads when they develop. But no agency is better than the FBI at digging really deep into a problem.

Where they fail is taking the information that they collect, which they are wonderful at, and then making that information available to other agencies like the CIA or other parts of the FBI. I mean, there are problems sharing internally. So collection, digging, following up are really not the main problem with the FBI. It's sharing.

HEMMER: Looking back three-and-a-half years, has any of that changed now within the FBI and the CIA?

VATIS: It certainly has changed. And, in fact, throughout the '90s, one of the biggest priorities at Justice and at the FBI was overcoming those barriers within the FBI and sharing with the CIA. And we instituted a number of programs to share more.

HEMMER: Are you satisfied with that?

VATIS: Oh, no. Absolutely not. And even the changes since 9/11 that Director Mueller has made has not gone as far as they need to go. It's cultural.

HEMMER: Another question here. One of the commissioners, Slade Gorton, a former senator from the state of Washington, said he has more questions and thinks the testimony for the FBI is more critical to this commission's work than anything that Richard Clarke or Condoleezza Rice had to offer in the past couple of weeks.

VATIS: Well, certainly the FBI's role is a critical thing to examine. But what concerns me now is that in the last 24 hours in particular, and actually starting with Condoleezza Rice's testimony, we're seeing a clear effort by the White House to politicize this.

They are so worried about the political heat, that they're now trying to put the blame on the FBI, even to the point now that the president, who has adamantly opposed making any overhauls of the FBI or the CIA, is now hinting that, in fact, he is thinking about major changes. Nothing has changed in terms of what the president has known about the FBI's performance. It's that the political heat has risen.

HEMMER: Despite the fact that we're trying to keep partisanship out of this, we're still fighting our way through it? Is that what you're saying?

VATIS: It infects every aspect of this, unfortunately. I think the commission is doing very fine work. And I think they are doing as good a job as possible to keep politics out of this. But when the White House is involved, of course, in an election year, politics infects everything.

HEMMER: Perhaps we will hear more on that from the president later tonight. Michael Vatis worked for Louis Freeh and Janet Reno, for the FBI and the attorney general. Thanks a lot. Nice to talk to you.

VATIS: OK. My pleasure.

HEMMER: And, again, just a reminder. We're watching that room right now -- 9:30 a.m. Eastern Time, 17 minutes away, we do expect Louie Freeh, the former FBI director, he will be the first witness today. Later this morning, you will hear from Janet Reno. And in the afternoon, you'll get testimony from John Ashcroft.

Now Soledad.

O'BRIEN: Well, thanks, Bill.

President Bush is holding a news conference tonight in a politically charged atmosphere. His Iraq policy will certainly be challenged because of the escalation in fighting, like we've seen today in Fallujah. The White House has already had to give into the 9/11 Commission, declassifying documents and allowing Condoleezza Rice to testify in public. The president may be looking to stop the political bleeding, some say, at tonight's session.

Elaine Quijano is live for us at the White House this morning.

Elaine, good morning.

ELAINE QUIJANO, CNN CORRESPONDENT: Good morning to you, Soledad.

President Bush is preparing for that formal news conference set to take place tonight in the East Room here at the White House. Aides say the president will begin by giving a statement on Iraq before taking questions from reporters.

Now, administration officials say that the president wanted to hold this news conference now to update the American people during what they say is a critical period in Iraq. The president is calling this news conference against the backdrop of highly publicized upticks in violence by Iraqi insurgents, also mounting U.S. casualties.

Now, at the same time, officials say the president will also be ready to face questions about that August 6, 2001 PDB, or presidential daily brief. Critics charge the information in that memo should have alerted authorities that an attack could happen in the U.S.

Now, the president maintains that the information in that document did not have specifics and did not warn of an imminent attack. Of course, these issues very important to President Bush in this election year from a political perspective. The president running largely on his record of leadership. This, by the way, will be the 12th formal news conference called by President Bush since he took office -- Soledad.

O'BRIEN: Elaine Quijano for us this morning at the White House. Elaine, thank you very much.

And be sure to tune into CNN tonight for live coverage of the president's news conference. It starts at 8:30 Eastern Time -- Bill.

HEMMER: Another reminder here. Fifteen minutes away from the FBI director, Louie Freeh, his testimony before that commission. Live to D.C. when it happens.

How will he handle the questions? Some say it could be tough questioning. Friend and former New York City police commissioner Howard Safir our guest to talk about that when we continue on AMERICAN MORNING.

(COMMERCIAL BREAK)

O'BRIEN: A hearing is now under way on Capitol Hill. We are watching some of the testimony that has just gotten under way. This is part of the staff statement that's being read. In just a few minutes, we expect former FBI director Louie Freeh to testify before the 9/11 Commission. Many people predict that he will be handling the toughest questioning of the day.

Howard Safir is a former New York City police commissioner, also a friend of Louis Freeh. Safir is now chairman and CEO of Safir, Rossetti, a worldwide security and investigative company. He joins us this morning live from Washington, D.C.

Nice to see you, sir. Thanks for being with us.

Howard SAFIR, FMR. NEW YORK CITY POLICE COMMISSIONER: Good to be here.

O'BRIEN: Louis Freeh, of course, left the FBI three months before 9/11. But it's his policies before that are going to be really, I think, questioned heavily today. Many people are predicting that.

To what degree do you think that his lack of attention beforehand is to blame for what happened on 9/11? And to what degree do you think it's other circumstances?

SAFIR: Well, I don't think there was any lack of attention on the part of Louie Freeh before 9/11. You know, I hope that what we see today is not the shameless politics that we saw last week in the commission of Dr. Rice when she testified.

Louie Freeh is a committed, dedicated public servant who dealt with a structure that was dysfunctional. The fact is that before 9/11 and before the passage of the Patriot Act, the FBI and the intelligence community could not share intelligence as they could now. The FBI could not even follow a telephone wiretap if the perpetrator forwarded his phone call to another phone.

So there is a lot of tools that were not available. And the fact is that the lack of human intelligence resources on the part of both the intelligence community and the FBI, because of restrictions put in place by some of the very members of the commission who are asking the questions now, are part of the problem.

O'BRIEN: Interesting. In his op-ed, Louie Freeh blamed a lack of resources and also blamed, as you seem to be referencing there, a lack of political interest, I guess, is the way to put that. Here is a little bit of what President Bush had to say about the role of the FBI. Let's listen.

(BEGIN VIDEO CLIP)

BUSH: And the fundamental question is, you know, what was -- was there any actionable intelligence? And by that, I mean, was there anything that the agency could tell me that would then cause me to have to do something to make a decision to protect America.

There was nothing in there that said, you know, there is an imminent attack. There was nothing in this report to me that said, oh, by the way, we've got intelligence that says something is about to happen in America.

(END VIDEO CLIP)

O'BRIEN: What do you say, sir, to those critics who say it's Louie Freeh or it was Louis Freeh's job to red flag this lack of resources? It was his job to red flag any of the potential problems for the politicians who maybe didn't really understand the depths of the problems if, in fact, Louie Freeh understood them?

SAFIR: Well, he understood them. He asked for almost a thousand additional agents for intelligence and antiterrorism work, and got 76.

It's not like the FBI was not focusing on al Qaeda before 9/11. After the embassy bombings, they identified Osama bin Laden. They actually had an Osama bin Laden taskforce.

John O'Neill (ph), who was running the operation relative to the Cole, identified all of the al Qaeda threats. And these threats were transmitted worldwide. But the issue is that nobody anticipated, nor was there any hard intelligence that said they were going to use aircraft as missiles and fly them into buildings. You know hindsight is 20/20, but the reality is they should be looking at fixing the structure, making sure that the intelligence community and the FBI have the tools, and move forward instead of playing the blame game.

O'BRIEN: Many times we've heard that today, people saying they don't want to play the blame game. Howard Safir joining us this morning, the former New York City police commissioner.

Nice to see you. Thanks for being with us.

And of course we're going to take you to Louie Freeh as soon as he begins his testimony, which is really expected in just about eight minutes or so.

(COMMERCIAL BREAK)

HEMMER: Money talk now. What has homeowners so scared these days? Andy Serwer has an answer in that and a market preview, "Minding Your Business."

Good morning, Drew.

ANDY SERWER, EDITOR-AT-LARGE, FORTUNE MAGAZINE: Good morning to you.

HEMMER: Property taxes.

SERWER: Yes, property taxes is the word here. Always a hot topic in election season. Property taxes in particular this year.

People in communities across the country outraged over ever- higher property taxes, particularly in coastal areas in New England, places like that, spurring taxpayer revolts in states like Washington State and Maine. What they're trying to do is get caps on property taxes.

Let's break down property taxes for you and see where they stand -- $297 billion worth -- it keeps going up 5.7 percent, and it's the biggie there. The problem with putting caps on these taxes, however, is that these are the taxes that fund schools and police. So if you cap them, you might see limits on those and a cut in spending there. Some people blaming the crisis in California on Prop 13.

What can be done about this? Well, there are states that are looking at things. Here we go. Raise income tax.

Well, you know? Out of one pocket into the other.

Slot machines, OK, there is always questions about that. And then you can see here Texas got all kinds of things. The adult entertainment fee in particular.

So, anyway, let's move right on to the markets, though, because we got a big day on Wall Street. Futures really very, very hot this morning. Profits looking awfully good, Bill. This morning, Merrill Lynch and Johnson & Johnson coming in with really terrific numbers.

We talked about retail sales being very, very strong. So we're expecting a higher opening.

HEMMER: And it is the earnings season.

SERWER: 'Tis.

HEMMER: Thank you, Andy.

SERWER: You're welcome.

HEMMER: Soledad?

O'BRIEN: And Jack and the Question of the Day.

CAFFERTY: Presidential news conference 8:30 tonight. You can watch it live here on CNN. And if you want to play a little of "What if I was there," what would you ask the president at the news conference tonight? Here is some of what you've written us.

Rob in Newton, Pennsylvania: "What's the United States doing to decrease the level of hatred at the United States among Muslims throughout the world?"

Terry in Marrion, Michigan: "Mr. President, are you briefed daily on the war? Question two: if yes, how on earth do you sleep at night?"

Lee in Washington, D.C.: "After the August 6 PDB, did you follow up with a request for, say, a full two-page memo?"

Tough.

O'BRIEN: Interesting.

HEMMER: Yes.

O'BRIEN: Thank you, Jack.

The 9/11 Commission's questioning of former FBI director Louie Freeh is expected to begin really in just a couple of minutes. We're going to take you there live as soon as it happens.

Stay with us.

(COMMERCIAL BREAK)

HEMMER: All right, 9:31 here in New York. Welcome back to AMERICAN MORNING. Busy morning yet again today. The former FBI director, Louie Freeh, expected in that room any minute now to testify before the 9/11 commission, and we await on that, expecting to start yet again at any moment. We will not leave it for long.

O'BRIEN: You're looking there at a live picture.

Also this morning, we're going to see Attorney General John Ashcroft, former Attorney General Janet Reno, and Thomas Picard. He's the former acting director of the FBI. Plus, Ambassador J. Cofer Black, former director of the Counterterrorism Center for the CIA. That is the lineup for the day.

HEMMER: It is a big one, too.

Top stories here at the half-hour now.

The latest round of fighting in Iraq has killed more U.S. troops there. Two Marines killed in Fallujah last night. Eight others wounded in that same incident.

The Marines battled an intense and hour-long firefight against insurgents. It started when Iraqi fighters attacked a building housing the Marines. This morning, east of Fallujah, witnesses telling the AP a helicopter, an Apache was hit by a rocket and went down. There is no word on casualties there.

And here now some fresh videotape taken today of wanted radical cleric Muqtada al-Sadr. He was spotted leaving a mosque earlier in Najaf. And, also, U.S. forces today detaining one of his top aides in Baghdad. They released him a short time later, saying he was not behind any of the recent violence.

Meanwhile, the Arabic language TV network is airing video of four Italians kidnapped in Iraq. This is Al-Jazeera we're talking about. The hostages said to be intelligence officers.

Tonight, President Bush answers questions about 9/11, preintelligence there, especially about information and newly declassified presidential briefing. Mr. Bush will hold a primetime news conference. You'll see it on CNN at 8:30 p.m. Eastern Time.

The main focus will certainly be Iraq. And although the questions will continue, too, about what happened on events before 9/11 -- of course we will be there for you live, primetime, tonight, 8:30 here on CNN. The judge in the Jayson Williams manslaughter trial likely ruling today on whether charges against the former NBA star should be dropped. Williams accused of shooting a limousine driver and then trying to make the death look like a suicide. Yesterday, the defense argued that charges should be dropped in total because, they say, the prosecution withheld evidence.

A man from Washington has been charged with possessing the deadly toxin ricin. Police arrested Robert Alberg (ph) at his Kirkland apartment on Friday. He is now in FBI custody. Federal criminal justice sources telling the Seattle newspapers that they do not believe Alberg (ph) was plan to go use the ricin.

You're up to date, 9:34 now here in New York City.

(WEATHER REPORT)

O'BRIEN: Louie Freeh is taking his seat as he prepares to address the 9/11 commissioners. They wrapped up the staff report, and he is expected to talk this morning.

Really, some people have predicted, frankly, that he is the man who is in the hot seat today. He left his post just a couple of months before the attacks of 9/11. And many people, of course, are going to be very interested in what he has to say.

HEMMER: At least one of those commissioners on record as saying the FBI testimony is even more critical than the testimony of Richard Clarke and Condoleezza Rice. The swearing in now with Governor Kean.

THOMAS H. KEAN, COMMISSION CHAIRMAN: Do you swear or affirm to tell the truth, the whole truth and nothing but the truth?

LOUIS J. FREEH, FORMER DIRECTOR, FBI: I do.

KEAN: Please be seated.

Director Freeh, a prepared statement will be entered into the record in full. As you know, we've got an agreement that your statement summarized will be about 10 minutes long. And so please proceed.

FREEH: Thank you, Mr. Chairman, members of the commission.

Let me just begin by, again, expressing publicly my condolences to the families of the 9/11 attack and to extend my prayers and support for them, and my wishes that this commission, as the joint Intelligence Committees before it, does not only find some answers but certainly recommendations for change and improvement, many of which have already been undertaken, so that this type of awful, horrific human and personal tragedy never affects anyone else.

I want to just make a couple of points. I certainly appreciate the work of the staff and the report of the executive director. And maybe not addressing all of the details of what has been a very careful review of the FBI operations, certainly prior to September 11th and thereafter, and a very good audit with respect to many of the programs and operations.

FREEH: I would like to talk about some larger general issues, and certainly then engage in whatever questions you want.

I think the point that I would like to make is that it is imperative, in my view, that the commission distinguish between the period before September 11 and the period after September 11; that this is, I would respectfully suggest, a central question for the commission and for the American people. And I think the inability to focus on that question leaves not only a lot of speculation, but I think a lot of misinformation about some of the activities and some of the dynamics here involved.

I guess my view is that al Qaeda declared war on the United States in 1996. That's when bin Laden issued his first fatwa.

The 1998 fatwa was much more specific. It directed his followers to kill Americans anywhere.

That was followed by attacks against American soldiers in Yemen in 1992, which was actually the subject of a Southern District of New York FBI indictment returned in June of 1998 prior to the attacks against the embassies in East Africa.

The attacks upon the American soldiers in Somali, Project Restore Hope, was an activity sponsored by and directed by al Qaeda soldiers. That, as you know, was one of the overt acts publicly identified in the New York City indictment with respect to bin Laden.

The attacks against the embassies in 1998: acts of war against the United States. The attacks against our warship in 2000: acts of war against the United States.

FREEH: I remember briefing Senator Kerrey and Senator Shelby after one of these attacks -- it was the embassy attacks -- and he asked me a very good question, a question that I think is maybe more relevant today than it was then. And he said, "Why is the FBI over in East Africa, hundreds of FBI agents sifting through a crime scene maintaining chain of custody, talking to people and giving them their Miranda rights, when this is an act of war against the United States?"

And my response then, as it would be now, is that, absent a declaration of war backed by the United States against al Qaeda, against this very competent and very dangerous terrorist organization, we were left with the tools that were available to fight terrorism and to neutralize and incapacitate, not just bin Laden, but many of his operatives and allied organizations.

The point there is not that anybody in the FBI or anybody in the United States thought that investigating these cases was the best response to a war that was declared against the United States. You could poll any FBI agent, any jury that tried and convicted many of the people in these cases and they would tell you absolutely not. An arrest warrant, two of them for bin Laden in the Southern District of New York, was not going to deter him from what happened on September 11th. FREEH: But the point of these investigations was in the absence of invading Afghanistan, in the absence of armed Predator missiles seeking out our enemies, in the absence of all the things that were appropriately done after September 11th, when the United States declared war back on al Qaeda, we were left with alternatives which were better than no alternatives. And as I said in my statement, sometimes they worked.

And the investigations were not investigations that dealt with individuals. When the FBI investigated La Cosa Nostra, it wasn't investigating a particular person or group of people; it was investigating the organization and the enterprise. The purpose there was to get as much information as possible to incapacitate the leadership and dissolve the organization. The Watergate investigation would be the same example of that. These investigations were not cases; they were initiatives that were designed to gather information.

So before September 11th most of the information that was residing in the United States government with respect to al Qaeda came from FBI investigations, not from intelligence operations, not from collection. It came from the cooperating witnesses that we found in 1993, after the World Trade bombing in February. The FBI conducting an investigation but an investigation that went to the identification of the people who might have been involved in supporting that attack led to, if you recall, the prevention -- and I stress that word -- the prevention of a second major terrorist attack against the United States in New York City which was called the day of terror. And the organization was going to blow up tunnels and bridges and the United Nations and federal office buildings, killing potentially thousands and thousands of Americans.

FREEH: It was the investigation of the World Trade tower that prevented that and also gave us an arrest warrant for one Ramzi Yousef. Ramzi Yousef, related to Sheikh Khalid Mohammed, one of the architects of the September 11th attack.

He was found in Pakistan, staying in an al Qaeda guest house, by FBI agents who had an arrest warrant, and without that arrest warrant, he would never have been brought back to the United States.

Why was it important to have an arrest warrant? Because incapacitating him would prevent him from further attacks against the United States.

As you know, in 1995, he and others -- Sheikh Khalid Mohammed being one of them -- were planning to blow up 12 U.S. airliners over the Pacific Ocean, killing hundreds of Americans. That was aborted due to a series of events, but precisely the FBI criminal investigation served to prevent that from happening.

My point is that these investigations or projects that seek to gather maximum amount of information so the organization can be stopped from committing future acts of terrorism.

It was never our notion in the FBI that criminal prosecutions of terrorists and investigations of their organizations was a substitute for military action, for foreign policy action, for the United States doing what it did on September 11th, declaring war on an enemy that had declared war on us many years ago.

The point of it is that these investigations, as they existed, prevented acts of terrorism.

FREEH: With very limited resources, the FBI, as you know, before September 11, had 3.5 percent of the federal government's anti- terrorism budget. And it's no news to anybody that for many, many years, as your executive director recounted, the resource issue and the legal authority issue certainly limited what we were able to do before September 11th.

In the budget years 2000, 2001, 2002, we asked for 1,895 people: agents, linguists, analysts. We got a total of 76 people during that period. That's not to criticize the Congress, it's not to criticize the Department of Justice, it is to focus on the fact that that was not a national priority.

It's to repeat what we saw in the 2000 presidential election. Terrorism was not discussed. This was not an issue that candidates talked about, that the American people talked about during that period. And this was right after the attack on the USS Cole.

For many, many years, a lack of these resources and, maybe more importantly, a lack of legal authority, prevented us from doing what was easily done after September 11th. The Patriot Act, the November 18, 2002 decision by the court of review, which threw out a 20-year interpretation of the FISA statue. The court said to the judges, to the Department of Justice, to the FBI, to the intelligence community, "You've been misreading the statute for 20 years." Not only does the Patriot Act provide for this, but the actual statute provides for that.

So this wall that had been erected was a self-erected wall by the United States government, confirmed by interpretations, by the FISA court.

FREEH: But when challenged for the first time in 20 years, it was found by the court of review to be inconsistent with the statute, as well as inconsistent with the Constitution.

All of these things being said, the point I guess I want to make to you this morning and which I tried to make in my statement, is that we had a very effective program with respect to counterterrorism before September 11th given the resources in my view and given the authorities that we had.

Bin Laden was indicted in June of 1998. He was indicted again after the African bombings. He was put on our top 10 list. George Tenet and I reviewed plans to have him arrested and taken into custody in Afghanistan and brought back to the United States. I went over to see then-Chief Executive Musharraf in 2002 and made the case for him that this person be thrown out of Afghanistan; that he help us take him into custody so we could bring him back to the United States. All of the other things that were being done were being done in a limited framework, given, again, lack of resources and, maybe more importantly, the legal authorities that we had to live with.

KEAN: If you could wrap up now. Time's up.

FREEH: Thank you, Mr. Chairman.

The final point I think I want to make then is that we could change the law, we can pass new statutes, we can add billions of dollars to the fight. We need to keep in perspective, however, what was the reality before September 11th and what was the reality thereafter.

FREEH: And at the end of the day, the FBI, as a part of the Department of Justice, has to obey the law. And whatever that law is, it's one that protects us, it protects our Constitution, it also protects our people. And that law can change but I think we have to keep in mind that when that changes, we can't judge what happened in the past by different standards.

Thank you.

KEAN: Thank you.

Commissioner Fielding?

FRED F. FIELDING, COMMISSION MEMBER: Good morning, Mr. Director. Thank you very much for being here today and for all of the cooperation you've provided to the commission and its staff in closed sessions heretofore and for your really fulsome statement that you gave us. And also thank you on behalf of the whole commission for your public service, both in the executive and the judicial branch.

I am sure it's no surprise to you or anybody here that there's a lot of interest in today's hearings and there's a lot of interest simply because on September 11th we were totally beaten. We were beaten and all our systems failed.

Our systems to stop hijackings failed. Our intelligence, domestic and foreign apparatus failed. We had 19 people who were able to -- some of whom were known by the CIA to be terrorists -- entered our country, got visas, were living under their own names in this country, took flight lessons. They beat the security screening with knives to get into the aircraft and turn four aircraft into missiles.

And they had to have -- it was interesting -- they had to have 100 percent success in order to do this and they did.

FIELDING: So we've now found in our discovery that there have been some clues, some dots, as we say, that might have been connected, were not. We're not passing judgment on that at this point, but what we're trying to determine here is how this intelligence failure occurred so that we can deny it from occurring again, if at all possible. And, quite frankly, we're also trying to determine whether the FBI should continue to have its counterterrorism responsibility; whether it's capable of carrying out the new mission of counterterrorism, and the enhanced mission and the enhanced responsibility. So we appreciate your being here.

You became the director in September of '93, and had a long service through June of '01. So you're clearly aware of the terrorists targeting U.S. interests in the '90s.

It was often said that because you're a former field agent yourself, that you had little time for headquarters, and that you created or enhanced what has been described to us as the culture of the field. And during your tenure, counterterrorism investigations were run out of the field, as we understand it. The New York field office was the office of origin for al Qaeda, and therefore, as the staff statement said, our expertise for the large part was there.

FIELDING: Now, also in 1994, when you came on, you reassigned over 600 headquarters, supervisory, administrative agencies out in the field, ostensibly to make the FBI more efficient and to put more FBI agents on the street.

Now, some have looked at this approach -- and I want to read a quote. It says, "The FBI's policy to decentralize investigations was inefficient for counterterrorism operations, especially against international terrorist targets." And that's from the report of the House Permanent Select Committee on Intelligence that analyzed this approach.

So my first question to you is, you, obviously, made this decision. How -- to you what were the strengths of this approach of using the office of origin concept as opposed to the FBI's now current, more centralized approach to counterterrorism?

FREEH: Well, you've asked a number of questions. Let me see if I can respond to some of them.

With respect to the 600 agents being assigned out of headquarters, that wasn't because I believed that we shouldn't have them in headquarters, but should have them in the field. It was because for 22 months, the FBI had a hiring freeze. So while we were having offices around the country literally, the R.A. offices -- the resident agencies -- becoming vacant because there were no agents being hired -- 22 months, not one FBI agent was hired.

So my reassignments in 1994 were not to decentralize the FBI, it was to put agents in spaces where they had to be put with respect to that.

al Qaeda, in terms of the cases -- as you call them correctly -- but also the investigation of al Qaeda was centralized in New York City.

FREEH: That's where the primary office and the three squads that were established ultimately in New York City dealt with the Cole bombing, the East Africa bombing, as well as the al Qaeda organization in general.

That doesn't mean that we didn't organize and centralize and direct those investigations from headquarters. We set up, as your executive director mentioned in 1999, a Counterterrorism Division. The purpose of the Counterterrorism Division was to control and help support a national program where cases, although they have to be worked in the field -- that's where the U.S. attorneys are -- they also were directed and supervised by headquarters.

It was interesting that when I submitted the proposal for the Counterterrorism Division, with the full support of the attorney general, Janet Reno, it took nine months for the Office of Management and Budget and the Congress to approve that, which again goes to my point before about the priorities with respect to getting things done.

We had al Qaeda-Osama bin Laden unit set up at headquarters. In our SIOC operation, we had 24-by-7 coverage of those matters and those cases.

So the cases were being worked in New York City -- I don't know where else they could have been worked -- but the coordination between headquarters and the field, in my view, was very, very good.

Now, I got involved very directly in many of those operations.

For instance, I went to Pakistan to ask Mr. Musharraf to help us arrest bin Laden. I also asked him for witnesses, which he ultimately agreed to send one to New York City for the trial. I went to East Africa and negotiated the return of Oday and some of the other hijackers to be prosecuted in New York, where they were convicted.

FREEH: So there was a lot of headquarters involvement. In fact, there was huge headquarters involvement in the New York cases. The fact that they were in the field was just the reality of that's where cases are and that's where grand juries and prosecutors and courts are.

But the point is that that group of New York City agents were functioning not just as case agents, they were the intelligence, they were the analysis, they were the whole embodied knowledge of the United States government at that time with respect to al Qaeda and its principals. And their job was to disable the organization, eliminate the leadership at that point by arrest or custody. And many efforts -- heroic efforts on their part were extended in that regard.

FIELDING: OK. Then is it your testimony that the al Qaeda cases, if you will, that were being run out of the New York office were really being directed out of headquarters?

FREEH: Yes, sir.

FIELDING: OK. Then help me a little. How, under that structure, would the rest of the field offices really have the same sense of urgency, understanding or know-how, if you will, to contribute to the counterterrorism effort? For instance, use as the example the infamous or famous Phoenix memo that never seems to get where it should get. Could you comment on that?

FREEH: On the Phoenix memo or the fact that we had...

FIELDING: Both. I'm using that as an example.

FREEH: Yes.

FIELDING: Doesn't this decentralization inhibit the interplay between the offices, so to speak?

FREEH: Again, I guess I don't agree with the term decentralization.

I mean, the cases had to be worked where they were worked. We had a body of expertise with respect to al Qaeda, and bin Laden's residence in New York. We had an equal and ample, in my view, body of expertise at our headquarters, with Dale Watson and Debbie Stafford and Mike Rollins, all the people that your staff has spent many, many hours with over the last few months.

So, you know, we didn't only have the expertise in New York. And Dale's job and Mike Rollins' job and the Counterterrorism Section, before it was the Counterterrorism Division's, job was to ensure that, first of all, expertise was available to support cases in smaller offices that perhaps didn't have that kind of experience, would not have had that kind of experience.

The purpose of, you know, MAXCAP 05, the purpose of seminars, the purpose of SAC conferences was to disseminate all of that information and make sure that the field not only was aware of those investigations, but if they had matters in their own division -- and there were 70 cases around the FBI in the summer of 2001 -- not on al Qaeda members or bin Laden supporters, but on fundamentalists, jihadists who were of great interest to the bureau because of their potential, as we saw in East Africa and other cases, to be co-opted and enlisted into operations.

So the decentralization, I don't think, is something that I would characterize it as.

With respect to the Phoenix memo, which is your second question, you know, my understanding of that memo, mostly what I've read in the newspapers, is that it was sent to headquarters. It was not decentralized in the sense that it never made it to headquarters.

FREEH: It was looked at there. It was analyzed. People took what they thought was the appropriate action at the time.

I know as an aftermath of the information contained in that memo, everyone was interviewed -- the people who were identified in the memo. All the leads were run out after the fact, and there was nothing about the information contained in that memo, as far I've read or as I understand it, that would have lead you to September 11th. FIELDING: Well, then, do you disagree -- well, let me ask it another way. The Pentbomb investigation is now being run out of headquarters. Would you disagree with the way that Director Mueller is running that?

FREEH: No. Again, I think after September 11th, there had to be a completely new restructuring of how counterterrorism cases and operations were going to be conducted. So I would not have any disagreement with that.

And, by the way, if you were going to do a criminal prosecution there, not that that would be appropriate, you would do it in the Eastern District of Virginia. So it wouldn't make any sense for agents in New York City to be working on it if you were to do a criminal case.

FIELDING: So you think that, post-9/11, that's the better way to run counterterrorism cases?

FREEH: I don't think you can run counterterrorism cases out of headquarters. That's not my experience or my view. I think you have to coordinate them out of headquarters.

The liaison throughout the government, the ability to share intelligence, the overseas connections that are necessary, you can't run it without headquarters. But you can prepare a criminal case for a field presentation in a U.S. district court in headquarters. That's just my own view.

FIELDING: Let me switch gears for a second.

In September of 1999, the GAO issued a report that recommended that the FBI develop a national-level terrorist threat and risk assessment so it could be used to determine how to allocate resources and budget and dealing with domestic threats, plus analyzing the likelihood of such a threat and to identify any potential intelligence gaps -- I believe was part of the charter.

And it was my understanding that the department and you agreed to do that. And that's September -- the end of '99. And that wasn't completed until January of 2003.

And when we were talking to people that were involved in that, a senior CIA official that was detailed to the FBI after 9/11 told the commission that the assessment was completed actually by CIA analysts that had in detail to the FBI, since the FBI analysts were not capable of producing such a product.

Now, I'd like your comment on that. And even the deeper question of was the FBI unwilling to do an analysis, or was it unable to do an analysis from '99 at least until you left?

FREEH: Well, I don't think it was incapable of doing that. In fact, there were analyses that were made with respect to assessments, which were done in the context of the Counterterrorism Division, which was set up at about the same time. FREEH: Did we have a deficiency with respect to analytical capability? Absolutely.

I talked about that at appropriation hearings over many years. Most of the nonagent resources in our three-year request for 1,895 people were analysts. They were people who could perform strategic, as opposed to tactical, analysis for us and give us the type of strategy plans and disruption plans that we began to see actually in the spring and summer of 2001 in the FBI with respect to al Qaeda.

But that capability was not there when I was director. You know, we're in the process now of hiring 900 analysts, but that's 2004. It doesn't cover the gaps over many, many years, particularly the years that you cite.

FIELDING: But you would agree that counterterrorism needs that as a component of its total effort, would you not?

FREEH: Absolutely. It needs linguists which were also, you know, requested year after year. We asked for the authority to hire Arabic and Farsi speakers at a higher rate than the GS scale provided for in New York City. You can't hire an Arabic or Farsi speaker for a GS-6 salary, which is what we were relegated to.

We did get a brief experiment with respect to a Title 5 exemption, but not what is now available and funded at least to the point where you can make an issue of it.

FIELDING: OK. Now, the last -- I guess that is my last one. I'm sorry. I see my time is up.

Thank you, Mr. Director.

KEAN: Commissioner Ben-Veniste?

RICHARD BEN-VENISTE, COMMISSION MEMBER: Good morning, Director Freeh.

FREEH: Good morning.

BEN-VENISTE: As you know, the purpose of this commission may be divided into two broad categories.

BEN-VENISTE: First, we are charged with providing a full accounting of the 9/11 catastrophe, a challenging investigative responsibility.

Second, we're asked to make recommendations in a wide variety of areas, all of which with the common goal of improving the security of our nation.

We should be reminded that the ability to have such a commission to operate in part through public hearings and to ultimately deliver a report to the president of the United States, to the United States Congress and to the American people, a report on our findings and recommendations, is a remarkable testimonial to the strength and durability of our democracy. Few countries in the world would tolerate, much less welcome, such an open and public process.

Director Freeh, you have served in two of the three branches of government. You were an FBI agent, an assistant U.S. attorney in the Southern District of New York; an office for which I have great affection, as you know, and continuing admiration. Indeed, during my service as an assistant United States attorney I worked closely with many FBI agents who I regarded as among the most dedicated and patriotic Americans I've ever met. Indeed some of them are close friends today.

You have served as a federal district court judge in the Southern District of New York, appointed by President Reagan, and then you were appointed by President Clinton to be FBI director. Your experience and observations will be an important source of information for this commission.

BEN-VENISTE: You have reemphasized this morning the fact that the New York office of the FBI, which was led by James Kallstrom and then Barry Mawn and John O'Neill, particularly focused on the al Qaeda terrorist threat.

In fact, John O'Neill perished in the attack on the World Trade Center on September 11th, 2001, at the hands of cowards who murdered civilian men, women and children, people who John O'Neill had hunted with a determination that sometimes bordered on an obsession.

Indeed, in January 2001, O'Neill's concerns stimulated an interagency group white paper urging greater protection of federal buildings in Lower Manhattan.

And that white paper noted that, "Osama bin Laden, his al Qaeda organization and affiliated extremists groups currently pose a clear and immediate threat to U.S. interests."

Do you recall discussions with John O'Neill about the threats from al Qaeda or others that might occur within the United States?

FREEH: Yes, I do, and particularly in that time frame.

If you recall, the trial was actually starting in January of 2001. It went through May.

FREEH: This was the trial of the four subjects in custody for the East African bombing.

So the New York office, as well as headquarters and myself, were intensely concerned about the security for that trial. And if any of you saw the courthouse during the period of that trial, there were cement trucks, streets closed, because we were focused on a domestic attack in the United States by the co-conspirator in that case, indicted but a fugitive, to Osama bin Laden.

BEN-VENISTE: Let me ask you this: You have talked this morning and in your submitted statement and previously about your efforts to increase the counterterrorism budget; efforts that were not accepted by the Congress of the United States in allocating more funds for you. But can you tell us whether it was possible within the FBI structure to reallocate resources within a particular field office or in general, perhaps using, as an example, James Kallstrom, the former head of the New York office of the FBI, who unilaterally shifted resources to counterterrorism from other areas?

I believe you have told us in staff meetings that Jim Kallstrom had half of his Criminal Division working on counterterrorism, pulling agents away from such traditional investigative efforts as bank robberies, drug investigations: the type of investigations which can overlap with other federal agencies or with state and local operations.

BEN-VENISTE: Did Kallstrom's, sort of, entrepreneurial decision on his own, recognizing the terrorist threat to make those reallocations, trouble you?

FREEH: Well, no. Since I concurred in it, I wouldn't call it an entrepreneurial decision at all.

I mean, when we needed to put 400 FBI agents in East Africa in August of 1998, we put them there. Now, they weren't allocated in our congressional funding stream as counterterrorism agents, but we sent them there because we needed them there.

For years, in the New York office, we -- the term is overburned the number of agents working counterterrorism cases.

Now, there were only three squads that were full-time assigned to bin Laden cases and al Qaeda investigations. But when we had a trial or we had an emergency, like we were preparing for the 50th anniversary of the U.N. or the NATO meeting or the pope was coming to New York, we would, of course, allocate hundreds and hundreds of agents who were not authorized budgetarily to perform counterterrorism assignments to that job. So that was something we did continuously.

There was never a case, Mr. Ben-Veniste, anywhere in the bureau that I was aware of where we could not assign agents in an emergency or in the threat of danger to help prevent that. But the reality is in terms of our congressional budget, they were not then authorized to be working the matters they were working.

BEN-VENISTE: Well, given the fact that you concurred and supported Jimmy Kallstrom's efforts in New York City, and given the fact that there has been criticism about the FBI's inability to reallocate resources toward the growing threat of terrorism and reallocate those resources, as I say, away from more traditional FBI jurisdictional areas which could be covered by other federal and state agencies, how do you answer that criticism?

FREEH: Well, I think I would address it by saying two things.

One, you know, the positions that are authorized by the Congress and audited by their committees, as well as GAO, have to be allocated to the program areas where they're funded to. That's number one. Now, from time to time, as in the New York case, we would ask the congressional committees for temporary reallocations. We would advise them as to what we were doing.

My answer to getting counterterrorism resources to fight terrorism was to ask for them and ask for them in addition to what we already had.

BEN-VENISTE: Were you ever reprimanded for reallocating on your own, either on the basis of emergency or on a more generalized basis, resources to counterterrorism as a result of congressional oversight?

FREEH: No. But I think that's because we were doing it on a emergency basis and on a temporary basis.

If we had taken a thousand agents from our criminal programs and assigned them full-time to counterterrorism matters, I don't believe we could have done that and I don't believe the committees would have permitted it at the time.

BEN-VENISTE: But you did not try that?

FREEH: No, I did not try that because that's not the way resources are allocated.

BEN-VENISTE: Let me turn to the subject of the state of the intelligence community's knowledge regarding the potential for the use of airplanes as weapons, a subject of obvious interest to this commission.

BEN-VENISTE: Did the subject of planes as weapons come up in planning for security of the Olympics held in Atlanta in 1996?

FREEH: Yes, I believe it came up in a series of these, as we call them, special events. These were intergovernmental planning strategy sessions and operations. And I think in the years 2000, 2001, even going back maybe to the 2000 Olympics, that was always one of the considerations in the planning. And resources were actually designated to deal with that particular threat.

BEN-VENISTE: So it was well-known in the intelligence community that one of the potential areas or devices to be used by terrorists, which they had discussed, according to our intelligence information, was the use of airplanes, either packed with explosives or otherwise, in suicide missions?

FREEH: That was part of the planning for those events, that's correct.

BEN-VENISTE: Did that come up, the same subject, come up again? I know you carried on from the Clinton administration through six months, more or less, of the Bush administration. Did that subject come up again in the planning for the G-8 summit in Italy?

FREEH: I don't recall that it did, but I would not have been involved in that planning. The FBI would not have been involved in that particular planning.

BEN-VENISTE: We were advised that there was a CAP or no-fly zone imposed over first Naples, in the preplanning session, and then Genoa during the meeting of the eight heads of state.

BEN-VENISTE: And that subsequently it was disclosed the President Mubarak of Egypt had warned of a potential suicide flight using explosive-packed airplanes to fly into the summit meeting.

FREEH: I don't dispute that. But that planning would be done by the Secret Service, probably the Department of Defense. We would not have been involved in that event outside the United States in terms of the special planning, although we probably detailed some people there.

BEN-VENISTE: Let me ask you this: To your knowledge, coming back to the United States, was the intelligence information accumulated by the year 2001 regarding various plots, real or otherwise, to crash planes using suicide pilots integrated into any air defense plan for protecting the homeland, and particularly our nation's capital?

FREEH: I'm not aware of such a plan.

BEN-VENISTE: Can you explain why it was, given the fact that we knew this information, and given the fact that, as we know now, our air defense system on 9/11 was looking outward in a Cold War-posture, rather than inward, in a protective posture, that we didn't have such a plan? Was that a failure of the Clinton administration, was that a failure of the Bush administration, given all of the information that we had accumulated at that time?

FREEH: Well, I mean, I don't know that I would characterize it as a failure by either administration.

I know, you know, by that time there were air defense systems with respect to the White House. There were air defense systems that the military command in the Washington, D.C., area, you know, had incorporated.

I don't think there were probably -- at least I never was aware of a plan that contemplated commercial airliners being used as weapons after a hijacking. I don't think that was integrated in any plan.

But with respect to air defense issues and that threat, it was clearly known and it was incorporated, as I mentioned, into standard special events planning.

BEN-VENISTE: Into special events, but never into the actual defense posture for the homeland protection of the United States.

Let me ask you a final question with respect to the millennium threat. The FBI and the CIA have been criticized for being unwilling to work cooperatively together, yet it appears during the period of heightened alert prior to the millennium, the FBI and CIA worked closely together and had several notable successes as the result thereof. Could you explain how that operation worked and whether you reported to the National Security Council of the United States?

FREEH: Well with respect to the millennium planning, I reported of course to the attorney general. The attorney general and I worked very closely in concert with the National Security Council, with the director of central intelligence, the CIA, military components, civilian components.

This was an integrated and long-term planning operation with respect to millennium threats, which were not only issues concerning technology exploitation, but also the occasion of the millennium as a terrorism attack.

FREEH: But your more important question, I think, is the CIA-FBI cooperation. I don't think it was unique to the millennium planning. My experience in eight years there is that there was extremely good cooperation between the FBI and the CIA. And that goes back to matters such as the Cole bombing, the East African embassy bombings cases.

The Alex (ph) station -- which you know from your staff was set up in 1997 -- the CIA and the FBI together and a station dedicated to al Qaeda investigations and disruption activities overseas. FBI agents would regularly accompany CIA officers overseas to exploit al Qaeda cells and disrupt them.

I think that cooperation, in my view, was a very outstanding one for many years.

BEN-VENISTE: Thank you, sir.

KEAN: Commissioner Gorelick?

JAMIE S. GORELICK, COMMISSION MEMBER: Thank you, Mr. Chairman.

I've asked for the microphone only to say that I will not be questioning Director Freeh or Attorney General Reno. Under our commission policies, several commissioners have recused themselves from considering various issues that they worked on or elements of the government that they've worked with at one time or another.

While I'm recused only from review of actions during my tenure at the Department of Justice, which ended in March of 1997, because I worked closely with Director Freeh and with Attorney General Reno, I've decided not to participate in this questioning at all.

GORELICK: As my colleagues know, the vast preponderance of our work, including with regard to the Department of Justice, focuses on the period of 1998 forward, and I have been and will continue to be a full participant in that work.

So all I will say today is thank you for your testimony today, Director Freeh.

FREEH: Thank you. KEAN: Thank you.

I've got a couple of questions.

First, I'm interested in your communications with the White House. When you had a serious problem, where you thought there were threats, did you go directly to the president or was there another mechanism you used to communicate with the White House, either in the Clinton administration or the Bush administration or both, I guess?

FREEH: Well, I mean, my procedures would normally be to communicate first with the attorney general on many occasions. After that communication we would go to the White House. If it was a national security issue, we would certainly see the national security adviser.

In the last year that Janet Reno and I served together, we actually had a routine meeting with the national security adviser I'd say probably every two or three weeks. We had another one with Secretary Albright probably once a month, and the purpose of those meetings was to discuss not just counterintelligence and counterterrorism matters, but even other Department of Justice issues that had national security implications.

On some occasions I would go directly to the national security adviser. I did not have an experience in either administration of going directly to the president on a matter.

KEAN: One of the questions that -- maybe one of the most important that our commission is charged with, is looking at the intelligence agencies and seeing whether any changes ought to be made.

KEAN: Now, I read our staff statement as an indictment of the FBI for over a long period of time.

You know, when I read things like that 66 percent of your analysts weren't qualified, that you didn't have the translators necessary to do the job, that you had FISA difficulties, that you had all the information on the fund-raising but you couldn't find a way to use it properly to stop terrorism.

And that's without counting, of course, the things that were going on at the same time: Ruby Ridge, Waco, the Wen Ho Lee case, the Hanssen case, the lost laptops and firearms and all of the rest.

The present director, your successor, has a whole series of reforms that he is trying to put to make the agency work better. You tried reforms. You tried very hard to reform the agency. According to our staff report, those reforms failed.

I guess my question to you is, looking at this director's efforts to reform the agency, can those reforms work or should there be some more fundamental changes to the agency and the way we get our intelligence?

FREEH: Well, first of all, I take exception to your comment that your staff report is an indictment of the FBI. I think your staff report evidences some very good work and some very diligent interviews and a very technical, almost auditing, analysis of some of the programs.

I think the centerpiece of your executive director's report, as I heard it, came down to resources and legal authorities.

FREEH: So I would ask that you balance what you call an indictment, and which I don't agree with at all, with the two primary findings of your staff. One is that there was a lack of resources; and two, there were legal impediments.

With respect to your question, I certainly support and applaud the director's efforts. The Patriot Act, the court of review, a couple of billion dollars is certainly a big help when we're talking about changes.

With respect to the jurisdiction of the FBI, I do not believe that we should establish a separate domestic intelligence agency with respect to counterterrorism. I think that would be a huge mistake for the country for a number of reasons.

One, I don't think in the United States we will tolerate very well what, in effect, is a state secret police even with all of the protections and the constitutional entitlements that we would subscribe it with. Americans, I don't think, like secret police. And you would, in effect, be establishing a secret police.

Secondly, if you look at the models around the world where this has been tried, it hasn't worked very well, in my opinion.

The other thing, it would take a long time to integrate. If the Homeland Security Department and 170,000 people to be integrated is going to take a couple of years; standing up a brand new domestic intelligence agency would take a decade and we would lose very precious time at a very dangerous time for the United States.

FREEH: If you look at some the analyses of MI-5 operations, and you can look at the Bishop Gate bombing, you can look at the Dockland's bombing -- the Matroyan (ph) case -- I'm sure your staff has looked at that -- it's been found to be not very effective.

In fact, one of the studies that I know your staff has looked at in the United Kingdom that looked at this actually said the FBI was a preferred model because it breaks down the barriers between enforcement and intelligence. A lot of the good work of this commission has been to identify the barriers that existed -- and still exist -- between intelligence and law enforcement.

Standing up a separate intelligence agency will just increase those barriers. And if you thought the wall was a big one, that's a fortress in my view and will make for a very ineffective counterterrorism program and, I think, expose the country to dangers.

So I think we ought to have the Department of Justice, supervised by the attorney general, FBI agents who are schooled in the Constitution, who have a transparent operation with respect to oversight by courts, as well as by Congress. Give them the tools, give them the legal authority, give them the budget, and they'll do this job very well.

It's not very different from looking at organized crime, from looking at counterintelligence, which, in my view, the bureau has done exceptionally well for decades.

The difficulty with the wall was that the wall that was set up in Janet Reno's guidelines of July 19th were completely appropriate with respect to counterintelligence cases because counterintelligence cases happen in two dynamics. One, there is an investigation, and then there is either an indictment or an expulsion.

Counterterrorism cases are completely different. Because of the threat, there is always an ongoing need to act and to use the intelligence to prevent attacks from taking place.

FREEH: So the wall is not an appropriate one with respect to counterterrorism, and that's been repaired both by the Patriot Act and the court of review.

KEAN: Thank you.

Senator Kerrey.

BOB KERREY, COMMISSION MEMBER: Thank you very much, Mr. Chairman.

Director Freeh, I'll do whatever I can here to make sure I don't call you "Director Clarke" as I ask you these questions.

(LAUGHTER)

First of all, do you think it was a mistake not to -- talking about Khobar now, starting in Khobar in '96 -- not to have you report directly to the National Security Council and the president on what was going on in that investigation?

FREEH: Well, I did report through the attorney general and directly to the national security adviser.

Are you talking about Khobar?

KERREY: Right.

I mean, Dick Clarke and Mr. Steinberg (ph), the deputy at National Security Council, said that there was never any written reports sent by the FBI to the NSC. Is that not true?

FREEH: If we're talking about the Khobar case, you know...

KERREY: Actually, I'm -- begin with Khobar, but all the way through this time period, it seems to me it was a mistake not to have you report directly on what you were learning to the National Security Council or to the president. Since it was a domestic agency going over to investigate, as I consider it, an act of war against a U.S. military installation in Saudi Arabia, it seemed to me that there should have been a reporting right back to the National Security Council on what was going on.

FREEH: But I guess what I'm saying is, there was. I mean, Janet Reno and myself, together on a very, very regular basis; myself, individually, on numerous occasions directly with Sandy Berger.

KERREY: All we talked about was the Khobar case.

In an otherwise, I thought, exceptional staff report, the staff, I think, miscorrectly describes the seven cases that you were involved with, saying that most of those were overseas. In truth, three of them were domestic, and four of them were overseas. World Trade Center number one landmarks plot number one, the millennium, and indeed if you include the threats against the city of New York during the 2001 trial, there were four domestic attacks and/or efforts.

Did the FBI ever produce an evaluation of the threat to the homeland during this period to the president? Or was there one requested of you?

FREEH: There was none requested, that I'm aware of. I don't think we ever furnished a national threat report to the president with respect to homeland security.

KERREY: I mean, of all the facts that -- in this whole process, that have just caused scales to fall from my eyes was listening to Betty Ong, a flight attendant on flight 11, talk to the ground and hear the ground surprised by a hijacking. I mean, not only were we not at a high state of alert in our airports, we were at ease. We stacked arms. I mean, we weren't prepared at all.

And it's baffling to me why some alert wasn't given to the airlines to alter their preparedness and to go to a much higher state of alert. It seems to me a lot of things would of changed if that would of happened.

And I would respectfully disagree with your assessment of the Williams memo coming out of Phoenix, because I think had it gotten into the works, to the highest possible level, at the very least 19 guys wouldn't have gotten on to these airplanes with room to spare.

FREEH: Well, Senator, I served on the Gore commission, as your staff may know. And, you know, I thought the leadership, first of all, by the vice president there was outstanding. I think the recommendations were outstanding.

FREEH: We spent many, many months writing detailed recommendations that asked for passenger screening, asked for many, many things which were never implemented. The whole purpose and the conclusions of that report, if you read it, was that the airline industry and operations were vulnerable at multi points with respect to hijackings and terrorist attacks.

So I agree with you, there was no... KERREY: But I mean, you said that, you know, we couldn't have had a declaration of war because public opinion wasn't there. I probably would disagree with that. Public opinion wasn't on the side of the Bosnian war or the Iraq war in the beginning either, and the president made a determination in both cases to come to the American people and say, "There's a crisis."

But even absent a declaration of war, why did we let their soldiers into the United States? Because that's what the al Qaeda men were, they were soldiers. They were part of an Islamic army called the jihad to come into the United States. Why did we let them into the United States? Why didn't President Clinton and/or President Bush issue an order to change the FISA procedures and other orders to INS, et cetera, to make sure that their soldiers couldn't get into America? Why did we let them in?

FREEH: Well, again, I think part of my answer is that we weren't fighting a real war. We hadn't declared war on these enemies in the manner that you suggest that would have prevented entry had we taken war measures and put the country and its intelligence and law enforcement agencies on a war footing.

The Joint Intelligence Committee, in one of their reports -- I think I excerpted the conclusion in my statement -- said that neither administration put its intelligence agencies or law enforcement agencies on a war footing.

A war footing means we seal borders. A war footing means we detain people that we're suspicious of. A war footing means that we have statutes like the Patriot Act, although with time set provisions, give us new powers.

FREEH: We weren't doing that.

Now, whether there was a political will for it or not, I guess we could debate that. But the fact of the matter is we didn't do it and we were using grand jury subpoenas and arrest warrants to fight an enemy that was using missiles and suicide boats to attack our warships.

KEAN: Commissioner Thompson?

JAMES R. THOMPSON, COMMISSION MEMBER: I want to explore in a little more detail one of the assumptions of Commissioner Ben- Veniste's questions.

In looking at the Olympics, you had a defined event, in a defined place, over a defined period of time, a defined air space above the Olympic facilities. And so I presume that law enforcement planning to prevent any interruption or interdiction of the Olympics would have imagined any kind of possibility of intrusion of bomb, missile, plane, whatever into that space; is that correct?

FREEH: That's correct.

THOMPSON: And though you say the FBI was not involved with the planning of the G-8 summit in Italy, the same sort of assumptions would have been made, would they not: defined event, defined time, place, air space?

FREEH: A defined and specific threat and time and place, correct.

THOMPSON: Is it a fair assumption to leap from those kinds of examples to the notion that you could, with the best of intelligence or law enforcement or thought, gone to an assumption that on any given day, in any part of the United States, on any one of the more than 4,000 flights that are in the air on any given day in the United States, utilize the same methods and guard against the same kind of attacks?

THOMPSON: Or is that a leap too far?

FREEH: Well, I think, you know, to amass the kinds of resources and protective operation that you've both alluded to in your questions, there's a limited capability in terms of duration for that kind of an operation.

For instance, with respect to the millennium, we were planning for months and months prior to that event. And at the time of the millennium, you know, thousands and thousands of law enforcement agents and other government agents, military personnel, you know, were on duty around the world because of a specific event. The attorney general and I were in, you know, our command post through the night on December 31st.

But we could not have sustained that, you know, for weeks and weeks beyond that period, nor would there have been a basis to do that without a specific threat.

So I think to do the kinds of protective operations that we would like to do, and do, in fact, perform when NATO is meeting, when the pope is visiting, when the president is at a summit, when the World Cup is going on, when presidential conventions are in session, all of those events in specific places and times, because of the threats as we understood them, including airborne threats, we were able to marshal resources and perform protective operations. But you need a time and place to do that if you have resources available.

THOMPSON: You testified that you transferred 600 agents from headquarters to the field because there was a 22-month hiring freeze in the FBI.

THOMPSON: Why was there a 22-month hiring freeze in the FBI and when did it occur?

FREEH: Well, you have to ask Congress about why they had the freeze, it occurred for...

THOMPSON: So it's a congressionally imposed freeze?

FREEH: Yes. We were not authorized to hire people for a 22 month period. When I became director in September of 1993, we were in the middle of that freeze, and it went for a total period of 22 months, which is why I was putting people on the street from headquarters.

THOMPSON: Now the budgeting process in the federal government with particular regard to the FBI do I assume works something like the FBI decides how much money they'll ask for in any given fiscal year, it moves up through the attorney general's office, goes from there to OMB, and from OMB to the Congress? Is that right?

FREEH: That's correct.

THOMPSON: In the whole time that you were the director of the FBI, did your initial requests for funding, going up to the AG, ever make it through that process -- the level that the FBI requested?

FREEH: No. And that's probably true for every agency in this town.

THOMPSON: So true not only for you and the FBI, but your predecessors and successors and for every federal government agency, is that right?

FREEH: That's correct. That's how the budget process works.

THOMPSON: OK.

The Patriot Act has some provisions that are due to expire next year, I believe. Do you believe that those provisions should be renewed? And do you think the Patriot Act needs strengthening in any provision apart from that to help us protect America from terrorism?

FREEH: Which provisions in particular are you speaking about with respect to renewal?

THOMPSON: There's a -- there were at least two and I think it may not have been in your testimony but in the testimony we'll hear later this afternoon from Acting Director...

FREEH: It's not in my testimony. I mean, I'll comment on them, I just don't know which ones you're referring to.

THOMPSON: I think maybe in Pickard's -- well, let me come back to that after I find what I'm looking for and let me ask you this...

FREEH: I can answer the second part of your question, though.

KEAN: This will be the last question, Commissioner.

FREEH: Yes, with respect to one area that's not addressed -- and I've mentioned this in my testimony and members of the Intelligence Committee and others have heard me testify about this repeatedly -- nowhere in the Patriot Act, nor in any of the other post-September 11 measures, is there any effort to address the issue of encryption.

It's mindboggling to me that in the aftermath of September 11th and the information that we've accumulated today, including the use of encrypted channels of communication by terrorists, that our law enforcement agencies still do not have either the authority or the technology to break down encrypted messages.

And for those who don't know about the issue -- none of the commissioners but other people -- encryption is the technology that allows message bits, communications, either data or voice, to be scrambled so you can't understand what's being said.

Again, it's mindboggling to me -- and I testified dozens and dozens of times, along with Janet Reno and others, for some relief that this is completely unaddressed. I think it's a huge gap in our national security, and one that I would urge the commission to look at.

THOMPSON: Thank you, Mr. Chairman.

KEAN: Commissioner Ben-Veniste has one clarifying remark.

BEN-VENISTE: Director Freeh...

KEAN: You've got 10 seconds.

(LAUGHTER)

BEN-VENISTE: I don't think I can do it in 10 seconds, Tom.

My good friend and former mentor Jim Thompson I think has misinterpreted the question put to you about the recognition by the intelligence community of the potential for planes being used as missiles.

My question to you was -- given the substantial state of information, whether by rumor or by actual intelligence relating to the use of kamikazes, suicide pilots to crash planes into buildings -- my question was: Was it a failure in thinking not to reposition our domestic air defense, led by NORAD, to protect the capital and elsewhere against the possibility of attack on the United States by air? And particularly, during time of heightened threat.

You understood that that way?

FREEH: Yes.

BEN-VENISTE: Thank you.

KEAN: Commissioner Lehman?

JOHN F. LEHMAN, COMMISSION MEMBER: Thank you.

Director Freeh, welcome. I have just a few short questions.

First, during your tenure, there were sanctuary laws enforced by New York City, by L.A., San Diego, Houston, Chicago and some other cities. These were well-known to al Qaeda, if not to the American public. These laws, as you know, in defiance of Section 133 of the Immigration Act, prohibit local authorities in those cities from cooperating with the FBI or INS in any matters having to do with immigration.

Did this trouble you during your tenure? And did you try to do anything about it?

FREEH: Well, as I mentioned in my written testimony, at the request of then Deputy Attorney General Gorelick, I made a series of recommendations with respect to the INS and asked that certain measures be taken, including legislative changes to give us a better ability to, first of all, identify alien terrorists and then detain them and remove them promptly from the United States.

With respect to the laws that you mention, I can't think of an instance in my tenure when that was a prohibition or an inhibition from us either getting some information or doing something that we wanted to do. We were more frustrated with the length of time that it took to remove aliens for whom we had documented information with respect to terrorist activities.

LEHMAN: And those recommendations that you recommended to Justice, they were turned down or just ignored or...

FREEH: No, they were actually implemented.

In fact, President Clinton, to his great credit, introduced in 1996 the Antiterrorism Bill, H.R. 2703. Unfortunately, when it was in the House there was an amendment that was entered which was passed by a large majority that stripped the bill of most of its important counterterrorism measures; in fact, the ones that Deputy Attorney General Gorelick and I recommended. In fact, I think two of you actually voted on the amendment.

LEHMAN: Thank you.

(LAUGHTER)

The case law approach has been the subject of a great deal of criticism from many of the witnesses interviewed and interviewees.

LEHMAN: You've made an able defense of it in your op-ed piece and in your testimony, however it certainly has some limitations according to some of the witnesses we've had.

We've had very senior officials in CIA tell us that they were unaware of any of the connections among the '93 World Trade Center terrorists because all the information was sealed and protected and not shared during the trial of the people.

Particularly after that material was released, and particularly after you were able to apprehend Ramzi Yousef, one of the principal actors who had escaped to Baghdad -- Abdul Rahman Yasin -- was in Baghdad and on the payroll of Iraqi intelligence.

Did you recommend doing anything to extradite him or to render him in any way as one of the key al Qaeda operatives?

FREEH: Well, over the period of years after the World Trade Tower indictments in 1993, but then maybe more particularly following the Manila Air indictment in 1995, and of course the 1998 indictments with respect to bin Laden and his associates, we continuously recommended, and actually put into play, operations to arrest and render fugitives back to the United States in those cases.

I don't recall an instance with respect to Yasin.

With respect to Khalid Sheik Mohammed, in early 1996, we actually staged agents over in the Persian Gulf and had an operation well under way to arrest him.

FREEH: He was transiting a country that we thought we could get access to him. Unfortunately, that didn't work. We believe he was actually tipped off about the operation.

People like Kasi, who, of course, murdered the people outside the CIA. He was arrested by FBI agents, brought back, convicted of murder in Fairfax County. Ramzi Yousef, we spoke about.

So we continuously tried to get -- and did, in many cases -- get these fugitives. I don't recall a particular plan with respect to Yasin.

LEHMAN: One last question. The Oklahoma City case -- again, one of the criticisms has been that one of the problems of the case law approach to intelligence is that, once you focus on a convicting particular terrorists, that there has to be a hypothesis of the case and that's where all of the investigative resources are put in.

In the case of Oklahoma City, the hypothesis was that there were two Americans and they acted alone. There's a new book out now, as you probably know, called "The Third Terrorist," that has new information that begs for further investigation showing the links or purporting very significant links between Terry Nichols and Ramzi Yousef in the Philippines, and also links between the two perpetrators and Hussein al-Husseini, the Iraqi, perhaps, agent.

Are you satisfied that you ran all of these potential al Qaeda links to ground with McVeigh and Nichols?

FREEH: Well, other than that book, which I haven't read, you know, I don't know any other credible source with respect to that kind of a link.

No, I have not run those links myself. I certainly was not aware of them when I was FBI director. I know that there is a review going on with respect to some of the matters that have been raised by his attorney in connection with the state murder prosecution that's ongoing. I guess I don't want to say anything with respect to that case as it's being tried now by a judge and a jury.

But I don't know of any connections, except the one you've just mentioned, between Ramzi Yousef and that terrorist act. LEHMAN: Thank you.

KEAN: Vice Chairman Hamilton?

LEE H. HAMILTON, COMMISSION VICE CHAIRMAN: Thank you, Mr. Chairman.

Thank you, Mr. Director, for your testimony.

You commented in your opening statements about resources on several occasions, and I was looking at your recommendations at the end of your statement, your printed, your written statement. And I quickly calculated about eight or 11 of those recommendations require additional funding.

Maybe I'm a little sensitive to this because of my experience in the Congress. I took a quick look at the appropriations for the FBI from 1996 to 2001. It went up from $2.3 billion to $3.3 billion, roughly. That's a very, very dramatic increase.

The amount of FBI personnel and funding dedicated to counterterrorism more than tripled between 1993 and 2001. Can't get into the specifics of those figures on counterterrorism because I think they're classified.

HAMILTON: But I want to get a sense from you about this resource problem. I can understand in your position how you would constantly see the need for more resources. I'm not really critical of that.

But your sense is -- my sense of your testimony is that you could have done an awful lot better if you'd had a lot more resources. And in fact, you were receiving a lot more resources.

FREEH: No, there's no question we were receiving a lot of resources. I think my position, which was the attorney general's position, is there were not enough resources to work a counterterrorism program as the lead agency for the United States.

As I said in my testimony, the FBI had 3.5 percent of the government's counterterrorism resources.

And as you see in my recommendations -- you know, the FBI only has 200 more agents now than it had back in 1999. It's not just a question of allocating agents from criminal programs to counterterrorism programs. It's really substantially enhancing not just the numbers, but the training, the expertise, the continuity of people in that particular program.

I'll give you examples that have nothing to do with people. The technical support center, which the Congress actually authorized in 1995 -- the purpose of that center was to create a domestic civilian law enforcement facility where we could use technology to solve encryption problems, to solve digital telephony problems, et cetera, et cetera.

But the purpose was to give us and our state and local counterparts a counterterrorism civilian technical ability, in those cases. It wasn't funded until after September 11th.

FREEH: CALEA was never funded fully after 1994. Example and example of that, which doesn't mean -- and there is nobody more respectful of the budget process than myself, perhaps you -- I know how the budget works and I'm not blaming anybody for not getting these resources.

HAMILTON: I understand that.

FREEH: What I'm saying is that we weren't focused on them the way we are focused on them today.

HAMILTON: I appreciate that approach.

And I listened to a lot of reports from commissions when I served in the Congress and one of the advantages the commission always has over the Congress is we don't have to worry about raising the money. We can just make the recommendations to spend it. And there is a big difference, of course.

A final question relates to the broader responsibility.

Director Mueller has made the pitch over and over again, and he's done it very effectively, that the FBI is changing its focus from law enforcement to the prevention of terrorism. And everybody, of course, nods their head in agreement. That's exactly what ought to be done.

This question goes a little outside the commission's responsibility. But you mentioned a moment ago that we really have not had a large increase in agents. So what's happening is we're shifting a lot of resources, money and agents, from law enforcement, from criminal prosecution to terrorist prevention. And in the environment of today's world, that makes a lot of sense to most of us. But do you worry, then, that the FBI is going to lose its effectiveness in law enforcement, in criminal prosecution?

FREEH: Well, that's an excellent question. I guess I don't believe that investigations are inconsistent with prevention.

FREEH: I subscribe to the theory that Mary Jo White and I testified to before the Joint Intelligence Committee, and which actually the court of review, in its November 18th opinion noted, investigations do lead to prevention. I don't think there's a dichotomy between them. Manila Air, the millennium, the day of terror in New York were all preventions as a result of good investigation.

So I think that's a false dichotomy between investigations and prevention. If you're doing good investigations, you're developing informants, cooperating defendants like Omar in the Trade bombing case. You are creating a database, you're sharing intelligence with other people.

I do think there's a great danger in taking people off investigations that aren't, again, case- or defendant-specific but are enterprise-specific and, you know, when agents are off the streets, as my bias perhaps as a street agent, they're not making informants, they're not developing sources.

September 11th, had we had the right sources overseas or in the United States, could have been prevented. We did not have those sources. We did not have that telephone call. We didn't have that e- mail intercept that could have done the job. You get that by having sources and you get sources by good investigations. You also prevent terrorism in that regard.

HAMILTON: Thank you, Mr. Chairman.

KEAN: Congressman Roemer?

TIMOTHY J. ROEMER, COMMISSION MEMBER: Thank you, Mr. Chairman.

Welcome, Director Freeh. Nice to see you. And I want to just express my appreciation to you and your family for the sacrifices you made while you served as FBI director, and also for your attention here today.

You probably paid attention to the last several weeks of testimony before the 9/11 commission. We had somebody here by the name of Mr. Clarke and somebody here about a week later called Dr. Rice. They didn't agree on much. They didn't see eye to eye on much. They didn't share many of the same opinions.

They did agree on one thing, and that was that the FBI could have and should have done a better job than they did leading up to 9/11.

ROEMER: I want to point out two instances where we may have had an opportunity to do something about 9/11. Now, I haven't come down on any kind of conclusion whether 9/11 was preventable, but let me throw these out to you and ask you to carefully respond to them.

One's the Phoenix memo, which I'll get to. The other is an instance where you have just talked about the informants of developing informants -- getting information, sharing information.

We had an opportunity where we had two of the hijackers have numerous contacts with an active FBI informant. Out of the 19 hijackers, two of them have active contacts with an FBI informant.

Doing the right kind of things, developing that informant, sharing information ahead of time from 9/11, the right kind of training for an FBI agent; why wouldn't this have made a difference leading up to 9/11?

FREEH: OK, let me give you a careful answer. And again I don't know all the facts except again as you note, you know what I've been reading and listening to.

You know, the presence of those two hijackers in San Diego and their intersection with the informant, obviously, you know, a very fruitful opportunity for exploitation -- intelligence information, maybe in the best of all circumstances, leading to prevention.

FREEH: It would have been helpful for the FBI at that particular point in time to know the names of those two individuals, that the information which was generated in the January 2000 physical surveillance -- not by the CIA, but by a liaison agency -- if that information and the initiation for that surveillance, which were phone calls to a central number, which you're well aware of, which plays an integral role not only in the East African bombings case, but also in the Cole investigation, the, you know, June meeting, when three but not all of the photographs were disclosed to FBI agents, and the subsequent description of those events -- if all of that had worked the way it could have worked and that informant, as well as informants all over the FBI's domain, were tasked to find out information about two specific people, you could have had a completely different result.

Now, some of that's speculation, but some of it is theory.

ROEMER: Later on we'll ask representatives of the CIA and the FBI whether or not that meeting in Kuala Lumpur should have led to the sharing of some of that information and those names.

Let me ask you another question. Here is a declassified copy of the Williams memo. And you said in an answer to a previous question that you thought things might have been handled the proper way.

This agent asked that two things be done. One, that the FBI should accumulate a listing of civil aviation universities and colleges around the country and share these with the appropriate liaison; and, two, that the FBI should discuss this matter with other elements of U.S. intelligence community.

ROEMER: Neither one of those is done.

Now, I agree with you, this is not the road map to 9/11, but it's certainly asking to do two things to New York and headquarters. Neither one of them are done. Why not?

FREEH: Well, I don't know. I can't answer that obviously for the time and space reasons that are obvious.

I can speculate on it. And what I would say is that the simple fact -- or the apparent simple fact -- of getting from all of those civil aviation schools around the United States -- you know, names and identifying information of those students -- first of all, you would have had to overcome a couple of federal statutes that prevent educational institutions from giving that information out without a subpoena or a grand jury request.

Assuming you could have done that...

ROEMER: But Mr. Williams didn't do that in Phoenix, did he? I mean, he found out the trend in Phoenix without having to go around a statute or a law, right?

FREEH: Well, yes. But what he's asking for is a national investigation that would direct itself to thousands...

ROEMER: He's asking them to task...

FREEH: ... and thousands and thousands of students who are from Arab countries who are taking flight lessons in the United States.

I don't -- again, I wasn't -- I'm not privy to the information your staff is privy to. From what I've read and heard and talked to, I don't see how that memo, unfortunately, gets you to prevent the horror of September 11th. I just don't see it in any logical, nonspeculative way.

ROEMER: I'm not sure that it prevents 9/11 either, but it sure points out two or three things that could have been done more efficiently.

Thank you, Mr. Chairman.

KEAN: Our last questioner will be Senator Gorton.

SLADE GORTON, COMMISSION MEMBER: Mr. Freeh, you heard just before your testimony the staff report on matters relevant to this hearing. The facts outlined in that staff report are almost certain to find their way into our final report unless someone shows us that in some part they are irrelevant.

GORTON: I want to read you the one paragraph, it was the subject of Bob Kerrey's question, and ask you whether or not it is accurate.

The staff report reads, "The FBI's inability or unwillingness to share information reportedly frustrated White House national security officials. According to the former national counterterrorism coordinator Richard Clarke, the National Security Council never received anything in writing from the FBI whatsoever.

Former Deputy National Security Adviser James Steinberg stated that the only time that the FBI provided the National Security Council with relevant information was during the millennium crisis. Clarke told us that Attorney General Reno was notified that the National Security Council could not run an effective counterterrorism program without access to FBI information."

Is that a correct characterization?

FREEH: I don't think it is.

I can't speak for the frustration of other people, but with respect to sharing information, you know, I didn't provide written memos to Sandy Berger or the president or anybody else at the NSC, but as I said before, the attorney general and I, every two weeks, almost like clockwork in the last 14 or 15 months of our overlapping tenure, sat with Sandy Berger in his office for at least an hour, perhaps two hours, and went over every single piece of counterterrorism, counterintelligence case that we have.

By the way, Dick Clarke was never present at any of those meetings. Why Sandy Berger didn't want him there, I don't know.

But we had detailed discussions of all those matters on a bi- weekly basis. So the notion that we weren't sharing information is, as far as I am concerned, an incorrect characterization. GORTON: The FBI is a unique institution in the United States of America. You had a fixed term. Because of various activities under your predecessor, J. Edgar Hoover, and attempts, sometimes successful, in earlier administrations to use the FBI for political purposes, there seems to be a certain divorce or distance between the FBI and the White House.

Did you feel an ability to go to the president of the United States or to someone else in the White House during the Clinton administration, freely? Did you feel that the White House felt free to contact you and communicate with you and ask you for information, in a normal manner, outside of the realm of politics, during the Clinton administration? How many people in the White House did you ever see or communicate with?

And then would you answer the same question with respect to the current Bush administration?

FREEH: Yes, I will. I don't feel that I had any restriction or any prohibition or -- certainly no reluctance to discuss and communicate with anybody appropriately in the White House, in the State Department and the Defense Department, with respect to any of the matters we've been talking about today, or any other FBI matters.

There was certainly no distance or separation between the attorney general and I.

FREEH: And we had -- I had in both administrations I think the same relationship. I never felt any restrictions or inhibitions about communicating things. I don't think they did either. And they never expressed any to me at the time.

GORTON: One final question like the first question; another paragraph in the staff report.

"The Department of Justice inspector general found that when the FBI designated national and economic security as its top priority in 1998, it did not shift its human resources accordingly. According to another external review of the FBI, by 2000 there were twice as many agents devoted to drug enforcement matters as to counterterrorism. On September 11th, 2001, only about 1,300 agents, or 6 percent of the FBI's total personnel, worked on counterterrorism."

Are those accurate statements of fact?

FREEH: No, they're accurate but, again, I think they have to be balanced with the discussion we've had here today about resources.

And with all due respect to the congressional appropriation process, in 2000, which was the last counterterrorism budget year that I testified for, you know, I asked for $860 million -- I'm sorry, $360 million, 890 positions. I got five positions and $6 million. You can't fight a war with those kinds of resources.

So your report is accurate. I would hope the commission would expand a little bit on the executive director's brief, although accurate, statements about resources and legal authorities.

GORTON: Thank you, Mr. Freeh.

Thank you, Mr. Chairman.

KEAN: Mr. Freeh, thank you very much. Thank you for your testimony. Thank you for your public service, sir.

FREEH: Thank you.

DARYN KAGAN, CNN ANCHOR: We've been listening into former FBI Director Louis Freeh as he testifies before the 9/11 Commission. Louis Freeh, head of the FBI from September of '93 to June of '01. He left just three months before the 9/11 attacks.

He gave a lot of testimony today referring to resources that were allotted to the FBI, especially to counterterrorism efforts and reallocation of limited resources. But the main point that Louis Freeh seemed to be trying to make, to keep in mind, he said the reality of what was the political atmosphere in the past and not judge actions by how things were before 9/11 to how they are right now.

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Aired April 13, 2004 - 9:00   ET
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BILL HEMMER, CNN ANCHOR: Good morning. Live from Capitol Hill, here's the picture: the 9/11 Commission back at work today. Top officials in law enforcement from the past two administrations taking the oath in public. Will they get some of the toughest questions to date? Answers this hour here on AMERICAN MORNING.
ANNOUNCER: From the CNN Broadcast Center in New York, this is AMERICAN MORNING with Bill Hemmer and Soledad O'Brien.

SOLEDAD O'BRIEN, CNN ANCHOR: Good morning. Welcome back, everybody. Lots to get to as we get ready for the testimony this morning.

First up today is former FBI Director Louie Freeh. His remarks are going to begin in just about 30 minutes. We're going to keep an eye on what is happening in the Hart Senate Building and bring it to you live when the former director starts talking.

HEMMER: And while we wait on that, we'll talk this hour with Michael Vatis, one of Fret's former senior deputies. We'll also talk to Howard Safir, former New York police commissioner who has known and worked for Freeh for about 20 years. Their perspectives on today's testimony. Louis Freeh goes today, Janet Reno. John Ashcroft in the afternoon.

O'BRIEN: Mr. Cafferty, hello.

JACK CAFFERTY, CNN ANCHOR: Good morning.

Presidential news conference tonight, 8:30. It will be live here on CNN. Check it out. I think we only get half of Paula Zahn now tonight, then we'll get some of Paula Zahn later, the rest of Paula Zahn later. Half of Paula Zahn now, the rest of Paula...

If you were a reporter -- I don't know why I did that. If you were a reporter in the news -- in the White House tonight asking the president a question, what would you like the president to answer? Submit your questions to AM@CNN.com. We'll read a few of them a little later.

O'BRIEN: (UNINTELLIGIBLE) very good this morning, I think.

CAFFERTY: Paula Zahn now, Paula Zahn...

O'BRIEN: Yes, we all followed you. Yes. It was OK.

CAFFERTY: I'm very tired.

O'BRIEN: I know. Go take a break and work on some more material. We'd appreciate that.

Let's start with some serious news as we update our stories this morning.

It has been a brutal 24 hours for U.S. troops in Iraq. In Fallujah, at least two Marines were killed, eight wounded in an intense firefight last night. The battle lasted about an hour. It began when insurgents attacked a building housing the Marines.

This morning, outside Fallujah, witnesses tell The Associated Press that a helicopter was hit by a rocket and crashed. No word yet on any casualties.

And here are some new pictures taken today of wanted radical cleric Muqtada al-Sadr. He was spotted leaving a mosque in Najaf. Earlier, U.S. forces had obtained one of al-Sadr's top aides. They later released him, saying that he actually wasn't behind any of the recent violence.

This morning, here in the U.S., coach Gary Barnett will address a panel about allegations against his University of Colorado football program. Yesterday, the panel heard from a business owner who said Colorado players had hired strippers from his company for recruiting parties. Since 1997, at least eight women have accused CU athletes of rape, though no charges have been filed.

Supreme Court Justice Antonin Scalia is apologizing for a U.S. marshal's actions. The marshal had ordered two reporters to erase audio recordings of the justice's speech last week. Justice Scalia says the marshal wasn't acting at his direction. The justice's policy does not allow recordings at his speeches, but now he says he's going to make an exception for print media.

More older Americans are going blind. A new study in the Archives of Ophthamology says more than three million Americans over 40 cannot drive or perform other tasks because of impaired vision. The study says that number is expected to jump to 5.5 million by the year 2020. Researchers also found that blacks over 40 are three times more likely to go blind than whites.

And say, "Hey, Willie, here is Barry." Yesterday, baseball star Barry Bonds tied Willie Mays for the third place on the all-time homerun lift. Bonds hit his 660th homer in front of the home fans in San Francisco home fans. Mays, who is Bonds godfather, congratulated the slugger and presented him with a big old torch covered in diamonds.

Incidentally, his 660th hit, he got a gigantic, expensive diamond-encrusted torch.

HEMMER: And they've been waiting for that one in San Francisco. Nice, too, opening day in Pac bell park. And a beautiful day, too. And that was a shot, huh? I mean, gone. (WEATHER REPORT)

HEMMER: That 9/11 Commission hearing is just under way, in fact. As we speak, the panel sure to have tough questions for America's leading law enforcement officials. The heads of the FBI and the Justice Department under the current and former administrations will testify over the next two days.

David Ensor high above his perch inside that room.

David, good morning. What do we expect?

DAVID ENSOR, CNN NATIONAL SECURITY CORRESPONDENT: Good morning, Bill.

Well, as you say, there should be some rather pointed exchanges today with both the Clinton and the Bush law enforcement teams. The questions are likely to be especially pointed about the FBI and what it did or did not do in the summer of 2001.

(BEGIN VIDEOTAPE)

TIM ROEMER, 9/11 COMMISSIONER: It is crescendo-type activity that is causing the CIA director to have, so to speak, his hair on fire. Why aren't we seeing the commensurate reaction out of FBI and Justice to try to meet this threat?

ENSOR (voice-over): Commissioners want to know about the 70 FBI al Qaeda-related investigations in the summer of 2001, referred to last week by National Security Adviser Condoleezza Rice and contained in the now famous August 6 presidential daily brief from the CIA. Also, why didn't law enforcement connect the dots between Zacarias Moussaoui and the flight training mentioned in the FBI's Phoenix memo? Why didn't the CIA share its information about two al Qaeda suspects in the United States?

According to commission sources, Attorney General John Ashcroft will face criticism from then acting FBI director Thomas Picard. He has said Ashcroft had little interest in counterterrorism before 9/11, a charge the attorney general's aides reject.

The Bush and Clinton law enforcement teams may also be asked whether the U.S. should set up a British style MI5 domestic spy agency and take that job away from the FBI.

JOHN LEHMAN, 9/11 COMMISSIONER: Their whole internal systems and culture was not to share anything.

ENSOR: With the commission staff having seen thousands of classified pages, officials say new revelations can be expected.

(END VIDEOTAPE)

ENSOR: And the staff study on law enforcement, the staff of the commission, has just been made public. Two things that are striking in it. First of all, that clearly we're going to see some rather pointed exchanges today between Thomas Picard, the former acting FBI director, and Attorney General Ashcroft. Mr. Picard has apparently told the commission that Mr. Ashcroft did not seem to be interested very much at all in counterterrorism prior to 9/11.

That is something, of course, that Mr. Ashcroft and his staff strongly disagree with. We may see some fireworks on that.

Secondly, in the staff report it notes that if Zacarias Moussaoui's name -- now, Zacarias Moussaoui, of course, had been arrested in mid August -- if that name had been run through British intelligence computers at the time he was arrested in August, rather than just after the 9/11 attacks, it would have come up because it was in the British files that Moussaoui had been training at al Qaeda training camps in Afghanistan.

That would have set off alarms. It's one of those "what might have beens." If they had had that done prior to 9/11, they just might have stopped the attacks -- Bill.

HEMMER: David Ensor, thanks. Live on Capitol Hill.

We'll wait for that to begin. Louie Freeh starts at 9:30 a.m. Eastern Time, 22 minutes from now. A statement now being read there on Capitol Hill. We'll get you back there in a moment.

As we continue here, when President Bush responded yesterday to questions about that declassified PDB, he indicated that he is not troubled with the FBI's pre-9/11 performance.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: They included the fact that the FBI was conducting field investigations, which comforted me. You see, it meant the FBI was doing its job. The FBI was running down any lead.

And I will tell you this, Scott, that had they found something, I'm confident they would have reported back to me. That's the way the system works.

(END VIDEO CLIP)

HEMMER: Michael Vatis worked under both Louis Freeh and Janet Reno. He is here this morning to talk about it on AMERICAN MORNING.

Nice to see you. Good morning.

MICHAEL VATIS, SECURITY AND INTELLIGENCE CONSULTANT: Good morning.

HEMMER: There was an extensive piece done yesterday. David Ensor just mentioned it in his story, too, about what happened as a result of the investigation on the Cole, October 2000. How at least two hijackers' names had surfaced during that investigation but they were not tracked down, whether it was in Yemen, whether it was Malaysia, or whether it was California. What can you say looking back now as to why these men slipped through?

VATIS: Well, I think the biggest problem both in that situation, and overall, when you're talking about the FBI and the CIA, is the failure to share information, to connect the dots, as people have come to call it. Because there was pieces of information about those two people before they came into the United States, and there was pieces of information about others, such as Moussaoui, as we are now learning, in British intelligence files that, had those pieces of information been connected, had the Phoenix memo and the information in Minneapolis about Moussaoui been connected, alarm bells would have gone off and people could have responded more quickly.

But that, to me, is the fundamental problem that needs to be fixed. Not moving around more boxes, making new agencies, and creating more bureaucracy.

HEMMER: You're saying it's a structural problem, which is the same thing Condoleezza Rice said last week.

VATIS: But with a significant difference. Condoleezza Rice talked about legal impediments to sharing. And on that she was absolutely incorrect. In fact, throughout the Reno Justice Department and the Freeh FBI, there were extensive efforts that I was involved in to make sure that there were no legal impediments.

There were cultural impediments. The fact the FBI has focused on making specific cases and doesn't do a good job of sharing with other agencies, that is the central impediment. But there are really very few legal impediments that have any legal impact on this. So that to me is a side show.

HEMMER: Let me take it a step deeper here. Senator Bob Kerrey on that commission, and a big-time critic on both sides of the entire investigation, said the problem was not necessarily connecting dots. He said the problem was the follow-up and the follow-through. Why not go deeper as an FBI agent to find the source that we now know hit this country?

VATIS: Well, I think there's some truth to the lack of follow- up. And certainly there needs to be extensive follow-up of leads when they develop. But no agency is better than the FBI at digging really deep into a problem.

Where they fail is taking the information that they collect, which they are wonderful at, and then making that information available to other agencies like the CIA or other parts of the FBI. I mean, there are problems sharing internally. So collection, digging, following up are really not the main problem with the FBI. It's sharing.

HEMMER: Looking back three-and-a-half years, has any of that changed now within the FBI and the CIA?

VATIS: It certainly has changed. And, in fact, throughout the '90s, one of the biggest priorities at Justice and at the FBI was overcoming those barriers within the FBI and sharing with the CIA. And we instituted a number of programs to share more.

HEMMER: Are you satisfied with that?

VATIS: Oh, no. Absolutely not. And even the changes since 9/11 that Director Mueller has made has not gone as far as they need to go. It's cultural.

HEMMER: Another question here. One of the commissioners, Slade Gorton, a former senator from the state of Washington, said he has more questions and thinks the testimony for the FBI is more critical to this commission's work than anything that Richard Clarke or Condoleezza Rice had to offer in the past couple of weeks.

VATIS: Well, certainly the FBI's role is a critical thing to examine. But what concerns me now is that in the last 24 hours in particular, and actually starting with Condoleezza Rice's testimony, we're seeing a clear effort by the White House to politicize this.

They are so worried about the political heat, that they're now trying to put the blame on the FBI, even to the point now that the president, who has adamantly opposed making any overhauls of the FBI or the CIA, is now hinting that, in fact, he is thinking about major changes. Nothing has changed in terms of what the president has known about the FBI's performance. It's that the political heat has risen.

HEMMER: Despite the fact that we're trying to keep partisanship out of this, we're still fighting our way through it? Is that what you're saying?

VATIS: It infects every aspect of this, unfortunately. I think the commission is doing very fine work. And I think they are doing as good a job as possible to keep politics out of this. But when the White House is involved, of course, in an election year, politics infects everything.

HEMMER: Perhaps we will hear more on that from the president later tonight. Michael Vatis worked for Louis Freeh and Janet Reno, for the FBI and the attorney general. Thanks a lot. Nice to talk to you.

VATIS: OK. My pleasure.

HEMMER: And, again, just a reminder. We're watching that room right now -- 9:30 a.m. Eastern Time, 17 minutes away, we do expect Louie Freeh, the former FBI director, he will be the first witness today. Later this morning, you will hear from Janet Reno. And in the afternoon, you'll get testimony from John Ashcroft.

Now Soledad.

O'BRIEN: Well, thanks, Bill.

President Bush is holding a news conference tonight in a politically charged atmosphere. His Iraq policy will certainly be challenged because of the escalation in fighting, like we've seen today in Fallujah. The White House has already had to give into the 9/11 Commission, declassifying documents and allowing Condoleezza Rice to testify in public. The president may be looking to stop the political bleeding, some say, at tonight's session.

Elaine Quijano is live for us at the White House this morning.

Elaine, good morning.

ELAINE QUIJANO, CNN CORRESPONDENT: Good morning to you, Soledad.

President Bush is preparing for that formal news conference set to take place tonight in the East Room here at the White House. Aides say the president will begin by giving a statement on Iraq before taking questions from reporters.

Now, administration officials say that the president wanted to hold this news conference now to update the American people during what they say is a critical period in Iraq. The president is calling this news conference against the backdrop of highly publicized upticks in violence by Iraqi insurgents, also mounting U.S. casualties.

Now, at the same time, officials say the president will also be ready to face questions about that August 6, 2001 PDB, or presidential daily brief. Critics charge the information in that memo should have alerted authorities that an attack could happen in the U.S.

Now, the president maintains that the information in that document did not have specifics and did not warn of an imminent attack. Of course, these issues very important to President Bush in this election year from a political perspective. The president running largely on his record of leadership. This, by the way, will be the 12th formal news conference called by President Bush since he took office -- Soledad.

O'BRIEN: Elaine Quijano for us this morning at the White House. Elaine, thank you very much.

And be sure to tune into CNN tonight for live coverage of the president's news conference. It starts at 8:30 Eastern Time -- Bill.

HEMMER: Another reminder here. Fifteen minutes away from the FBI director, Louie Freeh, his testimony before that commission. Live to D.C. when it happens.

How will he handle the questions? Some say it could be tough questioning. Friend and former New York City police commissioner Howard Safir our guest to talk about that when we continue on AMERICAN MORNING.

(COMMERCIAL BREAK)

O'BRIEN: A hearing is now under way on Capitol Hill. We are watching some of the testimony that has just gotten under way. This is part of the staff statement that's being read. In just a few minutes, we expect former FBI director Louie Freeh to testify before the 9/11 Commission. Many people predict that he will be handling the toughest questioning of the day.

Howard Safir is a former New York City police commissioner, also a friend of Louis Freeh. Safir is now chairman and CEO of Safir, Rossetti, a worldwide security and investigative company. He joins us this morning live from Washington, D.C.

Nice to see you, sir. Thanks for being with us.

Howard SAFIR, FMR. NEW YORK CITY POLICE COMMISSIONER: Good to be here.

O'BRIEN: Louis Freeh, of course, left the FBI three months before 9/11. But it's his policies before that are going to be really, I think, questioned heavily today. Many people are predicting that.

To what degree do you think that his lack of attention beforehand is to blame for what happened on 9/11? And to what degree do you think it's other circumstances?

SAFIR: Well, I don't think there was any lack of attention on the part of Louie Freeh before 9/11. You know, I hope that what we see today is not the shameless politics that we saw last week in the commission of Dr. Rice when she testified.

Louie Freeh is a committed, dedicated public servant who dealt with a structure that was dysfunctional. The fact is that before 9/11 and before the passage of the Patriot Act, the FBI and the intelligence community could not share intelligence as they could now. The FBI could not even follow a telephone wiretap if the perpetrator forwarded his phone call to another phone.

So there is a lot of tools that were not available. And the fact is that the lack of human intelligence resources on the part of both the intelligence community and the FBI, because of restrictions put in place by some of the very members of the commission who are asking the questions now, are part of the problem.

O'BRIEN: Interesting. In his op-ed, Louie Freeh blamed a lack of resources and also blamed, as you seem to be referencing there, a lack of political interest, I guess, is the way to put that. Here is a little bit of what President Bush had to say about the role of the FBI. Let's listen.

(BEGIN VIDEO CLIP)

BUSH: And the fundamental question is, you know, what was -- was there any actionable intelligence? And by that, I mean, was there anything that the agency could tell me that would then cause me to have to do something to make a decision to protect America.

There was nothing in there that said, you know, there is an imminent attack. There was nothing in this report to me that said, oh, by the way, we've got intelligence that says something is about to happen in America.

(END VIDEO CLIP)

O'BRIEN: What do you say, sir, to those critics who say it's Louie Freeh or it was Louis Freeh's job to red flag this lack of resources? It was his job to red flag any of the potential problems for the politicians who maybe didn't really understand the depths of the problems if, in fact, Louie Freeh understood them?

SAFIR: Well, he understood them. He asked for almost a thousand additional agents for intelligence and antiterrorism work, and got 76.

It's not like the FBI was not focusing on al Qaeda before 9/11. After the embassy bombings, they identified Osama bin Laden. They actually had an Osama bin Laden taskforce.

John O'Neill (ph), who was running the operation relative to the Cole, identified all of the al Qaeda threats. And these threats were transmitted worldwide. But the issue is that nobody anticipated, nor was there any hard intelligence that said they were going to use aircraft as missiles and fly them into buildings. You know hindsight is 20/20, but the reality is they should be looking at fixing the structure, making sure that the intelligence community and the FBI have the tools, and move forward instead of playing the blame game.

O'BRIEN: Many times we've heard that today, people saying they don't want to play the blame game. Howard Safir joining us this morning, the former New York City police commissioner.

Nice to see you. Thanks for being with us.

And of course we're going to take you to Louie Freeh as soon as he begins his testimony, which is really expected in just about eight minutes or so.

(COMMERCIAL BREAK)

HEMMER: Money talk now. What has homeowners so scared these days? Andy Serwer has an answer in that and a market preview, "Minding Your Business."

Good morning, Drew.

ANDY SERWER, EDITOR-AT-LARGE, FORTUNE MAGAZINE: Good morning to you.

HEMMER: Property taxes.

SERWER: Yes, property taxes is the word here. Always a hot topic in election season. Property taxes in particular this year.

People in communities across the country outraged over ever- higher property taxes, particularly in coastal areas in New England, places like that, spurring taxpayer revolts in states like Washington State and Maine. What they're trying to do is get caps on property taxes.

Let's break down property taxes for you and see where they stand -- $297 billion worth -- it keeps going up 5.7 percent, and it's the biggie there. The problem with putting caps on these taxes, however, is that these are the taxes that fund schools and police. So if you cap them, you might see limits on those and a cut in spending there. Some people blaming the crisis in California on Prop 13.

What can be done about this? Well, there are states that are looking at things. Here we go. Raise income tax.

Well, you know? Out of one pocket into the other.

Slot machines, OK, there is always questions about that. And then you can see here Texas got all kinds of things. The adult entertainment fee in particular.

So, anyway, let's move right on to the markets, though, because we got a big day on Wall Street. Futures really very, very hot this morning. Profits looking awfully good, Bill. This morning, Merrill Lynch and Johnson & Johnson coming in with really terrific numbers.

We talked about retail sales being very, very strong. So we're expecting a higher opening.

HEMMER: And it is the earnings season.

SERWER: 'Tis.

HEMMER: Thank you, Andy.

SERWER: You're welcome.

HEMMER: Soledad?

O'BRIEN: And Jack and the Question of the Day.

CAFFERTY: Presidential news conference 8:30 tonight. You can watch it live here on CNN. And if you want to play a little of "What if I was there," what would you ask the president at the news conference tonight? Here is some of what you've written us.

Rob in Newton, Pennsylvania: "What's the United States doing to decrease the level of hatred at the United States among Muslims throughout the world?"

Terry in Marrion, Michigan: "Mr. President, are you briefed daily on the war? Question two: if yes, how on earth do you sleep at night?"

Lee in Washington, D.C.: "After the August 6 PDB, did you follow up with a request for, say, a full two-page memo?"

Tough.

O'BRIEN: Interesting.

HEMMER: Yes.

O'BRIEN: Thank you, Jack.

The 9/11 Commission's questioning of former FBI director Louie Freeh is expected to begin really in just a couple of minutes. We're going to take you there live as soon as it happens.

Stay with us.

(COMMERCIAL BREAK)

HEMMER: All right, 9:31 here in New York. Welcome back to AMERICAN MORNING. Busy morning yet again today. The former FBI director, Louie Freeh, expected in that room any minute now to testify before the 9/11 commission, and we await on that, expecting to start yet again at any moment. We will not leave it for long.

O'BRIEN: You're looking there at a live picture.

Also this morning, we're going to see Attorney General John Ashcroft, former Attorney General Janet Reno, and Thomas Picard. He's the former acting director of the FBI. Plus, Ambassador J. Cofer Black, former director of the Counterterrorism Center for the CIA. That is the lineup for the day.

HEMMER: It is a big one, too.

Top stories here at the half-hour now.

The latest round of fighting in Iraq has killed more U.S. troops there. Two Marines killed in Fallujah last night. Eight others wounded in that same incident.

The Marines battled an intense and hour-long firefight against insurgents. It started when Iraqi fighters attacked a building housing the Marines. This morning, east of Fallujah, witnesses telling the AP a helicopter, an Apache was hit by a rocket and went down. There is no word on casualties there.

And here now some fresh videotape taken today of wanted radical cleric Muqtada al-Sadr. He was spotted leaving a mosque earlier in Najaf. And, also, U.S. forces today detaining one of his top aides in Baghdad. They released him a short time later, saying he was not behind any of the recent violence.

Meanwhile, the Arabic language TV network is airing video of four Italians kidnapped in Iraq. This is Al-Jazeera we're talking about. The hostages said to be intelligence officers.

Tonight, President Bush answers questions about 9/11, preintelligence there, especially about information and newly declassified presidential briefing. Mr. Bush will hold a primetime news conference. You'll see it on CNN at 8:30 p.m. Eastern Time.

The main focus will certainly be Iraq. And although the questions will continue, too, about what happened on events before 9/11 -- of course we will be there for you live, primetime, tonight, 8:30 here on CNN. The judge in the Jayson Williams manslaughter trial likely ruling today on whether charges against the former NBA star should be dropped. Williams accused of shooting a limousine driver and then trying to make the death look like a suicide. Yesterday, the defense argued that charges should be dropped in total because, they say, the prosecution withheld evidence.

A man from Washington has been charged with possessing the deadly toxin ricin. Police arrested Robert Alberg (ph) at his Kirkland apartment on Friday. He is now in FBI custody. Federal criminal justice sources telling the Seattle newspapers that they do not believe Alberg (ph) was plan to go use the ricin.

You're up to date, 9:34 now here in New York City.

(WEATHER REPORT)

O'BRIEN: Louie Freeh is taking his seat as he prepares to address the 9/11 commissioners. They wrapped up the staff report, and he is expected to talk this morning.

Really, some people have predicted, frankly, that he is the man who is in the hot seat today. He left his post just a couple of months before the attacks of 9/11. And many people, of course, are going to be very interested in what he has to say.

HEMMER: At least one of those commissioners on record as saying the FBI testimony is even more critical than the testimony of Richard Clarke and Condoleezza Rice. The swearing in now with Governor Kean.

THOMAS H. KEAN, COMMISSION CHAIRMAN: Do you swear or affirm to tell the truth, the whole truth and nothing but the truth?

LOUIS J. FREEH, FORMER DIRECTOR, FBI: I do.

KEAN: Please be seated.

Director Freeh, a prepared statement will be entered into the record in full. As you know, we've got an agreement that your statement summarized will be about 10 minutes long. And so please proceed.

FREEH: Thank you, Mr. Chairman, members of the commission.

Let me just begin by, again, expressing publicly my condolences to the families of the 9/11 attack and to extend my prayers and support for them, and my wishes that this commission, as the joint Intelligence Committees before it, does not only find some answers but certainly recommendations for change and improvement, many of which have already been undertaken, so that this type of awful, horrific human and personal tragedy never affects anyone else.

I want to just make a couple of points. I certainly appreciate the work of the staff and the report of the executive director. And maybe not addressing all of the details of what has been a very careful review of the FBI operations, certainly prior to September 11th and thereafter, and a very good audit with respect to many of the programs and operations.

FREEH: I would like to talk about some larger general issues, and certainly then engage in whatever questions you want.

I think the point that I would like to make is that it is imperative, in my view, that the commission distinguish between the period before September 11 and the period after September 11; that this is, I would respectfully suggest, a central question for the commission and for the American people. And I think the inability to focus on that question leaves not only a lot of speculation, but I think a lot of misinformation about some of the activities and some of the dynamics here involved.

I guess my view is that al Qaeda declared war on the United States in 1996. That's when bin Laden issued his first fatwa.

The 1998 fatwa was much more specific. It directed his followers to kill Americans anywhere.

That was followed by attacks against American soldiers in Yemen in 1992, which was actually the subject of a Southern District of New York FBI indictment returned in June of 1998 prior to the attacks against the embassies in East Africa.

The attacks upon the American soldiers in Somali, Project Restore Hope, was an activity sponsored by and directed by al Qaeda soldiers. That, as you know, was one of the overt acts publicly identified in the New York City indictment with respect to bin Laden.

The attacks against the embassies in 1998: acts of war against the United States. The attacks against our warship in 2000: acts of war against the United States.

FREEH: I remember briefing Senator Kerrey and Senator Shelby after one of these attacks -- it was the embassy attacks -- and he asked me a very good question, a question that I think is maybe more relevant today than it was then. And he said, "Why is the FBI over in East Africa, hundreds of FBI agents sifting through a crime scene maintaining chain of custody, talking to people and giving them their Miranda rights, when this is an act of war against the United States?"

And my response then, as it would be now, is that, absent a declaration of war backed by the United States against al Qaeda, against this very competent and very dangerous terrorist organization, we were left with the tools that were available to fight terrorism and to neutralize and incapacitate, not just bin Laden, but many of his operatives and allied organizations.

The point there is not that anybody in the FBI or anybody in the United States thought that investigating these cases was the best response to a war that was declared against the United States. You could poll any FBI agent, any jury that tried and convicted many of the people in these cases and they would tell you absolutely not. An arrest warrant, two of them for bin Laden in the Southern District of New York, was not going to deter him from what happened on September 11th. FREEH: But the point of these investigations was in the absence of invading Afghanistan, in the absence of armed Predator missiles seeking out our enemies, in the absence of all the things that were appropriately done after September 11th, when the United States declared war back on al Qaeda, we were left with alternatives which were better than no alternatives. And as I said in my statement, sometimes they worked.

And the investigations were not investigations that dealt with individuals. When the FBI investigated La Cosa Nostra, it wasn't investigating a particular person or group of people; it was investigating the organization and the enterprise. The purpose there was to get as much information as possible to incapacitate the leadership and dissolve the organization. The Watergate investigation would be the same example of that. These investigations were not cases; they were initiatives that were designed to gather information.

So before September 11th most of the information that was residing in the United States government with respect to al Qaeda came from FBI investigations, not from intelligence operations, not from collection. It came from the cooperating witnesses that we found in 1993, after the World Trade bombing in February. The FBI conducting an investigation but an investigation that went to the identification of the people who might have been involved in supporting that attack led to, if you recall, the prevention -- and I stress that word -- the prevention of a second major terrorist attack against the United States in New York City which was called the day of terror. And the organization was going to blow up tunnels and bridges and the United Nations and federal office buildings, killing potentially thousands and thousands of Americans.

FREEH: It was the investigation of the World Trade tower that prevented that and also gave us an arrest warrant for one Ramzi Yousef. Ramzi Yousef, related to Sheikh Khalid Mohammed, one of the architects of the September 11th attack.

He was found in Pakistan, staying in an al Qaeda guest house, by FBI agents who had an arrest warrant, and without that arrest warrant, he would never have been brought back to the United States.

Why was it important to have an arrest warrant? Because incapacitating him would prevent him from further attacks against the United States.

As you know, in 1995, he and others -- Sheikh Khalid Mohammed being one of them -- were planning to blow up 12 U.S. airliners over the Pacific Ocean, killing hundreds of Americans. That was aborted due to a series of events, but precisely the FBI criminal investigation served to prevent that from happening.

My point is that these investigations or projects that seek to gather maximum amount of information so the organization can be stopped from committing future acts of terrorism.

It was never our notion in the FBI that criminal prosecutions of terrorists and investigations of their organizations was a substitute for military action, for foreign policy action, for the United States doing what it did on September 11th, declaring war on an enemy that had declared war on us many years ago.

The point of it is that these investigations, as they existed, prevented acts of terrorism.

FREEH: With very limited resources, the FBI, as you know, before September 11, had 3.5 percent of the federal government's anti- terrorism budget. And it's no news to anybody that for many, many years, as your executive director recounted, the resource issue and the legal authority issue certainly limited what we were able to do before September 11th.

In the budget years 2000, 2001, 2002, we asked for 1,895 people: agents, linguists, analysts. We got a total of 76 people during that period. That's not to criticize the Congress, it's not to criticize the Department of Justice, it is to focus on the fact that that was not a national priority.

It's to repeat what we saw in the 2000 presidential election. Terrorism was not discussed. This was not an issue that candidates talked about, that the American people talked about during that period. And this was right after the attack on the USS Cole.

For many, many years, a lack of these resources and, maybe more importantly, a lack of legal authority, prevented us from doing what was easily done after September 11th. The Patriot Act, the November 18, 2002 decision by the court of review, which threw out a 20-year interpretation of the FISA statue. The court said to the judges, to the Department of Justice, to the FBI, to the intelligence community, "You've been misreading the statute for 20 years." Not only does the Patriot Act provide for this, but the actual statute provides for that.

So this wall that had been erected was a self-erected wall by the United States government, confirmed by interpretations, by the FISA court.

FREEH: But when challenged for the first time in 20 years, it was found by the court of review to be inconsistent with the statute, as well as inconsistent with the Constitution.

All of these things being said, the point I guess I want to make to you this morning and which I tried to make in my statement, is that we had a very effective program with respect to counterterrorism before September 11th given the resources in my view and given the authorities that we had.

Bin Laden was indicted in June of 1998. He was indicted again after the African bombings. He was put on our top 10 list. George Tenet and I reviewed plans to have him arrested and taken into custody in Afghanistan and brought back to the United States. I went over to see then-Chief Executive Musharraf in 2002 and made the case for him that this person be thrown out of Afghanistan; that he help us take him into custody so we could bring him back to the United States. All of the other things that were being done were being done in a limited framework, given, again, lack of resources and, maybe more importantly, the legal authorities that we had to live with.

KEAN: If you could wrap up now. Time's up.

FREEH: Thank you, Mr. Chairman.

The final point I think I want to make then is that we could change the law, we can pass new statutes, we can add billions of dollars to the fight. We need to keep in perspective, however, what was the reality before September 11th and what was the reality thereafter.

FREEH: And at the end of the day, the FBI, as a part of the Department of Justice, has to obey the law. And whatever that law is, it's one that protects us, it protects our Constitution, it also protects our people. And that law can change but I think we have to keep in mind that when that changes, we can't judge what happened in the past by different standards.

Thank you.

KEAN: Thank you.

Commissioner Fielding?

FRED F. FIELDING, COMMISSION MEMBER: Good morning, Mr. Director. Thank you very much for being here today and for all of the cooperation you've provided to the commission and its staff in closed sessions heretofore and for your really fulsome statement that you gave us. And also thank you on behalf of the whole commission for your public service, both in the executive and the judicial branch.

I am sure it's no surprise to you or anybody here that there's a lot of interest in today's hearings and there's a lot of interest simply because on September 11th we were totally beaten. We were beaten and all our systems failed.

Our systems to stop hijackings failed. Our intelligence, domestic and foreign apparatus failed. We had 19 people who were able to -- some of whom were known by the CIA to be terrorists -- entered our country, got visas, were living under their own names in this country, took flight lessons. They beat the security screening with knives to get into the aircraft and turn four aircraft into missiles.

And they had to have -- it was interesting -- they had to have 100 percent success in order to do this and they did.

FIELDING: So we've now found in our discovery that there have been some clues, some dots, as we say, that might have been connected, were not. We're not passing judgment on that at this point, but what we're trying to determine here is how this intelligence failure occurred so that we can deny it from occurring again, if at all possible. And, quite frankly, we're also trying to determine whether the FBI should continue to have its counterterrorism responsibility; whether it's capable of carrying out the new mission of counterterrorism, and the enhanced mission and the enhanced responsibility. So we appreciate your being here.

You became the director in September of '93, and had a long service through June of '01. So you're clearly aware of the terrorists targeting U.S. interests in the '90s.

It was often said that because you're a former field agent yourself, that you had little time for headquarters, and that you created or enhanced what has been described to us as the culture of the field. And during your tenure, counterterrorism investigations were run out of the field, as we understand it. The New York field office was the office of origin for al Qaeda, and therefore, as the staff statement said, our expertise for the large part was there.

FIELDING: Now, also in 1994, when you came on, you reassigned over 600 headquarters, supervisory, administrative agencies out in the field, ostensibly to make the FBI more efficient and to put more FBI agents on the street.

Now, some have looked at this approach -- and I want to read a quote. It says, "The FBI's policy to decentralize investigations was inefficient for counterterrorism operations, especially against international terrorist targets." And that's from the report of the House Permanent Select Committee on Intelligence that analyzed this approach.

So my first question to you is, you, obviously, made this decision. How -- to you what were the strengths of this approach of using the office of origin concept as opposed to the FBI's now current, more centralized approach to counterterrorism?

FREEH: Well, you've asked a number of questions. Let me see if I can respond to some of them.

With respect to the 600 agents being assigned out of headquarters, that wasn't because I believed that we shouldn't have them in headquarters, but should have them in the field. It was because for 22 months, the FBI had a hiring freeze. So while we were having offices around the country literally, the R.A. offices -- the resident agencies -- becoming vacant because there were no agents being hired -- 22 months, not one FBI agent was hired.

So my reassignments in 1994 were not to decentralize the FBI, it was to put agents in spaces where they had to be put with respect to that.

al Qaeda, in terms of the cases -- as you call them correctly -- but also the investigation of al Qaeda was centralized in New York City.

FREEH: That's where the primary office and the three squads that were established ultimately in New York City dealt with the Cole bombing, the East Africa bombing, as well as the al Qaeda organization in general.

That doesn't mean that we didn't organize and centralize and direct those investigations from headquarters. We set up, as your executive director mentioned in 1999, a Counterterrorism Division. The purpose of the Counterterrorism Division was to control and help support a national program where cases, although they have to be worked in the field -- that's where the U.S. attorneys are -- they also were directed and supervised by headquarters.

It was interesting that when I submitted the proposal for the Counterterrorism Division, with the full support of the attorney general, Janet Reno, it took nine months for the Office of Management and Budget and the Congress to approve that, which again goes to my point before about the priorities with respect to getting things done.

We had al Qaeda-Osama bin Laden unit set up at headquarters. In our SIOC operation, we had 24-by-7 coverage of those matters and those cases.

So the cases were being worked in New York City -- I don't know where else they could have been worked -- but the coordination between headquarters and the field, in my view, was very, very good.

Now, I got involved very directly in many of those operations.

For instance, I went to Pakistan to ask Mr. Musharraf to help us arrest bin Laden. I also asked him for witnesses, which he ultimately agreed to send one to New York City for the trial. I went to East Africa and negotiated the return of Oday and some of the other hijackers to be prosecuted in New York, where they were convicted.

FREEH: So there was a lot of headquarters involvement. In fact, there was huge headquarters involvement in the New York cases. The fact that they were in the field was just the reality of that's where cases are and that's where grand juries and prosecutors and courts are.

But the point is that that group of New York City agents were functioning not just as case agents, they were the intelligence, they were the analysis, they were the whole embodied knowledge of the United States government at that time with respect to al Qaeda and its principals. And their job was to disable the organization, eliminate the leadership at that point by arrest or custody. And many efforts -- heroic efforts on their part were extended in that regard.

FIELDING: OK. Then is it your testimony that the al Qaeda cases, if you will, that were being run out of the New York office were really being directed out of headquarters?

FREEH: Yes, sir.

FIELDING: OK. Then help me a little. How, under that structure, would the rest of the field offices really have the same sense of urgency, understanding or know-how, if you will, to contribute to the counterterrorism effort? For instance, use as the example the infamous or famous Phoenix memo that never seems to get where it should get. Could you comment on that?

FREEH: On the Phoenix memo or the fact that we had...

FIELDING: Both. I'm using that as an example.

FREEH: Yes.

FIELDING: Doesn't this decentralization inhibit the interplay between the offices, so to speak?

FREEH: Again, I guess I don't agree with the term decentralization.

I mean, the cases had to be worked where they were worked. We had a body of expertise with respect to al Qaeda, and bin Laden's residence in New York. We had an equal and ample, in my view, body of expertise at our headquarters, with Dale Watson and Debbie Stafford and Mike Rollins, all the people that your staff has spent many, many hours with over the last few months.

So, you know, we didn't only have the expertise in New York. And Dale's job and Mike Rollins' job and the Counterterrorism Section, before it was the Counterterrorism Division's, job was to ensure that, first of all, expertise was available to support cases in smaller offices that perhaps didn't have that kind of experience, would not have had that kind of experience.

The purpose of, you know, MAXCAP 05, the purpose of seminars, the purpose of SAC conferences was to disseminate all of that information and make sure that the field not only was aware of those investigations, but if they had matters in their own division -- and there were 70 cases around the FBI in the summer of 2001 -- not on al Qaeda members or bin Laden supporters, but on fundamentalists, jihadists who were of great interest to the bureau because of their potential, as we saw in East Africa and other cases, to be co-opted and enlisted into operations.

So the decentralization, I don't think, is something that I would characterize it as.

With respect to the Phoenix memo, which is your second question, you know, my understanding of that memo, mostly what I've read in the newspapers, is that it was sent to headquarters. It was not decentralized in the sense that it never made it to headquarters.

FREEH: It was looked at there. It was analyzed. People took what they thought was the appropriate action at the time.

I know as an aftermath of the information contained in that memo, everyone was interviewed -- the people who were identified in the memo. All the leads were run out after the fact, and there was nothing about the information contained in that memo, as far I've read or as I understand it, that would have lead you to September 11th. FIELDING: Well, then, do you disagree -- well, let me ask it another way. The Pentbomb investigation is now being run out of headquarters. Would you disagree with the way that Director Mueller is running that?

FREEH: No. Again, I think after September 11th, there had to be a completely new restructuring of how counterterrorism cases and operations were going to be conducted. So I would not have any disagreement with that.

And, by the way, if you were going to do a criminal prosecution there, not that that would be appropriate, you would do it in the Eastern District of Virginia. So it wouldn't make any sense for agents in New York City to be working on it if you were to do a criminal case.

FIELDING: So you think that, post-9/11, that's the better way to run counterterrorism cases?

FREEH: I don't think you can run counterterrorism cases out of headquarters. That's not my experience or my view. I think you have to coordinate them out of headquarters.

The liaison throughout the government, the ability to share intelligence, the overseas connections that are necessary, you can't run it without headquarters. But you can prepare a criminal case for a field presentation in a U.S. district court in headquarters. That's just my own view.

FIELDING: Let me switch gears for a second.

In September of 1999, the GAO issued a report that recommended that the FBI develop a national-level terrorist threat and risk assessment so it could be used to determine how to allocate resources and budget and dealing with domestic threats, plus analyzing the likelihood of such a threat and to identify any potential intelligence gaps -- I believe was part of the charter.

And it was my understanding that the department and you agreed to do that. And that's September -- the end of '99. And that wasn't completed until January of 2003.

And when we were talking to people that were involved in that, a senior CIA official that was detailed to the FBI after 9/11 told the commission that the assessment was completed actually by CIA analysts that had in detail to the FBI, since the FBI analysts were not capable of producing such a product.

Now, I'd like your comment on that. And even the deeper question of was the FBI unwilling to do an analysis, or was it unable to do an analysis from '99 at least until you left?

FREEH: Well, I don't think it was incapable of doing that. In fact, there were analyses that were made with respect to assessments, which were done in the context of the Counterterrorism Division, which was set up at about the same time. FREEH: Did we have a deficiency with respect to analytical capability? Absolutely.

I talked about that at appropriation hearings over many years. Most of the nonagent resources in our three-year request for 1,895 people were analysts. They were people who could perform strategic, as opposed to tactical, analysis for us and give us the type of strategy plans and disruption plans that we began to see actually in the spring and summer of 2001 in the FBI with respect to al Qaeda.

But that capability was not there when I was director. You know, we're in the process now of hiring 900 analysts, but that's 2004. It doesn't cover the gaps over many, many years, particularly the years that you cite.

FIELDING: But you would agree that counterterrorism needs that as a component of its total effort, would you not?

FREEH: Absolutely. It needs linguists which were also, you know, requested year after year. We asked for the authority to hire Arabic and Farsi speakers at a higher rate than the GS scale provided for in New York City. You can't hire an Arabic or Farsi speaker for a GS-6 salary, which is what we were relegated to.

We did get a brief experiment with respect to a Title 5 exemption, but not what is now available and funded at least to the point where you can make an issue of it.

FIELDING: OK. Now, the last -- I guess that is my last one. I'm sorry. I see my time is up.

Thank you, Mr. Director.

KEAN: Commissioner Ben-Veniste?

RICHARD BEN-VENISTE, COMMISSION MEMBER: Good morning, Director Freeh.

FREEH: Good morning.

BEN-VENISTE: As you know, the purpose of this commission may be divided into two broad categories.

BEN-VENISTE: First, we are charged with providing a full accounting of the 9/11 catastrophe, a challenging investigative responsibility.

Second, we're asked to make recommendations in a wide variety of areas, all of which with the common goal of improving the security of our nation.

We should be reminded that the ability to have such a commission to operate in part through public hearings and to ultimately deliver a report to the president of the United States, to the United States Congress and to the American people, a report on our findings and recommendations, is a remarkable testimonial to the strength and durability of our democracy. Few countries in the world would tolerate, much less welcome, such an open and public process.

Director Freeh, you have served in two of the three branches of government. You were an FBI agent, an assistant U.S. attorney in the Southern District of New York; an office for which I have great affection, as you know, and continuing admiration. Indeed, during my service as an assistant United States attorney I worked closely with many FBI agents who I regarded as among the most dedicated and patriotic Americans I've ever met. Indeed some of them are close friends today.

You have served as a federal district court judge in the Southern District of New York, appointed by President Reagan, and then you were appointed by President Clinton to be FBI director. Your experience and observations will be an important source of information for this commission.

BEN-VENISTE: You have reemphasized this morning the fact that the New York office of the FBI, which was led by James Kallstrom and then Barry Mawn and John O'Neill, particularly focused on the al Qaeda terrorist threat.

In fact, John O'Neill perished in the attack on the World Trade Center on September 11th, 2001, at the hands of cowards who murdered civilian men, women and children, people who John O'Neill had hunted with a determination that sometimes bordered on an obsession.

Indeed, in January 2001, O'Neill's concerns stimulated an interagency group white paper urging greater protection of federal buildings in Lower Manhattan.

And that white paper noted that, "Osama bin Laden, his al Qaeda organization and affiliated extremists groups currently pose a clear and immediate threat to U.S. interests."

Do you recall discussions with John O'Neill about the threats from al Qaeda or others that might occur within the United States?

FREEH: Yes, I do, and particularly in that time frame.

If you recall, the trial was actually starting in January of 2001. It went through May.

FREEH: This was the trial of the four subjects in custody for the East African bombing.

So the New York office, as well as headquarters and myself, were intensely concerned about the security for that trial. And if any of you saw the courthouse during the period of that trial, there were cement trucks, streets closed, because we were focused on a domestic attack in the United States by the co-conspirator in that case, indicted but a fugitive, to Osama bin Laden.

BEN-VENISTE: Let me ask you this: You have talked this morning and in your submitted statement and previously about your efforts to increase the counterterrorism budget; efforts that were not accepted by the Congress of the United States in allocating more funds for you. But can you tell us whether it was possible within the FBI structure to reallocate resources within a particular field office or in general, perhaps using, as an example, James Kallstrom, the former head of the New York office of the FBI, who unilaterally shifted resources to counterterrorism from other areas?

I believe you have told us in staff meetings that Jim Kallstrom had half of his Criminal Division working on counterterrorism, pulling agents away from such traditional investigative efforts as bank robberies, drug investigations: the type of investigations which can overlap with other federal agencies or with state and local operations.

BEN-VENISTE: Did Kallstrom's, sort of, entrepreneurial decision on his own, recognizing the terrorist threat to make those reallocations, trouble you?

FREEH: Well, no. Since I concurred in it, I wouldn't call it an entrepreneurial decision at all.

I mean, when we needed to put 400 FBI agents in East Africa in August of 1998, we put them there. Now, they weren't allocated in our congressional funding stream as counterterrorism agents, but we sent them there because we needed them there.

For years, in the New York office, we -- the term is overburned the number of agents working counterterrorism cases.

Now, there were only three squads that were full-time assigned to bin Laden cases and al Qaeda investigations. But when we had a trial or we had an emergency, like we were preparing for the 50th anniversary of the U.N. or the NATO meeting or the pope was coming to New York, we would, of course, allocate hundreds and hundreds of agents who were not authorized budgetarily to perform counterterrorism assignments to that job. So that was something we did continuously.

There was never a case, Mr. Ben-Veniste, anywhere in the bureau that I was aware of where we could not assign agents in an emergency or in the threat of danger to help prevent that. But the reality is in terms of our congressional budget, they were not then authorized to be working the matters they were working.

BEN-VENISTE: Well, given the fact that you concurred and supported Jimmy Kallstrom's efforts in New York City, and given the fact that there has been criticism about the FBI's inability to reallocate resources toward the growing threat of terrorism and reallocate those resources, as I say, away from more traditional FBI jurisdictional areas which could be covered by other federal and state agencies, how do you answer that criticism?

FREEH: Well, I think I would address it by saying two things.

One, you know, the positions that are authorized by the Congress and audited by their committees, as well as GAO, have to be allocated to the program areas where they're funded to. That's number one. Now, from time to time, as in the New York case, we would ask the congressional committees for temporary reallocations. We would advise them as to what we were doing.

My answer to getting counterterrorism resources to fight terrorism was to ask for them and ask for them in addition to what we already had.

BEN-VENISTE: Were you ever reprimanded for reallocating on your own, either on the basis of emergency or on a more generalized basis, resources to counterterrorism as a result of congressional oversight?

FREEH: No. But I think that's because we were doing it on a emergency basis and on a temporary basis.

If we had taken a thousand agents from our criminal programs and assigned them full-time to counterterrorism matters, I don't believe we could have done that and I don't believe the committees would have permitted it at the time.

BEN-VENISTE: But you did not try that?

FREEH: No, I did not try that because that's not the way resources are allocated.

BEN-VENISTE: Let me turn to the subject of the state of the intelligence community's knowledge regarding the potential for the use of airplanes as weapons, a subject of obvious interest to this commission.

BEN-VENISTE: Did the subject of planes as weapons come up in planning for security of the Olympics held in Atlanta in 1996?

FREEH: Yes, I believe it came up in a series of these, as we call them, special events. These were intergovernmental planning strategy sessions and operations. And I think in the years 2000, 2001, even going back maybe to the 2000 Olympics, that was always one of the considerations in the planning. And resources were actually designated to deal with that particular threat.

BEN-VENISTE: So it was well-known in the intelligence community that one of the potential areas or devices to be used by terrorists, which they had discussed, according to our intelligence information, was the use of airplanes, either packed with explosives or otherwise, in suicide missions?

FREEH: That was part of the planning for those events, that's correct.

BEN-VENISTE: Did that come up, the same subject, come up again? I know you carried on from the Clinton administration through six months, more or less, of the Bush administration. Did that subject come up again in the planning for the G-8 summit in Italy?

FREEH: I don't recall that it did, but I would not have been involved in that planning. The FBI would not have been involved in that particular planning.

BEN-VENISTE: We were advised that there was a CAP or no-fly zone imposed over first Naples, in the preplanning session, and then Genoa during the meeting of the eight heads of state.

BEN-VENISTE: And that subsequently it was disclosed the President Mubarak of Egypt had warned of a potential suicide flight using explosive-packed airplanes to fly into the summit meeting.

FREEH: I don't dispute that. But that planning would be done by the Secret Service, probably the Department of Defense. We would not have been involved in that event outside the United States in terms of the special planning, although we probably detailed some people there.

BEN-VENISTE: Let me ask you this: To your knowledge, coming back to the United States, was the intelligence information accumulated by the year 2001 regarding various plots, real or otherwise, to crash planes using suicide pilots integrated into any air defense plan for protecting the homeland, and particularly our nation's capital?

FREEH: I'm not aware of such a plan.

BEN-VENISTE: Can you explain why it was, given the fact that we knew this information, and given the fact that, as we know now, our air defense system on 9/11 was looking outward in a Cold War-posture, rather than inward, in a protective posture, that we didn't have such a plan? Was that a failure of the Clinton administration, was that a failure of the Bush administration, given all of the information that we had accumulated at that time?

FREEH: Well, I mean, I don't know that I would characterize it as a failure by either administration.

I know, you know, by that time there were air defense systems with respect to the White House. There were air defense systems that the military command in the Washington, D.C., area, you know, had incorporated.

I don't think there were probably -- at least I never was aware of a plan that contemplated commercial airliners being used as weapons after a hijacking. I don't think that was integrated in any plan.

But with respect to air defense issues and that threat, it was clearly known and it was incorporated, as I mentioned, into standard special events planning.

BEN-VENISTE: Into special events, but never into the actual defense posture for the homeland protection of the United States.

Let me ask you a final question with respect to the millennium threat. The FBI and the CIA have been criticized for being unwilling to work cooperatively together, yet it appears during the period of heightened alert prior to the millennium, the FBI and CIA worked closely together and had several notable successes as the result thereof. Could you explain how that operation worked and whether you reported to the National Security Council of the United States?

FREEH: Well with respect to the millennium planning, I reported of course to the attorney general. The attorney general and I worked very closely in concert with the National Security Council, with the director of central intelligence, the CIA, military components, civilian components.

This was an integrated and long-term planning operation with respect to millennium threats, which were not only issues concerning technology exploitation, but also the occasion of the millennium as a terrorism attack.

FREEH: But your more important question, I think, is the CIA-FBI cooperation. I don't think it was unique to the millennium planning. My experience in eight years there is that there was extremely good cooperation between the FBI and the CIA. And that goes back to matters such as the Cole bombing, the East African embassy bombings cases.

The Alex (ph) station -- which you know from your staff was set up in 1997 -- the CIA and the FBI together and a station dedicated to al Qaeda investigations and disruption activities overseas. FBI agents would regularly accompany CIA officers overseas to exploit al Qaeda cells and disrupt them.

I think that cooperation, in my view, was a very outstanding one for many years.

BEN-VENISTE: Thank you, sir.

KEAN: Commissioner Gorelick?

JAMIE S. GORELICK, COMMISSION MEMBER: Thank you, Mr. Chairman.

I've asked for the microphone only to say that I will not be questioning Director Freeh or Attorney General Reno. Under our commission policies, several commissioners have recused themselves from considering various issues that they worked on or elements of the government that they've worked with at one time or another.

While I'm recused only from review of actions during my tenure at the Department of Justice, which ended in March of 1997, because I worked closely with Director Freeh and with Attorney General Reno, I've decided not to participate in this questioning at all.

GORELICK: As my colleagues know, the vast preponderance of our work, including with regard to the Department of Justice, focuses on the period of 1998 forward, and I have been and will continue to be a full participant in that work.

So all I will say today is thank you for your testimony today, Director Freeh.

FREEH: Thank you. KEAN: Thank you.

I've got a couple of questions.

First, I'm interested in your communications with the White House. When you had a serious problem, where you thought there were threats, did you go directly to the president or was there another mechanism you used to communicate with the White House, either in the Clinton administration or the Bush administration or both, I guess?

FREEH: Well, I mean, my procedures would normally be to communicate first with the attorney general on many occasions. After that communication we would go to the White House. If it was a national security issue, we would certainly see the national security adviser.

In the last year that Janet Reno and I served together, we actually had a routine meeting with the national security adviser I'd say probably every two or three weeks. We had another one with Secretary Albright probably once a month, and the purpose of those meetings was to discuss not just counterintelligence and counterterrorism matters, but even other Department of Justice issues that had national security implications.

On some occasions I would go directly to the national security adviser. I did not have an experience in either administration of going directly to the president on a matter.

KEAN: One of the questions that -- maybe one of the most important that our commission is charged with, is looking at the intelligence agencies and seeing whether any changes ought to be made.

KEAN: Now, I read our staff statement as an indictment of the FBI for over a long period of time.

You know, when I read things like that 66 percent of your analysts weren't qualified, that you didn't have the translators necessary to do the job, that you had FISA difficulties, that you had all the information on the fund-raising but you couldn't find a way to use it properly to stop terrorism.

And that's without counting, of course, the things that were going on at the same time: Ruby Ridge, Waco, the Wen Ho Lee case, the Hanssen case, the lost laptops and firearms and all of the rest.

The present director, your successor, has a whole series of reforms that he is trying to put to make the agency work better. You tried reforms. You tried very hard to reform the agency. According to our staff report, those reforms failed.

I guess my question to you is, looking at this director's efforts to reform the agency, can those reforms work or should there be some more fundamental changes to the agency and the way we get our intelligence?

FREEH: Well, first of all, I take exception to your comment that your staff report is an indictment of the FBI. I think your staff report evidences some very good work and some very diligent interviews and a very technical, almost auditing, analysis of some of the programs.

I think the centerpiece of your executive director's report, as I heard it, came down to resources and legal authorities.

FREEH: So I would ask that you balance what you call an indictment, and which I don't agree with at all, with the two primary findings of your staff. One is that there was a lack of resources; and two, there were legal impediments.

With respect to your question, I certainly support and applaud the director's efforts. The Patriot Act, the court of review, a couple of billion dollars is certainly a big help when we're talking about changes.

With respect to the jurisdiction of the FBI, I do not believe that we should establish a separate domestic intelligence agency with respect to counterterrorism. I think that would be a huge mistake for the country for a number of reasons.

One, I don't think in the United States we will tolerate very well what, in effect, is a state secret police even with all of the protections and the constitutional entitlements that we would subscribe it with. Americans, I don't think, like secret police. And you would, in effect, be establishing a secret police.

Secondly, if you look at the models around the world where this has been tried, it hasn't worked very well, in my opinion.

The other thing, it would take a long time to integrate. If the Homeland Security Department and 170,000 people to be integrated is going to take a couple of years; standing up a brand new domestic intelligence agency would take a decade and we would lose very precious time at a very dangerous time for the United States.

FREEH: If you look at some the analyses of MI-5 operations, and you can look at the Bishop Gate bombing, you can look at the Dockland's bombing -- the Matroyan (ph) case -- I'm sure your staff has looked at that -- it's been found to be not very effective.

In fact, one of the studies that I know your staff has looked at in the United Kingdom that looked at this actually said the FBI was a preferred model because it breaks down the barriers between enforcement and intelligence. A lot of the good work of this commission has been to identify the barriers that existed -- and still exist -- between intelligence and law enforcement.

Standing up a separate intelligence agency will just increase those barriers. And if you thought the wall was a big one, that's a fortress in my view and will make for a very ineffective counterterrorism program and, I think, expose the country to dangers.

So I think we ought to have the Department of Justice, supervised by the attorney general, FBI agents who are schooled in the Constitution, who have a transparent operation with respect to oversight by courts, as well as by Congress. Give them the tools, give them the legal authority, give them the budget, and they'll do this job very well.

It's not very different from looking at organized crime, from looking at counterintelligence, which, in my view, the bureau has done exceptionally well for decades.

The difficulty with the wall was that the wall that was set up in Janet Reno's guidelines of July 19th were completely appropriate with respect to counterintelligence cases because counterintelligence cases happen in two dynamics. One, there is an investigation, and then there is either an indictment or an expulsion.

Counterterrorism cases are completely different. Because of the threat, there is always an ongoing need to act and to use the intelligence to prevent attacks from taking place.

FREEH: So the wall is not an appropriate one with respect to counterterrorism, and that's been repaired both by the Patriot Act and the court of review.

KEAN: Thank you.

Senator Kerrey.

BOB KERREY, COMMISSION MEMBER: Thank you very much, Mr. Chairman.

Director Freeh, I'll do whatever I can here to make sure I don't call you "Director Clarke" as I ask you these questions.

(LAUGHTER)

First of all, do you think it was a mistake not to -- talking about Khobar now, starting in Khobar in '96 -- not to have you report directly to the National Security Council and the president on what was going on in that investigation?

FREEH: Well, I did report through the attorney general and directly to the national security adviser.

Are you talking about Khobar?

KERREY: Right.

I mean, Dick Clarke and Mr. Steinberg (ph), the deputy at National Security Council, said that there was never any written reports sent by the FBI to the NSC. Is that not true?

FREEH: If we're talking about the Khobar case, you know...

KERREY: Actually, I'm -- begin with Khobar, but all the way through this time period, it seems to me it was a mistake not to have you report directly on what you were learning to the National Security Council or to the president. Since it was a domestic agency going over to investigate, as I consider it, an act of war against a U.S. military installation in Saudi Arabia, it seemed to me that there should have been a reporting right back to the National Security Council on what was going on.

FREEH: But I guess what I'm saying is, there was. I mean, Janet Reno and myself, together on a very, very regular basis; myself, individually, on numerous occasions directly with Sandy Berger.

KERREY: All we talked about was the Khobar case.

In an otherwise, I thought, exceptional staff report, the staff, I think, miscorrectly describes the seven cases that you were involved with, saying that most of those were overseas. In truth, three of them were domestic, and four of them were overseas. World Trade Center number one landmarks plot number one, the millennium, and indeed if you include the threats against the city of New York during the 2001 trial, there were four domestic attacks and/or efforts.

Did the FBI ever produce an evaluation of the threat to the homeland during this period to the president? Or was there one requested of you?

FREEH: There was none requested, that I'm aware of. I don't think we ever furnished a national threat report to the president with respect to homeland security.

KERREY: I mean, of all the facts that -- in this whole process, that have just caused scales to fall from my eyes was listening to Betty Ong, a flight attendant on flight 11, talk to the ground and hear the ground surprised by a hijacking. I mean, not only were we not at a high state of alert in our airports, we were at ease. We stacked arms. I mean, we weren't prepared at all.

And it's baffling to me why some alert wasn't given to the airlines to alter their preparedness and to go to a much higher state of alert. It seems to me a lot of things would of changed if that would of happened.

And I would respectfully disagree with your assessment of the Williams memo coming out of Phoenix, because I think had it gotten into the works, to the highest possible level, at the very least 19 guys wouldn't have gotten on to these airplanes with room to spare.

FREEH: Well, Senator, I served on the Gore commission, as your staff may know. And, you know, I thought the leadership, first of all, by the vice president there was outstanding. I think the recommendations were outstanding.

FREEH: We spent many, many months writing detailed recommendations that asked for passenger screening, asked for many, many things which were never implemented. The whole purpose and the conclusions of that report, if you read it, was that the airline industry and operations were vulnerable at multi points with respect to hijackings and terrorist attacks.

So I agree with you, there was no... KERREY: But I mean, you said that, you know, we couldn't have had a declaration of war because public opinion wasn't there. I probably would disagree with that. Public opinion wasn't on the side of the Bosnian war or the Iraq war in the beginning either, and the president made a determination in both cases to come to the American people and say, "There's a crisis."

But even absent a declaration of war, why did we let their soldiers into the United States? Because that's what the al Qaeda men were, they were soldiers. They were part of an Islamic army called the jihad to come into the United States. Why did we let them into the United States? Why didn't President Clinton and/or President Bush issue an order to change the FISA procedures and other orders to INS, et cetera, to make sure that their soldiers couldn't get into America? Why did we let them in?

FREEH: Well, again, I think part of my answer is that we weren't fighting a real war. We hadn't declared war on these enemies in the manner that you suggest that would have prevented entry had we taken war measures and put the country and its intelligence and law enforcement agencies on a war footing.

The Joint Intelligence Committee, in one of their reports -- I think I excerpted the conclusion in my statement -- said that neither administration put its intelligence agencies or law enforcement agencies on a war footing.

A war footing means we seal borders. A war footing means we detain people that we're suspicious of. A war footing means that we have statutes like the Patriot Act, although with time set provisions, give us new powers.

FREEH: We weren't doing that.

Now, whether there was a political will for it or not, I guess we could debate that. But the fact of the matter is we didn't do it and we were using grand jury subpoenas and arrest warrants to fight an enemy that was using missiles and suicide boats to attack our warships.

KEAN: Commissioner Thompson?

JAMES R. THOMPSON, COMMISSION MEMBER: I want to explore in a little more detail one of the assumptions of Commissioner Ben- Veniste's questions.

In looking at the Olympics, you had a defined event, in a defined place, over a defined period of time, a defined air space above the Olympic facilities. And so I presume that law enforcement planning to prevent any interruption or interdiction of the Olympics would have imagined any kind of possibility of intrusion of bomb, missile, plane, whatever into that space; is that correct?

FREEH: That's correct.

THOMPSON: And though you say the FBI was not involved with the planning of the G-8 summit in Italy, the same sort of assumptions would have been made, would they not: defined event, defined time, place, air space?

FREEH: A defined and specific threat and time and place, correct.

THOMPSON: Is it a fair assumption to leap from those kinds of examples to the notion that you could, with the best of intelligence or law enforcement or thought, gone to an assumption that on any given day, in any part of the United States, on any one of the more than 4,000 flights that are in the air on any given day in the United States, utilize the same methods and guard against the same kind of attacks?

THOMPSON: Or is that a leap too far?

FREEH: Well, I think, you know, to amass the kinds of resources and protective operation that you've both alluded to in your questions, there's a limited capability in terms of duration for that kind of an operation.

For instance, with respect to the millennium, we were planning for months and months prior to that event. And at the time of the millennium, you know, thousands and thousands of law enforcement agents and other government agents, military personnel, you know, were on duty around the world because of a specific event. The attorney general and I were in, you know, our command post through the night on December 31st.

But we could not have sustained that, you know, for weeks and weeks beyond that period, nor would there have been a basis to do that without a specific threat.

So I think to do the kinds of protective operations that we would like to do, and do, in fact, perform when NATO is meeting, when the pope is visiting, when the president is at a summit, when the World Cup is going on, when presidential conventions are in session, all of those events in specific places and times, because of the threats as we understood them, including airborne threats, we were able to marshal resources and perform protective operations. But you need a time and place to do that if you have resources available.

THOMPSON: You testified that you transferred 600 agents from headquarters to the field because there was a 22-month hiring freeze in the FBI.

THOMPSON: Why was there a 22-month hiring freeze in the FBI and when did it occur?

FREEH: Well, you have to ask Congress about why they had the freeze, it occurred for...

THOMPSON: So it's a congressionally imposed freeze?

FREEH: Yes. We were not authorized to hire people for a 22 month period. When I became director in September of 1993, we were in the middle of that freeze, and it went for a total period of 22 months, which is why I was putting people on the street from headquarters.

THOMPSON: Now the budgeting process in the federal government with particular regard to the FBI do I assume works something like the FBI decides how much money they'll ask for in any given fiscal year, it moves up through the attorney general's office, goes from there to OMB, and from OMB to the Congress? Is that right?

FREEH: That's correct.

THOMPSON: In the whole time that you were the director of the FBI, did your initial requests for funding, going up to the AG, ever make it through that process -- the level that the FBI requested?

FREEH: No. And that's probably true for every agency in this town.

THOMPSON: So true not only for you and the FBI, but your predecessors and successors and for every federal government agency, is that right?

FREEH: That's correct. That's how the budget process works.

THOMPSON: OK.

The Patriot Act has some provisions that are due to expire next year, I believe. Do you believe that those provisions should be renewed? And do you think the Patriot Act needs strengthening in any provision apart from that to help us protect America from terrorism?

FREEH: Which provisions in particular are you speaking about with respect to renewal?

THOMPSON: There's a -- there were at least two and I think it may not have been in your testimony but in the testimony we'll hear later this afternoon from Acting Director...

FREEH: It's not in my testimony. I mean, I'll comment on them, I just don't know which ones you're referring to.

THOMPSON: I think maybe in Pickard's -- well, let me come back to that after I find what I'm looking for and let me ask you this...

FREEH: I can answer the second part of your question, though.

KEAN: This will be the last question, Commissioner.

FREEH: Yes, with respect to one area that's not addressed -- and I've mentioned this in my testimony and members of the Intelligence Committee and others have heard me testify about this repeatedly -- nowhere in the Patriot Act, nor in any of the other post-September 11 measures, is there any effort to address the issue of encryption.

It's mindboggling to me that in the aftermath of September 11th and the information that we've accumulated today, including the use of encrypted channels of communication by terrorists, that our law enforcement agencies still do not have either the authority or the technology to break down encrypted messages.

And for those who don't know about the issue -- none of the commissioners but other people -- encryption is the technology that allows message bits, communications, either data or voice, to be scrambled so you can't understand what's being said.

Again, it's mindboggling to me -- and I testified dozens and dozens of times, along with Janet Reno and others, for some relief that this is completely unaddressed. I think it's a huge gap in our national security, and one that I would urge the commission to look at.

THOMPSON: Thank you, Mr. Chairman.

KEAN: Commissioner Ben-Veniste has one clarifying remark.

BEN-VENISTE: Director Freeh...

KEAN: You've got 10 seconds.

(LAUGHTER)

BEN-VENISTE: I don't think I can do it in 10 seconds, Tom.

My good friend and former mentor Jim Thompson I think has misinterpreted the question put to you about the recognition by the intelligence community of the potential for planes being used as missiles.

My question to you was -- given the substantial state of information, whether by rumor or by actual intelligence relating to the use of kamikazes, suicide pilots to crash planes into buildings -- my question was: Was it a failure in thinking not to reposition our domestic air defense, led by NORAD, to protect the capital and elsewhere against the possibility of attack on the United States by air? And particularly, during time of heightened threat.

You understood that that way?

FREEH: Yes.

BEN-VENISTE: Thank you.

KEAN: Commissioner Lehman?

JOHN F. LEHMAN, COMMISSION MEMBER: Thank you.

Director Freeh, welcome. I have just a few short questions.

First, during your tenure, there were sanctuary laws enforced by New York City, by L.A., San Diego, Houston, Chicago and some other cities. These were well-known to al Qaeda, if not to the American public. These laws, as you know, in defiance of Section 133 of the Immigration Act, prohibit local authorities in those cities from cooperating with the FBI or INS in any matters having to do with immigration.

Did this trouble you during your tenure? And did you try to do anything about it?

FREEH: Well, as I mentioned in my written testimony, at the request of then Deputy Attorney General Gorelick, I made a series of recommendations with respect to the INS and asked that certain measures be taken, including legislative changes to give us a better ability to, first of all, identify alien terrorists and then detain them and remove them promptly from the United States.

With respect to the laws that you mention, I can't think of an instance in my tenure when that was a prohibition or an inhibition from us either getting some information or doing something that we wanted to do. We were more frustrated with the length of time that it took to remove aliens for whom we had documented information with respect to terrorist activities.

LEHMAN: And those recommendations that you recommended to Justice, they were turned down or just ignored or...

FREEH: No, they were actually implemented.

In fact, President Clinton, to his great credit, introduced in 1996 the Antiterrorism Bill, H.R. 2703. Unfortunately, when it was in the House there was an amendment that was entered which was passed by a large majority that stripped the bill of most of its important counterterrorism measures; in fact, the ones that Deputy Attorney General Gorelick and I recommended. In fact, I think two of you actually voted on the amendment.

LEHMAN: Thank you.

(LAUGHTER)

The case law approach has been the subject of a great deal of criticism from many of the witnesses interviewed and interviewees.

LEHMAN: You've made an able defense of it in your op-ed piece and in your testimony, however it certainly has some limitations according to some of the witnesses we've had.

We've had very senior officials in CIA tell us that they were unaware of any of the connections among the '93 World Trade Center terrorists because all the information was sealed and protected and not shared during the trial of the people.

Particularly after that material was released, and particularly after you were able to apprehend Ramzi Yousef, one of the principal actors who had escaped to Baghdad -- Abdul Rahman Yasin -- was in Baghdad and on the payroll of Iraqi intelligence.

Did you recommend doing anything to extradite him or to render him in any way as one of the key al Qaeda operatives?

FREEH: Well, over the period of years after the World Trade Tower indictments in 1993, but then maybe more particularly following the Manila Air indictment in 1995, and of course the 1998 indictments with respect to bin Laden and his associates, we continuously recommended, and actually put into play, operations to arrest and render fugitives back to the United States in those cases.

I don't recall an instance with respect to Yasin.

With respect to Khalid Sheik Mohammed, in early 1996, we actually staged agents over in the Persian Gulf and had an operation well under way to arrest him.

FREEH: He was transiting a country that we thought we could get access to him. Unfortunately, that didn't work. We believe he was actually tipped off about the operation.

People like Kasi, who, of course, murdered the people outside the CIA. He was arrested by FBI agents, brought back, convicted of murder in Fairfax County. Ramzi Yousef, we spoke about.

So we continuously tried to get -- and did, in many cases -- get these fugitives. I don't recall a particular plan with respect to Yasin.

LEHMAN: One last question. The Oklahoma City case -- again, one of the criticisms has been that one of the problems of the case law approach to intelligence is that, once you focus on a convicting particular terrorists, that there has to be a hypothesis of the case and that's where all of the investigative resources are put in.

In the case of Oklahoma City, the hypothesis was that there were two Americans and they acted alone. There's a new book out now, as you probably know, called "The Third Terrorist," that has new information that begs for further investigation showing the links or purporting very significant links between Terry Nichols and Ramzi Yousef in the Philippines, and also links between the two perpetrators and Hussein al-Husseini, the Iraqi, perhaps, agent.

Are you satisfied that you ran all of these potential al Qaeda links to ground with McVeigh and Nichols?

FREEH: Well, other than that book, which I haven't read, you know, I don't know any other credible source with respect to that kind of a link.

No, I have not run those links myself. I certainly was not aware of them when I was FBI director. I know that there is a review going on with respect to some of the matters that have been raised by his attorney in connection with the state murder prosecution that's ongoing. I guess I don't want to say anything with respect to that case as it's being tried now by a judge and a jury.

But I don't know of any connections, except the one you've just mentioned, between Ramzi Yousef and that terrorist act. LEHMAN: Thank you.

KEAN: Vice Chairman Hamilton?

LEE H. HAMILTON, COMMISSION VICE CHAIRMAN: Thank you, Mr. Chairman.

Thank you, Mr. Director, for your testimony.

You commented in your opening statements about resources on several occasions, and I was looking at your recommendations at the end of your statement, your printed, your written statement. And I quickly calculated about eight or 11 of those recommendations require additional funding.

Maybe I'm a little sensitive to this because of my experience in the Congress. I took a quick look at the appropriations for the FBI from 1996 to 2001. It went up from $2.3 billion to $3.3 billion, roughly. That's a very, very dramatic increase.

The amount of FBI personnel and funding dedicated to counterterrorism more than tripled between 1993 and 2001. Can't get into the specifics of those figures on counterterrorism because I think they're classified.

HAMILTON: But I want to get a sense from you about this resource problem. I can understand in your position how you would constantly see the need for more resources. I'm not really critical of that.

But your sense is -- my sense of your testimony is that you could have done an awful lot better if you'd had a lot more resources. And in fact, you were receiving a lot more resources.

FREEH: No, there's no question we were receiving a lot of resources. I think my position, which was the attorney general's position, is there were not enough resources to work a counterterrorism program as the lead agency for the United States.

As I said in my testimony, the FBI had 3.5 percent of the government's counterterrorism resources.

And as you see in my recommendations -- you know, the FBI only has 200 more agents now than it had back in 1999. It's not just a question of allocating agents from criminal programs to counterterrorism programs. It's really substantially enhancing not just the numbers, but the training, the expertise, the continuity of people in that particular program.

I'll give you examples that have nothing to do with people. The technical support center, which the Congress actually authorized in 1995 -- the purpose of that center was to create a domestic civilian law enforcement facility where we could use technology to solve encryption problems, to solve digital telephony problems, et cetera, et cetera.

But the purpose was to give us and our state and local counterparts a counterterrorism civilian technical ability, in those cases. It wasn't funded until after September 11th.

FREEH: CALEA was never funded fully after 1994. Example and example of that, which doesn't mean -- and there is nobody more respectful of the budget process than myself, perhaps you -- I know how the budget works and I'm not blaming anybody for not getting these resources.

HAMILTON: I understand that.

FREEH: What I'm saying is that we weren't focused on them the way we are focused on them today.

HAMILTON: I appreciate that approach.

And I listened to a lot of reports from commissions when I served in the Congress and one of the advantages the commission always has over the Congress is we don't have to worry about raising the money. We can just make the recommendations to spend it. And there is a big difference, of course.

A final question relates to the broader responsibility.

Director Mueller has made the pitch over and over again, and he's done it very effectively, that the FBI is changing its focus from law enforcement to the prevention of terrorism. And everybody, of course, nods their head in agreement. That's exactly what ought to be done.

This question goes a little outside the commission's responsibility. But you mentioned a moment ago that we really have not had a large increase in agents. So what's happening is we're shifting a lot of resources, money and agents, from law enforcement, from criminal prosecution to terrorist prevention. And in the environment of today's world, that makes a lot of sense to most of us. But do you worry, then, that the FBI is going to lose its effectiveness in law enforcement, in criminal prosecution?

FREEH: Well, that's an excellent question. I guess I don't believe that investigations are inconsistent with prevention.

FREEH: I subscribe to the theory that Mary Jo White and I testified to before the Joint Intelligence Committee, and which actually the court of review, in its November 18th opinion noted, investigations do lead to prevention. I don't think there's a dichotomy between them. Manila Air, the millennium, the day of terror in New York were all preventions as a result of good investigation.

So I think that's a false dichotomy between investigations and prevention. If you're doing good investigations, you're developing informants, cooperating defendants like Omar in the Trade bombing case. You are creating a database, you're sharing intelligence with other people.

I do think there's a great danger in taking people off investigations that aren't, again, case- or defendant-specific but are enterprise-specific and, you know, when agents are off the streets, as my bias perhaps as a street agent, they're not making informants, they're not developing sources.

September 11th, had we had the right sources overseas or in the United States, could have been prevented. We did not have those sources. We did not have that telephone call. We didn't have that e- mail intercept that could have done the job. You get that by having sources and you get sources by good investigations. You also prevent terrorism in that regard.

HAMILTON: Thank you, Mr. Chairman.

KEAN: Congressman Roemer?

TIMOTHY J. ROEMER, COMMISSION MEMBER: Thank you, Mr. Chairman.

Welcome, Director Freeh. Nice to see you. And I want to just express my appreciation to you and your family for the sacrifices you made while you served as FBI director, and also for your attention here today.

You probably paid attention to the last several weeks of testimony before the 9/11 commission. We had somebody here by the name of Mr. Clarke and somebody here about a week later called Dr. Rice. They didn't agree on much. They didn't see eye to eye on much. They didn't share many of the same opinions.

They did agree on one thing, and that was that the FBI could have and should have done a better job than they did leading up to 9/11.

ROEMER: I want to point out two instances where we may have had an opportunity to do something about 9/11. Now, I haven't come down on any kind of conclusion whether 9/11 was preventable, but let me throw these out to you and ask you to carefully respond to them.

One's the Phoenix memo, which I'll get to. The other is an instance where you have just talked about the informants of developing informants -- getting information, sharing information.

We had an opportunity where we had two of the hijackers have numerous contacts with an active FBI informant. Out of the 19 hijackers, two of them have active contacts with an FBI informant.

Doing the right kind of things, developing that informant, sharing information ahead of time from 9/11, the right kind of training for an FBI agent; why wouldn't this have made a difference leading up to 9/11?

FREEH: OK, let me give you a careful answer. And again I don't know all the facts except again as you note, you know what I've been reading and listening to.

You know, the presence of those two hijackers in San Diego and their intersection with the informant, obviously, you know, a very fruitful opportunity for exploitation -- intelligence information, maybe in the best of all circumstances, leading to prevention.

FREEH: It would have been helpful for the FBI at that particular point in time to know the names of those two individuals, that the information which was generated in the January 2000 physical surveillance -- not by the CIA, but by a liaison agency -- if that information and the initiation for that surveillance, which were phone calls to a central number, which you're well aware of, which plays an integral role not only in the East African bombings case, but also in the Cole investigation, the, you know, June meeting, when three but not all of the photographs were disclosed to FBI agents, and the subsequent description of those events -- if all of that had worked the way it could have worked and that informant, as well as informants all over the FBI's domain, were tasked to find out information about two specific people, you could have had a completely different result.

Now, some of that's speculation, but some of it is theory.

ROEMER: Later on we'll ask representatives of the CIA and the FBI whether or not that meeting in Kuala Lumpur should have led to the sharing of some of that information and those names.

Let me ask you another question. Here is a declassified copy of the Williams memo. And you said in an answer to a previous question that you thought things might have been handled the proper way.

This agent asked that two things be done. One, that the FBI should accumulate a listing of civil aviation universities and colleges around the country and share these with the appropriate liaison; and, two, that the FBI should discuss this matter with other elements of U.S. intelligence community.

ROEMER: Neither one of those is done.

Now, I agree with you, this is not the road map to 9/11, but it's certainly asking to do two things to New York and headquarters. Neither one of them are done. Why not?

FREEH: Well, I don't know. I can't answer that obviously for the time and space reasons that are obvious.

I can speculate on it. And what I would say is that the simple fact -- or the apparent simple fact -- of getting from all of those civil aviation schools around the United States -- you know, names and identifying information of those students -- first of all, you would have had to overcome a couple of federal statutes that prevent educational institutions from giving that information out without a subpoena or a grand jury request.

Assuming you could have done that...

ROEMER: But Mr. Williams didn't do that in Phoenix, did he? I mean, he found out the trend in Phoenix without having to go around a statute or a law, right?

FREEH: Well, yes. But what he's asking for is a national investigation that would direct itself to thousands...

ROEMER: He's asking them to task...

FREEH: ... and thousands and thousands of students who are from Arab countries who are taking flight lessons in the United States.

I don't -- again, I wasn't -- I'm not privy to the information your staff is privy to. From what I've read and heard and talked to, I don't see how that memo, unfortunately, gets you to prevent the horror of September 11th. I just don't see it in any logical, nonspeculative way.

ROEMER: I'm not sure that it prevents 9/11 either, but it sure points out two or three things that could have been done more efficiently.

Thank you, Mr. Chairman.

KEAN: Our last questioner will be Senator Gorton.

SLADE GORTON, COMMISSION MEMBER: Mr. Freeh, you heard just before your testimony the staff report on matters relevant to this hearing. The facts outlined in that staff report are almost certain to find their way into our final report unless someone shows us that in some part they are irrelevant.

GORTON: I want to read you the one paragraph, it was the subject of Bob Kerrey's question, and ask you whether or not it is accurate.

The staff report reads, "The FBI's inability or unwillingness to share information reportedly frustrated White House national security officials. According to the former national counterterrorism coordinator Richard Clarke, the National Security Council never received anything in writing from the FBI whatsoever.

Former Deputy National Security Adviser James Steinberg stated that the only time that the FBI provided the National Security Council with relevant information was during the millennium crisis. Clarke told us that Attorney General Reno was notified that the National Security Council could not run an effective counterterrorism program without access to FBI information."

Is that a correct characterization?

FREEH: I don't think it is.

I can't speak for the frustration of other people, but with respect to sharing information, you know, I didn't provide written memos to Sandy Berger or the president or anybody else at the NSC, but as I said before, the attorney general and I, every two weeks, almost like clockwork in the last 14 or 15 months of our overlapping tenure, sat with Sandy Berger in his office for at least an hour, perhaps two hours, and went over every single piece of counterterrorism, counterintelligence case that we have.

By the way, Dick Clarke was never present at any of those meetings. Why Sandy Berger didn't want him there, I don't know.

But we had detailed discussions of all those matters on a bi- weekly basis. So the notion that we weren't sharing information is, as far as I am concerned, an incorrect characterization. GORTON: The FBI is a unique institution in the United States of America. You had a fixed term. Because of various activities under your predecessor, J. Edgar Hoover, and attempts, sometimes successful, in earlier administrations to use the FBI for political purposes, there seems to be a certain divorce or distance between the FBI and the White House.

Did you feel an ability to go to the president of the United States or to someone else in the White House during the Clinton administration, freely? Did you feel that the White House felt free to contact you and communicate with you and ask you for information, in a normal manner, outside of the realm of politics, during the Clinton administration? How many people in the White House did you ever see or communicate with?

And then would you answer the same question with respect to the current Bush administration?

FREEH: Yes, I will. I don't feel that I had any restriction or any prohibition or -- certainly no reluctance to discuss and communicate with anybody appropriately in the White House, in the State Department and the Defense Department, with respect to any of the matters we've been talking about today, or any other FBI matters.

There was certainly no distance or separation between the attorney general and I.

FREEH: And we had -- I had in both administrations I think the same relationship. I never felt any restrictions or inhibitions about communicating things. I don't think they did either. And they never expressed any to me at the time.

GORTON: One final question like the first question; another paragraph in the staff report.

"The Department of Justice inspector general found that when the FBI designated national and economic security as its top priority in 1998, it did not shift its human resources accordingly. According to another external review of the FBI, by 2000 there were twice as many agents devoted to drug enforcement matters as to counterterrorism. On September 11th, 2001, only about 1,300 agents, or 6 percent of the FBI's total personnel, worked on counterterrorism."

Are those accurate statements of fact?

FREEH: No, they're accurate but, again, I think they have to be balanced with the discussion we've had here today about resources.

And with all due respect to the congressional appropriation process, in 2000, which was the last counterterrorism budget year that I testified for, you know, I asked for $860 million -- I'm sorry, $360 million, 890 positions. I got five positions and $6 million. You can't fight a war with those kinds of resources.

So your report is accurate. I would hope the commission would expand a little bit on the executive director's brief, although accurate, statements about resources and legal authorities.

GORTON: Thank you, Mr. Freeh.

Thank you, Mr. Chairman.

KEAN: Mr. Freeh, thank you very much. Thank you for your testimony. Thank you for your public service, sir.

FREEH: Thank you.

DARYN KAGAN, CNN ANCHOR: We've been listening into former FBI Director Louis Freeh as he testifies before the 9/11 Commission. Louis Freeh, head of the FBI from September of '93 to June of '01. He left just three months before the 9/11 attacks.

He gave a lot of testimony today referring to resources that were allotted to the FBI, especially to counterterrorism efforts and reallocation of limited resources. But the main point that Louis Freeh seemed to be trying to make, to keep in mind, he said the reality of what was the political atmosphere in the past and not judge actions by how things were before 9/11 to how they are right now.

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