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PAULA ZAHN NOW

FBI Whistle-Blowers Speak Out; Interview With Senator Charles Grassley

Aired August 17, 2004 - 20:00   ET

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


PAULA ZAHN, CNN HOST: Inside the FBI they were the eyes and ears.
(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I wanted to do a good job, to serve my country.

ZAHN: But he says his warnings were ignored.

UNIDENTIFIED MALE: Nothing happened.

ZAHN: And she says that when she found weaknesses in security...

UNIDENTIFIED FEMALE: The first reaction is, "Let's cover it up. Why are you making trouble?"

ZAHN: Tonight, the FBI's war on terror. Two whistle-blowers speak out.

(BEGIN VIDEO CLIP)

ZAHN: Good evening and welcome. Glad to have you with us tonight. Tonight we are going to explore the shadowy world of counterterrorism. Most of us know that world only from the headlines. For example, today in Britain, eight men arrested two weeks ago as part of a terror cell were formally charged. They are accused of having reconnaissance plans for American buildings and plotting to use radioactive materials in a terrorist act. But while we sometimes hear about the successes, the need to protect national security means that most of what goes on in counterterrorism is cloaked in secrecy. And that includes problems and mistakes.

Tonight, we are going to hear extensively from two former FBI employees, an agent with 16 years of experience who says he quit in frustration this summer. And a translator who, after only two months with the Bureau, claims she was fired for complaining about lax security and bad management. Whether you believe their stories is up to you. But you may find they raise a disturbing question about the agency charged with guarding Americans against terrorism at home. Has anything changed since 9/11?

(BEGIN VIDEOTAPE)

ZAHN (voice-over): After the shock of September 11th, after the mourning, after the war in Afghanistan, we learned about the missed chances. The Phoenix memo warning FBI headquarters in July 2001 about al Qaeda members in American flight training schools. Ignored by Washington. In Minneapolis, FBI lawyer Coleen Rowley complained that higher-ups in DC blocked her from pursuing the so-called 20th hijacker, Zacarias Moussaoui, a month before the attacks. And we learned of a bureaucracy that discouraged those who spoke out. In June 2002, before Congress, FBI Director Robert Mueller promised change.

ROBERT MUELLER, FBI DIRECTOR: I will not tolerate reprisals or intimidation by any bureau employee against those who make protected disclosures, nor will I tolerate attempts to prevent employees from making such disclosures.

ZAHN: Now, two years later, two more stories. Warnings ignored and allegations of retaliation against whistle-blowers. And the first of those stories tonight comes from an agent whose specialty was tracking and getting inside terrorist groups operating within the United States. He has asked us not to reveal his face.

MIKE GERMAN, FORMER FBI AGENT: I was on top of the world. These were the greatest cases, they were so much fun. I enjoyed a great reputation. I got more than I ever could have expected out of my FBI career.

ZAHN: For 16 years, Mike German was a highly regarded FBI agent working on domestic terrorism cases. In the early '90s, he successfully infiltrated a white supremacist group posing as a neo- Nazi skinhead. The Los Angeles based group was plotting to blow up synagogues and a church attended by African-Americans.

UNIDENTIFIED MALE: About a third of the building has been blown away.

ZAHN: After the Oklahoma City bombing, German went undercover again, joining a militia group that was conspiring to harm federal agents. Both cases led to prosecutions.

There was no doubt then that you were on a good track at the FBI?

GERMAN: Absolutely on a great track.

ZAHN: Then what happened?

GERMAN: I made a complaint about management in a terrorism investigation.

ZAHN: That terrorism investigation took place in 2002. German won't share specific details about the case, but government sources familiar with the case told CNN that the investigation took place in Tampa, Florida where the FBI was investigating an informant's allegations of possible ties between a domestic militia terror group and a foreign Islamic terror group. German says there were major flaws in the investigation.

GERMAN: Every T has to be crossed, every I had to be dotted for the case to be a successful prosecution. So when I saw there were serious administrative deficiencies and violations of FBI policy, in the investigation, I realized that unless this was fixed quickly, a prosecution couldn't go forward.

ZAHN: German went to the FBI managers in charge of the case to give what he calls an informal report about the problems with the investigation.

GERMAN: Unfortunately, my informal attempts to get the matter addressed didn't work, so...

ZAHN: When you say they didn't work, what happened?

GERMAN: Nothing happened. They acknowledged the problems but they didn't address them or repair them. So finally, I came to a point where I saw a very serious violation, and I reported it through my chain of command.

COLEEN ROWLEY, FORMER FBI AGENT: I never really anticipated this kind of impact.

ZAHN: After the serious problems with the Coleen Rowley case, the FBI instituted a so-called protective disclosure policy. As long as agents made their complaints in-house through the proper chain of command, they were supposed to be protected.

GERMAN: I assumed that the higher level managers would immediately take action. And the only action they took immediately was to retaliate against me. And it was immediate.

ZAHN: And you say they took that action to save their own rear ends?

GERMAN: I think it was easier for them to believe that they had one agent who was a troublemaker than it was to believe that they had serious endemic problems in the FBI in the way they were managing terrorism cases.

ZAHN: Soon after raising concerns about the terrorism investigation, German says he was removed from the case. The FBI refused to provide an on-camera spokesperson but in statement to CNN wrote "Former Special Agent Michael German's assertions that the FBI failed to pursue a promising terrorism case are untrue. Available evidence found no information to support allegations that the subject was involved in terrorism or terrorist funding, nor was there an apparent link between a domestic terrorist organization and an international terrorist organization." The letter goes on to say, "The inspections did detect certain performance issues relevant to the administration of the investigation. These performance issues were documented and steps were taken to address them."

Now the FBI is telling CNN that the two groups you were investigating were not connected in any way and you didn't understand the whole story.

GERMAN: I do find it ironic that they're saying that I didn't have all the information. Because at this point, they are at least admitting that the investigation itself was flawed. I was the one who reported that it was flawed. Yet none of the managers of that flawed investigation were ever held responsible.

ZAHN: German also claims he was shut out of a second terrorism investigation because of his complaints. He says his phone stopped ringing. He was no longer asked to participate in training. No longer asked for his opinion. In effect, frozen out of his job.

GERMAN: I expected some people, especially the people I complained of, to be very upset with me. And I wasn't surprised that they had animosity for me. I was surprised that they were allowed to actually take actions and to say things about me in official documents that were meant to impact my career and to harm my career.

ZAHN: But what would have been so harmful about addressing your concerns internally? What was the big deal?

GERMAN: You would have had to hold somebody responsible. And, you know, that's the problem in the FBI is nobody is held accountable.

ZAHN: German says he took his concerns by way of e-mail to FBI Director Robert Mueller. Now, remember the director was the one who just seven months earlier had said:

MUELLER: In terms of putting out the message that I want people to tell me what's happening wrong, what is wrong in the organization, institution, and I want the suggestions.

ZAHN: Despite that promise, German says Director Mueller never responded to his complaints.

Do you blame the head of the FBI, Mr. Mueller?

GERMAN: I don't hold any animosity towards anyone. I think he has a very difficult job to do.

ZAHN: But he could have made a difference.

GERMAN: But I made him aware of it, and nothing changed in my life.

ZAHN: He could have made a difference.

GERMAN: Things got worse. I believe he could have made a difference. I believe -- you know, I believe management in the FBI is very--run very much from the top. And if a top-level manager, not just the director, the assistant director, had called down and said, leave him alone, the retribution would have stopped right away. The retaliation would have stopped.

ZAHN: Earlier this year, German felt it was time to go outside the FBI with his concerns. He wrote a letter to members of Congress. CNN obtained the letter from congressional sources. German writes in the letter, "Unfortunately, the reality is that the protected disclosure procedure has allowed FBI managers to falsify the record, cover up their mismanagement, and avoid responsibility for their failure to pursue proactive terrorism investigations to the detriment of our national security mission and in contradiction to public statements of reform within the FBI." The Senate Judiciary Committee has requested records from the FBI about the case. So far, it's received nothing.

GERMAN: Everything that I did is documented. The FBI has the documents. The Department of Justice, the inspector general has the documents. Congress has requested the documents and they haven't been turned over. If these documents exonerated the FBI and proved me wrong, how long do you think it would have taken the FBI to turn the documents over?

ZAHN: The Justice Department's inspector general is currently investigating how the FBI handled German's complaints and whether the bureau retaliated against him.

Do you think you ultimately will be exonerated?

GERMAN: You know, I'm not even interested in being exonerated. When I joined the FBI, I wanted to do a good job to serve my country. And that's all I was interested in. You know. I just want to serve my country. And I did the best job I could do for 16 years. And I am in the impossible situation where serving my country requires me to walk away from the FBI and tell this story so that the public will know what's really going on. The terrorism cases are continuing to be mishandled.

ZAHN: And when we come back, more troubling allegations from another former FBI worker. Did fighting terrorism take a back seat to budget battles?

UNIDENTIFIED FEMALE: We were told to stop working and let it pile up because two months from now, we are going to get increased budgets, instead of $70,000, you're going to be making $78,000. And we are going to increase the department and the numbers of translators.

ZAHN: Then a senator who oversees the FBI will give us his perspective.

SEN. CHARLES GRASSLEY (R), IOWA: Any place in the U.S. government bureaucracy, FBI or otherwise, whistle-blowers are about as welcome in the bureaucracy as a skunk is at a picnic.

ZAHN: And later, reaction from a former assistant director of the FBI. All that coming up.

(COMMERCIAL BREAK)

ZAHN: We are focusing on whistle-blowers in the FBI's war on terror tonight. We just heard the story of former FBI agent Mike German who says the Bureau retaliated against him after he complained about the management of a terrorism investigation. Joining us now from Iowa City, Iowa is Republican Senator Chuck Grassley. He is on the judiciary committee which oversees the FBI. Welcome, always good to see you, sir.

GRASSLEY: Glad to be with you, Paula.

ZAHN: I know you're familiar with Mike German's story. Is it credible?

GRASSLEY: Well, I think you've got to look at 16 years of an unblemished record working for the FBI. I have no doubt, no reason to doubt his credibility.

ZAHN: Do you believe, then, he was retaliated against by the FBI?

GRASSLEY: You have to remember about whistle-blowers, not only in the FBI but all over the government bureaucracy, they're about as welcome in the bureaucracy as a skunk is at the picnic. And yes, he was retaliated against. What the general approach of any bureaucracy, including the FBI, is to deny there's a problem. And remember, he pointed out a very big problem with this investigation. Deny the problem. Shoot the messenger and try to move on and think people won't think about it.

ZAHN: Do you have proof he was retaliated against?

GRASSLEY: You know, when you talk about absolute proof about being retaliated against, that's very difficult with the ability of the FBI to cover up and to not tell the whole story. All I can say to you, this fits in with a pattern that we've run into with other whistle-blowers.

ZAHN: I wanted to re-read part of the statement from the FBI which said that it did an exhaustive investigation and found no information to support Mr. German's assertions that the FBI actually botched a promising terrorism case. Have you been able to look at any of the evidence yourself or review it to assess whether Mike German was on to something here?

GRASSLEY: No, but everything that he has told my staff sounds very credible to us. But most importantly, remember the unblemished record that he had. He has been very important in past cases to help the FBI make a case.

ZAHN: How does this affect the overall war on terror?

GRASSLEY: Well, if you've got evidence that we have a possible terrorist group, and they're doing cooperation with a militia group, and militias were--have been a problem in the United States a long time before we had attacks from terrorism. If you get them working together it seems to me it ought to raise a big red flag of dangers to our people. The FBI is in the front line of the war on terrorism. This isn't the only time we've found them not being well-prepared to take on terrorism.

ZAHN: Senator Grassley, if you wouldn't mind, please stay with us for a moment as we hear from a second former FBI worker. You may find her allegations even more disturbing than Mike German's. (BEGIN VIDEOTAPE)

ZAHN (voice-over): This is Sibel Edmonds. An American citizen born in Iran and raised in Turkey, who is fluent in three Middle Eastern languages. Soon after 9/11, she was hired as a translator to help the FBI sift through thousands of pages of foreign documents seized before and after the terrorist attacks. But she claims what she saw in her department: lax security, unqualified workers and management problems, puts the United States in a vulnerable position.

(on camera): So from your perspective, we are in no better shape today based on what you witnessed in the translation department, to fight terror than we were on September 11th, 2001?

SIBEL EDMONDS, FORMER FBI TRANSLATOR: Correct. As far as the FBI's translation units and intelligence gathering units are concerned, absolutely.

ZAHN (voice-over): Edmonds says that in her department, getting the work done was not as high a priority as getting more money from Congress.

EDMONDS: In order to do that, they had they had to show the number of pages of backlog and the number of audiotapes that had not been translated. And in order to increase that number, we were told to stop working and let it pile up because two months from now, we are going to get increased budgets. Instead of $70,000, you're going to be making $78,000. And we are going to increase the department and the numbers of translators.

ZAHN: So you were asked to stop working to help build the case for increased budgets?

EDMONDS: In November 2001, yes. That was when they were going to present the Congress with this backlog.

ZAHN: She also claims some translators were not properly qualified for the important positions they held.

EDMONDS: Certain translators were hired despite the fact that these translators had failed all given proficiency exams. Because either they had a family member working for the Bureau, or they had a close friend who worked for the Bureau. One translator who failed all these proficiency exams was sent to Guantanamo Bay for two months. This person did not even speak the most elementary level English. Now we were supposed to receive possible future threats (ph) from these detainees. We were there to decide who to detain longer or who to prosecute or who to release. Now, you have your translations done by people who are not qualified, therefore, your evidence is tainted. And therefore, the information received or not received is highly questionable.

ZAHN: And this highly questionable information was supposed to be used by field agents around the world to thwart future terrorist attacks.

Based on what you witnessed when you were a translator at the FBI should those agents be trusting these translators?

EDMONDS: Theoretically, yes. If the Bureau, let's say for the FBI, if they observed all the rules in terms of hiring these translators, conducting background security checks for these translators and giving them these proficiency exams and making sure that these translators are qualified. Then, yes. Unfortunately, this is not the case.

ZAHN: Edmonds says she also went to her supervisors about an FBI colleague, a woman she claims who had a connection to a group on an FBI watch list.

EDMONDS: Well, this particular translator was hired by the Bureau and was granted top secret clearance. A few months after she was hired the agent in charge of her translation unit realized that translation to certain targets of FBI, hundreds of pages of translations, were all marked as not pertinent to be translated. So the agent decided to double-check and find out if actually there was some pertinent information there that was blocked. And sure enough, there were many. Well, how many others are there? And how can we rely on this information, this intelligence, these chitchats they are referring to, when some of the people in charge of gathering and translating these intelligence, these pieces of intelligence, are in fact working with or working for or having a relationship with targets of investigations?

(END VIDEOTAPE)

ZAHN: And later, we'll have the FBI's response to her allegations. And we'll see what happens when Sibel Edmonds confronts authority and earns a reputation.

(BEGIN VIDEO CLIP)

EDMONDS: Why are you making trouble?

Just do the work, and this is the way it is. Just accept it.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAHN: Republican Senator Chuck Grassley is with us as we continue the story of Sibel Edmonds. She is a former FBI translator who said she was fired after just 52 days after warning higher-ups about her department's handling of the war on terror. Edmonds says her bosses hired unqualified translators, insisted she let work pile up to make it look like more translators were needed, and ignored warnings about a co-worker who Edmonds said was connected to a group on an FBI watch list.

(BEGIN VIDEO TAPE)

ZAHN: Edmonds said she brought these issues to the attention of her supervisors. Unhappy with the lack of a response, she decided to go further up the chain, eventually bringing her concerns to members of Congress. But instead of being commended by the FBI for pointing out problems with the department, Edmonds was terminated in March 2002 "for the Government's convenience."

Why were you fired by the FBI?

EDMONDS: To this date, I have been trying to understand.

ZAHN: She says she was singled out for being a whistle-blower. An action that would seem to contradict what FBI Director Mueller has promised about cleaning up the FBI and providing whistle-blower protection.

So you were viewed as a troublemaker from the first day you went public within the FBI community with your concerns?

EDMONDS: Absolutely. And in fact, they would say it. They would voice it that way. "Why are you making trouble? Just do the work, and this is the way it is. Just accept it."

ZAHN: Edmonds says her claims are documented. It's just that those documents are classified. She says her story has been verified by members of Congress. FBI Director Mueller himself confirmed some details of the inspector general's classified report on the case. In this letter to Congress obtained by CNN.

In the somewhat contradictory letter, Mueller writes, "I was pleased that the OIG did not conclude that the FBI retaliated against Ms. Edmonds," but at the same time, expresses concern about the Inspector General's conclusion that Ms. Edmonds' allegations "were at least a contributing factor in why the FBI terminated her services." Mueller then asked for help from the Inspector General "to determine whether any discipline of FBI employees would be appropriate based on his investigation." She has sued to get her job back but in an unusual move, the government asserted the state secrets privilege to protect certain classified information. As a result of this action, her court case was dismissed last month in the interests of national security.

EDMONDS: On Tuesday, July 6th, 2004...

ZAHN: And because of that, she says, the FBI has stopped discussing the case.

EDMONDS: They keep saying "no comment." Please try, Paula. Just give them a call and say, "I would like to get your comments regarding this issue that's been confirmed by the Senate regarding Sibel Edmonds' case, and you're going to get this sentence: "No comment."

ZAHN: We did contact the FBI. And in a written response to our request for an interview, the Bureau said, "Sibel Edmonds, a former part-time contract linguist who worked for the FBI approximately 52 days over a six-month period has made several allegations. Due to pending legal matters and classification issues, the FBI is unfortunately precluded from responding to her allegations."

What have you learned from this experience?

EDMONDS: That things are not the way they're supposed to be in theory versus what they are in practice. I also have learned that truth and pursuing the truth and pursuing what is supposed to be right is not what matters.

(END VIDEO TAPE)

ZAHN: And we turn again now to Republican Senator Chuck Grassley, a member of the Judiciary Committee which oversees the FBI. Welcome back, sir. I know you were very familiar with Sibel Edmonds' claims; you've also spoken with the FBI directly about those claims. What do they tell you?

GRASSLEY: Well, first of all, my staff has been briefed by FBI people on this case. And they've told my staff a lot of things that now they want to have classified. And it can't be talked about in the public domain. It seems ridiculous to me that the FBI would brief my staff about this case and have the information out there in the public domain, and then two years later, classify it so it can't be talked about. It seems to me that just that action in and of itself shows that there's something wrong with their case against Ms. Edmonds. That's very embarrassing to the FBI. And the FBI can't stand to be embarrassed.

ZAHN: But what is at stake here? What would be the difficulty internally of taking this information, investigating it, and if there is a problem, fixing it?

GRASSLEY: Well, of course they would say that they would do that. But she obviously ran into a stone wall when she attempted to get that information out there and get it corrected.

ZAHN: So there is no doubt in your mind, then, Senator, that Sibel Edmonds was fired because she was a whistle-blower?

GRASSLEY: Well, I think the director, in his letter to us, even though it's very contradictory, indicated to us that, one of the reasons she was fired was because of her whistle blowing. That's quite an admittance.

And this comes from a person who a long time ago promised me in a hearing that there wasn't going to be retaliation against whistle- blowers. I'm still waiting for Director Mueller to institute that policy he told me about, that whistle-blowers were going to not ever be retaliated against.

ZAHN: Why don't you think he has implemented those changes that he promised?

GRASSLEY: Well, I think it's an institutional problem that predates Director Mueller. And it's a problem that the FBI headquarters are always entering into big cases.

If they would let the people that work for the FBI do their job, in the common sense approach most Americans take, then they'd never get egg on their face. But their judgment always is to interfere.

And the sad thing about it, Paula, is this: the FBI is in the front line on the war on terrorism. The war on terrorism is a war of prevention, not crime solving. It's not a Bonnie and Clyde sort of approach that they've used for 60 years.

If they don't do their job, we're going to lose the domestic war on terrorism. That's why it's so important that all these documents be translated in a correct manner. It's the information that we need to protect the American people.

ZAHN: Bottom line, what is it going to take to make the changes that you think are necessary? I know you said the agency should be turned upside down to make sure these kinds of things are not ignored.

GRASSLEY: We need a president of the United States that will hold a Rose Garden ceremony honoring whistle-blowers so the signal is sent from the top-most parts of government to the lowest bowels of the bureaucracy, that whistle-blowers are an important source of information, and in our massive government we need that information for things to go right and to make sure that wrongs are corrected.

And I've said that to every -- to several presidents. Not just President Bush. But that's what needs to be done.

ZAHN: Have you lost faith in this Republican president to do just that?

GRASSLEY: No, I haven't lost faith in his desire to do it. Maybe I haven't done a good enough job of convincing him get.

But I don't care whether I convince a president or not that they ought to have a Rose Garden ceremony. I'm still going to do my job of protecting whistle-blowers, because I think they're patriotic people.

More importantly, I couldn't do my job of congressional oversight, which is a constitutional responsibility, to see that the laws are faithfully enforced if I didn't have information coming to me from those people that know where the skeletons are in the closet, and those are the whistle-blowers.

ZAHN: Senator Chuck Grassley, we've got to leave it there this evening. Thank you so much for your time.

GRASSLEY: Thank you.

ZAHN: And coming up next, we will ask a former assistant director of the FBI for his opinion on what we've heard tonight.

We'll be right back.

(COMMERCIAL BREAK)

ZAHN: So we have now heard the stories of two FBI whistle- blowers tonight. One, an ex-agent who says his higher-ups ignored his warnings. And the other, a former translator who said she was fired for telling her bosses about problems within her department.

Joining us now from Wilmington, Delaware, James Kallstrom, former assistant director of the FBI.

Always good to see you, sir. Welcome.

JAMES KALLSTROM, FORMER ASSISTANT DIRECTOR, FBI: Thank you, Paula.

ZAHN: I wanted to start off by having you react to some of what Senator Charles Grassley had to say earlier in the broadcast when he basically said, the FBI's approach to problems that are raised is either to deny them, or turn the other way.

Here's his exact quote: "The general approach of any bureaucracy, including the FBI, is to deny there is a problem, deny the problem, shoot the messenger, and move on and think people will not think about it."

How do you respond to his very harsh allegations here?

KALLSTROM: You know, Senator Grassley is a good man. I know him well. And he sees it from his point of view. He sees it from, you know, the whistle-blowers' letters and statements.

And of course, the government, the FBI, has a blanket thrown over them, Paula. So they really can't respond to it. I think he probably wouldn't say that if he didn't believe it. But I don't think it's anywhere near the case, actually.

ZAHN: But do you believe in the environment today at the FBI whistle-blowers are protected?

KALLSTROM: Well, when I was there for 28 years and I guess in the last five or six years when I was the head of the New York office, I had some experience in that area. And my answer is, yes.

But I can also tell you, Paula, I don't know either of those cases or either of those people.

I had a few instances myself with whistle-blowers. And I can tell you that anyone can make up a good story and write a good letter and put together some things that might sound one-sided, when no one can respond, might sound legitimate.

But I never saw one that was totally legitimate. Always -- There's always people that don't do things right at some level.

But the organization itself, to not want to investigate terrorism, or not want to take care of a situation that really needs it taken care of, that just doesn't happen in my experience.

ZAHN: So that all of your years at the FBI, you're telling me tonight you have never seen a legitimate case by a whistle-blower?

KALLSTROM: I've seen legitimate cases where people have grievances. But not, you know, not all the way up the chain of command. Not where the institution itself by policy, you know, looks the other way. That's what I mean by that.

ZAHN: But James, in spite of some of the changes that have been made at the FBI, which is supposed to give whistle-blowers more freedom to tell their stories once again, Senator Grassley basically saying is what you still have today at the FBI is this environment of covering one's rear end.

KALLSTROM: Well, look, you know, it's human nature not to be embarrassed. I guess, but I can tell you that it's not the policy of the organization. It wasn't the policy of the New York field office when I was in charge. And you know, being involved with bob Mueller now on the senior staff at the FBI, I know it's not the policy there either.

ZAHN: As you know, the 9/11 Commission found a number of deficiencies at the FBI. What do you think is the biggest challenge for the FBI in this post-9/11 environment?

KALLSTROM: We have glaring deficiencies in our system. We've got an FBI the morning of 9/11 had a straitjacket on. We had a wall between information sharing that was as high as you could build it, where people in the agency couldn't talk to people in the bureau. FBI agents couldn't talk to each other one desk away.

We didn't take this seriously, although many in the FBI did, myself included, for two decades. I can tell you there's a lot of patriotic -- thousands of people that work long hours to do the job. And when you don't have the tools to do that, prior to the Patriot Act, the common sense bill to give them the tools to do their job.

Now you're seeing I think tremendous strides in the FBI. Not because the people have changed but because the policies have changed.

ZAHN: How would you characterize where the FBI stands tonight in the war on terror?

KALLSTROM: In a lot better shape than they were prior to 9/11. Not because of the people, not because of their patriotism or their work ethic. But because we realized they needed tools to do their job.

I think now that the bucket of cold water, 9/11, hopefully it's a cold enough bucket, was thrown on the government and thrown on the country, a lot more resources, better tools, the Patriot Act, more priorities, better cooperation around the world. And I think you see the successes of that.

We have a long way to go. I think we're in a lot better shape than we were.

ZAHN: And finally tonight, let's come back to the issue of whistle-blowers. How damaging do you think it is to have the specter of these two stories floating around and a leading senator accusing the FBI of turning the other way and ignoring these problems? KALLSTROM: Well, I think it's damaging. But I can -- and as I said, I don't know about the -- these cases. What I can tell you from the cases I saw, not to draw a parallel, because I don't know the facts here.

But in the cases I saw, there wasn't any standing at all that people should have been fired. But the FBI couldn't talk about that and couldn't lay out the cases.

So we give a tool to malcontents and misfits and others, not that they all are, don't get me wrong. But a good portion of them are. And the FBI suffers the morale rap and the reputation rap because of that.

So it does have a negative effect. But you know, we'll prevail. The FBI will go past that. I think the public is mature enough to realize that they're hearing, you know, one side of the story. And they're hearing it pretty loudly from a U.S. senator, who I think is well intentioned, but they're only hearing one of side of it.

ZAHN: James Kallstrom, a veteran of the FBI, thanks so much for sharing your perspective with us tonight.

KALLSTROM: Thank you, Paula.

ZAHN: We do want you to know that we tried repeatedly to reach a current representative of the FBI for a response to the allegations from former employees Mike German and Sibel Edmonds, but the bureau declined our request for an on-camera response.

We turn to a different topic, one with overtones of blackmail and sexual harassment. Allegations from the man at the center of the sex scandal that brought down New Jersey's governor right after this.

(COMMERCIAL BREAK)

ZAHN: New Jersey Governor Jim McGreevey is sticking to his announced date of November 15 to leave office, despite mounting pressure from Republicans and some New Jersey Democrats to step down sooner.

The man at the center of the sex scandal has returned home to Israel, and today spoke out for the first time, though he refused to give any details of the alleged harassment.

Golan Cipel's attorney, Allen Lowy, joins us now.

Welcome. Good to see you.

ALLEN LOWY, GOLAN CIPEL'S ATTORNEY: Thank you.

ZAHN: Your client is in Israel tonight. Does he plan to come back to the United States?

LOWY: He plans to come back.

ZAHN: Did you advise him to flee the country?

LOWY: No, no, no. He -- first of all, he didn't flee the country. If he's required to come back sooner than he plans, which is soon as it is, he'll be here.

ZAHN: You maintain that you had already hammered out a deal with the McGreevey team.

LOWY: About a half an hour or less before the resignation, and we had no idea there was a resignation, you know, coming, that some intermediary from the governor's side had called me and made a suggestion to me. And in terms of settlement, there were certain items discussed.

And I spoke to Golan and I said, "Look, you can decide now if you want to settle this thing or if you want to move forward."

And Golan said, "Whatever it is that they're suggesting, we'll just do it." And we -- we accepted their offer. We never made any proposals to the governor or the governor's aides in terms of how to settle this thing.

ZAHN: The McGreevey camp says that's absolutely absurd, that that is a lie, that they never agreed to my deal. In fact, they accuse you all of trying, or your team of trying to extort money from Mr. McGreevey.

LOWY: On July 23, I phoned the governor's office. And I left a message for his secretary, saying that I was Allen Lowy calling for Golan Cipel as his attorney. And that's all I said.

And a few minutes later the governor's chief counsel phoned me and asked me what this was about. And I told him there were serious allegations against the governor for sexual harassment and assault.

And he asked if we could meet, and we met. We met several times. And I never made any proposals for settlement. This was never about money. This was about justice. Golan wanted to be able to resolve this matter through the courts and be able to put the matter behind him and move on with his life.

ZAHN: Why did he put up with it so long, if we buy into your story that these alleged indiscretions happened?

LOWY: Right, right. Right. Well, these -- these assaults, this harassment, happened over a period of time, since the transition, after the governor won the election, right through the summer of 2002.

ZAHN: So why didn't he come forward with it before?

LOWY: Well, you're dealing with -- with, on the one side, you're dealing with a very powerful politician who has said and has told Golan that he's the most powerful governor in the United States. It's intimidating.

ZAHN: So you're telling me he was so desperate to keep his job that he didn't even consider when the harassment started, or when the alleged sexual assault started, even going public with it or making a complaint about it?

LOWY: I don't know whether he, you know, considered going public with it while it was happening. But he rejected the governor's advances. He had a -- conversations with the governor and said, "You can't do this."

And I think he may have felt it was going to stop, or that he would avoid being in the same, you know, in a situation which could, you know, lend itself to being harassed, being assaulted. So -- And it didn't happen every day, you know. There wasn't a daily occurrence.

ZAHN: Are there witnesses to this alleged abuse? To this harassment?

LOWY: Well, what I can say is that -- and what I have said is that there is corroborative evidence, including witnesses. I cannot tell you at this point what they had witnessed or whether they witnessed particular incidents. But there are witnesses.

ZAHN: In your judgment, what is the decision your client has to make about whether in fact he should go ahead and file this lawsuit?

LOWY: I really am not sure that I can -- I know the answer to that question. And I'll tell you why. Because a lot of things have changed since the resignation.

And it could turn out that in the short period of time when Golan has been able to collect himself, collect his thoughts, that he'll decide that that was enough, that he doesn't want the governor to suffer.

He wanted contrition. He wanted an apology. He wanted the governor to own up to what he had done. And perhaps he'll decide that, you know, he's not interested in proceeding, that he has seen some justice.

ZAHN: And of course, we need to close on this note, that Governor McGreevey's team says none of this is true, what you allege here tonight. But we'll let people come to their own reasoned decisions about all this.

LOWY: Right.

ZAHN: Allen Lowy, thank you for your time tonight.

LOWY: Thank you. Thank you.

ZAHN: And in a moment, we'll be back with a preview of tomorrow's special edition of PAULA ZAHN NOW. We'll be talking with voters in a Midwestern state that could be do or die for the presidential candidates. Right after this.

(COMMERCIAL BREAK) ZAHN: Tomorrow, we will be with you from the heart of battleground state of Ohio, a state which could decide the upcoming presidential race.

We will come to you from Canton for a special town meeting with 200 likely voters, many of them, the very undecideds who could tip the race. They will have a chance to ask questions of members of both of Bush and Kerry campaigns.

Tonight, Tom Foreman looks at the fight for those undecideds and the issues that are most important to them.

(BEGIN VIDEOTAPE)

TOM FOREMAN, CNN CORRESPONDENT (voice-over): With nearly 250,000 jobs lost, more than 5,000 citizens fighting in Iraq, and a serious split in public opinion, Ohio has become one of the most critical battleground states.

RICK FARMER, UNIVERSITY OF AKRON: Ohio's very much like the country, and Ohio is very polarized, just like the country is.

FOREMAN: And squarely divided Stark County, south of Akron, may be the tipping point. Here, the leading employer plans to close three plants which make precision bearings, dropping 1,300 jobs. Timken says that will keep other divisions growing, other jobs safe.

JIM GRIFFITH, PRESIDENT & CEO, TIMKEN: The only job security is producing something that's of value to your customer.

FOREMAN: But that's no comfort to workers facing unemployment.

BRIAN VERDOORN, TIMKEN EMPLOYEE: Ohio's going to have to find something else at this point, because we're losing the manufacturing jobs. They're going elsewhere.

FOREMAN: On other issues, the divide runs just as deep. Brian Sarver is in Iraq, and his wife Kimberly, even taking care of six kids, is so proud.

KIMBERLY SARVER, HUSBAND SERVING IN IRAQ: I think it's awesome. I think it's awesome to fight for your country.

FOREMAN: But Rebecca Jones' brother is fighting too, and she is so scared.

REBECCA JONES, BROTHER SERVING IN IRAQ: We're losing too many. We're tired of seeing our loved ones being hurt and not come home.

PAUL SRACIC, YOUNGSTOWN STATE UNIVERSITY: I think voters here and elsewhere in Ohio are looking for anything solid to kind of hang their vote on. And that's kind of been the problem.

FOREMAN: The battle for Ohio is coming down to which reality more voters are living: the dire headlines, closed factories, and losses in combats, or the shiny new malls, growing suburbs, and a winnable war.

And the presidency may be decided by which way Ohio leans at the polls.

(END VIDEOTAPE)

ZAHN: That was Tom Foreman.

Again, tomorrow night, we'll be in the battleground state of Ohio for a special live town hall meeting.

It will be a chance for you and for Ohio voters to find out where the candidates stand on Iraq, the war on terror, the economy, jobs, health care, and education.

And if you are watching at home, you can still take part. Post your questions for the candidates' representatives on our web site now. Just log on to CNN.com/Paula. Join us tomorrow at 8 p.m. Eastern to find out if your questions are asked and answered.

We'll be back in a moment.

(COMMERCIAL BREAK)

ZAHN: And that wraps it up for all of us here tonight. Thank you for being with us tonight.

Remember, we hit the road tomorrow night. A special edition of PAULA ZAHN NOW, a town hall meeting, live from Canton, Ohio, with voters and representatives of the Bush and Kerry campaigns.

"LARRY KING LIVE" is next. Thanks for joining us tonight. Have a good night.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com


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