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THE SITUATION ROOM

NSA Surveillance Changes?; Indian Diplomatic Crisis

Aired December 18, 2013 - 18:00   ET

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


WOLF BLITZER, CNN ANCHOR: Our chief national security correspondent, Jim Sciutto, has been going through the report and its recommendations.

Give us the headlines.

JIM SCIUTTO, CNN CHIEF NATIONAL SECURITY CORRESPONDENT: Well, yes, 46 different recommendations in here ranging from new congressional oversight of the NSA to something as simple as a new special assistant to the president for privacy.

The goal here, the members of this panel say, is accountability for the NSA to the public, to the courts, to Congress. But they also say the terror threat is still real. One official said to me he's not in any way recommending the disarming of the intelligence community. They still want to give them the tools they need to fight terrorism.

(BEGIN VIDEOTAPE)

SCIUTTO (voice-over): What the panel does not recommend is dismantling the program that sparked the most controversy in the U.S., the gathering of billions of bytes of metadata of Americans' phone calls, something sure to upset the president's supporters on the left.

Instead, the panel made up of intelligence and legal experts recommends Congress pass legislation requiring phone companies to hold the data rather than being held by the NSA, and that the NSA be limited to gathering foreign intelligence on foreign targets.

SEN. PATRICK LEAHY (D), VERMONT: The message to the NSA is now coming from every branch of government, from every corner of our nation. NSA, you have gone too far.

SCIUTTO: To help restore U.S. credibility abroad, the panel suggests sweeping reforms, including striking agreements with allies such as France and Germany on what spying among friends is acceptable and what is not.

The panel says monitoring of foreign leaders by the NSA should require approval directly from the White House. The report follows a bruising meeting at the White House Tuesday with executives from the country's largest tech companies. Sources tell CNN's Jim Acosta several of those executives said they flew to Washington to voice their concern on government surveillance, hurting their bottom line abroad to the tune of $35 billion in lost business. Several were frustrated with the White House's focus on the troubled healthcare.gov site. At that meeting, sources say the president said one thing he is not considered is a pardon for NSA leaker Edward Snowden.

(END VIDEOTAPE)

SCIUTTO: I spoke to a senior administration official today who said that the administration acknowledges that they have a trust gap here, Wolf. And that's not just with American citizens, but with foreign citizens, and that that trust gap has costs. It has costs in American credibility, but also even for American businesses, those tech leaders that were in the White House yesterday talking about billions in lost business.

To address that in part, the president is planning a speech to the public, likely in January, I'm told, to explain some of these new constraints, and just to give the program some more transparency.

BLITZER: And which of these recommendations he accepts, and which he doesn't necessarily accept, he has got to review all this. I guess he can do that when he's on vacation in Hawaii over the next couple weeks.

Let me ask you about Rand Paul, Senator Rand Paul. He was here in THE SITUATION ROOM. And he said -- and I was stunned to hear this, and I'm sure a lot of folks were -- he believes James Clapper, the head of national intelligence agency, may by criminally guilty of undermining national security by supposedly lying to Congress as Edward Snowden was by stealing 1.7 million classified documents. That's going to cause some ripples out there.

SCIUTTO: No question. When you look at the people who put together this report, the panel members here, they certainly don't go that far. They're basically backing up the NSA and its reasons for doing this, saying there's a reasonable national security threat out there, that in effect they still need this power that's caused all this controversy that leads someone like Senator Paul to make that charge.

Remember, that policy is standing in place, they will just put some more restrictions on it, make it a bit more accountable, but at the end of the day the NSA will still have access to a tremendous amount of data on our phone calls, your phone calls, Americans' phone calls and many around the world as well.

BLITZER: All right, Jim Sciutto, thanks very much.

Let's get to a new move now to ban employers from checking the credit scores of job applicants. It's a Senate bill introduced by Democratic Senator Elizabeth Warren. She says many people with financial problems are victims of what she describes as discrimination in the hiring process.

Brian Todd is here. He had a chance to speak with Senator Warren today about this issue. What did you discover?

BRIAN TODD, CNN CORRESPONDENT: We did speak with her, Wolf.

Senator Warren told us many people are victimized by this practice of rejecting job applicants even if their poor credit scores are the result of just bad breaks, nothing malicious. The young woman we spoke with is convinced she falls into that category.

(BEGIN VIDEOTAPE)

TODD (voice-over): Onieka O'Kieffe recently applied for a cashier's jobs at a large department store. She had the experience, the interview went well. Because she would handling a lot of money, the store told her they would have to do a check on her credit.

ONIEKA O'KIEFFE, HAD CREDIT CHECKED BY EMPLOYER: I was certain I had the position, but my credit score hindered me from that getting that position. But they didn't tell me outright that that was the case.

TODD: O'Kieffe says she had had crippling student loans, had to open credit card accounts to help pay the bills for her family, and her credit rating suffered.

Senator Elizabeth Warren wants to make sure people like Onieka O'Kieffe don't get denied jobs because of the credit scores. Warren has introduced a new bill preventing potential employers from using credit checks in the hiring process, preventing them from rejecting you just because you have bad credit.

SEN. ELIZABETH WARREN (D), MASSACHUSETTS: Why do people have damaged credit? The principal reasons are somebody got sick in the family and they felt behind on medical bills, you lost a job and fell behind on your bills, or you have family breakup, either a divorce or a death in the family. And somebody is struggling to get back on their feet.

TODD: Errors on those reports are common. Warren says the process is unfair.

WARREN: There have been studies that show no correlation between your credit check, no or little correlation between your credit check and your ability to do the job.

SCIUTTO: But one group that opposes Senator Warren's bill, a group representing small businesses, says credit checks are important screening tools for potential employers in a way that has little to do with applicants' finances.

JEAN CARD, NATIONAL FEDERATION OF INDEPENDENT BUSINESSES: A credit check is a good way to find out if some someone has in fact been employed in a previous position that they have claimed on their application. It's a very easy check to say, OK, maybe you didn't have that job, and maybe that says something about your trustworthiness.

(END VIDEOTAPE)

TODD: Senator Warren says there's one exception in her bill. People applying for national-security related jobs, positions security clearances, would still have to go through credit checks.

Wolf, there are obviously a lot of questions to ask a new senator like Elizabeth Warren, a rising Democratic star, including questions about the rumors that she may potentially run for president. We wanted to ask her those questions, we tried to, but she declined, saying that she wants to focus on this legislation right now.

BLITZER: How much support does she have on this legislation? Does she have any bipartisan support?

TODD: We're told that in the Senate she does not have bipartisan support yet, but it's still very early in the process. She just introduced this bill yesterday. In the House, it's not clear. We have tried to reach the White House and ask them if President Obama would support it. We have not heard back from them on that.

But more than 40 civil rights groups and other organizations are applauding this bill. She's got a lot of support outside Washington for this.

BLITZER: We will see what happens. Brian Todd, thanks very much. And she is a rising star among Democrats.

TODD: Absolutely.

BLITZER: Still ahead, we're learning new details about the lead- up to the arrest of an Indian diplomat in New York and the potentially dangerous fallout for the U.S. in India. The Indian people and their government, they are slamming the U.S., calling the diplomat's treatment "barbaric."

(COMMERCIAL BREAK)

BLITZER: This just coming into THE SITUATION ROOM, a Democratic official saying President Obama is planning to nominate the outgoing U.S. Senator Max Baucus, Democrat of Montana, as the next U.S. ambassador to China.

A longtime Baucus friend and confidant speaking on condition of anonymity, telling CNN's John King the senator informed him directly that these reports are true. Baucus' term is up at the end of 2014. He's already announced earlier this year he would not seek reelection next year.

Other news we're following, including this. The Indian government is taking a potentially dangerous new step, apparently punishing the United States for the arrest and strip-search of one of its diplomats. Security barriers that protect the U.S. Embassy in New Delhi from possible terror attacks have been removed.

This escalating dispute is threatening America's relationship with one of its strongest allies. We're learning more explosive details now also about the arrest and the retaliation.

CNN national correspondent Deborah Feyerick, but let's go to CNN's Mallika Kapur. She is joining us live from New Delhi with the very latest -- Mallika.

MALLIKA KAPUR, CNN CORRESPONDENT: Wolf, here in India, people are still very, very angry. They are the seething at the treatment handed out to one of its top diplomats in New York.

And even the prime minister, who is very mild-mannered and careful with his words, he spoke out and called the incident deplorable, but a new move, the latest move by the U.S. could calm tensions.

(BEGIN VIDEOTAPE)

KAPUR (voice-over): Tonight, U.S. Secretary of State John Kerry is scrambling to unravel a diplomatic crisis, calling India's national security adviser to "express his regret" over the strip-search and treatment of an Indian diplomat by U.S. Marshals in New York.

Kerry's call came just hours after the Indian government began removing concrete security barricades from in front of a U.S. Embassy here and stripping U.S. diplomats of their I.D. cards, moves apparently timed to retaliate for the diplomat's arrest.

MARIE HARF, SPOKESWOMAN, STATE DEPARTMENT: He expressed his regret as well as his concern that we not allow this unfortunate public incident to hurt our close and vital relationship with India.

KAPUR: The sudden stalemate between the two longtime allies exploded overnight, after the diplomat, Devyani Khobragade, was arrested outside of her daughter's Manhattan school.

The U.S. says she was paying her Indian nanny just over $3 an hour, far less than the U.S. minimum wage. U.S. officials say she lied on visa documents about the woman's pay.

UNIDENTIFIED MALE: My daughter has not done anything at all. She has nothing to do with the visa process.

KAPUR: What has angered Indians is that despite having what they believe is immunity as a foreign diplomat, Khobragade was treated barbarically, stripped of her clothes, searched, and put into a holding cell with other defendants.

Today, the White House said that search was by the books.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: Now, we are looking into the intake procedures surrounding this arrest to ensure that all standard procedures were followed, and that every opportunity for courtesy was extended.

KAPUR: Her lawyer says Khobragade has pleaded not guilty. She has since posted bond and been released.

DANIEL ARSHACK, ATTORNEY: I have every expectation that she will be completely vindicated.

KAPUR: Here in India, now one government official is calling for the partners of gay U.S. diplomats to be arrested, citing India's recent Supreme Court ruling that makes homosexual sex illegal.

YASHWANT SINHA, FORMER INDIAN FOREIGN MINISTER: What the government of India can do immediately is to cancel those visas, arrest all these companions, put them behind bars.

KAPUR: U.S. Marshals Service officials stand by their strip- search procedures, saying they treated the diplomat the same way they treat everyone else.

(END VIDEOTAPE)

KAPUR: And that's precisely why India is upset, saying that that treatment is humiliating and India won't stand for it -- Wolf.

BLITZER: Mallika, I can understand the anger, the irritation on the Indian government, but removing those barricades and potentially endangering the United States Embassy and all the people who work in that embassy, U.S. diplomats, Indian nationals as well, what's behind removing those barricades, because that's a very serious and potentially endangering move?

KAPUR: Well, we asked the Delhi police that question, why have you removed those barricades?

And they explained that those barricades were put outside the U.S. Embassy more as a gesture of courtesy, to help them control traffic in that area, because those barricades meant that cars couldn't drive right up to the embassy. But it was just a bonus, an additional measure provided by the local authorities, and it was never a diplomatic requirement, and they insist that as far as diplomatic security goes, that all U.S. diplomats are perfectly safe in India, that they're not scaling back security measures for any U.S. diplomats at all.

Nothing has changed as far as their personal security goes.

BLITZER: Mallika Kapur joining us from New Delhi with the latest, thank you.

Let's get some new details now on the allegations against this Indian diplomat in New York.

Our national correspondent, Deborah Feyerick, is standing by with that.

What are you learning, Deb?

DEBORAH FEYERICK, CNN CORRESPONDENT: Wolf, we're learning that the diplomat Devyani Khobragade has now been moved to the Indian mission, where she's getting better security.

The nanny is still here in New York. She's staying with friends. She has no passport. However, the U.S. government has given her a temporary legal status, which allows her to stay here and also work here until all of this is resolved. The nanny worked for the Khobragade family for about eight months. Apparently according to her lawyer, she was working long hours, she was being well underpaid, just $3 an hour, compared to the minimum wage of $9.75.

Some critics have called this a labor dispute. However, the nanny's lawyer says it is much more than that.

(BEGIN VIDEO CLIP)

DANA SUSSMAN, ATTORNEY: The allegations are that the -- Dr. Khobragade lied to the federal government in order to obtain an A3 visa to bring her domestic worker here with no intention of paying the required wages for the hours she requested.

So it's more than just a labor dispute. And, again, the power dynamic intrinsic in all of these cases makes these situations more than walking up to your boss at work and saying, you know, I wasn't paid for that extra hour of work.

Our clients who work as domestic workers are living in the home with their employer, so if they leave, they not only leave their legal status, they leave their only source of income. They leave the only home that they have known in a foreign country. So this is more than a labor dispute.

(END VIDEO CLIP)

FEYERICK: Now, I spoke to lawyers in both, obviously nanny, but also for the diplomat.

They say that there were attempts made to try to resolve the financial aspect of this, but those attempts were unsuccessful. Meantime, the diplomat has been charged both by the State Department and the U.S. attorney here in Manhattan with one charge of making a false statement on a visa application -- Wolf.

BLITZER: All right, Deb, thank you, Deborah Feyerick reporting.

Just ahead, he claimed to be a secret agent to get out of working his day job. The stunning story of a former federal official who swindled taxpayers in a big way.

And, attention, sports fans. It may soon get easier to watch your home team on TV. CNN's Rachel Nichols is standing by.

(COMMERCIAL BREAK)

BLITZER: A former federal official is going to prison for an astounding scheme to get out of work and rip off taxpayers. He even invented a secret identity to try to get away with it.

CNN's Chris Lawrence is joining us. He has got all the details -- Chris. CHRIS LAWRENCE, CNN PENTAGON CORRESPONDENT: Yes, Wolf, basically, a lot of folks have called in sick when they felt just fine, but this lie was so big, it went for so long, and involved the intelligence community, and everyone thought it had to be true.

(BEGIN VIDEOTAPE)

LAWRENCE (voice-over): John Beale walked out of court Wednesday, a man who took being lazy to legendary heights. Now he's heading to jail after swindling the government out of nearly $1 million.

SCOTT AMEY, PROJECT ON GOVERNMENT OVERSIGHT: How does this occur in modern-day society with managers that are trying to make ends meet and budget are tight?

LAWRENCE: Beale was a climate change specialist at the Environmental Protection Agency making $164,000 a year. But he rarely came to work, and filed thousands of dollars in fake travel claims.

His bosses didn't question his frequent absence because Beale said he was actually working for the CIA. For 10 years, EPA officials believed Beale was at CIA headquarters or on some secret mission overseas. He once claimed he had to go to Pakistan to help a fellow agent in trouble. Beale was actually here hanging out at his home in the D.C. suburbs, or hiding in plain sight at his vacation home in scenic Cape Cod.

In 2008, he didn't show up at work for six months. And apparently nobody at the EPA batted an eye.

AMEY: What do you do for the CIA? Where are you going? Who's authorized it? At some point, the managers at the EPA should have been asking for some kind of proof.

LAWRENCE: No one checked Beale's story, even he took five trips to California and billed the government $57,000, claiming those flights were for -- quote -- "personal reasons."

(END VIDEOTAPE)

LAWRENCE: Well, now Beale is going to serve nearly three years in prison. He's also agreed to pay about $900,000 in restitution and forfeit half a million dollars in salary.

Meanwhile, the EPA says it's upgraded its safeguards to do more thorough checks on its employees' travel and attendance. We certainly hope they have.

BLITZER: I hope they have too.

Chris Lawrence, thanks for that amazing report.

Other news, there's a change in the works that would affect millions of sports fans who want to watch their home team on television. The FCC is moving to get rid of that long-standing rule that prevents many NFL games and other pro sporting events from being broadcast in their home markets.

CNN's Rachel Nichols is joining us now. She's the host of "UNGUARDED WITH RACHEL NICHOLS" that airs here on CNN Friday nights.

Rachel, explain what's going on.

RACHEL NICHOLS, CNN CORRESPONDENT: Well, right now, if the NFL -- say a game isn't sold out 72 hours before kickoff. They black that out in the local market, to force people if they want to watch the game, they have to go to the stadium and buy a ticket.

And this rule was enacted about 40 years ago to help prop up sports leagues. So what the FCC said today is, you know what? Sports leagues, they're just doing just fine. The NFL, for example, is a $9 billion business. Maybe they don't need the special protection.

Now, this next goes to Congress. You can expect the NFL, Major League Baseball, a lot of the other leagues to try to fight it, but I got to tell you, Wolf, this rule has never made sense to me. To me, this is kind of like telling grocery stores in a town you can't sell food to people until all the local restaurants are full for the night.

Other businesses don't get this special protection, and I think the FCC has finally decided that sports leagues, they shouldn't get it either.

BLITZER: It's so frustrating. I remember years ago when I was in Buffalo, I wanted to see my Buffalo Bills, but the stadium wasn't sold out.

You used to have to drive to Cleveland or someplace like that to watch a home game, which was obviously very, very frustrating.

Let's move on to another subject that I know you're looking at, President Obama's decision to send two openly gay former athletes to the Sochi Winter Olympic Games and the statement it says about the anti-gay legislation, the laws that are in effect in Russia right now.

What's your reaction?

NICHOLS: I love it.

Make no mistake, Russia, the government is openly persecuting gay people in their country. They're doing it under the guise of polluting the minds of children. And the idea is that, if you're gay, and you're even holding hands in public, you can be sent to jail.

In this country, we hold ourselves up as the international symbol of freedom. And what the White House did today was basically putting all of our money where our mouth is. It's sending people over there specifically to make a show of the fact that we have freedoms here that we think that everybody should be allowed to have and certainly people in Russia should be allowed to have.

I like the move. I think a lot of people in the community like the move, in the athletic community, in the Olympic community like the move. You have to remember that the IOC just last week send a letter to all potential athletes, reminding them if they make any kind of political statement or demonstration during the Games, they are subject to being expelled.

Now, I imagine in the coming months we will hear a lot more about that, and possibly a few athletes during the Sochi Olympics who want to test that out.

BLITZER: Are they ready for the Sochi Winter Olympic Games in February? Because there were reports that some of the venues aren't even ready yet.

NICHOLS: Yes, well, Wolf, in "Pravda" two days ago, they had an article saying they were ready. So, I don't think need to ask any more questions than that, right?

BLITZER: Right. Of course.

NICHOLS: I mean, come on, that's about it.

Look, are they going to be ready? They will probably be ready. They have people working 24 hours, around the clock. They have this huge migrant work force. Will the buildings be built? Yes, they will probably be built. Will they be built well? Are there potentially going to be problems?

Those are the questions that we are asking. And you also have to remember, this is the only subtropical climate city in all of Russia, in all of Russia. It's the only major city in this weather zone. And you have to wonder why there's a Winter Olympics there. So expect that to create a lot of problems as well. We're going to have to see.

BLITZER: We will see you Friday night on "UNGUARDED."

Rachel, thanks very much.

That's it for me. Thanks for watching.