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The Situation Room

Deadly Blow to the Heart of the Regime; U.S. Drought Crisis; Chicago Murders; Political Ads; Massive Fraud Revealed

Aired July 18, 2012 - 17:00   ET

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

WOLF BLITZER, CNN ANCHOR: And you're in the SITUATION ROOM. Happening now --

(GUNFIRE)

BLITZER: Fierce fighting in the streets of the Syrian capital and a deadly blow to the heart of the regime. Four top officials killed. Jordan's King Abdullah talks about it with me in an exclusive interview that airs this hour.

Also, the spreading drought crisis. Dozens more counties in eight U.S. states are declared disaster areas.

Plus, a deadly beating. And now, a possible break in the case, thanks to Facebook.

We want to welcome our viewers in the United States and around the world. I'm Wolf Blitzer. You're in the SITUATION ROOM.

(BEGIN VIDEO CLIP)

(CHANTING)

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BLITZER: Wild celebration in the streets of the Syrian capital, Damascus, as opposition forces penetrate the innermost circle of President Bashar al-Assad killing four key members of the regime, including the president's brother-in-law. But in the wake of the stunning blow, growing fear about what will happen next as Damascus increasingly turns into a war zone.

CNN's Ivan Watson is monitoring all of this for us from neighboring Istanbul.

(BEGIN VIDEOTAPE)

(GUNFIRE)

IVAN WATSON, CNN INTERNATIONAL CORRESPONDENT (voice-over): As Syrian rebels battled government forces in the streets of Damascus for the fourth straight day on Wednesday, stunning news emerged on Syrian state TV that a suicide bomber struck the national security headquarters. In one fell swoop, at least four of the government's top security officials killed. The defense minister, General Dawood Rajiha, the interior minister, Mohammed al-Shaar, the president's security advisor and deputy vice president, Hasan Turkmani, and last but not least, deputy defense minister, Assef Shawkat, a brother-in-law of the Syrian president.

News of the deadly blast sparked celebrations in opposition strongholds from Idlib province in the north to the southern city Daraa where the uprising started 16 months ago. The regime is struggling to show it's in charge quickly announcing a replacement defense minister and taking to the air waves blaming the attack on outsiders.

OMARAN ZOABI, SYRIAN INFORMATION MINISTER (through translator): With all the killing that's taken place, the legal responsibility and the political and moral responsibility directly falls upon Arab government, particular Arab governments in all their intelligence agents.

WATSON: But this week, the government's control of the capital has been challenged like never before, prompting it to deploy armored vehicles in the streets. As well as helicoptered gun ships that eyewitnesses say keep shooting in to Damascus neighborhoods. The fighting is forced residents of the capitol to flee flashpoint neighborhoods on foot as seen here in footage filmed by Dutch television.

VOICE OF SANDER VAN HOORN, DUTCH NATIONAL RADIO: The plumes of smoke, the sounds of gun (ph) raging all over the city. People have family and friends living there or do live there themselves. So, they are actually quite worried. We saw this morning in the northern suburbs of Damascus, people fleeing the fighting by the hundreds.

WATSON (on-camera): Wednesday's deadly bombing as well as what appears to be a coordinated rebel attack throughout different neighborhoods of Damascus have shattered the image of a government firmly in control of the capital. The regime has been severely wounded, but there are disturbing reports that its own supporters are lashing out.

Eyewitnesses have described the much feared pro-government militia called the Shabiha, patrolling the streets of once Sunni Muslim neighborhood called (INAUDIBLE), killing anyone they meet with guns and knives.

Ivan Watson, CNN, Istanbul.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

BLITZER: And Jordan's King Abdullah II is joining us now from London. Your majesty, thanks so much for joining us. We have lots to discuss. Appreciate you're spending some time with us. Let's begin with Syria right now. As you know, some of Syria's top defense officials were killed today in a suicide attack.

What's your immediate reaction when you heard what was going on right in the heart of Damascus?

KING ABDULLAH II, JORDAN: Well, obviously, it was a surprise. I mean, obviously, this is a tremendous blow to the regime. But, again, Damascus has shown its resilience. So, I think maybe we need to keep this in perspective. Although, this is a blow, I'm sure that the regime will continue to show fortitude at least in the near future.

BLITZER: So, you don't necessarily think this is a sign that the regime of President Bashar al-Assad is crumbling?

KING ABDULLAH II: Definitely this shows some cracks in the system, but, again, I don't think we should jump to any conclusions of writing the regime off in the near future.

BLITZER: I want you to listen to what the U.S. defense secretary, Leon Panetta, said immediately after hearing what was going on in Syria. Listen to this little clip.

(BEGIN VIDEO CLIP)

LEON PANETTA, DEFENSE SECRETARY: This is a situation that is rapidly spinning out of control. And for that reason, it's extremely important that the international community working with other countries that have concerns in that area have to bring maximum pressure on Assad to do what's right, to step down, and to allow for that peaceful transition.

(END VIDEO CLIP)

BLITZER: Are you fully on board with Leon Panetta and the Obama administration as far as Syria's concerned?

KING ABDULLAH II: Yes, I believe so, Wolf. Part of the problem is, you know, we've been saying this to the Syrian regime. We haven't seen any indications really of their seriousness to actually implement any political improvements or transition. So, I think all of us in the international community have been reaching out to the Syrian regime to make a move on political transition.

But on the ground, we haven't seen much for it. So, unfortunately, it's a status quo, and as a result we're seeing as we've been seeing continued violence on the ground.

BLITZER: And you've made it clear several times over recent months, you believe it's time for Bashar al-Assad, the president of Syria, to leave, to step down. Is that right?

KING ABDULLAH II: What I've been saying is the issue is not Bashar. If Bashar was to leave tomorrow and the regime stays, then what have we achieved? What we've been trying to say is we need to find a formula of a transition where the regime feels that it has a stake in the future with Alawis (ph) use as a sect, an important sect of Syria feels that they have a future in Syria that, you know, they have a life to live.

And the only way that we can do that is a political transition. Part of the problem is as we as part of the international community try and create an international political option, we've seen over the past several weeks an international sort of a tension on the ground from the different sects that is creating violence to a level that maybe a political solution may no longer be an option.

BLITZER: You agree, though, that this is for all practical purposes now a civil war in Syria?

KING ABDULLAH II: Well, I think, as we continue to pursue the political option, the realities on the ground may have overtaken us. Therefore, I think the clock is ticking. And have we as you've just alluded to reached the point where that a political option is too late. I think we should continue to give politics its due. But if we haven't already passed that window, I think we're getting very close to it.

BLITZER: Because some people say, you know, Bashar al-Assad should see the handwriting on the wall. Look what happened in Libya to Gadhafi, for example. Look what happened in Egypt to President Mubarak. Should he, in your opinion, be allowed to leave Syria right now?

Get sanctuary, let's say, in Iran or Russia or some place else? Or, as the rebels would like -- would you prefer he be tried for war crimes, for example?

KING ABDULLAH II: Well, I think there's -- the argument out there is what brings the violence down. There is a counterargument in the international community. I mean, what we'd like to see is a cessation of violence as quickly as possible. So, if you can bring peace as quickly as possible, create a political transition, that's the lesser of all evils, I guess, is what we're trying to say.

You know, if Bashar leaving the scene and exiting Syria brings a stop to the violence and creates a political transition, that's the lesser of all evils. But have we gotten past that stage? That's the question I can't answer. And, again, I just want to look to the point that if Bashar leaves, does that solve the problem?

Whoever comes in his place, is he or the people around him willing to create a political set of circumstances that allows for the political transition that we're talking about. So, it's not so much the individual, it's the system that we're talking about. And can the system allow for the political transition? And that's where I have my doubts.

BLITZER: Your majesty, when was the last time you spoke with President Bashar al-Assad?

KING ABDULLAH II: Over a year ago. At about this time last year, I sent the chief of the royal court on two occasions to impart to him my advice and my concerns about the way the regime was handling the situation.

BLITZER: If he's watching this interview right now, and he might be watching it in Damascus, because this interview is being seen around the world, what would you say to him? What would you like to say directly to the Syrian leader?

KING ABDULLAH II: Well, I believe that we're getting to the point -- I'm looking at it from the point of view of the mosaic of the Syrian people. I'm seeing for the first time and have been watching this for the past two or three weeks where the sectarian violence has begun to appear to a point where different groups of Syrian society is having goad at each other to a point where we are getting to the level of the potential of full-out civil war.

In other words, it's getting very, very messy to a point where I think the worst case scenario for all of us in the region is when you get full-out civil war, there is no coming back from the abyss. Serious formal complicated that Iraq and other countries in the area, the different minorities actually put them all together to make the majority is unlike any of the other countries in the Levantine (ph) Peninsula.

If it breaks down, if civil order breaks down to the point of no return, then it will take years to fix Syria. And I have a feeling that we're seeing the signs of that over the past three weeks. The only people that can bring us back from that brink is obviously the president and the regime. And I believe this is the last chance that they have.

(END VIDEOTAPE)

BLITZER: We'll have much more of my exclusive interview with Jordan's King Abdullah. We're going to talk about the growing concern over Syria's chemical weapons stockpiles and the worst case scenario involving al Qaeda. More of the interview this hour in the SITUATION ROOM.

Also, farmers facing ruin here in the United States. One says the growing drought may be the worst natural disaster his state has ever seen.

And an attempted suicide reveals decades of financial fraud, hundreds of millions of dollars gone. So, how did regulators miss it?

(COMMERCIAL BREAK)

BLITZER: More now on my exclusive interview with Jordan's King Abdullah II. As we talked about the crisis in Syria, I asked him about a particularly worrisome aspect that has the entire international community, especially U.S. officials increasingly on edge.

(BEGIN VIDEOTAPE)

One very, very serious complicating issue as you well know and you're right in the neighborhood over there, chemical weapon stockpiles in Syria, the defense secretary, Leon Panetta, other U.S. officials say they are deeply concerned about the poison gas, the sarin gas, other nerve agents that may have been stockpiled in various locations in Syria. How worried is Jordan about this? KING ABDULLAH II: You will see that I think all the countries in the region and the international community have been looking at the weapons of what we call mass destruction, the chemical and biological weapons as elements of tremendous concern not just recently but since the beginning of the conflict. And the Syrian regime knows that all of us in region have been looking into stockpiles.

I know that there's been discussions that there's concern that the Syrian regime would use that. I think they know that there'll be an immediate knee-jerk reaction from all of us in the neighborhood including the international community if the Syrian regime would make the mistake of using those chemical weapons simply because we can't afford the use of those chemical weapons obviously on the Syrian people, but also, the chemical weapons falling into the wrong hands.

So, I would be very, very surprised. I mean, that would be a tremendous miscalculation on the Syrian regime if they were to use that and would illicit an immediate reaction from all of us in the region and the international community.

BLITZER: When you say an immediate reaction, I know in the past, your majesty, you've opposed outside military intervention in Syria. But if there were indications that these chemical weapons stockpiles were about to be used, would you change your mind? Would you support outside military intervention?

KING ABDULLAH II: Well, I think when you're looking at some of the discussions that happening at the United Nations, use of chemical weapons being used on his own people, obviously, will illicit an international reaction against Syria. And I think it will be very difficult for the Russians and others not -- or to oppose such a decision.

However, even more of concern if those weapons were to fall into hands of opposition and we're not to sure who those opposition would be, then I don't think anybody can afford those type of weapons to fall into unknown hands. Then, again, there will be some very quick meetings within members of the international community. And people, I think, would be looking at crossing borders.

BLITZER: Crossing borders. So that would justify that kind of -- that would be a game-changer basically is what you're saying if the Syrians were to engage, or if, for example, some of those chemical weapons were about to get into the hands of al Qaeda elements or other terrorist elements long those lines, because as you know, there have been some suggestions that al Qaeda has some sort of presence in Syria right now?

KING ABDULLAH II: Our information is that there is a presence of al Qaeda in certain regions inside Syria, has been there for a while. And, again, one of the worst case scenarios as we are obviously trying to look for a political solutions would be that if some of those chemical stockpiles were to fall into unfriendly hands.

BLITZER: That would really be a game-changer, as you say.

KING ABDULLAH II: Absolutely.

BLITZER: The Russians though, have they been protecting Bashar al- Assad at the United Nations Security Council, they're also backed to a certain degree by China. Do you see any indications that Russia is about to change its position? Because as you know, they have veto power on the U.N. Security Council.

KING ABDULLAH II: Well, again, I mean -- you have to understand where the Russians were coming from, initially. Russia has obviously strategic objectives in Syria. They felt very badly put out by western powers on Libya. They had vested interests in Libya for many, many years when Libya went through its changes.

The western powers very conveniently moved the Russians and the Chinese out. that left a very bad tastes in their mouths. And so, part of the Russian abstinence, I believe, was because of what happened in Libya. So, for the Russians, Syria is of tremendous strategic importance. But, again, we have seen the Russians show up to every single meeting, trying to work with us on political solutions.

We've obviously been hearing Lavrov's statements recently. We'd have to see what happens at the United Nations. But I think when it comes to issues as you just eluded to weapons of -- chemical weapons falling into rebel hands, I think, at the end of the day, all of us would suffer from that. I'm sure that they would be very supportive of international reactions, because at the end of the day, we all pay the price.

BLITZER: Sergey Lavrov being the foreign minister of Russia. The notion of arming the rebels, where does Jordan stand on that?

KING ABDULLAH II: Well, when we talk about arming the rebels, who are we talking about? I mean, we've had a position of, you know, give us an address and a CV. There has been discussions about arming opposition. And in principle, we understand the principle and are supportive of that.

But we just want to make sure that if you're going to send weapons, specifically weapons, we just want to make sure that it goes into the right hands and doesn't end up as I eluded to earlier on into the hands of groups like al Qaeda.

BLITZER: Your majesty, thank you so much for spending some time with us. Our viewers in the United States and around the world always appreciate hearing from you. Thank you so much.

KING ABDULLAH II: Thank you.

(END VIDEOTAPE)

BLITZER: A suspect makes a dramatic escape from police taking off in one of their police cars. Much more of the amazing video and the latest on the pursuit. That's coming up.

And chaos in a Wal-Mart flash mob by hundreds of teens. What happened? We'll show you. Stay with us. You're in the SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Just getting in a statement here in the SITUATION ROOM from Republican presidential candidate, Mitt Romney, on that deadly bus blast near an airport in Bulgaria. Let me read it to you, to our viewers. This is from Mitt Romney.

"The terrorist attack today in Bulgaria is a sobering reminder that the scourge of terrorism continues to threaten all free people. My heart goes out to the victims and their families and to all Israelis who have been the targets of such brutal and cowardly violence for so long. We must stand together in the fight against terrorism, and we must prevail."

That statement from Mitt Romney just released. The Israeli ambassador to the United States, Michael Oren, confirming with me just a little while ago that the death toll has now climbed to seven. Seven dead. Authorities say more than 30 people were also injured in the blast. Israel is calling the incident a terrorist attack on the bus carrying Israeli tourists, many of them children.

The Israeli prime minister, Benjamin Netanyahu, pointing a finger directly at Iran for the explosion vowing his country will, quote, "respond with force." President Obama has also condemned the incident calling it a barbaric terrorist attack. Netanyahu specifically pointing the finger at Iran.

Interestingly enough, neither President Obama nor Mitt Romney had any mention of Iran in their statements condemning this scourge of terrorism in the words of Mitt Romney.

Lisa Sylvester's following some of the other top stories in the SITUATION ROOM right now. Lisa, what do you have?

SYLVESTER: Hi, Wolf. Well, the Consumer Financial Protection Bureau was fining Capital One Bank $210 million for allegedly pressuring and misleading millions of customers into buying additional products when they opened their credit card accounts. Roughly 150 million of that money will go towards refunds for customers. Capital One is one of the country's largest credit lenders.

And dramatic video from our Ohio affiliate, WBNS, showing a suspect getting away in a police cruiser. You can hear police firing shots right there in the background as he's escaping. The man later crashed in the car then took off on foot before being taken into custody. The incident reportedly happened just blocks from the scene of an earlier fatal shooting.

And mass chaos at a Wal-Mart store in Jacksonville, Florida after it was bombarded by hundreds of teenagers reportedly destroying merchandise as well as the security system. Police didn't make any immediate arrests after the flash mob struck. Wal-Mart is working with investigators pursuing those responsible.

Looking at that video, it looks pretty terrifying, especially if you were a customer just wandering around and suddenly this flash mob.

BLITZER: I don't get it. Don't get it at all. Lisa, thank you.

You may actually be living hundreds of miles away, but the drought disaster in dozens of U.S. states is impacting all of us with higher food prices. Standby, we have details.

Plus, how Facebook may have helped solve a brutal killing.

(COMMERCIAL BREAK)

BLITZER: The U.S. drought crisis is spreading. Today the Agriculture Department added 39 counties to the disaster area list on top of the almost 1,300 already declared. This is the worst drought in decades here in the United States with 29 states particularly hard-hit including Arkansas. CNN's Ed Lavandera is joining us from Arkansas right now. Ed, show our viewers what you're seeing and hearing.

ED LAVANDERA, CNN CORRESPONDENT: Wolf, right now we're in Cord (ph), Arkansas and what you're seeing behind me is a live cattle auction. And the reason you're seeing this in such high numbers across the state is because thousands (INAUDIBLE) because of the drought are having to get rid of their herds. And this is how they do it.

(BEGIN VIDEOTAPE)

LAVANDERA (voice-over): Stacey Avey (ph) is in the midst of the toughest fight he's ever experienced on his ranch in the northern hills of Arkansas trying to save his cattle herd.

(on camera): Stacey brought out a couple of bales of hay and they know it's feeding time.

(SOUNDS)

LAVANDERA (voice-over): The endless drought is slowly thinning out his herd.

(on camera): These are the last cows that Stacey Avey (ph) has in the last few months because of the drought conditions he's had to sell off about half of his herd.

UNIDENTIFIED MALE: Just trying to survive the summer.

LAVANDERA: Are you going to be able to save them or --

UNIDENTIFIED MALE: I'm going to feed them through the summer hoping there is going to be some late fall rain to get some grass for grazing and if there's no fall rain, I figure we'll have to sell out.

LAVANDERA: Normally this time of year the cattle should be grazing on natural pastureland here, so it is totally out of the ordinary and extremely costly for Stacey to have to bring in hay to feed the herd.

(voice-over): Arkansas agriculture officials say rainfall is as much as 10 inches below normal. Ranchers and farmers say it's the most dire conditions they've seen in decades.

BUTCH CALHOUN, ARKANSAS AGRICULTURE DIRECTOR: I think this may be one of the -- maybe the worst natural disasters statewide that we've ever had in Arkansas.

LAVANDERA (on camera): Really that bad?

CALHOUN: That bad statewide.

LAVANDERA (voice-over): Almost every county in the state has already been declared federal disaster areas because of the drought. And if cattle ranchers can't afford to keep feeding their herds, this is where they end up --

UNIDENTIFIED MALE: (INAUDIBLE)

LAVANDERA: -- at auction. And ranchers tell us they've never seen so many cattle up for sale.

(on camera): You weren't joking around. When you came around the corner, man, they started following you pretty good.

STACEY AVEY, FARMER: Yes, sir, they like it. They know when that tractor starts up there's a little bit of hay --

LAVANDERA: Yes, yes, here comes the food.

(voice-over): And Stacey Avey wonders if he can hold on long enough to see it rain again.

AVEY: It's kind of depressing to, you know, to farm and grow your livestock and keep them the way you'd like them to be and then to have to just sell them.

UNIDENTIFIED MALE: (INAUDIBLE)

(END VIDEOTAPE)

LAVANDERA: And, Wolf, the question is what does this mean for beef prices in the grocery store? And people we've talked to here in Arkansas say that it's still a bit too early to tell. Too many variables as to how this will affect the price as people pay for beef in the grocery store in the months and over the year to come, they're going to have just to wait and see how they're able to ride out this drought and of course the hope is here that rain will (INAUDIBLE) fall at some point. In the meantime auctions, cattle auctions like this will continue as many ranchers decide that it's just not worth the money to keep the herd (INAUDIBLE) thin out and sell the cattle -- Wolf.

BLITZER: Ed Lavandera, a story that will affect I assume all of us down the road. Thanks very, very much.

Other news we're following here in THE SITUATION ROOM, Facebook, yes, Facebook is being credited with helping nab the suspects behind the latest in a soaring string of Chicago murders. A man allegedly targeted by teenagers playing a game. CNN's Ted Rowlands is joining us now. He's on the scene. What's the latest information we're getting, Ted?

TED ROWLANDS, CNN CORRESPONDENT: Well, Wolf, it wasn't Facebook the company that really flagged this, but it was a Facebook posting that broke this case wide open. Basically one of the suspects -- and you're going to hear this story, it is horrible, posted a video of a beating of a 62-year-old man on Facebook. Police used that information and made an arrest in this unbelievable case.

(BEGIN VIDEOTAPE)

ROWLANDS (voice-over): Family and friends of 62-year-old Delfino Mora (ph) gathered Tuesday night to mourn the latest victim of this summer's senseless violence plaguing the city of Chicago.

EMMANUEL MORA, SON OF DELFINO MORA: It's when I was down, he was always there. He was always there hugging me, telling me, you know, you're going to step up. Keep strong.

ROWLANDS: According to his family, the father of 12 was killed while collecting cans to buy his daughter a dress for an upcoming wedding.

ANGELICA MORA, DAUGHTER OF DELFINO MORA: He's like, oh, don't worry, my love. He's like I'm going to get money to buy your dress. And then now he's just like gone, you know? And it hurts me because it's like I promise I will be with you on your graduation. And now it's just like he's not going to be here, you know?

ROWLANDS: Eighteen-year-old Anthony Malcolm (ph), 17-year-old Nicholas Siala (ph) and a 16-year-old are all charged with first- degree murder. Police say the 16-year-old punched Mora in the jaw while the others recorded video of the beating on a cell phone. It was later posted on this 16-year-old's Facebook page.

E. MORA: They punched him in the face. So as soon as they punched him, he fell unconscious on the ground. When he fell on the ground, his head bounced off the floor.

ROWLANDS (on camera): According to prosecutors, the three boys were playing a game called "pick them out, knock them out", looking for random people to try to knock unconscious with a punch. They found Delfino Mora (ph) in this alleyway next to these dumpsters collecting cans.

(voice-over): Mora was found unconscious two hours after the beating. He died the next day in the hospital.

(END VIDEOTAPE)

ROWLANDS: Now, Wolf, all three of these teens are being charged with first-degree murder. Talking to the family members and people in their neighborhood, they're concerned that the prosecution has gone too far here saying that these kids, yes, did a horrible thing and it's hard to think about, but they didn't try to kill this man. They had no idea that they could kill this man. And they are arguing for leniency. But right now all three of these teenagers are being charged as adults and they're facing first-degree murder charges --

BLITZER: You know a lot of us -- the bigger picture in Chicago what -- you're there in Chicago, the murder rate has -- is out of control in Chicago right now. What's going on?

ROWLANDS: Well, it's up to 39 percent and what's going on is a good question. According to the Chicago Police Department, a lot of this problem is the fact that gangs have fractured out where you had certain larger gangs making all this -- calling all the shots, if you will, now you have smaller units that are literally controlling two to three-block areas of the city. They're conflicting with each other and therefore you're seeing more violence.

You're seeing more homicides in the city, up 39 percent. And they also say the weather has had a lot to do with it. This has been an unbelievably warm winter, spring and summer. That's putting people outside more. They're seeing each other and conflicts are arising. They're hoping that these numbers start to drop down as we get into fall -- Wolf.

BLITZER: Horrible, horrible situation right in Chicago, Illinois. All right, thanks for that report, Ted Rowlands, on the scene for us.

An effort to unravel a political mystery worth hundreds of millions of dollars failed on Capitol Hill. CNN is asking why and what we're finding out I think will surprise you.

Also, a prominent financial firm allegedly stealing millions of dollars from customers for decades without ever getting caught -- how did authorities miss this? Stand by.

(COMMERCIAL BREAK)

BLITZER: Twice this week Senate Republicans blocked a Democratic bill that would force independent political groups to identify all their big money contributors. Secret unlimited contributions to groups like the so-called Super Political Action Committees or Super PACs are bankrolling a lot of this year's flood of attack ads. We asked our crime and justice correspondent, Joe Johns, to take a closer look and explain what is going on with this very sensitive subject.

JOE JOHNS, CNN CRIME AND JUSTICE CORRESPONDENT: That's for sure, Wolf. With all the insane spending in American politics right now after the Supreme Court Citizens United decision effectively opened up the flood gates. You might think it's high time for Congress to pass a bill requiring more disclosure for those who donate. But as we've learned this week, addressing the problem can't even make it through the first step in the Senate. The question is why.

(BEGIN VIDEOTAPE)

JOHNS (voice-over): The air waves are flooded with political ads from both parties. And the average viewer has no way of knowing who paid for them. Most everyone seems to agree that more disclosure is needed.

SEN. LISA MURKOWSKI (R), ALASKA: I want us to have some reforms when it comes to campaign finance and the disclosure.

SEN CHUCK SCHUMER (D), NEW YORK: If we don't do something about this, we will not have the republic we know in five years.

UNIDENTIFIED MALE: The motion upon reconsideration is not agreed to.

JOHNS: But a bill sponsored by Democrats to open up the books hit a brick wall in the Senate. Twelve Republicans who voted for more disclosure in the past this time voted against it.

SEN. JOHN MCCAIN (R), ARIZONA: This bill falls short. The American people see it for what it is political opportunism at its best.

JOHNS: The measure applies to nonprofit organizations known as 501 (c) 4's that spend money on political ads. Donors who give more than $10,000 would have to be revealed. I asked Senate Republican Leader Mitch McConnell what's wrong with this bill when he and others supported disclosure before.

(on camera): Senator, why are you -- yes, you -- I'm sorry, Senator. Why are you opposed to this disclosure act?

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: Glad you asked the question, Joe. This is about selective disclosure of 501 (c) 4's with a huge carve-out for labor unions so that the law doesn't have to apply to them. There's no balance. It's not appropriate.

JOHNS (voice-over): What McConnell is saying is that Democrats are trying to shield their rank and file friends in organized labor who pay less than $10,000 in dues from getting outed by the Federal Election Commission. I asked Senate Democratic Leader Harry Reid about that.

(on camera): Why should (ph) unions and other associations that pay dues also have to disclose that information?

SEN. HARRY REID (D-NV), MAJORITY LEADER: Everyone is bound by this. Unions -- the only reason we had the upper limit is we thought that perhaps with the NRA having so much power on the Republicans that we would raise that to $10,000, which we were told would make them happy. But it didn't make any difference to the Republicans.

JOHNS (voice-over): So do McConnell and Reid's explanations hold up? For the record the National Rifle Association told me Reid is wrong that their opposition has nothing to do with the limit. They say it's an attempt to force them to turn membership and donor lists over to the government. As for McConnell's argument that it's all about the unions, campaign watchdog Sheila Krumholz (ph) says Republicans do have a reason to be concerned, but that's not really the issue.

SHEILA KRUMHOLZ, EXEC. DIR., CENTER FOR RESPONSIVE POLITICS: The issue here is who is bankrolling the message? We know who's bankrolling the union messages. It's union members. It's dues which are controversial. What we don't know is who's bankrolling the message of these patriotic-sounding but vague and unfamiliar groups which are funded to the tune of hundreds of millions of dollars by individuals, by corporations and trade associations.

(END VIDEOTAPE)

JOHNS: Now, Republicans so far are winning the money race this cycle with help from all of those groups. So far the Center for Responsive Politics has been able to track at least $100 million from such groups. The center says labor has contributed at least $53 million that can be tracked this cycle. And that doesn't begin to factor in politics and lobbying that wasn't even reported to the Federal Election Commission -- Wolf.

BLITZER: This debate will continue. No legislation probably will pass. But the debate will continue.

(CROSSTALK)

JOHNS: Add nausea.

BLITZER: Until they think about it --

JOHNS: It's been going on for decades.

BLITZER: Of course. Thank you.

Coming up, by the way, at the top of the hour in our new 6:00 p.m. Eastern hour by the way the latest on that deadly attack on Israeli tourists in Bulgaria now ratcheting up the tension with Iran.

Also, you already know cigarette smoking can cost you your health and if you live in one state, it may also end up costing you up to $10,000. We're going to tell you why. That's coming up next.

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BLITZER: Fourteen people dead after an explosion in Pakistan. Lisa Sylvester is monitoring that and some of the other top stories in THE SITUATION ROOM right now. Lisa, what happened?

LISA SYLVESTER, CNN CORRESPONDENT: Hi, Wolf. Well it happened when a passenger van hit an improvised explosive device near the northwestern city of Peshawar. Three women and children are among those who were killed. Militant attacks are common in this area, which lies along the border with Afghanistan. There's no claim of responsibility for that blast.

Nine people have been arrested and charged with illegally demonstrating after erecting a banner near the U.S. Capitol demanding more funding for AIDS. The group wants a tax on billionaires to help raise money to fight the disease. Some of the protesters climbed the pole supporting the banner but agreed to come down on their own before being placed in handcuffs.

And a military official tells CNN seven U.S. Army soldiers and two Marines will receive a non-judicial punishment for misconduct while in Cartagena (ph), Colombia as part of the security team for President Obama's visit last April, but the details of the punishment aren't being disclosed. The military investigation came after nine Secret Service agents were dismissed for encounters with prostitutes there.

And not only can cigarette smoking cost you your health, if you live in the state of Indiana, it may also cost you up to $10,000. According to our affiliate, WISH, state police are warning motorists that they will be pulled over and fined if they are seen throwing a cigarette or any type of burning material out of a car window. The ongoing drought and increased fire hazards are behind that push. It could cost you $10,000. That is not a small fine -- Wolf.

BLITZER: Yes, don't flick that cigarette out the window. That's expensive. Thank you.

Straight ahead, massive financial fraud undetected for decades. How a suicide attempt has now revealed it all.

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BLITZER: The CEO of a prominent financial group claims his firm got away with stealing millions of dollars from customers, so how did regulators miss it? Mary Snow has details.

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MARY SNOW, CNN CORRESPONDENT (voice-over): This is Russell Wasendorf (ph) in happier times as CEO of Peregrine Financial Group (ph). On July 9th authorities found him in a car near his firm's headquarters in Cedar Rapids, Iowa after an apparent failed suicide attempt. They say they found a note with a startling admission.

In part, it reads, "through a scheme of using false bank statements, I have been able to embezzle millions of dollars from customer accounts at Peregrine Financial Group Incorporated (ph). The forgery started nearly 20 years ago and have gone undetected until now." That note is contained in a criminal complaint laying out charges against Wasendorf (ph) of lying about bank records.

Regulators estimate more than $200 million is missing. Now, a team is trying to recover that money. The man in charge of retrieving Wasendorf's (ph) personal assets tells us Wasendorf's (ph) homes in Iowa and Chicago will be sold but he is still trying to uncover what the CEO owns.

MICHAEL M. EIDELMAN, ATTORNEY, CHICAGO, IL (via phone): As I start learning more about the man, it seems like he enjoyed some of the finer things like having private jets available to him and having a nice wine collection. We also understand that there were a couple of vintage cars that we are trying to determine whether or not he owns or are owned by third parties.

SNOW: "The Wall Street Journal" reports that Wasendorf (ph) also wrote in the note that deceiving regulators was, quote, "relatively simple." Peregrine (ph) is a futures trading company. It is regulated by some of the same bodies that had oversight of the now bankrupt MF Global where more than $1 billion in customer funds went missing. Democratic Senator Tom Harkin (ph) of Iowa, home state of Peregrine Financial (ph), says the problem is too much self- regulation.

SEN. TOM HARKIN (D), IOWA: don't know if I am more astounded or more angry because I have been here long enough to see the erosion, the taking away of effective government oversight over our financial institutions in this country and it has created a debacle in this country. It has eroded people's trust and confidence.

SNOW: The National Futures Association, a self-regulator organization for the Futures industry declined comment. The chairman of the Commodities Futures Trading Commission told a Senate panel Tuesday his agency lacks resources.

GARY GENSLER, CHAIRMAN, CFTC: We are only about 10 percent greater than we were 20 years ago and the futures market alone are five fold bigger and then we have the swaps market that is vast --

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SNOW: Both the regulatory agencies we just mentioned there took enforcement action earlier this month against both the CEO and the company. Wasendorf was supposed to be in court today, but that hearing has been postponed until July 27th. The public defender's office representing him declined comment -- Wolf.

BLITZER: Mary Snow, thank you.