Domestic surveillance powers in peril as U.S. Congress fights

By Patricia Zengerle and Mark Hosenball

WASHINGTON (Reuters) - The future of the U.S. government's power to spy on Americans' phone calls and finances was up in the air on Thursday as Congress fought over proposed reforms, with no clear outcome in sight.

Lawmakers appeared to be close to deadlock over the central question of how far citizens' privacy rights should be infringed to protect the country from violent extremists.

Experts disagreed on how counter-terrorism efforts could be affected if the U.S. Senate failed to prevent the looming June 1 expiration of key portions of the USA Patriot Act, which was approved after the Sept. 11, 2001 attacks on the United States.

Views were also mixed on an alternative scenario of the Senate approving a reform measure known as the USA Freedom Act.

Under the reform legislation, bulk phone-data collection and other domestic surveillance practises permitted under the Patriot Act would be replaced with more targeted procedures.

"Our intelligence capabilities against terrorists will take a hit" if Congress approves the Freedom Act and President Barack Obama signs it into law, Stewart Baker, former general counsel at the National Security Agency (NSA), told Reuters.

If Congress fails to act at all and the provisions of the Patriot Act simply expire, it would mean "a double hit," Baker said. "That would leave terrorism investigators without tools that drug crime investigators use every day. That's nuts."

With the House of Representatives already adjourned for the Memorial Day holiday, the Senate late on Thursday was juggling several decisions, including what to do about the Patriot Act.

Barring an earlier compromise, a rare weekend debate looked like a possibility. Saturday votes were scheduled by the Senate Republican leader on both the reform bill and a third potential outcome, a two-month extension of existing surveillance powers.

The Freedom Act was approved by the House on May 13. The extent of the Patriot Act's domestic surveillance was exposed two years by former NSA contractor Edward Snowden.

Opposition to even a short-term Patriot Act extension was strong. Republican Senator Rand Paul, a presidential candidate, led over 10 hours of speeches on Wednesday opposing the act.

Julian Sanchez of the libertarian-leaning Cato Institute downplayed the impact of letting the Patriot Act sections expire. "The short term effect of a sunset should be virtually nil, aside from the cessation of bulk telephony metadata collection, which two independent reviews have found to be of little if any real utility," he said.

(Additional reporting by David Lawder; Editing by Kevin Drawbaugh, Susan Heavey and Andrew Hay)