This is a rush transcript from "On the Record," August 21, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: If this doesn't make you angry, nothing will.

This Libyan terrorist is a cold-blooded murderer, a mass murderer, and now he is home in Libya with his family. He is responsible for killing 270 people in the 1988 Pan Am bombing over Lockerbie, Scotland.

He went to prison for his role in the bombing, sentenced to life, but only served eight years -- eight years. Now, if you do the math, that means he served less than 14 days for each innocent person he slaughtered.

The terrorist just got sent home in Libya in a jet, and the Scottish excuse -- they feel sorry for the bomber. They say he is dying of cancer, and so Scotland think that he deserves to be in his own home with family and friends.

Do you think so? Joining us is the former U.S. ambassador to the United Nations, John Bolton.

Hello, ambassador.

JOHN BOLTON, FORMER U.N. AMBASSADOR: Hi, how are you?

VAN SUSTEREN: Good. Ambassador., is there a back story to this? Is this truly Scotland just feeling sorry for, or is there something else going on behind the scenes that we just don't know about?

BOLTON: There is a lot of speculation that this was really a decision not made by the justice authorities but by the government of the United Kingdom, by Prime Minister Gordon Brown.

The speculation centers on whether there is a commercial deal with Muammar al-Qaddafi that may have been in the works that this is designed to facilitate. I must say, there is no evidence for that we have at the moment, but it absolutely unbelievable that this guy is in Libya today.

So maybe it is just a defect in the Scottish justice ministry, but you have to wonder if there's not something else involved.

VAN SUSTEREN: I was a little bit disappointed by our response. The president that it's an outrage, and I think the letter might have been sent, or two. I think the secretary of state did something.

But, frankly, could we have done more? Could we have lodged a detainer on him? I know we have a war in here in this country. Could we have done something to make them extradite him first here to answer charges?

BOLTON: I don't think so. This really goes back to the Clinton administration. When Al-Megrahi was first incarcerated, there was a dispute over who would get the prosecuting, the U.S. because we had 189 of our citizens killed in this act of terrorism, or Scotland, where the Pan Am plane crashed, or the U.K. itself because the flight originated in Heathrow in London.

The Clinton administration agreed that Scotland could carry the prosecution, and that was a very important decision for a lot of reasons, not least of which is Scotland doesn't have the death penalty. If we had gotten the prosecution in this country, we wouldn't be talking about clemency anymore.

Think as a consequence of that initial and because of our prohibition against double jeopardy, I think this is it for him. I think he's home and free.

VAN SUSTEREN: But our double jeopardy has to do with us trying someone twice. It doesn't prevent, for instance, someone being tried in a federal court for particular crime and then being tried in the state court for a particular crime.

So if you tried in Scotland for the crimes that he committed in that country or that air space, I can't see how double jeopardy prevents us here, unless we cut some side deal. And if so, why would we have done that?

BOLTON: I think -- I'd have to go back and look at the original deal. And certainly it would be worth doing, because we may have given up our prosecutorial authority in order to make sure that he was only tried in one place.

As a say, I think of that was a mistake back then, but I think what you see playing out today is a further example of that mistake and an example of why treating terrorism as a common crime is a mistake.

Think of the precedent this sets for all of those detainees in Guantanamo when they're moved to facilities in the U.S. and they ask for humanitarian release.

VAN SUSTEREN: You say this should not be treated as a criminal justice matter. Let's think of it in terms of something else.

Don't we enough diplomatic muscle that we could have gone to the U.K. or gone the Scottish and said this really matters to us, this matters the American citizens. We don't want them disintegrated at 35,000 feet, and we do want to send a message -- 14 days isn't enough.

Don't we have that diplomatic muscle with them?

BOLTON: Absolutely. And I think we really need congressional hearings on this. I want to know exactly what we said to the government of the United Kingdom.

I really put more responsibility on the U.K. authorities at this point than I do on Libya. What the Libyan did didn't surprise me. Of course they will try to get him out of there.

They've got to be worried that as long as he is in custody, he can reveal what he knows about Libyan intelligence, what he knows about other terrorist activities, what he knows about who is responsible up to and including Muammar al-Qaddafi himself.

The Libyans, let's be clear, had a very high priority to get this guy back to Libya. What is in comprehensible, absolutely incomprehensible, is that the British agreed to it.

VAN SUSTEREN: What's even more in comprehensible beyond back is that it doesn't appear from the outside that we use any of our diplomatic muscle. It seems like we almost had just the lip service, yes for all outrage. But I find it hard to believe that we couldn't have done more.

But anyway, let me move ahead to another issue. Qaddafi is coming to the United States in September to the U.N. Tell me what is going to happen with this?

BOLTON: My guess is that the families of the victims of Pan Am 103, and I believe a lot of other people who are outraged by this decision, will be there to greet Mr. Qaddafi and let him know what their feelings are.

I hate to be the bearer of bad news, but under the headquarters agreement that the United States signed for the U.N., he, just like President Ahmadinejad, can come and participate in U.N. business. If you want to change that, we've got to change the headquarters agreement.

So when Qaddafi arrives, he will be given diplomatic community, he will be allowed to speak at the U.N. Hopefully he will not be allowed to travel by the administration outside the confines of Manhattan.

But he, under the headquarters agreement, he's able to come here.

VAN SUSTEREN: Why is this killer such a celebrity in Libya? Why did he get that hero's welcome?

BOLTON: Well, the Libyans, although they have agreed to settlements for the victims' families, have never really conceded that they were responsible for it.

And that is part of what I think we should have been doing to go back to your earlier point about putting pressure on the Brits -- I agree with you, I don't see much evidence that we did anything except to go through the motions.

But I think that is a fit subject for congressional hearings. Let's hear from Secretary of State Clinton what exactly she and her colleagues at the State Department did.

VAN SUSTEREN: You talked about the settlement. It's not like it was chump change, by the Libyans to the families. It was $2.7 billion. It seems to me that if it is chump change, you do anything to get rid of a problem. But at $2.7 billion, it sounds like to me you have a little guilty conscience.

BOLTON: I think that's actually right. He had a lot at stake, and he got a lot for it in exchange for that settlement and for giving up nuclear weapons, no doubt about that.

VAN SUSTEREN: Ambassadors, thank you. And the story -- to me, I have visions of these 270 people sitting on a plane all excited, coming home for Christmas, a lot of students, just being disintegrated. So cruel, and how the people of Scotland can say that this is compassion to release him, I don't know. Go figure.

BOLTON: It's a disgrace. It's just a disgrace.

VAN SUSTEREN: It is terrible. Thank you, Ambassador.

BOLTON: Thank you.


Content and Programming Copyright 2009 FOX News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2009 CQ Transcriptions, LLC, which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon FOX News Network, LLC'S and CQ Transcriptions, LLC's copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.