That's the minimum issue here--Google ships the data of U.S. citizens around the world, and the NSA knows it. They are trying to play a cute game by pretending to assume that if the GCHQ collects the data in the UK, the NSA can safely treat it as foreign data. We need to call them on it.
Your example is a bad one, because in your example the law is broken by conduct in the U.S. In this case, the splicing of the leased lines happened outside of the U.S.
You may have noticed it getting thrown out the window already, what with American citizens in danger of being declared "enemy combatants" and locked away indefinitely without trial, or just droned to death on the spot and all.
Then there's Mr. Snowden, enjoying his Constitutionally protected right to freedom of speech.. in Moscow.
The law has to observe physics. You can get a court order to "compel" someone to float off the ground, but that doesn't mean it's going to happen.
[1] I think as it is it might be a 4th amendment violation, but it's not contrary to any statute that I'm aware of, at least not any American statute.
I agree with you completely, but when the political will is there, Congress can dive head first into separation of powers fights. Look at the War Powers Resolution. It's almost certainly unconstitutional in a strict sense, or at least extra-constitutional. But the Supreme Court will likely never touch it, and Presidents take its requirements seriously.
One potential avenue for limiting foreign intelligence gathering short of an amendment would be ratifying a treaty to that effect. But that seems as unlikely as any other route, since, as has been pointed out a few times, most Americans care not a lick about foreign SIGINT, and to the extent they do would like it to be as effective as possible.
Congress can very well pass laws that dictate foreign policy: You shall/shall not bug the Germans.
Though it's dubious, Congress can also say "You shall not spend money on fiber taps. You shall have money for satellites."
The bottom line is that the Congress can get into NSA's pants as much as they want to.
They can pass them, but they'd almost certainly be as unconstitutional as a law from 1944 that mandated the invasion of Calais rather than Normandy.
For example, Mike Hearn says: "Bypassing that system is illegal for a good reason." Illegal under whose law? Obvious things like the Wiretap Act simply don't apply outside the U.S. And this is by design: Congress and the courts are primarily domestic institutions. The executive, by design, has primacy when it comes to activities outside the U.S. Maybe this design made a lot more sense back in the day before the advent of trans-national corporations, but it's the design we have, and we're talking Constitutional-amendment level fixes to change that design.
Internally, you might see fixes without a Constitutional amendment. E.g. the Supreme Court might at some point weaken the third party doctrine, which is what makes a lot of the NSA's data collection not a violation of the 4th amendment. But they won't touch the activities of the NSA internationally.