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Damned If You Do or Don’t: How Murdoch Reporters’ Bribes to British Cops Violate U.S. Law

News Corp. employees in Britain could be charged in U.S. with bribery if they recorded payments accurately in the company’s books and inaccurate accounting if they didn’t.

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Rupert Murdoch, the chief executive officer of News Corp., is driven from his apartment on July 12, 2011 in London. (Oli Scarff/Getty Images)

Imagine you're a Fleet Street reporter at a British tabloid with a pocketful of cash. You meet a trusted source at a pub, a police officer who tells you about the royal family's confidential schedule in exchange for a small gratuity. You hand over a few quid and rush off with a photographer to stake out a health club where Camilla Parker-Bowles is toning her abs.

Guess what: If you work for Rupert Murdoch, you may have violated U.S. law. What the government nails you for could depend on how you and your bosses account for the sketchy deal with the cop.

If you're entirely honest in the company's internal books and enter the payment as a "bribe," you've just created an irrefutable piece of evidence that can be used against you and your company in a prosecution by the Justice Department for violating U.S. statutes against overseas bribery. If, as is more likely, you file an expense account which refers to the cash payment as "taxis” or "office supplies," you stand a chance of being pursued by the Securities and Exchange Commission for keeping fake records.

News International Limited, the British arm of the Murdoch empire, is a subsidiary of News Corp., a publicly traded American company which also owns the Wall Street Journal and Fox News (not to mention the Sunday Times of London, the Times of London, and the British tabloid the Sun). Because of this, experts say, News Corp. and all of its subsidiaries come under the Foreign Corrupt Practices Act, a Watergate-era law which makes it a crime for U.S. companies to participate in bribery abroad.

The scope and number of payments remains unclear. British press reports say more than $160,000 was paid by News of the World reporters to police officers. The issue came to light last week after News International turned over a trove of internal emails to authorities.

"A small number of officers may have taken illegal payments. That is fundamentally corrupt," Met Commissioner Sir Paul Stephenson told the BBC. "If true, I will be determined to root them out, find them and put them in front of the criminal court."

After years of relative quiet, the United States has substantially stepped up the resources to prosecute companies for violating the bribery law. There are 150 open investigations of American companies, according to the law firm Gibson Dunn & Crutcher. In 2005, the Securities and Exchange Commission and the Department of Justice combined for a total of just 12 FCPA enforcement actions. By 2010 that number had jumped to 54, the law firm reports. We've written previously on this subject when it involved payments by Albert Jack Stanley, a former executive at KBR.

Unless information emerges that News Corp. executives in the United States were aware of and condoned illegal behavior, it is doubtful whether the company or individual executives would face criminal prosecution in the United States, several defense lawyers said.

A prominent academic, Michael Koehler, who tracks prosecutions on his blog the FCPA Professor, is not as sure the global news giant will escape criminal prosecution.

"Look at the 2011 enforcement actions on my blog," he says. "None of these involved high level officers or board members."

But lack of evidence of executive complicity in bribery doesn't protect the parent company from civil actions. Where News Corp. may be most vulnerable is under the "Books and Records" and "Internal Controls" provisions of the FCPA, according to lawyers who practice in this field.

Even if News Corp. subsidiaries recorded the bribes accurately in their books, it could land the company in difficulty with the SEC. Since the bribery was permitted in the first place, the charges would also open up the company to questions about its internal controls.

Fines for these violations can be steep. In 2009 and 2010 combined the Justice Department charged over 50 individuals and collected nearly $2 billion in criminal fines, said Assistant Attorney General Lanny Breuer in a recent speech. In 2010, the SEC brought in almost $530 million in corporate FCPA settlements, according to Koehler's blog. Part of what makes it so lucrative for the government is that the SEC often requires the companies "disgorge" the gains they made from illicit activities and pay interest on them.

How the SEC would calculate the value of a scoop or a racy headline that resulted from a police bribe is an open question. Does one include a bump in weekly circulation? The long-time loyalty of readers? Until it was abruptly closed last week, the News of the World, the Sunday paper most closely linked to phone hacking, had Britain's largest daily circulation, with 2.7 million readers.

"What was the increased revenue because of this sensational headline is more art than science,” says Koehler. "You could come up with some ballpark number.”

Another cost to News Corp. would be the company-wide review the SEC or DOJ would likely demand. The company would have to satisfy the Feds that similar payments weren't made to government officials in other countries. These company reviews are part of the reason why FCPA inquiries can last for years, according to Koehler.

The statute of limitations on civil FCPA charges is five years. Reports about the illegal bribes seem to date back to 2006 so regulators would likely be mindful of the calendar. Companies are often rewarded for cooperating with the inquiries. "Raising a statute of limitations defense is not exactly cooperation mode,” says Koehler.

News Corp also depends on the government for its broadcast licenses. Fox Television Stations Inc. has 269 active licenses with the Federal Communications Commission, according to the agency's website. An agency spokesman would not comment on whether FCPA violations might put those licenses in jeopardy as well.

Jason Sherman

July 12, 2011, 3:43 p.m.

Great work, Jake.  Thank you.

patrick taylor

July 12, 2011, 3:57 p.m.

Excellent news. I trust America will again help us in our hour of need. Corruption of the British police by an American owned and American lead news conglomerate demands strong action.

You’re so right Patrick.  Because British Tabloids are usually so virtuous that only for us horrid Americans, they never would engage in corruption.

Eric Bischoff

July 12, 2011, 4:10 p.m.

Rupert Murdock and News Corp have too much power. The day they decided to be the mouthpiece of the conservative parties and manipulate elections is the day they they deserved to lose their broadcasting licenses. Maybe we’ll get smart and start breaking up these giant monopolies that are manipulating our democracies. We should break them up and use this as an opportunity to right all of the wrongs that have been committed with the FCC, big media mergers, consolidation, ownerships of radio, TV, and print in the same markets and the lack of local community news and reporting. Maybe this is the Media Spring of the Media Revolution we’ve all been waiting for.

Howard Gooblar

July 12, 2011, 4:16 p.m.

We have the same problems in the U.S.  Hopefully, we’ll see more excellent reporting like this applied to News Corp and political influence and bribery over here.  It’s a good bet the same policies apply company wide.

I couldn’t agree more, Eric.  I just wish I had faith in what you’re calling for coming to fruition.

Barry Schmittou

July 12, 2011, 5:16 p.m.

I have requested a treason investigation of multiple insurance companies endangering lives in the U.S., and the DOL and DOJ’s failure to stop them from violating many laws and destroying the lives of many very sick and injured Americans.

The evidence includes quotes from numerous Judges that prove doctors paid by insurance companies ignore brain lesions, Multiple Sclerosis, cardiac conditions and much more.

To see the evidence and my request for an investigation please go to : http://www.treasonevidence.blogspot.com

I pray every citizen will consider submitting this evidence to your elected officials and local and Federal Grand Juries if you are ever selected.

Benjamin Hodes

July 12, 2011, 7:10 p.m.

It has been pointed out by Roger Cohen in an op-ed piece in the 07/12/2011 NY Times, that the News Corp has some newspaper that exhibit high journalistic standards. My reply to this is that even a female prostitute has at least one nice dress.

“Absolute power corrupts absolutely.”

Great point. Go after Murdoch with a vengeance under FCPA!

rofl Love it, Benjamin.

The Republican’s would never allow their favorite owner of Fox News to be prosecuted.

Interestingly I doubt that in the near future the name Murdoch will be at the helm of this corporation.

Patrick, Mr. Murdoch is not an American, but rather an Ausie. Does not matter though, if he is found guilty of these crimes, he needs to complete whatever sentence is handed down. I will not defend him or his actions as I do not care for him or his propagnda,I mean News Corporation. I also believe that the investigation must be completed.

Yes let us remember

Then leave Complaints: Fools only strive
To make a Great an honest Hive.
T’ enjoy the World’s Conveniencies,
Befamed in War, yet live in Ease
Without great Vices, is a vain
Eutopia seated in the Brain.
Fraud, Luxury, and Pride must live;
Whilst we the Benefits receive.
Hunger’s a dreadful Plague, no doubt,
Yet who digests or thrives without?
Do we not owe the Growth of Wine
To the dry, crooked, shabby Vine?
Which, whilst its Shutes neglected stood,
Choak’d other Plants, and ran to Wood;
But blest us with its Noble Fruit;
As soon as it was tied, and cut:
So Vice is benefcial found,
When it’s by Justice lopt, and bound;
Nay, where the People would be great,
As necessary to the State,
As Hunger is to make ‘em eat.
Bare Vertue can’t make Nations live
In Splendour; they, that would revive A Golden Age, must be as free,
For Acorns, as for Honesty.

patrick taylor

July 13, 2011, 1:38 a.m.

Tommy - Rupert Murdoch born Australian , took US Citenzenship in 1985.

Having media owned by foreign companies and nationals is not highly regarded in most countries, The UK seems an exception.

The headline is misleading. You are not damned if you don’t engage in bribery or corrupt practices.

Anything to rid the world of NewsCorp worldwide would be progress.  I would host a wine and cheese party and welcome several old friends who watch or read their dumbed down nonsense back to the real world.

Elizabeth Spahn

July 13, 2011, 8:21 a.m.

For general Anti-Bribery analysis, check out the fcpablog.com.  Dick Cassin has legal analysis regarding Murdoch’s son James on 7/11/11. (The archives are invaluable for research, substantive material not just spin.)

Loss of licenses, debarment from government contracts, are the penalties most feared by bribe payers if convicted.  While NewsCorp newspapers are less affected, their broadcast licenses could be in jeopardy.  U.S / U.K. prosecutor cooperation has been fairly close, but so far stops short of debarment of major corporations. 

Investigative journalist Lowell Bergman produced the documentary “Black Money” for Frontline PBS; the saga of British BAE’s global bribery.  Well worth watching. http://www.pbs.org/wgbh/pages/frontline/blackmoney/.

As a US citizen, I can say that the Murdock family has caused irreparable damage to the political discourse in my country. It’s a shame people like this can’t be sniffed out for the rats they are at a quicker pace, they’re ruining the world. And the interesting thing, these people aren’t even happy, they’re miserable, nasty codgers who are only buoyed by the destruction of others. Get after them…

Nicholas Roberts

July 15, 2011, 1:01 a.m.

The UK newspapers are one small set of a single, global newspaper production system which has included the New York Post for many years and now the WSJ.

140 newspapers share a single production system where all news is shared. So a crime in one newspaper is a crime for all.

The cancer metaphor is important because, like any multinational corporation, it has an integrated production system. In the case of the newspapers at News Corp, roughly 150 newspapers share a single platform. There is very deep intermingling between newspapers brands, within locations such as Wapping, the news factory for News of The World (and The Sun, The Times etc) and between geographic locations.

Economies of scale in newspaper production drove the consolidation of newspaper production on a single platform, and the need to syndicate finished stories and rapidly share leads and editorial processes within the corporation and against competitors means there is a very big chance that the NoTW toxic tabloid journalism contagion will spread. The criminal content did not remain isolated in Wapping, instead it would of been spread throughout the 150 newspaper network.

Cross media would also have ensured the textual content would of been spread into other formats like TV. In Australia FoxTel and Sky, in UK BSkyB, the US Fox.

News International’s newspapers are a small set of a single, unified, global, newspaper production system. Its integrated principally by the digital pagination and advertising system, which operates on the same software as airlines or banks. Its a real-time market for matching ads to editorial and selling content. There are 140 newspapers around the world ALL sharing the same production system. The printing presses are also part of the system, and KRM has made massive investments in these news factories over the years.

So, an editor in Australia can see into the news desk of the News of the World and see what is happening! Staff are moved around the empire all the time. Journalists and editors loyal to Murdoch, and prepared to do the dirty work are rewarded and the industrial fuedalism of personal loyalty is very strong.

In this global news factory network, the cheapest form of content is sleaze, then sport. Next is gossip. Then opinion. In the UK its ok to do all of this, there is a market. In the US, the Republican moral majority does not allow titties on television, but Fox News is built on gossip. Research is expensive and often reveals unwelcome truths for the proprietor or his advertisers. Sleaze, sport, gossip and opinion are cheap and can be used to attack enemies.

Fox News is tabloid journalism for the TV age. I hate to think what is being done at MySpace. 

It will be hard to contain the criminal liability just to the UK papers when the business and editorial systems are global. 140 newspapers which now includes the WSJ

Just like the financial systems spread contagion in realtime, so too the toxic journalism and criminal content is automatically syndicated worldwide

The buck should land on the Murdoch’s. Corporate culture has to play a huge roll in the debacle. Get the cunning SOB’s.

Please try to be prudent before you become too cruel on Murdoch! Or show some humanly forgiving attitude towards the old guys that are to be or still being charged against war crimes more than half a century ago. Look at the Nation of Bangladesh-which unconditionally forgave killers of 3 millions in 1970 and it was OK, because cosmic or natural justice is automatically done everywhere to balance the difference.
How about ICC opens another branch to deal with International monetary crimes? Then, giant a hard labor camp will be needed to accomodate countless $$$$$$$$$ millionaires. And it is still possible, although a natural (secularly occurring Cosmic?) transition has been disturbed by unnecessary human push driven by greed of unwise or blind human groups. 
Please optimistically consider the following writing: The ICC was not created by only powerless good guys! But there will be lots of good guys in it if we can afford to keep Mr. Obama in the virtual power of the world governance, though I doubt how many will be from African, Arabian, Asian and other wealthy nations of which some of the government heads are filthy rich to become worse than war criminals many are referring to or talking about!
Because of honestly motivated guys in Obama’s administration, today we have begun to hear facts about these normally “Invisible Middle Sources (IMSs)” working for “Invisible Actual Heads (IAHs)” with dogmatic narrow mind-set who have believed, in traditional political ways by controlling Medias, that money can always suppress negatively done or planned dishonest acts.
Just don’t hate any group of blind people, have patience for own happiness and support Obama’s administration and watch more facts will surface.
It will be wise to remember that above all there is a silently and secularly occurring transition also caused and enhanced by cosmic power behind all human controlled powers.

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