Pressure Builds for DoJ Criminal Investigation of News Corp
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A growing chorus of legal experts and media activists are urging Attorney General Eric Holder to open a criminal investigation of News Corp under the Foreign Corrupt Practices Act.
Last Friday, the Guardian began citing legal experts:
Butler University law professor Mike Koehler, an FCPA expert, said: "I would be very surprised if the US authorities don't become involved in this [NI] conduct."
He said the scandal appeared to qualify as an FCPA case on two counts. First, News Corp is a US-listed company, giving the US authorities jurisdiction to investigate allegations. "Second, perhaps more importantly, the act requires that payments to government officials need to be in the furtherance of 'obtaining or retaining' business. If money is being paid to officials, in this case the police, in order to get information to write sensational stories to sell newspapers, that would qualify," he said.
Koehler said the US justice department was increasingly keen to bring cases against individuals as well as companies, because prosecuting people brought "maximum deterrence". He added: "Companies just pay out shareholders' money. There's not much deterrence there." Tom Fox, a Houston-based lawyer who specialises in FCPA cases and anti-corruption law, said most corporate cases were settled before going to court. But for individuals who are successfully prosecuted the penalties are severe.
In 2009 the former Hollywood movie producer Gerald Green and his wife, Patricia, were jailed for six months in the first criminal case under the FCPA. The Greens, whose credits included Werner Herzog's Rescue Dawn, were convicted of paying $1.8m in bribes to a government official in Thailand in exchange for contracts to manage the Bangkok international film festival.
On Sunday, the Telegraph weighed in:
Rupert Murdoch's News Corporation empire could face a bill of more than $100m (£62m) if US authorities launch an investigation into corruption following allegations that the News of the World routinely made payments to police officers totalling more than £100,000.
If convicted the company would face a fine many times that size, lawyers have warned.
The Department of Justice (DOJ) and the Securities Exchange Commission (SEC) have been increasingly aggressive in bringing cases against corporations under America's Foreign Corrupt Practices Act (FCPA). They have so far imposed penalties as high as $800m on companies – such as Siemens – where there has been evidence of persistent and unaccounted for bribery.
FCPA experts told The Telegraph it would be "very surprising" if the DOJ didn't take action against News Corp, and would be likely to do so this week. Any FCPA probe against News Corp would damage its reputation and could further destabilisie James Murdoch's position as Rupert Murdoch's heir apparent.
Experts said it would be likely to involve a "systematic and all encompassing" investigation of every one of its business units worldwide, to uncover unlawful bribery, legitimate payments wrongly accounted for, and to check whether sufficiently robust anti-corruption measures are in place.
News Corp would have to bear the cost of the probe, which sources said would "easily cost north of $100m" and tie the organisation up in red tape for between two and four years. In 2008, the DOJ ordered Avon Products to carry out a worldwide investigation after there was evidence of bribery in China. The probe, which is still ongoing, has so far cost the cosmetics giant $154m, according to filings.
Mike Koehler, an FCPA expert and law professor at Butler University, said: "Enquiries often start with a limited set of facts but very quickly morph into an examination of the entire business. They tend to be very cumbersome and because they are newsworthy they cause a lot of reputational damage."
Thomas Fox, a lawyer and FCPA expert based in Houston, added: "It may be difficult to understand how expensive and all-encompassing FCPA is. If you don't have anti-corruption policies in place that's the first strike against you and it's downhill from there."
According to Mr Fox, US authorities have stepped up the number of convictions from five in 2004 to 74 last year, and convicted companies have been fined between $77m and $800m depending on the number of breaches.
On Monday, AP joined in:
Legal experts said Monday it is possible Rupert Murdoch's U.S. companies may face legal actions because of the shady practices at the News of the World, his now defunct British tabloid.
They said Murdoch's News Corp. might be liable to criminal prosecution under the 1977 Corrupt Foreign Practices Act, a broad act designed to prosecute executives who bribe foreign officials in exchange for large contracts.
The News of the World was accused of making payoffs to police in exchange for information – a possible violation of the anti-bribery provisions of the act. It would be up to the U.S. Department of Justice to decide if this merited criminal charges, while the Securities and Exchange Commission would determine if there had been financial wrongdoing at News Corp.
Former federal prosecutor Dan Guthrie of Dallas, now a lawyer specializing in white collar cases, said Murdoch's concern about possible legal exposure under the corrupt practices act may explain his abrupt decision to shut down the tainted tabloid.
He said that by shutting the paper Murdoch may be hoping to prevent any possible U.S. prosecution under the act, and also keep prosecutors from investigating whether the corrupt practices were used at some of Murdoch's other newspapers.
He and other lawyers said they would be shocked if the Securities and Exchange Commission is not investigating the allegations against the News of the World.
"The SEC will automatically be involved because it's a listed company, and the Department of Justice will be looking at this," said Stuart Deming, a Washington lawyer who handles corrupt practices cases. "They may wait and see what the British do."
He said the SEC would be examining whether proper accounting procedures and internal controls were in place. If bribes were covered up with fraudulent accounts, that could lead to prosecution, he said.
"The act is very broadly interpreted, and if the payment to police officials was for the purpose of getting information, it would certain be a violation of the act because it would help them make more money," Deming said.
In Washington, Justice Department spokeswoman Tracy Schmaler declined to comment on speculation that the department might consider an FCPA investigation into the allegations. The act has never been used to prosecute paying for information to increase newspaper circulation.
And so did Reuters:
Rupert Murdoch's News Corp could face probes by U.S. authorities for possibly violating bribery laws, compounding the media mogul's problems after a phone-hacking scandal in Britain.
The Obama administration has significantly stepped up enforcement of anti-bribery laws in the last two years, winning big settlements from the likes of Daimler AG and BAE Systems Plc by focusing on bribes they paid to foreign officials to win lucrative contracts.
Bribes for business have represented the bulk of these anti-bribery cases brought by the Justice Department and the Securities and Exchange Commission. It is unclear whether U.S. authorities would use scarce resources to probe News Corp over bribes allegedly paid to British police and other officials for information that became news scoops.
Employees of Murdoch's now-shuttered News of the World tabloid have been accused of hacking into personal voicemail and paying bribes. British authorities are investigating.
Legal experts in the United States said News Corp could face scrutiny on this side of the Atlantic Ocean as U.S. officials probe whether any of the allegations, if proven true, violate the U.S. Foreign Corrupt Practices Act.
That law makes it a crime for any company with U.S. ties to bribe foreign officials to obtain or retain business.
British media outlets reported that News of the World reporters bought phone details for the royal family from a security officer. The Daily Mirror newspaper reported, citing an unidentified source, that News of the World reporters had also offered to pay a New York police officer to retrieve the private phone records of victims of the September 11 attacks.
At a minimum, the News Corp would be at risk for violating laws on accurate accounting reporting if the bribes were paid, according to legal experts. News Corp shares trade on Nasdaq and the company files its financial reports with the SEC.
"Would the Department of Justice go after them on a criminal basis? Hard to say. But the SEC definitely has a stake in this," said Alexandra Wrage, a legal expert on bribery who is the president of the firm TRACE, which helps companies comply with anti-bribery and anti-corruption laws.
One source familiar with the matter said News Corp had not received any query from U.S. authorities.
SEC LIKELY TO LEAD ANY PROBE
"How did they account for these payments? If you falsify, misrepresent on your books what this money was spent on, straight out of the box you have a FCPA violation," Wrage said.
The Justice Department, the SEC and News Corp all declined to comment.
The United States has been pushing other countries to step up their enforcement of anti-bribery laws and a stiff new law in that vein took effect July 1 in Britain. However, it would not apply to the News of the World case because the alleged activity took place before the measure came into force.
One lawyer said U.S. prosecutors would likely defer to their British counterparts and raised questions of whether a criminal case here could be made since prosecutors would have to show bribes were paid to obtain or retain business.
"It's a million-to-one shot," said the attorney, who declined to be identified because he did not want to jeopardize any business with News Corp.
Ed Rubinoff, a Washington-based attorney with Akin Gump Strauss Hauer and Feld, said any investigation would likely be led by the SEC and focus on how the company reported and accounted for any alleged bribes it paid as well as what controls it had for such payments.
If a probe is initiated, that could signal a broadening of the U.S. government's interpretation of the law, Rubinoff said. However, the difficulty could be in proving that any bribes gave News Corp a business advantage, Rubinoff said.
"This would be pushing the boundary a good bit more," he said, adding that "you don't have to prove all those elements for a record-keeping violation."
Another possible headache for Murdoch's empire is that a bribery inquiry that started in one country could go global and such investigations can drag on for years and cost tens of millions of dollars.
"Another potential issue here that should be of concern to the company is it is very common for FCPA inquiries to focus on a discrete set of facts, but then for a company to do a world-wide internal review," said Michael Koehler, a professor of business law at Butler University.
Today, former NY Attorney General (and Governor) Eliot Spitzer weighed in:
Bribery, illegal wiretapping, interference in a murder investigation, political blackmail, and rampant disregard for both the truth and basic decency. The behavior of Rupert Murdoch's News Corp. in Britain has shocked even his closest allies and cynical British journalists. The Murdoch empire is falling apart—criminal behavior and disregard for basic ethics having permeated its highest ranks. News Corp. executives' claims of a full and thorough investigation and that there were only a few bad apples have been exposed as feeble and false. The pseudo-investigations conducted by Scotland Yard are likewise proving to be corrupt and unreliable. Meanwhile, Prime Minister David Cameron's government is running for cover, but it cannot escape the untoward relationship that it had with Murdoch.
So how does all this concern Americans? First, it is hard to believe that the misbehavior in Murdoch's media empire stopped at the water's edge. Given the frequency with which he shuttled his senior executives and editors across the various oceans—Pacific as well as Atlantic—it is unlikely that the shoddy ethics were limited to Great Britain.
Much more importantly, the facts already pretty well established in Britain indicate violations of American law, in particular a law called the Foreign Corrupt Practices Act. The Justice Department has been going out of its way to undertake FCPA prosecutions and investigations in recent years, and the News Corp. case presents a pretty simple test for Attorney General Eric Holder: If the department fails to open an immediate investigation into News Corp.'s violations of the FCPA, there will have been a major breach of enforcement at Justice. Having failed to pursue Wall Street with any apparent vigor, this is an opportunity for the Justice Department to show it can flex its muscles at the right moment. While one must always be cautious in seeking government investigation of the media for the obvious First Amendment concerns, this is not actually an investigation of the media, but an investigation of criminal acts undertaken by those masquerading as members of the media.
What is the FCPA? Enacted after the scandals of the 1970s in which American corporations were bribing overseas officials in order to secure business deals, the FCPA was an effort to bring some baseline of ethics to international business. It prohibits any American company or citizen from paying or offering to pay—directly or indirectly—a foreign official, foreign political figure, or candidate for the purpose of influencing that person in any decision relating to his official duties, including inducing that person to act in violation of his or her lawful duty. Very importantly, even if all such acts occur overseas, the American company and citizen will still be held liable here. So acts in Britain by British citizens working on behalf of News Corp. creates liability for News Corp., an American business incorporated in Delaware and listed on American financial exchanges.
The rampant violations of British law alleged—payments to cops to influence ongoing investigations and the hacking of phones—are sufficient predicates for the Justice Department to investigate. Indeed, the facts as they are emerging are a case study for why the FCPA was enacted. We do not want companies whose headquarters are here—as News Corp.'s is—or that are listed on our financial exchanges—as News Corp. is—polluting the waters of international commerce with illegal behavior. (News Corp. shareholders are also rising against the company, with a huge lawsuit filed Monday in Delaware by three institutional investors claiming that company executives failed to act quickly enough to stop the phone hacking.)
The other reason to investigate here is that there is serious doubt that this matter can be investigated properly in Great Britain. Scotland Yard is already implicated, as is Cameron's government. DoJ can and should fill the void.
If DoJ does investigate and if a court were to find News Corp. liable, the penalties should extend beyond the traditional monetary fine. News Corp. should also have its FCC licenses revoked. Licensure and relicensure by the FCC require that the licensee abide by the law and serve the public interest. News Corp. appears to have blatantly violated this basic standard. Its licenses should be pulled.