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Why News Corp. Could Be Prosecuted Under the Foreign Corrupt Practices Act

Illegal Practices Such as Bribes Gave It a Leg up on the Competition

SOURCE: AP/Sang Tan

News Corp. Chairman and CEO Rupert Murdoch, right, arrives at his residence in central London with his son James Murdoch, chairman and CEO of News Corp. Europe and Asia, Sunday, July 10, 2011.

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Following a letter to FBI Director Robert Mueller by several congressmen, led by Rep. Peter King (R-NY), the bureau launched its own investigation of News Corp., Rupert Murdoch’s media conglomerate, on reports that some of the company’s employees hacked the voicemails of 9/11 victims and their families. We applaud the FBI’s investigation of what is undoubtedly morally reprehensible and highly illegal activity if true. But as we’ll show, the allegations against News Corp. of wide-scale corruption and obstruction of justice could violate a much bigger law: the Foreign Corrupt Practices Act.

The allegations against News Corp.

Stuart Kuttner, the former managing editor and public face of News of the World for 22 years, added his name this week to the long list of people arrested due to their ties to the News Corp. phone hacking scandal.

Media watchdogs long criticized as unethical the practices of News Corp. and its subsidiaries, including News of the World, The Sun, Fox News, and The Times of London. But the world is learning that many of these practices are also highly illegal. The unlawful phone and email hacking strategies the London-based News of the World and The Sun used against celebrities, 9/11 victims, and an abducted girl certainly warrant scrutiny and a criminal investigation by the Metropolitan Police.

But now that the allegations against News Corp.’s subsidiaries include blackmailing members of parliament and bribing police officers, News Corp.’s data collection methods have reached a level of illegality that warrants a criminal investigation by the U.S. Department of Justice and Attorney General Eric Holder.

The steady drip of revelations about the extent of the scandal has pulled in more and more major figures in British media and politics. The closure of News of the World, the British staple of sordid headlines for 168 years, was just the beginning. Soon after came the resignation and police questioning of News of the World editor Rebekah Brooks and Wall Street Journal publisher Les Hinton, two of News Corp. CEO Rupert Murdoch’s most trusted aides. Kuttner, along with Prime Minister David Cameron’s former communications director Andy Coulson and a variety of News Corp. veterans, bring the number of arrests to 11.

The fall of some of the most powerful figures in British and American media is stunning to watch. But it is the logical outcome of their ties to illegal activities. What is more shocking is the way the phone hacking scandal has swallowed Sir Paul Stephenson and John Yates, the two most senior police officers at Scotland Yard, the headquarters of the Metropolitan Police of London.

Stephenson and Yates’s resignations may be the beginning of a long line—or queue to our British friends—of people who are forced to step down as more information comes to light about the dangerously close ties between News Corp.’s subsidiaries and the Metropolitan Police.

News Corp. is accused of bribing police officers for information about news stories as well as blackmailing the two police officers tasked with investigating the initial phone hacking allegations against News of the World back in 2007.

It raises the question: How much further did these relationships go? Did senior police officers accept bribes from News Corp. subsidiaries to leak information about stories? And most importantly from a legal perspective: Did News Corp.’s bribes and corrupt activity give it an unfair business advantage against its competitors?

If the answer to the latter is “yes,” then the U.S. Department of Justice is obligated to investigate News Corp. and its senior management for violation of the Foreign Corrupt Practices Act.

Why News Corp.’s activity could be investigated under the Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S.-based company or its employees from giving anything of value to a foreign government official to obtain, retain, or help business. Over the past four decades, each element of this law has been widely interpreted by the Department of Justice and the Securities and Exchange Commission. And it’s largely been upheld in court rulings.

Allegations that News of the World employees bribed police officers for information on news stories would undoubtedly fall within the wide interpretation of “government officials,” which can also include employees of majority state-owned utility companies, and “obtaining business” that the DOJ and the SEC took under the Clinton, Bush, and Obama administrations.

Commissioner Stephenson officially stepped down for his close ties to former deputy editor of News of the World Neil Wallis, who Stephenson hired as a police consultant. But it’s the revelation that he accepted a free stay at a luxury spa that would put him under an FCPA bribery investigation.

Meanwhile, Assistant Commissioner Yates stepped down for shutting down the 2009 investigation of News of the World’s phone hacking activities despite the more than 11,000 pages of unread evidence remaining. This act would constitute helping News Corp. obtain and retain business under the current interpretation of FCPA.

Scotland Yard has since launched two major investigations: Operation Weeting, to probe allegations of phone hacking, and Operation Elveden, to probe allegations of bribes to the police. Both operations played key roles in Kuttner’s arrest.

What could happen

While the DOJ has the option to prosecute either the individuals who made payments or the entire company, prosecutions of companies under FCPA are often settled before the case ever gets to trial. Instead of facing the severe penalties its crimes would warrant, News Corp. could simply shell out its shareholders’ money to pay the settlement. And while this might cost the company hundreds of millions of dollars in fines and legal expenses, it would be a small price to pay to save its name.

In fact, only one of the FCPA cases filed against corporations ever made it to trial. The relatively small, family-owned Lindsey Manufacturing Company was convicted after it went to trial last year. Risk-averse corporations do not want to engage in potentially damaging trials and have instead opted to settle these cases out of court. Conversely, individuals prosecuted under FCPA face five years of jail time and cannot use shareholder funds to settle the case, making them more prone to take their chances at trial.

Unfortunately, the DOJ faces a high burden of proof to prosecute any high-ranking individuals at News Corp. since the alleged payments likely happened at much lower levels than the Murdochs or the Rebekah Brookses. Last month, Rupert Murdoch testified before the British Parliament that he was not engaged in the day-to-day activities of his newspapers enough to know of or authorize News of the World’s illegal activities.

Several former News Corp. employees, however, called into question the testimony of Murdoch and his son, News Corp. Europe and Asia Chairman and CEO James Murdoch. Former News International legal chief Colin Myler claims that contrary to his statement before parliament, James Murdoch was aware of and authorized a $1.1 million payment by a News of the World reporter to Gordon Taylor, the former head of the Professional Footballers’ Association in the United Kingdom. The payment was allegedly intended to keep Taylor from going public with the fact that his phone had been hacked by News Corp. employees.

The payment to Taylor is on top of the more than $200,000 in payments by News of the World to police officers, according to a report by The New York Times. These sorts of payments imply that the most senior levels of News Corp. management were aware of the hacking accusations and at the very least created an environment where bribing was condoned.

Whether this information will be enough to personally implicate Rupert and James Murdoch in a FCPA prosecution, as opposed to News Corp. as an entity, remains to be seen. But News Corp. appears to be preparing for a fight no matter which way the DOJ chooses to approach this case. To build their defense, the Murdochs hired experienced lawyer Brendan Sullivan, famous for representing Oliver North in the Iran-Contra scandal.

Attorney General Eric Holder has a responsibility to use the full authority of the Foreign Corrupt Practices Act to prosecute the American-based News Corp. for the alleged bribes of its subsidiaries in Great Britain. These types of practices and illegal activity are bad for business, bad for governance, bad for journalism, and should not be tolerated by the U.S. government. Any steps it can take to stop these crimes need to be used.

Ken Sofer is Special Assistant for National Security at American Progress.

To speak with our experts on this topic, please contact:

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