The British newspaper arm of Rupert Murdoch’s News Corp. is in negotiations to pay several million dollars to settle the claims of the family of a slain girl whose mobile voice mail messages were hacked by a private investigator for one of its tabloids. Murdoch would personally pay more than $1.5 million to charity as part of the deal.
But that’s only the latest fallout for News Corp. in the phone hacking and bribery scandal there.
Now, the company is seeking to fend off major legal consequences in this country. The newest front for News Corp. involves the Foreign Corrupt Practices Act, a 1977 law banning American firms from paying bribes to government officials abroad.
Columbia University law professor John Coffee, director of the law school’s Center of Corporate Governance, said the company is moving swiftly and powerfully to contain the threat.
“The most striking feature of the current standoff is that News Corp. has pretty much assembled a dream team of all-star foreign corrupt practice litigators,” Coffee said. “You don’t put all that investment into this without having some serious concerns about what might happen.”
News Corp.’s British division has admitted that private investigators working for the now-defunct News of the World newspaper paid British police officials for information from confidential databases. Two police officers from an elite unit, for example, reportedly sold a book of private contact information for the royal family for about $1,600. Such information was often used to help reporters gain illegal access to mobile voice mail messages as they pursued scoops.
There are questions of whether senior Scotland Yard officials were also paid off to ignore early signs that the practices were widespread. In July, members of Parliament grilled Andrew Hayman, a former assistant police commissioner. Hayman had enjoyed lavish dinners with Andrew Coulson and Neil Wallis — then top editors at News of the World – six years ago as he led an earlier inquiry into phone hacking by the tabloid. Coulson and Wallis were both arrested and questioned this past summer in the case. Hayman left the force in 2007 and became a paid columnist for Murdoch’s Times of London. He has denied any wrongdoing.
Earlier this summer, the Guardian broke the story that a private eye for the tabloid hacked into the mobile of a missing 13-year-old girl, listened to her voice mail messages and erased them in order to create more space for other messages that could yield information useful to reporters. The revelations sparked a furor in London, and further fueled momentum that had gathered behind renewed police investigations.
Since then, celebrities, politicians, survivors of war dead and victims of vicious crimes and terrorist attacks have been told by Scotland Yard that they were likely targeted by News Corp.’s British tabloids.
Top officials for News Corp. and News International, its British newspaper arm, have insisted they knew nothing of the practice. And some skeptics of the applicability of the American law note the relatively small amount of money that was paid out. News International is reported to have passed evidence to police that people acting on its behalf paid police the equivalent of $200,000 for confidential information.
But the American law applies without any regard to the size of the inappropriate payment, says Alexandra Wrage, president of Trace, a not-for-profit firm that helps companies comply with anti-bribery laws.
“News Corp. is a U.S. company, and the FCPA — the Foreign Corrupt Practices Act — was designed to prohibit companies based in the U.S. or trading on U.S. stock exchanges from paying bribes to government officials — very broadly defined, certainly to include police officers — overseas,” Wrage said.
As a result, it doesn’t matter that there are no concrete claims that this phone-hacking scandal involves illegal actions in the U.S., though U.S. Attorney General Eric Holder has confirmed that the FBI is looking into that possibility as well.
There are actually two components to the law. The first would involve the criminal prosecution of a quid pro quo, or a bribe. The second, requiring a lower burden of proof, is a civil action by the Securities and Exchange Commission against publicly traded companies for falsifying records by failing to disclose such improper payments accurately. Columbia’s Coffee said federal officials are more likely to pursue that second, civil course.
Several lawyers pointed to the 2008 settlement reached by the U.S. government, among others, with another large conglomerate, Siemens. Although the company is a German concern, its shares are traded in the form of American Depositary Receipts on the New York Stock Exchange. Though the company did not admit guilt, it did pay a total of $800 million in U.S. criminal and civil fines for paying bribes and kickbacks abroad, and additional fines to foreign regulators.
In addition, Siemens agreed to sweeping changes to its management and governance practices. Six of the company’s 15 directors left the board in the wake of the settlement.
Impact On News Corp.
News Corp. didn’t respond to requests for comment for this story. Much of Murdoch and his son James’ response to the hacking scandal has centered on their efforts to maintain control of the company even as the younger Murdoch’s own actions have come under question.
Investors credit Rupert Murdoch’s drive and vision in building up what was once a small Australian newspaper company into a global media empire. But observers and consultants on governance issues such as the University of Delaware’s Charles M. Elson say the primary issue for News Corp. is the Murdoch family’s firm control of the publicly traded company.
The scandal’s repercussions for the company in the U.K. have been severe. The company shuttered News of the World, the paper at the heart of the scandal, and relinquished its plans to complete a $13 billion takeover of Britain’s largest broadcaster, BSkyB, in which it holds a controlling stake. Major criminal and civil proceedings are continuing against the company there.
Wrage says she ultimately expects federal authorities to go after News Corp. in this case, and that the company will yield.
“I think there’s a lot of background noise over which points the company could win and which the Justice Department would be likely to win, or the SEC for that matter,” Wrage said. “I just don’t think that’s going to be the final analysis.
“The final analysis is going to be: If it’s as bad as it sounds, how quickly can they settle? What remedial measures will they have to implement? And how bad will the fine be?”
The Justice Department has indicated it is monitoring the investigation in the U.K., while the SEC would not comment on its level of interest in the case.
The American law may aid British plaintiffs in their suits against the corporation in the U.K.
Late last week, Mark Lewis, one of the lead lawyers for British victims in the hacking cases, told NPR he intends to file papers under the law in American courts to compel both Murdochs and other News Corp. board members to submit to depositions under oath about just what they knew — and when.