NY Post Dragged Into News Corp. Bribery Scandal, Murdoch Faces FCPA Case Against Him

The NY Times published a piece about News Corporation and Rupert Murdoch yesterday that said, essentially, Murdoch and his company had their mojo back, the hacking scandal was behind them and the company was out to buy new properties.

That was yesterday.

This was today:

The new round of criminal charges brought in the UK against former senior News International editors has once raised again the prospect that Rupert Murdoch's New York-based parent company may be prosecuted under US anti-bribery laws, and complicates the rehabilitation of his son James as a possible successor to lead the global media empire.

The charges brought against Rebekah Brooks, who ran Murdoch's newspaper holdings in Britain, Andy Coulson, former editor of the now defunct News of the World, and two other former News International employees exposes the parent News Corporation to possible action under the Foreign Corrupt Practices Act. The FCPA exists to prosecute US-domiciled companies for acts of bribery and corruption that they might commit abroad.

An official of the British ministry of defence, Bettina Jordan Barber, also faces trial for allegedly receiving £100,000 from Murdoch's tabloid newspapers for information that led to a series of published stories. The allegation that money passed hands clearly falls within the legal remit of the FCPA.

Mike Koehler, professor of law at Southern Illinois school of law and author of the blog fcaprofessor.com, said the charges "would be hard for the Department of Justice and the Securities and Exchange Commission to ignore. We have been hearing allegations for a year and a half now, now we clearly have charges against high ranking officials at a foreign subsidiary," he said.

The new charges, and the allegation of bribery of a military official, come as a setback for News Corporation at a very sensitive time for the company. The media giant is preparing to split itself in two, separating the TV and broadcasting arm from the scandal-hit newspaper and publishing division.

The developments also bring to a crashing halt the recent perception in America that News Corporation had begun to recover its confidence after months on the defensive as a result of the phone-hacking scandal.

...

 The new charges will increase pressure on the company. Koehler said US authorities would be looking to see how high up the chain of command the bribery scandal reached. "The question will be what did James know and when did he know it," he said. Ultimately he predicted News Corp would reach a settlement with the Justice Department rather than go to trial, but he said that News Corp faced some uncomfortable investigations in the coming months.

The FCPA has two main components, one that relates to the bribing of foreign officials and another that relates to books and record keeping. It is often the latter that causes companies the biggest headaches. Characterising a bribe as "miscellaneous expense" is a serious offence.

"This latest news is an escalation of the FCPA case," said Koehler. But he said he expected the case could still take some years to be resolved.

 In addition to that FCPA problem for Murdoch, the Daily Beast's Peter Jukes alleges News Corporation employees may have either bribed a U.S. military officials or known that News International employees in Britain had bribed said officials and used the information obtained through the illegal payments in the NY Post:

Did News Corp. Illegally Purchase Saddam Hussein Photos from U.S. Officials? 

Dozens of employees have already been arrested for allegedly paying off British officials—and sources now tell Peter Jukes that U.S. agents may also be implicated, as questions arise over how they scored controversial photos of Saddam Hussein.

 While the scandal that shuttered Britain’s best-selling tabloid, News of the World, has gone quiet ahead of next year’s phone-hacking trials, Britain’s parallel investigation into what has been described as a “culture of illegal payments” to public officials at sister daily The Sun has shifted into high gear. And this week Scotland Yard handed over several new files from its investigations into the alleged bribery to public prosecutors in the U.K., for a decision over whether to press formal charges against some of the 54 individuals arrested so far in the controversy.

The allegations that News Corp., which owns The Sun, made illegal payments to British defense personnel, police officers, and health workers in exchange for confidential information sparked widespread public outcry, which triggered investigations by the U.S. Department of Justice, Federal Bureau of Investigation, and Securities and Exchange Commission in the summer of 2011. Under the U.S. Foreign Corrupt Practices Act, American-owned companies who suborn foreign officials can incur large fines and possible prison sentences for senior executives. These investigations typically take two years to complete.

But The Daily Beast has learned that The Sun may have made another potentially corrupt payment, to a U.S. official on American soil.

On Friday, May 20, 2005, two Murdoch-owned tabloids, The Sun and the New York Post, ran front-page pictures of Saddam Hussein in his underwear, and inside the papers, more photos of the former Iraqi leader in U.S. captivity. According to Fox News, the Multinational Forces spokeswoman in Baghdad said the images could have been taken between January and April 2004, “based on the background of the photos and appearance of him.” Given the context of the Abu Ghraib revelations and ongoing, violent insurgency in Iraq at the time, multiple sources reported that President George W. Bush was upset about the leak. “There will be a thorough investigation into this instance,” deputy White House spokesman Trent Duffy told The New York Times, “[The president] wants to get to the bottom of it immediately.”

No investigation has ever found the source of the leaked pictures, but buried in the contemporary reports is a glaring admission. The Sun’s then-managing editor, Graham Dudman, told the Associated Press that his newspaper paid “a small sum” for the photos. Dudman would not elaborate “except to say it was more than 500 British pounds, which is about $900.”

Sources close to the story have told The Daily Beast that the payment was significantly greater, and was made to a U.S. official on American soil. Meanwhile, Scotland Yard detectives arrested Dudman in January of this year on suspicion of making corrupt payments involving British officials. He has yet to be charged with any criminal offense in the U.K.

(Incidentally, in 2005, Dudman said in a statement, “The Sun obtained [the Hussein] pictures by professional journalistic methods, and by any standards this is an extraordinary scoop as shown by the way it has been followed in the world’s media.”)

In 2004 former News of the World editor and current CNN host Piers Morgan was sacked from the U.K.’s Daily Mirror publishing fake photos of British soldiers abusing Iraqis. Given this history of hoaxes, The Sun would have been very cautious about accepting the Hussein photos in 2005. Expertise in both photographic manipulation and the physical details of Iraqi life would have been required to authenticate the pictures before they were procured. If the procurement and verification of the photos happened on American soil by a News International contact from the U.K., their movements may have been recorded by U.S. immigration. Any financial transaction would also most likely have left an audit trail.

The Sun’s editor in 2005, Rebekah Brooks, appeared to be oblivious to the illegality of paying public officials for stories when she appeared before a House of Commons Select committee a couple of years before. However, in his verbal evidence to the Leveson Inquiry into press ethics, Rupert Murdoch, chair, CEO and head of corporate governance for News Corp., told Lord Justice Leveson under oath in May (PDF), “I believe that paying police officers for information is wrong.”

The problem for Murdoch and the board of News Corp. may be that these pictures were published on both sides of the Atlantic on the same day, perhaps suggesting some kind of advance co-operation between the American parent company and the British News International subsidiary. If there is any evidence that there was prior knowledge by senior executives of payment for the pictures, this could bring the possibility of a U.S. investigation and charges with stiff penalties for illegal payments to public officials.

Last year, New Corp. set up a Management and Standards Committee, tasked with assisting British police with uncovering evidence of corrupt payments. The MSC holds a vast database of internal News International emails and communications, and answers to former U.S. assistant attorney general and News Corp. board member Viet Dinh. It is not known whether any requests for information have been made to the MSC regarding The Sun’s activities in May 2005, when the Hussein pictures were published.

Neither representatives from the FBI nor News Corp. responded to The Daily Beast’s requests for comment on the fresh revelations at the time of publication.

 Yesterday's NY Times story absolving Murdoch and News Corp from any more consequences related to the hacking/bribery scandal seems to have come too early.

I know the Obama administration wants nothing to do with a FCPA case against Murdoch and News Corporation, but as more and more information becomes public about the scandal and the criminal activities of N.I. bribing government officials in Britain, they may have no choice.

And now with the Peter Jukes story dragging the NY Post into the mess, we may yet see some Posties frogmarched into custody.