U.S. litigation against Rupert Murdoch's News Corp. may not be imminent; but it's still all bad news for him
News Corp. chief Rupert Murdoch is all lawyered up and bound for London tomorrow on a crisis management mission.
And with the trip, a fresh wave of speculation has gripped that country's media that his company, under investigation by British authorities for phone hacking and police bribery at two of its tabloid newspapers in the United Kingdom, might have to fight a two-front war: one there, and one here in the United States. American news outlets have been only too happy to pick up the reports.
Indeed, lawyers in New York, where News Corp. has its headquarters, are continuing to explore whether there are grounds for U.S.-based civil litigation in the still-spiraling scandal over alleged phone-hacking by journalists at the now-shuttered News of the World.
Norman Siegel, the prominent New York civil liberties attorney, is assessing whether the scandal had any American victims, or whether any of its British victims have cause to sue here.
"The more and more that's revealed about what's happened in London with regards to phone-hacking, the question becomes, if it was done in the U.K., was it done in the U.S.?," he said in a phone interview yesterday. "That's what we're exploring."
Mark Lewis, the London-based lawyer who represents a group of British clients at the center of the saga, has retained Siegel and another well-known local attorney, Stephen Hyman, to find out.
But reports in the British press that immediate legal action will emerge from their work may be premature. The Independent on Monday reported that Lewis is in the "advanced stages" of bringing his first suit against Murdoch's media empire this side of the Atlantic, and that Lewis and his team have "already scheduled key meetings in New York to take place within the next few weeks."
Siegel, who said he spoke with Lewis for about 45 minutes last Wednesday, said he understood that the timeline for Lewis' trip to New York was "a little later" than that. Siegel said he expected to know more about what course of action they would take by the end of the month.
In an earlier interview back in September, Siegel told Capital he'd been brought on board "to explore any and all New York state legal options that could exist pertaining to the phone hacking within News Corp. We’re trying to match the facts with regard to his clients in London to the legal statutes in New York. We know that people in London from News of the World hacked into his clients' phones. The question becomes, did News Corp. people in New York know? Were they aware of it? Did they participate? Did they sanction it?"
He declined to get any more specific about the current scope of his joint investigation with Lewis.
"We in New York are continuing to do research, and when and if we feel the facts match the pre-requisites for legal action, we at that point might do something," said Siegel. "We're still working on it."
There is also an open investigation at the Department of Justice into possible criminal activity by News Corp., an American company based in New York, but it's about something entirely different: Whether the company violated the Foreign Corrupt Practices Act.
The Foreign Corrupt Practices Act makes the bribery of foreign officials by American companies prosecutable under federal law in certain cases; reports over the weekend that five journalists at surviving U.K. News Corp. tabloid The Sun had been arrested for bribing police to get scoops intensified speculation that this federal investigation, too, might turn out to have teeth.
"News Corporation executives could be vulnerable to individual prosecution by US anti-bribery authorities under the so-called 'willful blindness' clause that holds company chiefs culpable if they chose to be unaware of any specific wrongdoing by their employees," The Guardian reported Monday. "Under the act, the company and its executives are liable to potentially severe penalties, including up to five years in prison."
At the very least, companies that are successfully prosecuted under FCPA, or that seek a settlement to avoid prosecution, pay enormous and sometimes crippling fines. And across the spectrum of American legal opinion on the merits of FCPA, nobody disputes that it is fast becoming one of the feds most vigorously and extensively used legal weapons.
There is no doubt News Corp. takes the possibility seriously, if only because the threat of the American investigation is making shareholders jumpy.
Its legal team stateside is formidable, and full of people with expertise in federal corruption laws. George W. Bush’s former attorney general, Michael Mukasey, and former Manhattan U.S. Attorney Mary Jo White, both of white-shoe Manhattan law firm Debevoise & Plimpton, are on the case; board member Viet Dinh, a former assistant attorney general in the George W. Bush administration, is overseeing.
The company has taken steps to free its internal investigation into the British subsidiary News International, which ran both newspapers, from scrutiny by anyone except the legal team convened in New York.
And Chief Operating Officer Chase Carey was recently heard trying to comfort shareholders about the vigorousness of the company's efforts to pull out of the muck.
"As we've said many times, we're committed to making things right in the U.K.," Carey said on News Corp's quarterly earnings call last week. "Our priority is to get on top of this and make things right."
From the start, legal experts have questioned the application of FCPA to the bribery scandal at News Corp., largely because British anti-bribery laws are internationally famous for their strictness, even compared to American law.
"The U.K.'s domestic antibribery laws are sturdy enough to handle a prosecution of Rupert Murdoch's son, James, if one is justified," is how one post back in July 2011 on The FCPA Blog put it. "So if the U.K. has sturdy enough laws, why are news outlets in London and the U.S. so busy speculating whether James Murdoch could face an American criminal prosecution under the Foreign Corrupt Practices Act?"
There's at least one possible reason: The current politics of FCPA prosecutions.
"Knowing the tendency of prosecutors to take high-profile cases, I think they might spend some time on it," said Richard Painter, a former chief ethics lawyer in the second Bush White House who has worked on FCPA cases and teaches law at the University of Minnesota.
But: "The whole point behind the Foreign Corrupt Practices Act was to address situations where U.S. companies were going into countries that had weaker bribery laws than the U.S. and seeking to take advantage of that to win unfair advantages," Painter told Capital. "I hardly think of the U.K. as the type of country where we should be using FCPA to prosecute for conduct there."
Nevertheless, "it's a very broad statute and it doesn't preclude this type of enforcement at all," he said.
And given the amount of time (possibly years, said Painter) and expense (there will be lots of billable hours not just in one country, but two) that an FCPA action could entail (let alone the possible discoveries and outcomes that might result), it could very well spell more bad news for News Corp. if an investigation is allowed to remain open at all, even if it never results in a prosecution.
"It could be damaging to the company," said Painter, "because you have no idea where it's gonna go."
So far there's only been speculation about the level of self-disclosure News Corp. has offered the federal investigation. In cases such as these, it's common for a company that suspects possible breaches of FCPA to persuade the feds that they are undertaking a robust internal investigation, and apprise them of the results of those investigations as well as investigations under way in the country abroad in which the corruption is suspected to have taken place.
Such remediations have in the past kept investigators at bay.
But endless disclosure and internal investigation is taking a toll on the company, and the longer it drags out the worse it is.
Most recently, James Murdoch, the 39-year-old son of Rupert Murdoch and former director of News International's News Group Newspapers Limited, is under fire for a deleted 2008 email chain in which he was made aware that phone-hacking at since-shuttered tabloid News of the World was, as then-editor Colin Myler (currently the editor of our own Daily News) put it, "as bad as we feared.” Whether the younger Murdoch actually scrolled through that entire correspondence on his BlackBerry is another matter. (He insists that he missed Myler's crucial message in his haste.)
The email revelation has gotten traction stateside, too; it was the subject of a front-page New York Times feature on Sunday. For James Murdoch, it means that his position as heir apparent to the company throne now seems uncertain, at best.
Murdoch's mission in London, meanwhile, is a thankless one: Restoring the faith of shareholders and containing the damage from endlessly ongoing investigations requires vigorous internal investigation and will likely result in more "sackings."
The mood within Murdoch's remaining newsrooms in England is said to be "hostile and angry." And Sun staffers feel as if they're being thrown to the dogs. It was revealed Tuesday, for instance, that company brass have given up some of their sources to the authorities. Sun journalists are now mounting a legal challenge in response to the disclosure of their confidential informants.
Murdoch now finds himself in the unenviable position of having to weed out any traces of corruption within his U.K. stable while also placating his restive journalists. The main goal for his trip this week is to reassure them that their cash-cow of a tabloid will not become the sacrificial lamb that News of the World did when it was closed down seven months ago in a desperate bid for good faith with an investigating Parliamentary committee.
So in many ways, the things News Corp. needs to do to contain the problem in England and weed it out conflict with many of the things News Corp. needs to do to keep its remaining newspaper properties whole.
There is, of course, one other storm News Corp. may still have to weather in the U.S. legal system.
Last July, after The Guardian blew the lid off its bombshell scoop that a murdered 13-year-old girl was among those whose phones had been hacked, yet another U.K. tabloid, the Daily Mirror, suggested that the hackers' targets may also have included 9/11 victims and their family members.
The problem with the widely-publicized report was that the paper's sourcing was rail-thin. And since no other news outlets have confirmed the allegation independently (as usually happens when rumors turn out to be true), it hasn't gained much credence. (Though it's hard to ignore the erily compelling stories of several such 9/11 relatives as detailed in a Jan. 2 New York Times piece: “Every time we picked up the phone, we heard a little clicking noise that was intermittent. Then we started hearing voices of people, as if they were on a speaker phone. A few times we’d say, ‘Can you stop listening to us, please?’ Then all of the sudden, we’d hear a click and they would be gone.”)
Credible or not, the D.O.J. and the Federal Bureau of Investigation have been looking into the claims, and Attorney Gen. Eric Holder met with several 9/11 families back in August to address their concerns.
What they have or haven't found remains a mystery, however: Siegel, who separately represents 9/11 families, said he is still waiting for an update on the status of the federal probe. He was last in touch with D.O.J. officials just before Christmas and again last week, and plans to follow up soon.
"There's nothing more I can report at this point," he said.