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Should News Corp. fear bribery charges in the U.S.?

July 22, 2011, 9:13 PM UTC

With the U.S. Justice Department, SEC, and FBI having acknowledged that they are all making preliminary inquiries into the News Corp.’s phone-hacking and police-bribery scandal, and with the company having retained one of America’s leading experts on the U.S. Foreign Corrupt Practices Act, many are wondering how much Rupert Murdoch’s company has to fear from that law’s provisions. (News Corp. has hired FCPA expert Mark Mendelsohn of Paul, Weiss, Rifkind, Wharton & Garrison, as well as famed criminal defense attorney Brendan Sullivan of Williams & Connolly to represent it in the inquires. In addition, News Corp’s independent directors have hired former U.S. Attorney General Michael Mukasey and former Manhattan U.S. Attorney Mary Jo White, both of Debevoise & Plimpton, to assist them in their investigation.)

On Tuesday, two former Justice Department attorneys argued in the Wall Street Journal that applying the FCPA “to news-gathering raises very significant First Amendment concerns for all U.S. media.” The FCPA was really intended “to clean up government contracting,” they contend, which is not implicated at all in the current scandals. The payments that News of the World and, perhaps, other papers are suspected of having made to London police officials are thought to have been made to obtain story leads, and not to obtain government contracts from the police or other English governmental bodies, they argue.

Though the authors, David Rivkin and Lee Casey, are very well-credentialed, their arguments are undercut in the eyes of some by the fact that they are noted political conservatives, that they were political appointees during the Ronald Reagan and George H.W. Bush administrations, and that their commentary was appearing in a News Corp. (NWS) publication.

Fortune contacted Dan Newcomb, who founded the anti-corruption practice at Shearman & Sterling, and Daniel Slifkin, a securities litigation partner at Cravath, Swaine & Moore, to obtain a second- and third-opinion on the applicability of the FCPA to the conduct that is now under scrutiny.

Is the FCPA targeted only at government contracting, and therefore inapplicable to alleged payments to police for leaking information?

The law has two main parts. With respect to one part—the anti-corruption provisions—there is real ambiguity about whether the law applies and, if it does, whether it was intended to, according to the experts we contacted. The other part of the law, on the other hand—which requires keeping accurate books and records—seems likely to encompass the conduct being alleged.

The anti-corruption provisions forbid an American corporation from making payments to a foreign official in order to help the company “in obtaining or retaining business for or with . . . any person.”

“The point is,” Newcomb says, “that the statute is not a general foreign bribery statute,” but is aimed, rather, at the problem of “American companies buying business overseas.” Certainly, the classic FCPA bribery prosecution does involve a payment to a government official so that a company can land a business contract of some kind. “So I have to question whether obtaining newspaper information and stuff to publish is for that purpose.”

Slifkin, on the other hand, thinks bribing a police officer for leads or leaks “would probably be covered” even by this prong of the FCPA. While he does agree that most FCPA prosecutions involve “bribing the government to get business from the government,” he thinks the purpose that would have motivated the tabloids’ conduct here—to get scoops in order to sell more newspapers—still satisfies the literal requirements of the this section of the law.

What about the other part of the FCPA—the provisions requiring accurate books and record-keeping?

Here there appears to be no easy out for News Corp. if its employees are, in fact, found to have been bribing police officers, according to both Newcomb and Slifkin. Whether the bribes had a “business purpose” is irrelevant to a charge brought under the books and records provisions, they say, which contain no such limiting language. Newcomb adds that there is precedent for prosecutors aggressively using the books-and-records provisions of the FCPA when it would have been difficult or impossible for them to prosecute a bribe under the law’s anti-corruption provisions.

The books-and-records section was aimed at forbidding “slush funds,” Newcomb says, because, “bribes are usually paid with cash siphoned off the books illegally.” Under this section of the law, if it turns out that payments were in fact made to the police, the company would have a problem unless its books and records described those payments as “bribes for Scotland Yard” or something else “about that explicit.”

Furthermore, these provisions require not just keeping accurate books and records but also instituting “proper internal controls” to ensure accurate record keeping, Cravath’s Slifkin notes. If there were widespread paying of bribes to police officers, this provision might also have been violated.

Suppose it were eventually shown that some News tabloid had paid officers of Scotland Yard, say, $100,000 a year in bribes. Would that be enough to implicate the FCPA, or would that be considered small potatoes?

“That’s plenty,” says Newcomb, who notes that he’s seen FCPA prosecutions for a bribe as small as $400. The statute applies to payments of “anything of value.”

Slifkin agrees. “In some countries, it doesn’t take a lot” to bribe a foreign official, he says, and those are the “same places where most of this stuff goes on.”

As a matter of prosecutorial discretion, do you really think U.S. prosecutors would pursue a FCPA prosecution against News Corp.?

Newscomb doubts it. “Unless we find domestic violations,” he says—for instance, that News Corp. reporters bribed New York City police officers to provide information about 9/11 victims—Newcomb thinks U.S. prosecutors will leave these matters to the British authorities. While there will be some “thumping around” by U.S. authorities, he predicts—in order to placate U.S. politicians—“as long as the British don’t fall down” in their own inquiries, “I’m not sure what the U.S. adds to the process—to prosecute conduct that occurred in England.”

In fact, one of the factors that would make a FCPA prosecution in this situation so unusual, Slifkin notes, is that the FCPA “tends to be used in less developed countries that don’t have rigorous antibribery statutes” of their own. “What you don’t often see is the FCPA being used for conduct in countries like the U.K., where the world doesn’t work this way and it’s obviously illegal to bribe police officers. So there may be a little bit of getting in on the act.”