Sources called into question in case

“Schadenfreude” is the term that comes to mind in surveying much of the reaction to the News Corp. hacking scandal.

But the calls for federal authorities to investigate the media giant to see if possible wrongdoing spread to this side of the Pond are very, very real — and there’s some expectation that the Justice Dept. and/or the Securities and Exchange Commission will follow through.

Sources said Thursday that the FBI had launched an inquiry into what may be the most alarming of the allegations involving U.S. citizens: that News of the World employees sought out the phone records of 9/11 victims.

It’s unclear whether the evidence is more solid than what has been reported. The suspicions appear to be based on a second-hand account from an unnamed source who talked to a competing publication, the Daily Mail. The source told the Daily Mail of a former police officer-turned-private investigator who said he was once approached by News of the World journalists for the phone hacking records.

In other words, this is a one-sourced story, and maybe not even a directly sourced one.

For the time being, though, what has been more intriguing for legal scholars is whether News Corp. potentially ran afoul of the Foreign Corrupt Practices Act, which prohibits giving anything of value to a foreign official to obtain or gain work or to secure an unfair advantage. The allegations are that News of the World employees paid off British police officers for information, and Sen. Jay Rockefeller (D-W.Va.) and other lawmakers have asked the Justice Dept. and the SEC to launch a probe on that front.

The FCPA — put on the books in 1977 — inspires images of corporate underlings delivering cash-filled envelopes to government officials for lucrative contracts. Far less typical — if any case like it has been pursued at all — are cases where journalistic hacks grease the palms of cops for tabloid information.

Nevertheless, legal scholars believe that the allegations make it a valid source of inquiry into FCPA violations.

Michael Koehler, assistant professor at Butler U. in Indianapolis, believes there is exposure because the allegations involve employees of a division of News Corp., based in the United States, who may have attempted to pay off a U.K. police officer, i.e. a British official, for information.

The case could be made, he said, that a payment to police officers “would best assist News of the World” as it advanced its business interest in getting scoops over rabid rivals.

“I think the business element of FCPA would be met given those facts,” said Koehler, who specialized in the law for more than a decade as a practicing attorney and now has his own blog, FCPA Professor.

Although the idea of journalists running afoul of the law — or even exposing their corporate overlords — may be a bit unconventional, Koehler noted that federal authorities have in recent years taken a broader view of the statute, pursuing cases that have nothing to do with obtaining government contracts but rather payments to customs, immigration or tax officials. Last year, in what is believed to be the first case of its kind involving Hollywood, Gerald and Patricia Green were sentenced to six months in prison after they were convicted of bribing Thai officials to win lucrative film festival grants and contracts.

News Corp. also could face SEC civil penalties via another part of the law that covers how payments were accounted for — if they were at all.

Whether News Corp. executives could face criminal prosecution would depend on the usual question that comes up in a scandal: What did they know and when did they know it? In other words, an executive would “have to have had direct knowledge of the illegal activity,” like whether they authorized payments or tried to cover it up, said attorney Richard L. Cassin, a specialist in FCPA who also writes FCPABlog.

In most cases, U.S. authorities don’t take action when a country is fully pursuing its own claims under its own bribery laws — and in this case, U.K. authorities have “every reason not to sweep this under the rug,” Cassin said.

This case may be different, he noted, because of the political firestorm in London and now in Washington.

And given News Corp.’s abrupt closure of News of the World as a way to stem the crisis, it could take a proactive approach, Cassin notes, like going to authorities about suspected FCPA violations even before a charge is filed. Such self-disclosure would be an “attempt to limit and control the damage,” Cassin said,

Until then, the big problem for News Corp. is that it’s not apparent when and where it all ends, especially with a growing array of hearings and inquiries. It’s not just investigations that some public-interest groups are seeking but congressional hearings, citizen lobbying efforts and even calls for lawmakers to return the News Corp. PAC campaign contributions. As one D.C. crisis expert said, “The knives are out.”

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