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News Corp faces renewed threat of prosecution in US following Sun arrests

Investigation of alleged bribery under Foreign Corrupt Practices Act is greatest danger to Rupert Murdoch's media empire

Ed Pilkington in New York
guardian.co.uk,
Saturday 11 February 2012 17.32 EST

The latest Operation Elveden arrests sharply increase the danger to News Corporation of potential multimillion dollar fines by US authorities as part of the continuing investigation into alleged bribery of public officials under the Foreign Corrupt Practices Act (FCPA).

The eight arrests escalate the FCPA crisis for the company by extending the allegations of bribery from the News of the World to the Sun newspaper, and by broadening its scope from police officers to other public officials. An official from the Ministry of Defence and a member of the armed forces were also arrested for alleged corruption and "misconduct in a public office".

The threat of prosecution under the FCPA constitutes the greatest danger of the phone-hacking scandal for Rupert Murdoch's media empire. It could expose the company to tens of millions of dollars in fines and the risk of imprisonment of its executive officers.

It would also bring the scandal to America, which is the financial heart of the global company. News Corporation's headquarters are on Manhattan's Sixth Avenue, which is why the company is susceptible to the FCPA, a law introduced in the 1970s to hold US-based companies accountable for acts of bribery and corruption abroad.

Mike Koehler, an expert in FCPA law at Butler university, said Saturday's arrests marked an escalation in the risk of an FCPA prosecution. "This spreads the alleged bribery to a completely different newspaper, to a different segment of the company and to other public officials," he said.

Eric Holder, the US attorney general, launched a preliminary investigation into News Corporation's activities last July. The FBI is known to be involved in the investigation on both sides of the Atlantic.

It is also understood that the US Securities and Exchange Commission (SEC) is conducting its own inquiries. The SEC takes an interest in cases where false financial information has been provided – in the case of News International, the use of false names in company records and accounts to disguise the recipients of bribes from journalists could fall into that category.

In September, the US justice department reportedly approached News Corporation directly and asked for information on alleged bribes of police officers.

Koehler said that the FCPA inquiry is likely to consider whether any News Corp executives were culpable. "The DoJ and SEC wouldn't be doing their job if they didn't ask what the executive officers of the company knew about the corruption and whether they authorized it, or did anything to stop it."

James Murdoch, Rupert's younger son who serves as chairman of News Corp's European arm, has faced questioning in the British parliament over how much he knew about phone hacking at the News of the World.

The scale of any penalties that flow from the FCPA investigation would be based on a calculation of how much benefit the company derived from any corruption. Against that, mitigating factors would be taken into account such as the extent of co-operation given to the investigating authorities by the company.

That helps explain why News Corp has bent over backwards in recent months to assist the police by handing over evidence of possible wrongdoing, to the dismay of some of its own journalists.

The costs of an FCPA prosecution can be severe. The largest fine in FCPA history was imposed in 2008 against Siemens for $800m (£507.8m), while the heaviest prison term was handed out last October to Joel Esquenazi, who is now serving 15 years in jail for bribery of telecoms officials in Haiti.

To protect itself, News Corp has hired a battery of world-class FCPA lawyers led by Mark Mendelsohn, former chief of the DoJ's FCPA section. The team also includes Brendan Sullivan, a famously tough trial lawyer who represented Oliver North during the Iran-Contra hearings.