FCPA Compliance and Ethics Blog

July 11, 2013

What is ‘Acceptance of Responsibility’ Under the US Sentencing Guidelines?

One of the things that I am often asked is how are fines and penalties calculated for Foreign Corrupt Practices Act (FCPA) violations? The Department of Justice (DOJ)/Securities and Exchange Commission (SEC) FCPA Guidance has the following explanation. First, the offense level is calculated pursuant to the US Sentencing Guidelines (USSG) §§2C1.1 or 2B1.1, by starting with the base offense level and increasing it as warranted by any applicable specific offense characteristics. The next reference is made to the organizational guidelines found in Chapter 8, which lay out the structure for determining the final advisory guideline fine range for organizations. The base fine itself consists “of the greater of the amount corresponding to the total offense level, calculated pursuant to the guidelines, or the pecuniary gain or loss from the offense.”

The base fine is then multiplied by “a culpability score that can either reduce the fine to as little as five percent of the base fine or increase the recommended fine to up to four times the amount of the base fine.” As described in USSG §8C2.5, this culpability score is determined by taking into account numerous factors “such as the size of the organization committing the criminal acts; the involvement in or tolerance of criminal activity by high-level personnel within the organization; and prior misconduct or obstructive behavior.” The culpability score can be reduced if the “organization had an effective preexisting compliance program to prevent violations and if the organization voluntarily disclosed the offense, cooperated in the investigation, and accepted responsibility for the criminal conduct.”

I thought about some of the basis for the calculations in the context of the ongoing reports about News Corp’s chairman, Rupert Murdoch, and his remarks which were recorded in March of this year when he spoke to a group of journalists from The Sun, a News Corp entity. The FCPA Blog, in a post entitled “On secret tape, Murdoch reportedly acknowledges Fleet Street’s ‘corrupt culture, reported that “A covert recording from March seems to capture News Corporation chairman Rupert Murdoch suggesting that bribery is part of the Fleet Street culture.” The Guardian, in an article entitled “Rupert Murdoch revealed – tape exposes the media mogul’s real opinions”, detailed further excerpts from the recording by noting he was annoyed with the police who he believes are “incompetent”, additionally he was not sure that setting up the Management and Standards Committee (MSC) which performed the company’s internal investigation was a good idea and, finally, Murdoch “lays into lawyers, accusing them of getting rich by trawling through millions of emails.” Just when you think it cannot get any worse (or better – depending on your perspective) The Guardian states, “He talks of the News of the World in personal terms: “We got caught with dirty hands, I guess” before launching into a further attack on the police: “The cops are totally incompetent … It’s just disgraceful what they’re doing … It’s the biggest inquiry ever, over next-to-nothing.””

How is that for ‘tone-at-the-top’? Even the News Corp owned Wall Street Journal (WSJ), in an article entitled “Murdoch Recording Piques Interest of Police, Lawmakers”, said “Mr. Murdoch’s remarks in the meeting sharply contrast with his public contrition over the newspapers’ alleged use of illegal reporting tactics.” But more than just this general statement how would Murdoch’s statements be analyzed under the culpability score used in FCPA cases? Would an admission by Murdoch that there was a culture of bribery and corruption on Fleet Street weigh under the factor of “tolerance of criminal activity by high-level personnel within the organization”? How about the potential reduction for accepting responsibility for the criminal conduct?

Murdoch’s remarks are in stark contrast to other reports of the actions taken by News Corp. In an article in the July issue of Corporate Counsel magazine, entitled “Doubling Down”, reporter Sue Reisinger profiled News Corp General Counsel (GC) and Chief Compliance Officer (CCO) Gerson Zweifach. In her article, Reisinger discussed the MSC, which led the company’s internal investigation of not only the bribery allegations but also the phone hacking scandal. It was information discovered in the course of the MSC’s internal investigation, and later turned over to the relevant government authorities, which led to many of the arrests of News Corp employees. The MSC and its work have clearly been one of the aggressive approaches taken by News Corp during the investigation. But The Guardian reported Murdoch may feel differently about such cooperation now when it stated, “He admits to a measure of panic as the reason for setting up the MSC to provide information to the police: “The police were about to invade this building … it was done to protect the business.””

Reisinger also reported that the FBI has opened its own investigation of News Corp. She also reported that the DOJ “has said that it’s examining whether the company accessed voicemails of 9/11 victims, as well as whether it violated the Foreign Corrupt Practices Act”. So it is probably very helpful to News Corp that it instituted a new compliance program, based in part on the settlement of a shareholder derivative lawsuit. Reisinger said “A commitment to the program is included in the settlement document. The program seeks a more centralized approach to managing risk while still allowing for local autonomy.” Putting together a best practices compliance program during the pendency of a FCPA investigation is certainly one of the most powerful steps a company can take to help to ameliorate a potential FCPA penalty, the Parker Drilling enforcement action has certainly made that clear.

I would normally say that actions speak louder than words. But what is the DOJ to make over the taped remarks of Murdoch? The Guardian article ends with the following “But the real significance of the tape is that it reveals the true, unexpurgated Rupert Murdoch. As I have said often since the hacking scandal first broke, as the man at the top I believe he has been responsible for the journalistic culture at Wapping. This tape appears to prove my point.” I no longer think it is a question in the News Corp investigation “What did the President know and when did he know it?” If such a culture existed and the person who knew about it and tolerated it is still at the helm, does this impact the DOJ’s analysis under either the USSG or the culpability score? Further, does it matter if you belittle your own internal investigation, even up to the point where you suggest it should have never been done?

We do know that the DOJ takes quite a dim view of any company which settles and then claims that, you know we really didn’t do anything wrong. Standard Chartered shows us what the DOJ’s response was when its chairman claimed that the bank had engaged in “no wilful act to avoid sanctions; you know, mistakes are made – clerical errors” related to its myriad of conduct in doing business with Iran, in violation of US trade sanctions. The response was that two weeks later, he was required to eat those words when he “said those comments were “both legally and factually incorrect”” and retracted them. “Standard Chartered Bank unequivocally acknowledges and accepts responsibility . . . for past knowing and wilful criminal conduct in violating US economic sanctions laws and regulations”.

But that was after all a Bank which had admitted to its violations, agreed to a Deferred Prosecution Agreement (DPA) and to pay a large fine. Here News Corp has made no such admission or agreement. And since acceptance of responsibility is only one factor under the culpability score, perhaps News Corp can garner more credit for its cooperation and creation of a best practices compliance program. Then again perhaps it is all simply a misunderstanding. The Guardian also reported that “A statement released by Murdoch’s spokesman said: “Mr Murdoch welcomes the opportunity to return to the Select Committee and answer their questions. He looks forward to clearing up any misconceptions as soon as possible.”

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

November 26, 2012

New Charges for News Corp: Are FCPA Charges Just Around the Corner?

When you have eliminated the impossible, whatever remains, however improbable, must be the truth.

~ Sherlock Holmes in The Sign of the Four by Arthur Conan Doyle

Last Wednesday was the 125th anniversary of the first appearance of the world’s greatest consulting detective – Sherlock Holmes when the first Holmes novel, A Study in Scarlet, appeared in Beeton’s Christmas Annual in 1887. This week we will celebrate one of my favorite works of fiction, while trying to draw some compliance parallels, under both the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. We begin with The Sign of the Four because it is the one novel by Arthur Conan Doyle which has everything: swirling fog, a lost treasure, a chase, Holmes’ cocaine use and a damsel in distress. It is also the novel in which Holmes’ companion Dr. John Watson meets his bride Miss Mary Morstan. olhh

Much like The Sign of Four, the News Corp matter would seem to have everything. Last week charges were 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. According to a Press Release from the Crown Prosecution Services (CPS), “We have concluded, following a careful review of the evidence, that Bettina Jordan-Barber, John Kay and Rebekah Brooks should be charged with a conspiracy to commit misconduct in public office between 1 January 2004 and 31 January 2012. This conspiracy relates to information allegedly provided by Bettina Jordan-Barber for payment, which formed the basis of a series of news stories published by The Sun. It is alleged that approximately £100,000 was paid to Bettina Jordan-Barber (a Ministry of Defence [MOD] employee) between 2004 and 2011.”

Dan Sabbagh, in a Guardian article entitled “Rebekah Brooks and Andy Coulson charges set new context for Leveson”, noted that “Significantly, the CPS said that the charges against the two for alleged misconduct in a public office cover the period between 2004 and as recently as 2011 – when payments to MoD official Bettina Jordan-Barber totalling about £100,000 are alleged to have been made.” This means that the payments lasted beyond the date that was alleged to have been for the phone-hacking scandal, “Hacking charges laid by the CPS against Brooks, Coulson and others range from October 2000 to August 2006, before the younger (James) Murdoch arrived at Wapping.” These payments to Jordan-Barbara were alleged to be in excess of ₤100,000.

These charges may mean significantly more international legal problems for News Corp, specifically regarding liability under the FCPA. Ed Pilkington and Dominic Rushe, also writing in the Guardian in an article entitled “News Corp exposed to growing legal threat following charges for tabloid duo”, quoted Professor Mike Koehler (the “FCPA Professor”) who said “the charges would be hard for the Department of Justice and the Securities and Exchange Commission to ignore [regarding a violation of the US FCPA]. 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.”

So how might Brooks and Coulson be liable under the FCPA? The recently released US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) “A Resource Guide to the U.S. Foreign Corrupt Practices Act” explains that an individual may be liable for conspiracy to violate the FCPA without having committed a substantive FCPA violation.

Under US law, individuals or companies that aid or abet a crime, including a FCPA violation, are as guilty as if they had directly committed the offense themselves. The aiding and abetting statute provides that whoever “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission,” or “will­fully causes an act to be done which if directly performed by him or another would be an offense against the United States,” is punishable as a principal. Aiding and abetting is not an independent crime, and the government must prove that an underlying FCPA violation was committed.

Both individuals, who are foreign nations and companies, may also be liable for conspiring to violate the FCPA, i.e., for agreeing to commit an FCPA violation, even if they are not, or could not be, indepen­dently charged with a substantive FCPA violation. So both a foreign national such as Brooks and Coulson could be convicted of conspiring with a domestic concern to violate the FCPA. Under certain circumstances, they could also be held liable for the domestic concern’s substantive FCPA violations under Pinkerton v. United States, which imposes liability on a defendant for reasonably foreseeable crimes committed by a co-conspirator in furtherance of a conspiracy that the defendant joined.

A foreign individual may be held liable for aiding and abetting a FCPA violation or for conspiring to violate the FCPA, even if the foreign company or indi­vidual did not take any act in furtherance of the corrupt payment while in the territory of the US. In con­spiracy cases, the US generally has jurisdiction over all the conspirators where at least one conspirator is an issuer, such as the US Corporation News Corp, who commits a reasonably fore­seeable overt act within the US. For example, if a foreign company or individual conspires to violate the FCPA with someone who commits an overt act within the US, the US can prosecute the foreign company or individual for the conspiracy. The same prin­ciple applies to aiding and abetting violations. For instance, even though they took no action in the US, Japanese and European companies were charged with con­spiring with and aiding and abetting a domestic concern’s FCPA violations.

Pilkington and Rushe predicted that “the new charges will increase pressure on the company. They cited a further quote from the FCPA Professor “This latest news is an escalation of the FCPA case.” Further, he told them that “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.”

Even more ominously for News Corp, Pilkington and Rushe reported that “This week the Daily Beast alleged that the Murdoch tabloids the Sun and the New York Post may have made payments to a US official on American soil in order to obtain a photo of a captive Saddam Hussein, the deposed Iraqi leader, in his underwear. News Corporation has denied the claims.”

Where does this leave News Corp? It may be in quite a precarious position now. First there are the two high ranking former News Corp employees charged with conspiracy to commit bribery of a UK government official. Brooks was the former Sun editor and later ran the Murdoch’s holdings in the UK. Coulson was the former editor of the now defunct News of the World and later Director of Communications for UK Prime Minister David Cameron. As stated by the FCPA Professor in the article, what about the knowledge of James Murdoch? While the phone hacking charges may have occurred before he was involved in News Corp’s UK operations, the dates of the alleged payments may certainly impact him as well. All we can say with certainty is…watch this space.

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I will be discussing the recently released FCPA Guidance next Tuesday afternoon in a webinar, hosted by World Compliance. The event will be held at 2 PM CST. Details and registration can be found here. I hope that you can attend.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

November 21, 2012

Why Perform Due Diligence?: “That’s PR Speak for fraud”

Yesterday brought some very interesting news from both ‘across the pond’ and here in the US. From the UK, there was the news of the arrests of former News Corp head honchos Rebekah Brooks, who ran Murdoch’s newspaper holdings in Britain, Andy Coulson, former editor of the now defunct News of the World. Dominic Rushe, writing in the Guardian, quoted the FCPA Professor who said it “would be hard for the Department of Justice [DOJ] and the Securities and Exchange Commission [SEC] 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.” More ominously, Rushe cited to a report from The Daily Beast that the “Daily Beast alleged that the Murdoch tabloids the Sun and the New York Post may have made payments to a US official on American soil in order to obtain a photo of a captive Saddam Hussein, the deposed Iraqi leader, in his underwear.” Rushe did note that “News Corporation has denied the claims.” But we will leave a more detailed discussion of the events for a later post.

The second piece of news was almost as breath-taking. As reported in the Wall Street Journal (WSJ), Hewlett-Packard (HP) wrote down $8.8bn of its $11bn purchase value of the UK Company Autonomy. HP said “that an internal investigation had revealed “serious accounting improprieties” and “outright misrepresentations” in connection with U.K. software maker Autonomy.” Further, according to HP Chief Executive Officer (CEO) Meg Whitman, “”There appears to have been a willful sustained effort” to inflate Autonomy’s revenue and profitability. This was designed to be hidden.” Speaking more bluntly (as always) Francine McKenna, in her post entitled “Hewlett-Packard’s Autonomy Allegations: A Material Writedown Puts All Four Audit Firms On The Spot”, in forbes.com said “That’s PR-speak for fraud.”

Not to be outdone, the WSJ reported that “Michael Lynch, Autonomy’s founder and former CEO, fired back hours later, denying improper accounting and accusing H-P of trying to hide its mismanagement. “We completely reject the allegations,” said Mr. Lynch, who left H-P earlier this year. “As soon as there is some flesh put on the bones we will show they are not true.”” In other words, Lynch accused HP of mismanaging his former company and destroying its value in less than 12 months. It should also be noted that the Autonomy acquisition was pushed through by the former CEO of HP, Leo Apotheker; not the current CEO.

I thought about the HP story in the context of the section in the recently released DOJ/SEC A resource Guide to the U.S. Foreign Corrupt Practices Act (FCPA) on successor liability and why a company needs to perform pre-acquisition due diligence:

First, due diligence helps an acquiring company to accurately value the target company. Contracts obtained through bribes may be legally unenforceable, business obtained illegally may be lost when bribe payments are stopped, there may be liability for prior illegal conduct, and the prior corrupt acts may harm the acquiring company’s reputation and future business prospects. Identifying these issues before an acquisition allows companies to better evaluate any potential post-acquisition liability and thus properly assess the target’s value.

 It should be noted that Autonomy’s outside auditor before the deal, Deloitte UK, gave the company a clean bill of health. Further, HP had its own outside auditor, KPMG, brought in at the pre-acquisition stage to conduct due diligence work, which was essentially to check Deloitte’s audit work of Autonomy. In other words, two of the world’s top auditing firms passed muster over Autonomy’s books and records and gave the entity’s financial statements a passing grade.

Once, when asked why men play football, Jet coach Herm Edwards emphatically said “You play to win the game.” I think people need to realize that compliance due diligence under the FCPA can also be used to help company’s do more than uncover potential FCPA issues but also help correctly assess the value of target companies. It might help prevent multi-billion dollar write downs. Unless of course the target company has engaged in an on-running, long term fraud…

Happy Thanksgiving to all…

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I will be discussing the recently released FCPA Guidance next Tuesday afternoon in a webinar, hosted by World Compliance. The event will be held at 2 PM CST. Details and registration can be found here. I hope that you can attend.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

January 3, 2012

Ten Compliance Issues from 2011

I have seen several lists of the Top Foreign Corrupt Practices Act (FCPA) issues of 2011. Sam Rubenfeld and Chris Matthews at the Wall Street Journal’s Corruption Currents have been interviewing several of the top legal practitioners on their thoughts. The ever-present Mike Volkov has weighed in with his list and his “Person of the Year”, the Chief Compliance Officer. Howard Sklar and I even got into the video act by discussing our most significant issues in “This Week in FCPA”. So as part of the compliance commentariati, I submit, for your consideration, my Top Ten anti-corruption and anti-bribery issues over the past 12 months.

1.         Amendments to the FCPA? The Senate ended 2010 with hearings focusing on why there were not more individual prosecutions under the FCPA. In June, the House Judiciary Committee focused on ways to ease up on or gut the anti-corruption provisions of the FCPA in the name of US “competitiveness” overseas. Then in a stunning turnaround, the House Judiciary Chair asked the Department of Justice (DOJ) representative if the DOJ would support a ban on all commercial bribery, not just a ban on bribing foreign governmental officials. Then again he did say was drafting amendments to the FCPA which we haven’t heard about since the great theater in June.

2.         UK Bribery Act goes live. For many in the anglophile world, the event of the year was the marriage of Prince William to Kate Middleton. However, for us in the anti-corruption and anti-bribery world, it was effective date of the UK Bribery Act, July 1. While some had opined that the Bribery Act was “the FCPA on steroids” the initial prosecution under the Bribery Act was for a £500 bribe paid to a UK court clerk. Perhaps it just takes awhile for UK steroids to kick in.

 3.         Crystal Ball Reading. One does not have to read a crystal ball or tea leaves to know what should constitute a best practices compliance program. The DOJ continues to respond to calls for information by practitioners and the commentarati by providing solid information through which you can implement or enhance your compliance program. In addition to continuing to list the 12 points in a minimum best practices compliance program in each Deferred Prosecution Agreement (DPA)/Non-Prosecution Agreement (NPA) released; the DOJ has provided ‘enhanced compliance obligations’ in DPAs which provide information on evolving standards. Back in January, the DOJ provided information on areas of risk which should be assessed to inform your compliance program.

4.         Chief Compliance Officer Upgrade. With the effective changes in the federal sentencing guidelines from November, 2010 and the DOJ comments this year, it has become clear that companies must give a more prominent role to the Chief Compliance Officer and separate that function from that of the General Counsel.

5.         Investigating Private Equity. Both the DOJ and Serious Fraud Office (SFO) announced that they would be looking at private equity, in conjunction with anti-bribery and anti-corruption. Well known for cost reductions through cutting corporate budgets, they may become a prime and profitable set of targets for enforcement agencies.  Additionally, their unique structure of separately operating portfolio companies may greatly increase ownerships control and person risks. If you are in private equity and are reading this and have no clue what I am talking about, get on the phone to one of Howard Sklar’s recommended FCPA counsel ASAP.

6.         It Just Can’t Get any Weirder. Just when you think you have seen it all in the FCPA world, News Corp., is accused of bribing Scotland Yard to further its newspaper business and it is also alleged that a lawyer representing a US company in Mexican litigation attempts to bribe a court official to obtain a favorable ruling. Then, of course there is Olympus, which not only fires its whistle-blowing Chief Executive Officer (CEO) for questioning Red Flag payments to agents, which reveals that it has been engaged in a decade long corporate fraud. But here’s the topper in my book, someone posted a comment to my blog post about Tyson’s Foods paying bribes to the wives of Mexican food inspectors to obtain ‘favorable treatment’. She said the following “The meat being TIF-certified for export was not meat distributed to U.S. The meat was being exported to countries such as Japan and other Asian destinations.” I am sure that is of great comfort to the folks in “Japan and other Asian destinations”. Memo to Tyson: Call Gini Dietrich at Spin Sucks for some serious PR help.

7.         Plaintiff’s Bar gets that old time (FCPA) religion. The FCPA was used, in a somewhat novel manner, in three civil actions which may portend an entire new wave of private and civil FCPA litigations. In SciClone a shareholder derivative action was filed after the announcement of a FCPA investigation. During the pendency of a FCPA investigation, this civil action was settled with the company agreeing to implement a best practices compliance program. In Alba v. Alcoa a company whose employees were allegedly paid bribes (Alba) sued the alleged bribe-payor (Alcoa) for damages in driving up the costs for products sold because of the corrupt acts of Alcoa. In ICE, the Costa Rican telecom company sought to use the victim restitution component to allow it to participate in the DOJ’s FCPA settlement with Alcatel-Lucent.

8.         Rule of Law. Several DOJ prosecutions of individuals under the FCPA have brought a plethora of legal rulings to flesh out legal standards under the FCPA. In the spring, there were district court rulings on whether a state owned enterprise is covered by the FCPA and an analysis of what constitutes a state owned enterprise. These cases will probably be appealed so we may have the first US court of appeals’ interpretation of the FCPA in quite some time.

9.         Wide World of Enforcement. More countries are implementing new anti-corruption laws and more resources are being dedicated to enforcement. The US has had significant cooperation with the UK SFO and Financial Services Association (FSA) and this will increase with the go live date of the Bribery Act. However, the BRIC countries have passed, or are considering, significant anti-corruption laws. The US is starting to coordinate and share more information with these countries — China being the most significant.  For global companies, this increase will portend greater numbers of fines and penalties and will complicate international settlement efforts.

10.       Year of the FCPA Trial. This was the year that the DOJ brought out the big trial guns for three very high profile FCPA trials: the Gun Sting cases; Lindsey Manufacturing; and Haitian Telecom. The resolution results have been mixed, with convictions in Lindsey and Haitian Telecom; mistrial in the first of four Gun Sting trials and some dismissals in the second Gun Sting trial. However, the government has taken a black eye for some procedural missteps, particularly the judge throwing out the entire guilty verdict for prosecutorial misconduct in the Lindsey Mfg. case.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

July 11, 2011

Take Us Up to Warp Speed Mr. Sulu: News Corp, James Murdoch and the FCPA

For those of us science fiction fans who grew up in the 60s, Star Trek was the premier TV show. If you wanted to go somewhere fast, warp speed was about the fastest way anyone knew how to travel. This was at least augmented, but certainly not replaced, in the 70s in Star Wars by going to hyperspace in the Millennium Falcon. I raise all this by way of introduction to the near light speed catapulting from Friday until today of the possible Foreign Corrupt Practices Act (FCPA) issues against News Corp and James Murdoch in conjunction with the claims that (the now former) United Kingdom (UK) newspaper News of the World is alleged to have paid bribes to persons in the police force in the UK.

In a story, initially reported in The Guardian on Friday, July 8 by reporter Dominic Rushe, raised the question of whether James Murdoch or News Corp. could face charges under the FCPA for payments made to the UK police officers for information on stories. Rushe quoted the FCPA Professor, Mike Koehler, to confirm that FCPA jurisdiction would exist based on two factors; first for News Corp, as it is a US corporation, and “second, perhaps more importantly, the act requires that payments to government officials need to be in the furtherance of ‘obtaining or retaining’ business. If money is being paid to officials, in this case the police, in order to get information to write sensational stories to sell newspapers” this would also be the basis for jurisdiction.

Later that day, Sam Rubenfeld, writing in the Wall Street Journal (WSJ), also discussed the possibility of FCPA allegations against News Corp. Rubenfeld quoted James Tillen, the coordinator of Miller Chevalier’s FCPA & International Anti-Corruption Group, about another facet of the FCPA, the books and records provisions. Tillen said, “It would be more likely that News Corp. could get caught up by the law’s books-and-records provisions, which have a longer extraterritorial reach than do the FCPA’s anti-bribery sections. For example, if the alleged payments to police were not properly recorded, that would be a violation of the FCPA”.

On Saturday, July 9, Peter Cohan, writing in Forbes.com, raised the issue of corporate governance at New Corp. He wrote, if evidence surfaces that connect James Murdoch to the any of the illegal payments directly, then he could be on the hook, for FCPA violations. Cohan also speculated that emails detailing some of the transactions at issue may have been destroyed when he stated, “News Corp. has allegedly been involved in destroying documents”.

By the next day, Sunday, July 10, the story had spread into other newspapers which went in yet another direction, that being the exposure of James Murdoch. As reported by Christopher Hope, Katherine Rushton and Raf Sanchez, The Telegraph and Robert Peston, in the BBC-mobile edition, raised the issue of whether James Murdoch authorized payments to persons whose cell phones had been hacked, “could leave him vulnerable to prosecution under anti-snooping legislation. Alan Johnson MP, the Labour home secretary from June 2009 to May 2010, suggested that Mr. Murdoch could be charged under the Regulation of Investigative Powers Act 2000, which covers the “criminal liability of directors”.

The speed of all of the above is simply amazing. If you are on the Board of Directors of the parent entity of News Corp., you may not have even had time to retain FCPA counsel before all of this has been in the press. If you haven’t I suggest you consult Howard Sklar’s blog, entitled “Getting Advice” on who to hire when it’s really, really, really bad (as in now for News Corp):

I’d call in one of the “deans” of the FCPA bar: Dan Newcomb (Shearman), Roger Witten (WilmerHale), Homer Moyer (Miller Chevalier), Marty Weinstein (Willkie), Joe Warin (Gibson Dunn), someone like that. They’re expensive, but you’re going to need them…If you’re in a situation and want to know what the DOJ’s reaction is going to be, there is really only one person to call. And if you have to ask me who, you’re in over your head. (It’s Mark Mendelsohn at Paul Weiss).

The reality is that it is really bad now already and it’s time for the best FCPA counsel you can find. On the other hand, it may be time to invoke another classic line from Star Trek, beam me up, Scotty

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.
© Thomas R. Fox, 2011

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