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By James Ledbetter
James Ledbetter is the op-ed editor of Reuters. He is the author of the new book Unwarranted Influence: Dwight D. Eisenhower and the Military-Industrial Complex, published in January 2011.
I wrote last week that using the U.S. Foreign Corrupt Practices Act (FCPA) to charge News Corp over allegations that officials at the now-shuttered News of the World bribed police officials would be an “enormous, unprecedented stretch…which seems unlikely to stand up in court.” There are two qualifiers to this; first, the column was referring to Guardian reports about payments to police supposedly made in 2003, which appear to have been for tips leading to stories for the paper. If it could be shown that subsequent sums to police were made to delay or thwart investigations into News Corp activity—a very big if—then those payments might come a little closer to the types of bribes historically punished under the FCPA. (Even there, however, U.S. authorities would still be reluctant to jump into such a case unless British prosecutors abandoned such an inquiry, which seems unlikely to occur any time soon.)
I also hinted at a second possibility, both more intriguing and more likely: a different part of the FCPA could apply to any police bribes News Corp paid. This is the “books and records” provision of the FCPA; ProPublica’s Jake Bernstein summarized its potential use in this case succinctly: “If you pay off the policemen and you don’t write it down in your company ledger as ‘Bribe two policemen,’ then this can be a problem because you haven’t accurately kept your books and records.”
The FCPA is quite explicit about this: an American company doing business abroad has to maintain timely and accurate books; has to have internal accounting controls that ensure that employees don’t have the authority to wander off paying bribes on their own; and has to constantly check its records for any discrepancies.
At least two aspects of books-and-records make it a very powerful tool that should be keeping News Corp lawyers very busy: a) there’s no threshold attached to it, meaning that theoretically even a small bribe could trigger it, b) the government doesn’t need to prove that a bribe met all the specific FCPA provisions, merely that it was improperly accounted for. You might call it the Al Capone technique: when the federal government couldn’t get much traction on more exotic charges, it nailed the mobster for tax evasion.
And so while I am still waiting for someone, somewhere to name a case in which bribes resembling payments to police officers for story tips were successfully prosecuted under the FCPA, there are indeed recent examples in which the U.S. government extracted fines and penalties for books-and-records violations without having to win on the alleged bribes themselves.
I spoke to Hugh Jones, CEO of Accuity, probably the most important company in the world that helps companies establish payment systems that comply with rules like the FCPA, who pointed me to three such cases in the past few years. One is the SEC’s case against NATCO, a Texas company oil and gas company. The government maintains that in 2007, the company bribed immigration officials in Kazakhstan who were threatening to deport some people working for a NATCO subsidiary. Company books, the government maintains, improperly recorded the expenses as advances against salary or bonuses, or as “visa fines.” Similarly, NATCO allegedly also signed off on some invoices it knew were fraudulent.
Another books-and-records example, which strikes me as a bit removed from what News Corp might have done, is the SEC’s case against Comverse, described by the government as more of a classic kickback for a lucrative telecommunications contract in Greece, and also supposedly involved the creation of an offshore entity by a third party. The third seems to me even more far afield, the El Paso Corporation’s payments to Iraq, which stemmed from the scandal-ridden U.N. Oil for Food Program.
But even if the underlying circumstances of dubious payments in these cases may differ from what is believed to have happened at News of the World, that’s sort of the point of doing an Al Capone. The SEC or Justice Department wouldn’t have to prove all the messy quid-pro-quos about who knew or expected what when the cash changed hands. All they need to do is to prove that the company misrepresented the payments.
Keep in mind that the results might not be very heartening to the Murdoch haters. The NATCO case, for example, was a civil—not criminal—action in which the company paid a not-overwhelming $65,000 fine and admitted no wrongdoing. Then again, as Jones points out, the very fact that the U.S. has signaled interest in News Corp’s books ought to trigger a bunch of internal investigations. And if those investigations turn up anything even mildly smelly, the company would be idiotic at this late stage not to disclose them to regulators. If that happens, the U.S. might yet find material for a broader case.