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BREAKINGVIEWS-News Corp may escape U.S. bribery action

Mon, 25 Jul 2011 10:20 GMT

Source: reuters // Reuters Breakingviews

 (The author is a guest columnist for Reuters Breakingviews. The opinions expressed are his own.)

   By James Ledbetter

   NEW YORK, July 22 (Reuters Breakingviews) - Ever since reports surfaced that executives at News of the World paid bribes to members of the UK's Metropolitan Police, there have been lots of people in the United States who would like to see News Corp <NWSA.O> and/or its top executives prosecuted under American laws. News Corp is an American company, goes the argument, and paying bribes abroad is explicitly prohibited by the Foreign Corrupt Practices Act.

   Those observations are true as far as they go, and they appear bolstered by reports on Friday morning that the Justice Department is preparing subpoenas as part of a preliminary investigation into News Corp.

   But the argument that a successful U.S.-based bribery case can be built against Murdoch's company involves at least as much wishful thinking as it does legal acumen. There may be some effective ways to use the FCPA against News Corp, but nailing News Corp executives in the United States for police bribes in the UK requires an enormous, unprecedented stretch of the FCPA, and one which seems unlikely to stand up in court.

   The FCPA was a groundbreaking piece of anti-corruption legislation when Jimmy Carter signed it into law in 1977. But even its most passionate fans would admit that (a) its enforcement over the decades has been spotty, and (b) no one involved in the creation of the FCPA ever envisioned it being used to punish checkbook journalism, legal or illegal.

   Indeed, when the Securities and Exchange Commission originally issued a report in 1976 describing the types of illegal payments U.S. corporate entities were making at the time, the four categories it outlined didn't remotely involve paying for information of any kind. Instead, the FCPA was designed to prohibit the classic kickback scenario: Company A pays Foreign Official B to receive Contract C -- or, in the words of the statute, "to assist in obtaining or retaining business." Following reports of the alleged News Corp bribery, several lawyers have been quoted in the press saying that the government agencies responsible for enforcing the FCPA have in recent years become more aggressive in how they interpret that phrase.

   That's true. And the vagaries of FCPA enforcement -- different courts have different standards, cases get settled before decisions are reached -- make it impossible for even experts to know conclusively how a zealous SEC or Justice Department official might define "obtaining or retaining business."

   Still, a review of dozens of such cases produces not a single instance in which the bribe in question resembles a newspaper paying police for tips. Even the most expansive enforcement efforts have uniformly been about the mechanics of getting commerce done, what legal experts call a "business nexus": customs duties; tax payments; securing government licenses and permits; obtaining storage space in government-controlled facilities; patent applications; etc.

   As offensive and explicitly illegal as paying police for information might be, it is a huge stretch to say that it is part of the business nexus of a multinational corporation.

   Assume for the sake of argument that News of the World did spend 100,000 pounds or more paying the police for story tips, and that the paper reaped some modest circulation benefit from the scoops it published.

   That is still worlds away from, say, paying a Nigerian tax official to look the other way on an audit. The police would have to be proven to have knowingly taken the money in order to further News Corp's business in the UK. In fact, they were in no position to influence whether News of the World did or didn't sell copies on any given week; nor would any of the revenue involved have been dependent on government action, as it would be, say, in a customs duty bribe.

   Without a government quo for News Corp's 100,000 quid, without even the suggestion of a governmental action that might make it easier or cheaper for News Corp to do business, there is no solid basis for a case.

   Incidentally, it's far from clear that the more recent and aggressive FCPA cases themselves pass judicial muster. Much of the contemporary debate around FCPA involves a case that began in 2001, called United States v. Kay. In it, two officials of a Houston-based company were accused of deliberately understating the amount of rice they had exported to Haiti in order to reduce their tax bill.

   Although the defendants were eventually found guilty, the Fifth Circuit appeals court's much scrutinized decision clearly stated that simply because a bribe might have helped a company economically, that doesn't mean it violates the FCPA.

   Finally, there is a blunter, less politically correct reason why a FCPA case is unlikely. Enforcement of the FCPA since its inception has been almost comically arbitrary; the title of a detailed law review article by an influential professor is "the facade of FCPA enforcement."

   In 2003 and 2004, the government initiated a meager total of six FCPA cases each year. In 2007, the government initiated 38 cases. Obviously, there was not a six-fold increase in bribery activity in the intervening years; the government chooses these cases very selectively.

   Go down the list of where cases are initiated and you'll see a pattern -- China; Indonesia; Pakistan; Iraq; Nigeria; Malaysia; Venezuela; Honduras; Yemen, etc. Very rarely does any OECD or G20 country show up. Rightly or wrongly, the U.S. government chooses to enforce the FCPA in places where it perceives that local rule of law is insufficient. By contrast, if News Corp executives broke bribery laws in the UK, it is reasonable to assume that British justice is up to the task of prosecuting them.

   Of course, if Americans really want our laws to prohibit police bribes overseas, Congress can change the FCPA statute. But as a rule, laws shouldn't be stretched to cover behavior outside their intended scope.

   (Editing by Richard Beales and Martin Langfield)