Governance issue may loom for NewsCorp

Murdoch could face SEC fines over alleged bribes.

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It all started in the UK, and within days has managed to reach the shores of the US: a federal investigation into media mogul Rupert Murdoch’s empire is underway and according to news sources, Murdoch could be prosecuted under the Foreign Corrupt Practices Act.

Last weekend, Murdoch’s 168-year-old British newspaper News of the World was closed, after allegations surfaced that its reporters illegally hacked into phone messages of crime victims, victims of the 9/11 terrorist attacks, celebrities and politicians. Reports say police in the UK have identified close to 4,000 potential incidents of phone hacking. There are also allegations that News of the World reporters engaged in bribery of law enforcement officers.

‘So if the UK has sturdy enough laws, why are news outlets in London and the US so busy speculating whether James Murdoch could face an American criminal prosecution under the FCPA?’ questions Richard Cassin, a lawyer and FCPA expert. ‘For the record, we've heard no speculation from the DoJ itself, and we don't expect to [and] the folks there wouldn't insult their counterparts in London, who are more than able to handle this case on their own.’

However, Cassin concedes that the Securities and Exchange Commission might investigate some of News of the World’s parent company, News Corporation’s, accounting standards and how its London subsidiary recorded the alleged bribes. ‘An SEC enforcement action would be a civil matter, however, not a criminal prosecution.’

Yesterday, Murdoch, chairman of News Corp, announced that he has dropped his $12 billion bid to take over the UK’s pay-TV broadcaster British Sky Broadcasting Group (BSkyB).

'News Corp has acted astutely in withdrawing a bid that has become a political hot potato,' says Paul Downs, a partner at Jones Day and a corporate governance and compliance specialist. 'Given the position of public trust media companies are believed to hold in western democracies, it does not serve anyone's interest to put News Corp's BSkyB bid to a vote and force politicians to cast a vote in today's climate.'

News Corp already owns 39 percent of BSkyB – amid the phone hacking scandal that shuttered News of the World.

'The deal is not critical for News Corp, nor is its timing, so it seems an appropriate and well thought-out sacrificial lamb on the altar of public opinion.  High-profile but little long-term impact,' Downs concludes.