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Why is News Corp. Lawyering Up for a Potential FCPA Investigation?
The scandal involving News Corp. rocked both the U.K. and U.S. news media and political scenes. Commonly referred to as “Hackgate,” allegations against News Corp. range from hacking into private voicemails of victims of murder and terrorist attacks to bribing high level officials from police and government agencies. What has also become apparent is that News Corp. is anticipating an even further fall out from this scandal. Reports are in that News Corp. has hired some very expensive attorneys with expertise in Foreign Corrupt Practices Act (FCPA) investigations and litigation.
Although some may argue that the FCPA’s anti-bribery provisions only forbids an American corporation from making payments to a foreign official in order to help the company obtain or retain government contracts, nothing in the FCPA actually limits the statute’s reach in such a way. And although it is true that the statute is not a general foreign bribery statute, the statute is aimed at the problem of American companies buying business overseas.
So why is News Corp. so worried about an FCPA violation? News Corp. was allegedly bribing the police with the motivation that its tabloid magazine would have an inside scoop on lucrative newstories in order to sell more papers. Thus it seems, News Corp.’s conduct satisfies the literal requirements of the FCPA.
The FCPA is generally divided into two broad categories of offenses, the anti-bribery provisions and the accounting provisions. Although News Corp.’s conduct seems to implicate both provisions of the FCPA, this post will only discuss the anti-bribery provisions.
First, News Corp. is a person subject to U.S. jurisdiction because it is an entity traded and listed in the U.S. Under the FCPA domestic concerns and U.S. parent corporations may be held liable for the acts of foreign subsidiaries where they authorized, directed, or controlled the activity in questions. So it does not really matter that News Corp.’s U.K. subsidiary, New of the World, was the actual entity making the bribes so long as News Corp. authorized, directed, or controlled the activity in question. Determining whether News Corp. authorized, directed, or controlled the activity in question will likely be subject to heavy opposition by News Corp. throughout the course of the investigation.
The payments made must also have a corrupt intent, and the payment must be intended to induce the recipient to misuse his or her official position to direct business wrongfully to the payer or to any other person. The Justice Department have broadly construed the FCPA to prohibit any corrupt payment intended to influence any act or decision of a foreign official. Should the allegations against News Corp. prove true, payments paid to police officials to hack into private voicemails would surely satisfy the corrupt intent because they were paid with the intent to influence the officer to give News Corp. access to potentially lucrative voicemails of newsworthy individuals. It isn’t likely that these payments will be excepted from the FCPA as “facilitating payments for routine governmental action.” Such routine payments tend to be limiting for things such as permits, licensing, phone, mail pick-up etc.
The FCPA also requires payment. Technically, payment includes actually paying but it also includes offering or promising to pay money or anything of value. Should the allegations against News Corp. prove true, satisfying the payment requirement will not challenge the Department of Justice.
It must also be proven that the recipient of a payment be a “foreign official.” The FCPA defines foreign official as any officer or employee of a foreign government, a public international organization, or any agency therof. The allegations against News Corp. involve bribing British police officers for access to private voicemail accounts of newsworthy individuals. Police officials of a foreign government clearly qualify as foreign government officials.
As a person subject to U.S. jurisdiction, News Corp. cannot make corrupt payments to foreign police officers inducing them to hack into the voicemails of newsworthy individuals with the intent of selling more papers without violating the FCPA. Thus it seems that News Corp.’s conduct meets the technical requirements of the FCPA statute. They are lawyering up accordingly.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Goldman Sachs’ dealings with Libya under scrutiny for potential FCPA violations
The Securities and Exchange Commission (SEC) is looking into Goldman Sachs’ relationships with the Libyan Investment Authority. Back in 2007, Libyan leader Moammar Gadhafi attracted banks and securities firms when he launched the $40 billion fund.
SEC officials are looking into, among other things, a $50 million fee Goldman agreed to pay the Libyan Investment Fund as part of a plan to help the fund recoup losses.
Although the fee was never paid, the money was to be passed on to Palladyne International Asset Management BV, an entity run by the son-in-law of the head of Libya’s state-owned oil company. Negotiations stalled before the violence in Libya broke out and payment never actually took place.
While no formal investigation has been launched, the SEC has made inquiries. It would not be surprising to see this develop into a formal investigation. Given the federal government’s new found appreciation for enforcing the Foreign Corrupt Practices Act of 1977 (FCPA), it seems likely that the SEC will attempt to determine whether the $50 million fee Goldman agreed to pay can be construed as a bribe made to a foreign government official or employee of a state-owned company.
The FCPA, as amended, 15 U.S.C. 78dd-1, et seq., makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. The FCPA accomplishes this in two distinct ways:
(1) Prohibiting the payment of anything of value to officials of foreign governments (the “anti-bribery” provision); and
(2) Requiring accurate accounts and effective internal accounting controls (the “books and records” provisions).
Given the fact that the $50 million payment was not made, there will likely not be a “books and records” violation. However, the FCPA does make it unlawful to “promise to pay . . . or . . . promise to give . . . anything of value.” Stated plainly, a promised or attempted bribery of foreign government officials is unlawful under the “anti-bribery” provision of the FCPA. All Goldman can do at the moment is comply with the inquiries and its own document retention policies and hope that the government does not pursue a full investigation. Once a full investigation begins, Goldman will have to be careful not to get caught up in any of the “cover up” crimes like obstruction of justice and false statements. Additionally, federal prosecutors have not been shy about utilizing their full arsenal of tools to obtain convictions from entities it thinks have done something wrong. For example, federal prosecutors today coordinate their investigations with a very diverse group of regulatory and enforcement agencies.
This is why every U.S. person engaged in international trade must remain vigilant on many legal fronts. It is not uncommon to have multiple U.S. regulatory and statutory regimes simultaneously in play at any given moment. For example, any investigation into Goldman for their activities with Libya will not only implicate the SEC, but also the Department of Justice, the Department of Treasury Office of Foreign Assets Control, and possibly the Department of Commerce. The tools available to the government to coerce convictions are plentiful.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
