LONDON — Legal experts said Monday it is possible Rupert Murdoch's U.S. companies may face legal actions because of the shady practices at the News of the World, his now defunct British tabloid.
They said Murdoch's News Corp. might be liable to criminal prosecution under the 1977 Corrupt Foreign Practices Act, a broad act designed to prosecute executives who bribe foreign officials in exchange for large contracts.
The News of the World was accused of making payoffs to police in exchange for information – a possible violation of the anti-bribery provisions of the act. It would be up to the U.S. Department of Justice to decide if this merited criminal charges, while the Securities and Exchange Commission would determine if there had been financial wrongdoing at News Corp.
Former federal prosecutor Dan Guthrie of Dallas, now a lawyer specializing in white collar cases, said Murdoch's concern about possible legal exposure under the corrupt practices act may explain his abrupt decision to shut down the tainted tabloid.
"That was my first thought when I heard the news," he said. "Someone must have advised him that he needed to do that to limit his exposure. Clearly the act is broad enough to cover something like this, and the U.S. Department of Justice is being increasingly vigorous in enforcing this act."
He said that by shutting the paper Murdoch may be hoping to prevent any possible U.S. prosecution under the act, and also keep prosecutors from investigating whether the corrupt practices were used at some of Murdoch's other newspapers.
"By closing the paper, you've essentially lopped it off from the empire and said it's gone," Guthrie said. "That tends to mitigate the need for an investigation. You don't just close down a profitable paper in a cavalier way; there must be something going on behind the scenes."
He and other lawyers said they would be shocked if the Securities and Exchange Commission is not investigating the allegations against the News of the World.
"The SEC will automatically be involved because it's a listed company, and the Department of Justice will be looking at this," said Stuart Deming, a Washington lawyer who handles corrupt practices cases. "They may wait and see what the British do."
He said the SEC would be examining whether proper accounting procedures and internal controls were in place. If bribes were covered up with fraudulent accounts, that could lead to prosecution, he said.
"The act is very broadly interpreted, and if the payment to police officials was for the purpose of getting information, it would certain be a violation of the act because it would help them make more money," Deming said.
In Washington, Justice Department spokeswoman Tracy Schmaler declined to comment on speculation that the department might consider an FCPA investigation into the allegations. The act has never been used to prosecute paying for information to increase newspaper circulation.
New York lawyer Ron Kuby said U.S. prosecutors have increasingly taken the view that events that take place outside the United States may be brought to U.S. courts – a trend toward "extraterritorial jurisdiction" that might make Murdoch more vulnerable.
Metropolitan Police Chief Paul Stephenson has vowed that police who took illegal payments from the newspaper will face criminal charges.
Pete Yost in Washington contributed to this report.