Wrong On The Law: The WSJ's Misguided Defense Of News Corp.

In an attempt to absolve its parent company, News Corp., of potential U.S. criminal responsibility for allegedly bribing U.K. police officials, The Wall Street Journal misled its readers about the enforcement history of the Foreign Corrupt Practices Act (FCPA), a federal law that outlaws certain bribes paid to foreign officials.

In a July 18 editorial, the Journal attacked the Justice Department for opening an investigation into News Corp. The Journal asserted: “The [FCPA] has historically been enforced against companies attempting to obtain or retain government business. But U.S. officials have been attempting to extend their enforcement to include any payments that have nothing to do with foreign government procurement.”

A reader of the Journal editorial would think that the FCPA pretty clearly applies to bribes that are made “to obtain or retain government business” and not to the types of bribes News Corp. allegedly made. A reader would also think that bureaucrats seeking to increase their power are baselessly “attempting to” broaden the coverage of the FCPA to such other areas.

But the Journal's narrative is plainly incorrect. While experts say the FCPA was once enforced more narrowly, the language of the FCPA is not limited to bribes that are made “to obtain or retain government business.” Rather, the relevant sections of the FCPA each prohibit bribes to foreign officials that assist in “obtaining or retaining business for or with ... any person.” [15 U.S.C. §§ 78dd-1(a)(1), 78dd-2(a)(1), 78dd-3(a)(1) (emphasis added)]

Furthermore, when the Bush administration brought a case against defendants who had paid bribes to foreign officials but were not seeking to obtain or retain government business through the bribes, a federal appellate court specifically stated that the FCPA could apply to such situations.

In other words, if the bribes News Corp. allegedly made to U.K. officials were made to obtain scoops for the purpose of increasing circulation, the bribes may very well have violated the FCPA.

The Journal stated:

In braying for politicians to take down Mr. Murdoch and News Corp., our media colleagues might also stop to ask about possible precedents. The political mob has been quick to call for a criminal probe into whether News Corp. executives violated the U.S. Foreign Corrupt Practices Act with payments to British security or government officials in return for information used in news stories. Attorney General Eric Holder quickly obliged last week, without so much as a fare-thee-well to the First Amendment.

The foreign-bribery law has historically been enforced against companies attempting to obtain or retain government business. But U.S. officials have been attempting to extend their enforcement to include any payments that have nothing to do with foreign government procurement. This includes a case against a company that paid Haitian customs officials to let its goods pass through its notoriously inefficient docks, and the drug company Schering-Plough for contributions to a charitable foundation in Poland.

Applying this standard to British tabloids could turn payments made as part of traditional news-gathering into criminal acts. The Wall Street Journal doesn't pay sources for information, but the practice is common elsewhere in the press, including in the U.S.

As its first example of an “attempt” by U.S. officials to improperly broaden the FCPA, the Journal pointed to “a case against a company that paid Haitian customs officials to let its goods pass through its notoriously inefficient docks.”

This is actually a reference to United States v. Kay, a case brought during the Bush administration in 2001 that resulted in a landmark 2004 ruling in which a federal appellate court upheld U.S. officials' interpretation that the FCPA applied to cases that did not involve obtaining or retaining government business.

In Kay, the defendants allegedly bribed Haitian customs officials “to accept false bills of lading and other documentation” that understated the amount of rice the defendants were shipping to Haiti. This, in turn, lowered the amount of customs duties and other taxes they had to pay to the government of Haiti. The district court dismissed the indictment. The Fifth Circuit reversed the district court's dismissal of the indictment, finding that Congress intended to cast a “wide net over foreign bribery.” The court added:

The congressional target was bribery paid to engender assistance in improving the business opportunities of the payor or his beneficiary, irrespective of whether that assistance be direct or indirect, and irrespective of whether it be related to administering the law, awarding, extending, or renewing a contract, or executing or preserving an agreement.

A jury subsequently found the defendants guilty, and they once again appealed to the Fifth Circuit. A panel made up of three Republican-appointed judges affirmed their convictions.

The Journal's second example of an attempt by U.S. officials to improperly broaden the FCPA is actually another example of a successful enforcement action. It involves a civil FCPA case brought by the Securities and Exchange Commission and settled in 2004 with the drug company Schering-Plough agreeing to pay $500,000 without admitting or denying responsibility.

It remains to be seen what will come of the Justice Department's investigation of News Corp. What is clear, however, is that no matter how much the Journal and News Corp. might wish otherwise, administrations from both parties have interpreted the FCPA to apply to more than just bribes to foreign officials to obtain government business. And this interpretation has been affirmed repeatedly by a federal court of appeals.