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Murdoch’s Phone-Hacking Scandal Pain Won’t Go Away Soon

Thousands of News Corp. (NWSA)’s potential phone-hacking victims still haven’t been notified by police, and dozens of suspects may face drawn-out criminal trials, in a sign the scandal that peaked a year ago isn’t going away soon.

News Corp. Chairman Rupert Murdoch shuttered the News of the World tabloid at the center of the affair and paid more than $258 million in legal fees and settlements. Yet 12 months later, a police probe into bribery at his best-selling Sun title is still triggering new arrests, including three more today, and a related federal investigation in the U.S. hasn’t been resolved.

Murdoch, 81, will suffer “lasting reputational damage” as the legal process drags on for as long as five more years, said Claire Enders, a media analyst at London-based Enders Analysis, who advises clients including the British government. “The scandals will not be forgotten in his lifetime.”

News Corp.’s U.K. unit, News International, suppressed the extent of phone hacking and avoided widespread public anger until one year ago today when the Guardian newspaper revealed the News of the World intercepted the mobile-phone messages of murdered schoolgirl Milly Dowler in 2002. Murdoch closed the 168-year-old tabloid within weeks and dropped his New York-based company’s bid for the rest of British Sky Broadcasting Group Plc (BSY), the U.K.’s biggest pay-television provider.

Multiple Inquiries

The scandal triggered three police probes, scores of lawsuits, as well as parliamentary and judicial inquiries. A judge’s report on the state of media ethics that may be released later this year also may contain damaging findings on Murdoch and his company.

“This story will run and run,” said Niri Shan, who leads the media practice at Taylor Wessing LLP in London and isn’t involved in the cases. “Not only have you got more claims that will come out of the woodwork, you’re going to have these criminal trials that will come on well into next year.”

Police arrested three more people in the bribery probe today, including a prison officer. The U.K. Supreme Court also ruled today the tabloid’s ex-private investigator, Glenn Mulcaire, must reveal detailed evidence about the information he gleaned from hacking, rejecting his claim he would be incriminating himself in a possible new criminal case.

Before the Dowler story a year ago, the public believed the News of the World hacked only the phones of politicians and celebrities, such as actor Jude Law. Dowler’s body wasn’t found for six months after her murder. The case received widespread media coverage at the time and again in June 2011 when her killer, Levi Bellfield, was sentenced to life imprisonment.

Victim Notification

The Metropolitan Police Service still needs to notify more than 2,100 potential victims of phone hacking, including almost 400 people identified as “likely” targets, the department said June 29. After searching thousands of pages of Mulcaire’s notes, the Met said the tabloid had 4,775 possible victims, including 1,082 “likely” targets. Not all of the possible victims had their voice mail accessed, police have said, and they may not sue.

Criminal cases will be an even bigger source of unwanted media attention due to the potential for prison terms, Shan said.

Out of more than 50 people arrested in three probes, six have been charged so far in London, including former News International Chief Executive Officer Rebekah Brooks, who is scheduled to enter a plea in the case in September. Former News of the World editor Andy Coulson has been charged with perjury in Scotland in a case linked to phone hacking. Both have denied the claims.

Civil Case Accords

News International avoided the first civil trial of the scandal by settling with Welsh singer Charlotte Church and dozens of other victims by February. Since then, about 60 more cases have been filed, and lawyers have said in court as many as 200 more victims are prepared to sue if they don’t settle first. The most recent claim was filed June 28 by Kate Waddington, the former public relations consultant for the Duchess of York, Sarah Ferguson. Waddington declined to comment.

In the U.S., the related bribery claims have led to an investigation by the Justice Department into whether the illegal payments violated the U.S. Foreign Corrupt Practices Act, which bars bribery of overseas companies for business reasons. Such proceedings can take “many years,” Enders said.

Before victims started suing in 2010, News International said phone hacking had been limited to Mulcaire and a “rogue” reporter, Clive Goodman, who were both jailed in 2007.

Judge’s Findings

A London judge later said the company engaged in a cover up and destroyed evidence. Since then, News Corp. has been running an extensive internal probe and cooperating with authorities, the company and police have said. It also created an out-of- court procedure for settling claims that is being overseen by a former judge.

In the 12 months since the Dowler story broke, Murdoch has apologized in person to her family, testified to Parliament, appeared at the media-ethics probe triggered by the scandal and watched his political influence evaporate as U.K. Prime Minister David Cameron and other lawmakers distanced themselves from the media mogul. A London protester threw a foam pie at him.

The anniversary of the Dowler story falls almost one week after News Corp. said it plans to split into two publicly traded companies to separate the U.K. newspaper business and its other publishing entities from News Corp.’s entertainment businesses. Murdoch said the decision had nothing to do with the phone- hacking scandal.

‘Changed Forever’

“The new structure is an acceptance by the Murdoch family that things have changed forever as a result of the scandal,” Enders said. “Rupert Murdoch seems to think most of that will be behind the company when the publishing division floats in a year; I think that’s very optimistic.”

Murdoch’s son James Murdoch, News Corp.’s deputy chief operating officer, stepped down as News International’s executive chairman and resigned as chairman of London-based BSkyB. He also stepped down from several boards related to News Corp.’s U.K. unit, as well as from the boards of auction house Sotheby’s and drugmaker GlaxoSmithKline Plc.

The “nepotistic passing of the baton” will be dropped by the Murdoch family as a result of the scandal, said Mark Lewis, the lawyer for the Dowler family and some of the company’s first known phone-hacking victims.

News Corp. Response

Miranda Higham, a spokeswoman for News Corp. and Daisy Dunlop, a spokeswoman for the U.K. unit, declined to comment on the anniversary of the Dowler story or the future civil and criminal cases.

Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

In the days after the Dowler story broke, News Corp.’s shares fell almost 25 percent to $13.62 on Aug. 8. Since then, the shares have soared 67 percent to $22.73 as of yesterday, powered by a share repurchase plan and, in recent weeks, by the decision to split the company.

“People are seeing the consequences of family control of public companies” and too-cozy ties between media bosses and politicians, said Lewis, the Dowler family lawyer. “Hopefully, in times to come, people will see that News International became out of control and politicians allowed it to do so.”

To contact the reporter on this story: Erik Larson in London at elarson4@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.

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