U.K. Report: Murdoch Showed 'Willful Blindness'

A narrow majority of U.K. lawmakers said today that Rupert Murdoch is unfit to lead News Corp, partly because he showed 'willful blindness' to illegal activity happening in the company.

Murdoch, 81, testified to Parliament that he didn't know phone hacking and local bribery were widespread at the now closed News of The World. His subordinates concealed it from him, he said.

If that was true, the U.K. panel said, “he turned a blind eye and exhibited willful blindness to what was going on in his companies,” according to an account in the Washington Post.

The paper said 'legislators accused Murdoch and his son James of overseeing a corporate culture that sought “to cover up rather than seek out wrongdoing.”'

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The FBI is reportedly investigating whether News Corp's payments to police in the U.K. violated the FCPA. Indications of 'willful blindness' won't help News Corp and its top execs deal with potential U.S. charges.

During Frederic Bourke's FCPA trial, prosecutors told the jury that instead of doing adequate due diligence for his investment in Viktor Kozeny's Azerbaijan privatization scheme, Bourke had 'stuck his head in the sand.'

The 'head-in-the-sand' phrase appears prominently in the FCPA's legislative history.

The Congressional Research Service said this in its report to Congress about enactment of the FCPA and its 1988 and 1998 amendments:

The "knowing" requirement . . . is intended to encompass the "conscious disregard" and "willful blindness" standards, including a conscious purpose to avoid learning the truth. The Conferees agreed that "simple negligence" or "mere foolishness" should not be the basis for liability.

However, the Conferees also agreed that the so-called "head-in-the-sand" problem-- variously described in the pertinent authorities as "conscious disregard," "willful blindness" or "deliberate ignorance"--should be covered so that management officials could not take refuge from the Act's prohibitions by their unwarranted obliviousness to any action (or inaction), language or other "signaling device" that should reasonably alert them of the "high probability" of an FCPA violation.

Bourke was sentenced to a year and a day in prison after a jury convicted him in 2009 of conspiracy to violate the FCPA. He's now free pending his appeals.

Neither News Corp nor any of its executives have been charged for FCPA violations.

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In a commentary today on CBS Money Watch, author Margaret Heffernan said 'willful blindness isn't just a character flaw; it is a structural trap that lies in wait for anyone in power.'

She continued:

My book, "Willful Blindness: Why We Ignore the Obvious at our Peril" shows that willful blindness has been with us for a long time. It emerged in Victorian time as a legal concept that argues that when there is information we could have, and should have, but somehow manage not to have, we are nonetheless responsible. While most often used to prosecute cases of money laundering and drug trafficking, it was used most sensationally in the government's case against Enron CEO Jeff Skilling and Chairman Ken Lay. The phone hacking scandal is the media's Enron moment.

The "I Didn't Know" Defense

As defenses against the U.S. Foreign Corrupt Practices Act go, "I didn't know" is among the most popular. I didn't know it was against the law. I didn't know our agent would give money to foreign officials. I didn't know our partner's brother-in-law works for the prime minister. Often the defense has no visible means of support and is only a handy excuse. Other times, though, the defense is sincere and looks strong. But even then it probably won't work, as David H. Mead discovered the hard way back in 1998.

Mead, the former president of Saybolt Inc., was charged with violating and conspiring to violate the FCPA's anti-bribery provisions by making a $50,000 corrupt payment to government officials in Panama. Mead pleaded not guilty and went to trial. His defense rested in part on evidence that Saybolt's former outside counsel had advised that the $50,000 payment might not violate the FCPA if it came from Saybolt's Dutch affiliate. That advice was wrong, and Saybolt and Mead were indicted. Saybolt -- which later sued its former lawyer for legal malpractice -- pleaded guilty and paid a $1.5 million fine.

At Mead's trial, prosecutors had the burden of proving Mead acted with "knowledge" that the $50,000 payment was illegal under U.S. law. In his instructions to the jury, the judge explained the concept of legal "knowledge" and how the jury could determine what Mead knew:
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Ladies and Gentlemen of the Jury:

The element of knowledge may be satisfied by inferences you may draw if you find that the defendant deliberately closed his eyes to what otherwise would have been obvious to him. When knowledge of the existence of a particular fact is an element of the offense, such knowledge may be established if a person is aware of a high probability of its existence and then fails to take action to determine whether it is true or not.

If the evidence shows you that the defendant actually believed that the transaction was legal, he cannot be convicted. Nor can he be convicted for being stupid or negligent or mistaken; more is required than that. But a defendant’s knowledge of a fact may be inferred from willful blindness to the knowledge or information indicating that there was a high probability that there was something forbidden or illegal about the contemplated transaction and payment. It is the jury’s function to determine whether or not the defendant deliberately closed his eyes to the inferences and the conclusions to be drawn from the evidence here.
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The jury, for some reason, didn't believe that Mead believed the payment was legal. Nor did the jury believe he had been stupid or negligent or mistaken. Had he been willfully blind? That would mean he knew more than Saybolt's own lawyer. Unfortunately for Mead, in the face of the evidence the jury somehow found that he had "knowledge" the payment would violate the law. He was convicted and sentenced to four months in prison, home detention and probation, and a $20,000 fine. The best explanation is that the New Jersey jury simply didn't want a $50,000 bribe to a government official in Panama to go unpunished.

If the "I didn't know" defense didn't work back then for David H. Mead -- who violated the FCPA on the advice of counsel -- then it's unlikely to work now in most other cases.

See U.S. v. David H. Mead and Frerik Pluimers (Cr. No. 98-240-01), D.N.J., 1998. See also Stichting Ter Behartiging Van De Belangen Van Oudaandeelhouders In Het Kapitaal Van Saybolt International B.V. (Foundation of the Former Shareholders of Saybolt International B.V.) v. Philippe S.E. Schreiber and Walter, Conston, Alexander & Green P.C. (S.D.N.Y.) (99 Civ. 114411, Memorandum Order, Filed June 13, 2001) and U.S. v. Saybolt North America Inc. (Cr. No. 98CR10266WGY), D. Mass., Aug. 18, 1998.

FCPA Defenses That Don't Work

The text of the Foreign Corrupt Practices Act sets out three types of payments to foreign officials that are lawful -- facilitating payments, promotional expenses and payments permitted under the written laws of the host country. In addition to these three defenses, there are others that are repeated often -- but are bogus. They originate not from judges or jurisprudence but from the wishful thinking of companies and people in need of a defense, and fast. Knowing which defenses are real and which are counterfeit is crucial, however, and learning the differences too late can have dire consequences.

Here, then, are some of the most popular FCPA defenses that do not work:

Everyone pays bribes in this country.

Don't look at me. The / joint venture partner / agent / foreign subsidiary / did it.

Only big companies get into FCPA trouble. No one cares about a little fish like us.

My supervisor approved it.

We had no choice -- either pay up or lose the deal. That's extortion, not bribery.

We can't control what our agent does on his own time with his own money.

A hundred tiny bribes do not add up to one big bribe.

We have to pay bribes to do business here. The U.S. Government doesn't really expect us to leave, does it?

I was outside the U.S. and only used foreign bank accounts.

It's not fair. . . . .

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