James Murdoch Resigns at News Corp. News Updates

Rupert Murdoch’s Latest Debacles: Arrests at The Sun

Phone hacking was just the start—a new wave of arrests sheds light on Murdoch papers’ ties to police. Mike Giglio on how the second phase of investigation could hit the mogul hard.

02.12.12 1:20 PM ET

On Thursday, Britain’s high-profile public inquiry into the conduct of its newspapers brought the first of its four stages to an end. As if on cue, police Saturday made a spate of headline-grabbing arrests that offered a jarring preview for what comes next—rounding up five high-level journalists from Rupert Murdoch’s flagship daily tabloid, The Sun, and prompting the media mogul to make his way across the Atlantic for damage control. Murdoch’s newspaper empire suddenly looks to be bracing for another tough fight.

The first stage of the Leveson inquiry focused on phone hacking and other questionable information-gathering tactics that provoked such an outrage last summer that Murdoch hastily shuttered his storied Sunday powerhouse News of the World. By the time the inquiry got underway in November, though, some of the dirtiest laundry surrounding phone hacking had already been aired. When Leveson resumes next month for its second stage, a new and possibly explosive topic will be at hand—the potentially corrupt relationship between journalists and police. That subject could have far-reaching implications for Murdoch’s News Corp. Saturday’s arrests seemed to signal that they’re beginning to play out.

The five journalists who made headlines yesterday were arrested as part of Operation Elveden, which is looking into payments by journalists to police. Three others—a police officer, a Defense Ministry official, and a member of the armed forces—were arrested as well, following a similar turn of events last month in which four senior journalists and a police officer were detained.

The arrests, as Murdoch’s trip to London suggests, imply serious problems for his media empire, and not just in Britain. They further spread the damage from the defunct News of the World to the profitable Sun, which has the highest daily readership of any newspaper in Britain and is believed to subsidize Murdoch’s revered, but money-losing, The Times of London franchise. What’s more, the issue of police payments makes News Corp., which is headquartered in New York, potentially vulnerable to American prosecution in a way that phone hacking, to this point, has not. As Reuters reported last week, in the wake of the initial Sun arrests, while U.S. authorities have so far uncovered little evidence of phone hacking in the States, the FBI is investigating whether News Corp. employees have violated the U.S. Foreign Corrupt Practices Act, which prohibits American companies from paying bribes to foreign officials. Company executives could be liable if they either authorized bribes or knew about them but didn’t stop them. No charges have yet been filed, but as the list of arrested senior Sun journalists expands, and the net for potentially corrupt sources is cast beyond the police department, the risk can only grow.

The way Operation Elveden has played out, meanwhile, shows how News Corp., in an effort to cauterize the wounds sustained from the phone-hacking scandal so far, has waged a battle against itself. It is the company’s own investigators who have provided the police with the information that led to the recent arrests. After the phone-hacking scandal broke, News Corp. set up a special unit in London, the Management and Standards Committee (MSC), tasked with an independent investigation into the company’s wrongdoing. The committee is poring through millions of documents and emails from inside the News International offices in Wapping, which it then passes along to police investigators. Even senior Sun employees receive no advance notice of the proceedings—yesterday, Sun editor Dominic Mohan said he was “shocked” by that morning’s wave of arrests.

Sue Akers—the Jane Tennison–like top cop at the helm of the Scotland Yard investigation into British newspapers, who helped Helen Mirren prepare for her leading role in the hit TV drama Prime Suspect—told the Leveson inquiry last week that the News Corp. team “are the people who have passed us information on which we’ve made arrests.” She had just increased her Operation Elveden team by 50 percent. And the investigation, she suggested, still had a long way to go.

At the heart of News Corp.’s ongoing trouble is a massive trove of emails and documents, reportedly more than 300 million strong, on hand at the company’s London headquarters in Wapping. There, a team of lawyers, computer experts, and even police officers working with the MSC reportedly hunker down in soundproof rooms to pore through the documents—a process that will take at least another year and a half to play out. Though critics have argued that the internal investigation was conceived to ward off more serious inquests from the authorities, with so many documents on hand and the public spotlight on News International showing no signs of fading, News Corp. may have planted a ticking time bomb in its midst. Britain’s national journalism union has complained that Sun journalists are being “thrown to the wolves” in “a witch hunt.”

The trouble stirred up by the internal investigation has reached to the highest levels of News Corp. management, too. James Murdoch, in his efforts to remain unsullied by the phone-hacking scandal and ensuing cover-up, maintained before Parliament last summer that he was unaware that the practice was widespread when he authorized an unprecedented $1.1 million settlement to a hacking victim in 2008. Yet an email chain unearthed by the MSC in December showed company officials alerting the younger Murdoch to the scale of the problem. He has since claimed that he didn’t fully read the emails at the time, but many observers see the email chain as damning to his defense.

Some of the same crusaders who helped bring the phone-hacking scandal to light now have their knives at the ready. M.P. Tom Watson, one of News International’s key antagonists, yesterday portrayed the Sun arrests as another big chink in Murdoch’s armor. “Today’s developments show this is no longer only about phone hacking,” he said. “It goes to the very heart of corporate governance of the company led by Rupert Murdoch.” Watson’s colleague Chris Bryant, who told The Daily Beast at the height of the scandal in July that he had been “monstered” by the Murdoch papers in the past, suggested that The Sun should be closed: “If you follow the logic of what happened at the News of the World, the same logic should apply to The Sun.

While closure of the paper seems unlikely at the moment—there has been neither corresponding public outrage with the Elveden arrests nor pressure from shareholders or advertisers—the British press is reporting that rumors on Fleet Street are swirling. One Sun insider told The Daily Telegraph Saturday night: “I do think it is entirely possible they will close The Sun. It is very clear Rupert Murdoch has turned his back on them. They are being thrown to the lions.” The worries were enough to inspire News International CEO Tom Mockridge to send a reassuring memo to staff: “You should know that I have had a personal assurance today from Rupert Murdoch about his total commitment to continue to own and publish The Sun newspaper. Today we are facing our greatest challenge.” Murdoch is expected to visit his London staff near the end of next week.

For all the uproar the Elveden arrests have sparked, paying officers for information may be just part for the potentially corrupt relationship between Murdoch’s newspapers and police that will come under the full Leveson spotlight next month. Allegations of coziness with top Scotland Yard officials have swirled around the phone-hacking scandal from the start—from police chiefs dining regularly with News International executives to former Scotland Yard officials moving on to work for News of the World and the decision of police brass not to fully investigate phone hacking sooner. Former Scotland Yard top official Sir Paul Stephenson stepped down last summer due to “the ongoing speculation and accusations relating to the Met’s links with News International at a senior level,” he said at the time.

After losing News of the World in the first phase of the phone-hacking scandal, Murdoch enters the next one facing questions over whether he can keep the rest of his empire intact.