Analysis: U.S. racketeering charges unlikely to bite News Corp

NEW YORK Wed Jul 13, 2011 2:36pm EDT

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NEW YORK (Reuters) - What kind of legal problems could Rupert Murdoch's News Corp (NWSA.O) face in the United States from the UK phone-hacking scandal? Securities litigation? Likely. Anti-bribery prosecution? Possible. Anti-racketeering laws? That may be more of a stretch.

Over the past week, news transoms have swelled with reports that journalists from Murdoch's now-closed News of the World tabloid newspaper hacked into voicemails of celebrities, politicians and crime victims, and that they paid police officers for tips.

Because News Corp is listed on U.S. stock exchanges, prosecutors here could use anti-bribery laws to go after the company. Someone could sue in a securities case. Chances are remote, however, that the U.S. government could prosecute the company under anti-corruption laws.

The prevailing U.S. racketeering law, Racketeer Influenced and Corrupt Organizations Act (RICO), was written with corrupt organizations in mind. It lets prosecutors string together multiple crimes to form the basis of a case. A civil RICO lets private plaintiffs sue in a similar way.

RICO has evolved as a tool to pursue gangs, political activists and others accused of corruption. On occasion, the statute has been used in cases involving conduct abroad, such as the indictment of former Panamanian ruler and convicted drug trafficker Manuel Noriega.

Its scope is limited to U.S. activity where Americans are affected, as in the Noriega case, which means that prosecutors would have limited options for using RICO to pursue News Corp, said G. Robert Blakey, a University of Notre Dame law school professor who drafted the act, which became law in 1970.

"RICO does not have an extraterritorial impact... When you have a drug case overseas, you are selling drugs in the U.S.," said Blakey. "Murdoch's not selling his trashy papers here."

The Justice Department and a News Corp spokesman declined to comment.

Even a possible U.S. connection probably would not give prosecutors a RICO case. For example, Britain's Daily Mirror newspaper reported on Monday that News of the World journalists offered a bribe to a New York police officer for phone numbers of victims of the September 11 terrorist attacks. If New York prosecutors wanted to pursue those charges, they would likely indict for a bribery offense, said Blakey.

The one scenario where a RICO case might make sense would be on the civil side. Creative lawyers could try to craft a civil RICO action for a news organization that could claim it was injured by News of the World's activity, said Barry Pollack, an attorney at law firm Miller & Chevalier.

"The theory would be that News of the World gained an unfair competitive advantage, that it gained that advantage because they had access and it got that access because it violated the law and engaged in a pattern of racketeering," said Pollack.

"One would need to be very creative to get around the pitfalls, but if there is enough money at stake, somebody might be creative and roll the dice," he said.

Civil RICO cases are tempting for plaintiffs' lawyers looking to bring civil lawsuits because damages won at trial can be tripled under the RICO law.

But civil plaintiffs who claimed their phones were tapped may have a hard time showing they suffered a business injury in the hacking scandal, a necessary component to a civil RICO case, said John Coffee, a professor of securities law at Columbia University Law School.

"The invasion of privacy is a personal injury, and you can not get personal injury damages under RICO," Coffee said.

The alleged acts in the hacking scandal have not risen to the level of fraud that is required under RICO, said Douglas Abrams, a professor at the University of Missouri School of Law who has written a book on civil RICO cases.

"The general rule of thumb for a RICO action is: if you think you have one, you don't," Abrams said.

One pitfall includes a 2010 Supreme Court ruling that curtailed U.S. lawsuits over conduct occurring abroad. In the wake of that decision, trial courts have taken a dim view of using RICO for "extraterritorial conduct."

"It's very hard for me to see how you can sue Murdoch when our courts have said that our law stops at the water's edge," said Coffee.

(Additional reporting by Jeremy Pelofsky. Editing by Eileen Daspin and Robert MacMillan)

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