FBI looking at Murdoch operations in Russia

WASHINGTON/MOSCOW Fri Mar 9, 2012 11:16pm IST

A woman walks past the NewsCorp building in New York February 8, 2012. REUTERS/Brendan McDermid

A woman walks past the NewsCorp building in New York February 8, 2012.

Credit: Reuters/Brendan McDermid

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WASHINGTON/MOSCOW (Reuters) - An FBI investigation into possible criminal violations by Rupert Murdoch's News Corp of a U.S. law banning bribery of foreign officials has expanded to include an examination of the activities of former company holdings in Russia, according to a source close to the investigation.

As part of their inquiry, the FBI will seek to consult with Russian authorities, the source said.

While at this point it is not expected that a special FBI team will go to Russia to pursue the probe, the FBI's representative at the U.S. Embassy in Moscow, known as the "legal attache," is likely to be involved, the source said.

The company's activities in Russia are being looked at as part of a broader FBI investigation into possible violations by News Corp of the U.S. Foreign Corrupt Practices Act - an inquiry fueled by allegations that journalists for Murdoch newspapers in Britain for years systematically made questionable payments to public servants, including police and military officials, in return for story tipoffs.

The goal of the FBI's inquiry in Russia is to see if there is evidence of a "pattern and practice" of legally-questionably activity across multiple News Corp properties "in more than one venue," said the source close to the inquiry.

A second source familiar with the inquiry said that just because the FBI was investigating FCPA issues did not mean U.S. charges will ever be brought. The source said the outcome of U.S. investigations is likely to be heavily influenced by the results of Scotland Yard investigations in Britain.

A spokesman for Murdoch's News Corp in New York declined to comment.

In a written statement, News Outdoor Russia, the country's largest billboard company, in which Murdoch held a controlling interest until last summer, said that it had no first hand information about any FBI investigation.

"With reference to recent reports appearing in the media that within the scope of the investigation into News Corp. operations, the FBI is inquiring about cases of corruption in News Outdoor Russia, the Company states that it has received neither verbal nor written communications from the FBI. Neither has the Company received inquiries from Russian law enforcement agencies," the company said.

News Outdoor added that it "has and continues to operate in accordance with the laws of jurisdictions relevant to its operation, including those applicable to Russian operating companies and subsidiaries of U.S. listed publicly-traded companies."

Information that the FBI investigation had expanded to Russia first surfaced earlier this week in a story published by the Wall Street Journal, now part of Murdoch's global empire. The paper said the inquiry was focused on whether on News Outdoor Russia, had paid bribes to local officials in return for permission to install billboards at choice locations.

FORMER RUSSIAN EXEC

Sergei Zheleznyak, a former News Outdoor executive who now serves as member of the Russian state Duma from President-elect Vladimir Putin's United Russia party, said that when he was with the firm, he was not aware of any corrupt schemes.

"We perfectly understood that we were under scrutiny by both Russian law enforcement agencies and those of our partners. In that sense we could not allow any deviation from legal practices. It would not have been acceptable," Zheleznyak, who held senior management positions at News Outdoor from 2001-2007, told Reuters.

"We had informed all our staff about anti-corruption practices. The company had no interest in using corrupt schemes because it would have damaged our business reputation. Since the company received international loans and was part of an international firm it (using corrupt schemes) would have been plain stupid," he said.

Zheleznyak's background as a former News Outdoor executive who became an elected representative of Putin's party was noted in a December 2007 U.S. State Department cable released by the WikiLeaks website describing how the party's roster of newly-elected members had a reduced number of business people than in the previous parliament because Putin had publicly warned that the Duma "is not a place for oligarchs."

At a local level, News Outdoor had friendly relations with other elements of Putin's political party. A press release posted on the News Outdoor website in January 2010 described how News Outdoor and a regional office of the United Russia party jointly organized a contest in which students in the towns of Ryazan, Saratov and Saransk were invited to produce posters on Russian historical themes. Winning posters were then displayed on billboards at bus stops.

Zheleznyak insisted there was "no special relationship" between United Russia and News Outdoor, insisting that during elections, "the party chose suppliers based on their price to quality ratio."

Dimitry Tikhonov, a spokesman for News Outdoor, described dealings between Putin's party and the billboard company as "a commercial relationship. We have never provided advertising on concessionary terms. I can say with confidence that our advertising is placed on commercial terms, except for charity projects."

STAKE SOLD LAST YEAR

The Wall Street Journal said News Corp had a majority ownership stake in News Outdoor for a decade until it sold its holdings last July.

According to the paper, the Russian firm had a colorful history. Its chief, Maxim Tkachev, was shot outside his office ten years ago. Time Magazine reported that Tkachev survived because the assailant's gun jammed when he tried to fire a second shot.

A few months earlier, Vladimir Kanevsky, an executive at a rival firm, was shot dead in his car by a man wearing a black ski mask. The Journal said the FBI was looking into the killing of Kanevsky. Nobody was convicted in either shooting. News Outdoor later acquired some assets of the murdered man's company.

Time also reported that News Outdoor had a close relationship with Moscow billboard entrepreneur Alexander Luzhkov, whose father, Yuri, served as mayor of the Russian capital from 1992 to last year. The magazine said that at one point, News Outdoor and Alexander Luzhkov's firm won joint contracts for prime billboard locations. Tkachev denied to Time that the Luzhkov/News Outdoor relationship brought any favors from local authorities.

Tikhonov, the News outdoor spokesman, would not be drawn on the circumstances under which News Outdoor acquired assets previously owned by the company of the murdered executive Kanevsky, saying that News Outdoor was one of several businesses who bought the firm's assets. He also declined to comment on why Murdoch last July sold his entire stake in News Outdoor for what most experts described as a knock-down price.

(Additional reporting by Douglas Busvine in Moscow; Editing by Tim Dobbyn)

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