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By John Helmer, Moscow

When British prime ministers borrow horses to ride from Rupert Murdoch’s employees, and Scotland Yard inspectors are entertained on their tab, it has been natural for Murdoch to expect he could tie a bridle on prime ministers and policemen and lead them in whatever direction he wanted. And so he has.

Still, the bribery, invasion of privacy, perversion of justice, and corruption troubles which Murdoch and at least one son, James Murdoch, are in at the moment in London show signs of being remedied at a price Murdoch can afford to pay.

Moscow has been frustrating in this respect, because the Kremlin didn’t play true to the form Murdoch was used to getting at Downing Street or Pennsylvania Avenue. Also, Murdoch believed the despatches his reporters from The Times and Sunday Times have been filing, declaring what easy marks the Russians make. But in 2007 and 2008, when Murdoch’s Russian business partners proved more difficult for him to handle, and his Russian business, News Outdoor Russia (NOR), was exposed to official investigation of its practices, Murdoch miscalculated.
“The more I read about investments in Russia,” Murdoch declared then, “the less I like the feel of it. The more successful we’d have been, the more vulnerable we’d be to having it stolen from us. Better we sell now.”

That piece of false bravado not only forced down the exit price of Murdoch’s 79% stake in NOR from $1.7 billion to $270 million. It has also opened up a dossier of violations of the US Foreign Corrupt Practices Act; if substantiated by the Federal Bureau of Investigation (FBI) and approved for federal indictment by President Barack Obama, ahead of his election date in November, they will expose Rupert and James Murdoch to prosecution, conviction and jail time.

That much they deserve if they are provably guilty. “Today [January 19, 2012] NGN [News Group Newspapers] agreed settlements in respect of a number of claims against the company. NGN made no admission as part of these settlements that directors or senior employees knew about the wrongdoing by NGN or sought to conceal it. However, for the purpose of reaching these settlements only, NGN agreed that the damages to be paid to claimants should be assessed as if this was the case.” That disclaimer, issued in London in response to telephone hacking charges and accompanying payouts in civil settlements with many of the targets, is a strong innocent plea from the Murdochs – and a challenge to prosecutors in both the UK and US to prove otherwise.

It has therefore been difficult for News Corporation shareholders opposed to Murdoch family control of the company to squeeze either Murdoch senior or sons James or Lachlan Murdoch out of their seats on the main board of News Corp, or compel them to resign from their operational roles.

The share price of News Corp demonstrates that on the March 5 news of the FBI investigation of the Murdochs, the market has reacted with modest interest and a 5% decline:

But the five-year trajectory of the share price shows a steady improvement in line with rising macro-economic indicators and advertising revenues, no matter how much bad news the Murdochs’ misbehaviour has been generating since the middle of 2011:

This tells the Murdochs to stonewall the criminal investigators, and be ingratiating with their bankers. How indifferent the latter are to the Murdochs’ business practice compliance is evident from the files of the European Bank for Reconstruction and Development (EBRD), and the bank’s reluctance to reopen them now. The London-based institution, in which the US, UK and Russian governments play an influential board role, twice made loans to NOR – the first of US$20 million in September 2003; the second of up to $32 million in 2004.

According to its internal rules and policies, the EBRD claims to have undertaken an environmental impact assessment of the NOR projects it was financing. The bank has also claimed it was financing competitiveness in the Russian advertising sector. The former appears to have been no more than taking NOR’s word for everything. “Environmental due diligence,” reports first of the EBRD’s loan announcements, “confirmed that, apart from standard land use planning requirements and permits and the planning and installation of advertising units, there are no environmental issues associated with this business. The company has confirmed that News Outdoor Russia OOO is in full compliance with the Advertising Committee and relevant municipal bodies’ specifications and standards associated with the Russian outdoor advertising industry.”

The second EBRD announcement of September 24, 2003, described the loan rationale as one of “support[ing] further development of an important segment of the Russian infrastructure, as advertising promotes competition, access to information, and is a key element of any modern economy. The project will also facilitate the restructuring of the highly fragmented Russian outdoor advertising industry, which is dominated by small and inefficient local companies.”

What this really meant was that EBRD was financing NOR takeovers and concentration of the outdoor advertising segment of the Russian market, so that a dominant world player, News Corp, could become an oligopolist in Russia. It is difficult to guess this from EBRD’s announcement that its client borrower was “a majority-owned by a joint venture company created by The News Corporation Limited and a private equity fund managed by Capital International Inc.”

EBRD was asked to explain why it had loaned money to the News Corp subsidiary in these circumstances, and what it had done to investigate the charges of corruption which took formal shape in Moscow by 2008. Also, the EBRD was asked whether it had investigated the reason that News Corp had kept the chain of ownership and management of NOR out of the the UK and US reports of the parent company.

Replies from EBRD spokesmen ignore the issues of competition and environmental impact. As far as the allegations of bribery, tax evasion, and material concealment are concerned, an EBRD source implies that these arose after NOR had repaid its EBRD loans; and that before the loans were approved, EBRD’s due diligence discovered nothing adverse or in violation of EBRD’s client standards. “EBRD had nothing whatever to do with News Outdoor after August 2006,” the EBRD says officially.

NOR was asked a series of questions: what contacts were there between NOR’s chief executive Maxim Tkachev and Rupert Murdoch during the latter’s control of the company? What other members of the Murdoch family were involved in the management of NOR? What were the NOR financial results during that period when they went unreported in the News Corp financials? What communication has NOR received from the US authorities, including the US Embassy Moscow and the FBI, regarding charges of corruption in Russia against Murdoch?

NOR spokesman Dmitry Tikhonov requested extensions of time while the company, he said, was preparing a press release answering the questions. In the end, NOR’s statement came to this: “Due to the appearance in mass media publications about the fact that in the investigation of the News Corp., the FBI checks corruption in the News Outdoor Russia, the company claims that no verbal nor written requests from the FBI in the News Outdoor Russia have been reported. The company also has not received any requests from the Russian law enforcement agencies. News Outdoor Russia implemented and operates in accordance with Russian law and in compliance with the standards and requirements applicable to the activities of subsidiaries of public companies, located on U.S. exchanges.”

Responding to the request for financial data, NOR said nothing except that it is “the nation’s largest operator of outdoor advertising. The company owns more than 40 thousand advertising spaces in 60 cities of Russia, the advertising company possesses designs for all major formats and controls about 15% of all advertising space in the country. The company employs more than 3.5 thousand people., Including more than a thousand at the branches in the regions of Russia.”

The General Prosecutor’s office in Moscow and the Moscow prosecutor’s office were asked if they have received inquiries for evidence or assistance from the US authorities or the FBI in relation to their earlier investigations. They requested the questions by fax, and have yet to reply.

Following the sale and purchase transaction last July, in which Murdoch exited NOR, a deputy of the State Duma, Maxim Musatov, formally requested the Prime Ministry and the Federal Antimonopoly Service (FAS) to investigate the beneficial owners of one of the companies which was part of the VTB consortium buying Murdoch out. That company, registered in the Netherlands, was RUS AD Invest Coöperatief. Musatov claimed that at the time NOR’s debts were larger than it was worth, and the intervention of a state bank with public money to support the selling price was suspicious.

An FAS announcement of May 30, 2011, discloses that it was investigating whether the acquisition by that company, Alfa Capital and others in the VTB consortium would curtail or enlarge competition in the outdoor advertising sector. No outcome of the FAS enquiry into ownership or competitiveness has been released.

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