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Murdoch Abandons BSkyB Bid as Phone Hacking Scandal Grows

Rupert Murdoch’s News Corp., embroiled in a phone-hacking scandal over in Britain, has been forced to abandon its bid to purchase the largest pay-TV broadcaster in the country, known as BSkyB. The writing was on the wall for this withdrawal when all three top political party leaders in Parliament encouraged News Corp. to drop the deal.

The move leaves News Corp’s key strategy for UK corporate growth in tatters. The proposed £8bn deal has been in train for more than a year, with the first offer tabled in June 2010.

It is the one of the biggest setbacks the 80-year-old media mogul has ever suffered and follows 10 days of revelations about the true scale of phone hacking at the News of the World, the paper Murdoch shut down last week.

The decision to abandon the deal is also a major blow to James Murdoch, who is third in command at the company and has responsibility for News Corp’s UK businesses, including its Sky stake and News International.

This does not close out the scandal by any means. British Prime Minister David Cameron is under scrutiny for a web of ties to Murdoch, which led to his reversal in joining Labour and the New Democrats in urging the withdrawal of the BSkyB bid. Cameron’s former chief spokesman, Andy Coulson, has been arrested on suspicion for phone hacking and bribing policemen.

And while News Corp. saw shares on the NYSE up 3% on the news, they still face inquiries in Britain and the United States over the scandal. Senator Jay Rockefeller, Chair of the Senate Commerce Committee, called for an investigation into News Corp., joining Cameron in Britain. Eliot Spitzer in Slate explains the need for the Justice Department to get involved.

So how does all this concern Americans? First, it is hard to believe that the misbehavior in Murdoch’s media empire stopped at the water’s edge. Given the frequency with which he shuttled his senior executives and editors across the various oceans—Pacific as well as Atlantic—it is unlikely that the shoddy ethics were limited to Great Britain.

Much more importantly, the facts already pretty well established in Britain indicate violations of American law, in particular a law called the Foreign Corrupt Practices Act. The Justice Department has been going out of its way to undertake FCPA prosecutions and investigations in recent years, and the News Corp. case presents a pretty simple test for Attorney General Eric Holder: If the department fails to open an immediate investigation into News Corp.’s violations of the FCPA, there will have been a major breach of enforcement at Justice. Having failed to pursue Wall Street with any apparent vigor, this is an opportunity for the Justice Department to show it can flex its muscles at the right moment. While one must always be cautious in seeking government investigation of the media for the obvious First Amendment concerns, this is not actually an investigation of the media, but an investigation of criminal acts undertaken by those masquerading as members of the media.

Spitzer believes that, if News Corp. were found guilty of Foreign Corrupt Practices Act or more serious crimes, they should have their FCC licenses revoked.

And if that doesn’t work, they could always take a look at the fact that News Corp. made a $4.8 profit from tax breaks over the past four years.

Activists will hold a protest outside of Rupert Murdoch’s New York City home, a high-rise on 834 5th Avenue, tomorrow at 12:30pm ET.

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David Dayen

David Dayen