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Issue #1542      4 April 2012

Corruption, commercial espionage in Murdoch’s empire

Last year, after the News of the World scandal erupted, media baron Rupert Murdoch declared that phone hacking did not happen in his Australian businesses. However, evidence is now emerging that corrupt practices, including phone hacking, have been used by Murdoch’s firms in many countries – including Australia.

Rupert Murdoch

The News of the World revelations resulted in closure of the paper and enormous damage to News Corporation’s reputation. Recent revelations about pay TV corruption may actually destroy the Murdoch empire.

Last week The Australian Financial Review (AFR), published by Fairfax Media, revealed the results of a four-year investigation into NDS (a News Corporation subsidiary formerly known as News Datacom Systems), and Operational Security, a secretive unit operating within NDS.

The global pay TV industry is worth billions of dollars. However, from its inception it has been susceptible to the illegal reproduction of the smart cards that decrypt satellite messages for pay TV program broadcasts. As the AFR points out:

“High-tech pirates, or hackers, try to break the encryption coding by … disassembling [the cards] to … crack the software coding. … There is a multi-million dollar black market for pirated smart cards that enable buyers to access pay TV for nothing other than the $100 or so for the dodgy cards – no monthly fees, and unlimited access to all channels, including premium services.

“Once a broadcaster’s encryption system has been hacked, there’s a race between the pirates and the broadcaster. The pirates produce and sell as many of the corrupted cards as possible before the broadcaster can fix the problem, either by replacing the cards or by disabling the pirate cards with a software patch. As soon as a new card or patch is issued, the game begins again.”

In 1988 News Corporation established News Datacom Systems in Israel, to produce smart cards, which were sold to News Corporations rivals. It was run by Reuver Hasak, former director of Shin Bet, the Israeli domestic security service.

Operational Security was later formed with a staff of former police and intelligence personnel, to prevent fraud within News Corporation’s ranks, identify anyone making pirate smart cards and take legal action against them.

A trail of destruction

According to the AFR evidence, NDS carried out a labyrinthine series of global double deals, to severely damage News Corporation’s rivals in the battle for pay TV control.

News Corporation has always denied that NDS or Operational Security engaged in criminal activity. Criminal charges against News Corporation in the US failed, and there were no Australian laws against the activities in which these firms were engaged, at least during the early days of pay TV. Civil actions taken against the company in Australia were dismissed, and in one case heavy damages were awarded against the plaintiff.

However, the AFR now has access to a huge archive of 14,400 emails originally owned by Ray Adams, a former London Metropolitan Police commander, who acted as Operational Security’s European chief between 1996 and 2002.

The Financial Review claims that:

“NDS encouraged and facilitated piracy by hackers not only of its competitors but also of companies such as Foxtel, to whom NDS provided TV smartcards. The [email] documents show NDS sabotaged business rivals, fabricated legal actions and obtained telephone records illegally.”

The AFR emails indicate that NDS issued smartcards that were capable of being quickly or easily pirated. Some of News Corporation’s pay TV competitors were so financially damaged by smartcard piracy that they were sold, in many cases to the Murdoch empire, at knock-down prices.

ONdigital collapsed in 2002, owing more than a billion dollars. While News Corporation was preparing to launch Skyglobal, its own pay TV firm, NDS is said to have deliberately delayed supplying a News Corporation competitor, DirecTV, with “silver bullet” software to protect its smartcards from piracy. DirecTV subsequently incurred losses of $120 million and was finally sold off to News Corporation.

Dirty digger in the dock

In the 1960s Murdoch earned the nickname “dirty digger” because of the muck-raking, salacious, inaccurate and viciously right-wing editorial policy of his tabloid newspapers. Later he incurred the hatred of his employees by sacking his entire workforce, shutting down his London Fleet Street headquarters, immediately opening up a new printery and only rehiring employees he approved of, with reduced pay rates and working conditions.

The Murdoch empire has been revealed as murky, treacherous and really nasty if you annoy or oppose it. Six years ago, Telstra backed out of a civil action against News Corporarion, even though it had significant new material on which to build its case.

The then Telstra boss Ziggy Zwitkowski blamed “emotion and ferocity” during pay TV negotiations for his decision, but it was undoubtedly the ferocity of News Corporation which resulted in withdrawal of the case.

Murdoch is a friend of Gina Rinehart, the mining magnate seeking a seat on the Fairfax Media board. They would both like to alter the editorial policies of Fairfax publications, including The Australian Financial Review.

However, Murdoch now has other things on his mind. In Britain and Australia regulators are questioning whether firms associated with the Murdoch family should be permitted to hold broadcast licenses.

Given the detailed information provided by the Financial Review emails, it’s also likely that News Corporation will face many civil actions, with potentially devastating results.

Finally, British and Australian police are examining the new AFR evidence, with a view to laying criminal charges. Murdoch is said to have taken a particularly close interest in the activities of Operational Security and NDS. It will be hard for him to say “I didn’t know”, as he claimed during the investigation into the News of the World phone hacking scandal.

It is entirely possible that he will end up in the dock on criminal charges, and a great many people around the world would say that was no bad thing.  

Next article – CFMEU: Put Australian workers and youth first

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