Hack Attack (50 page)

Worse, Murdoch’s own house was divided. Although father and son had struck a peace deal at their meeting in the Azores, senior executives in New York remained deeply sceptical of James’s judgement. They had caught up with his early flanking operation, when he hired Deutsche Bank in London to run the bid, by hiring JP Morgan to do the same from New York. But the wrestling match continued, with James, as the man on the spot in the UK, tending to win – at least until today.

As a further complication, Rebekah Brooks was building her own mini-empire in London, with her News International camp bristling with mutual dislike for James’s London News Corp people. Brooks’s line to power was her relationship with Rupert Murdoch: while technically she reported to James, she spoke far more frequently to his father and appeared to be trying to score points with him by showing that she, not James, was the person who could save the bid.

Worst of all, the hacking scandal had gatecrashed the political party. The sacking of Ian Edmondson, the resignation of Andy Coulson: the sudden chain reaction of events was clearly threatening to damage News Corp’s standing in the UK and potentially to undermine its political credibility with government. The rival factions in London disagreed over how to handle the crisis. Brooks had squabbled with James’s head of communications, Matthew Anderson, about whether to say anything public when Edmondson was suspended in December. She had argued by email that it would not make Vince Cable any more sympathetic to the BSkyB bid – ‘it’s not going to change the Cable view of us’ – while Anderson argued back that silence left them ‘to live with a damning storyline that an organiser of hacking is still employed by the
News of the World
’. Brooks ignored him and kept the suspension secret until it leaked to the
Guardian
.

That friction was then significantly complicated by a dangerous split in Brooks’s own camp. Her new right-hand man, Will Lewis – who appeared to have played such a key role in the removal of Vince Cable – was managing her internal inquiry. He was already unhappy that he had not been told that Edmondson had been suspended, learning of it only when he read it in the
Guardian
on 5 January.

As he dug into Edmondson’s history, he came across the allegations of crime which Clive Goodman had made when he came out of prison; and the damning verdict of Michael Silverleaf QC in the Gordon Taylor settlement, that ‘there is or was a culture of illegal information access’ in the papers. In the background, Neville Thurlbeck had been making threatening noises, insisting that Ian Edmondson had been directly involved in the phone-hacking.

Lewis told friends he felt he was trapped on a ship of fools and was determined not to sink with it. He had persuaded Brooks to hire two close allies: a childhood friend, Simon Greenberg, as director of corporate affairs; and a former
Telegraph
computer specialist, Paul Cheesbrough, as head of IT. The three of them were untainted by the history of crime and secretly they started making moves to expose it.

Crucially, with one eye on the company’s email deletion policy, they set about safe-guarding the messages which police might need. On 10 January 2011, Lewis instructed Paul Cheesbrough in writing to preserve all emails sent and received by Ian Edmondson and twelve other key players. Over the next ten days, as his suspicions grew, he progressively added more names until by 20 January, the messages of 105 News International employees were being wholly or partially copied on to the safety of a laptop before being deleted from the main archive. At some point, Cheesbrough also removed the hard drive from Brooks’s computer with the intention of storing it safely. All this was nitroglycerine in Murdoch’s London HQ.

It was while this was happening that the legal director, Jon Chapman, found in Ian Edmondson’s hardware three emails which appeared to be evidence of crime.

Now Lewis and his allies insisted that these emails be handed to Scotland Yard. The old guard at the
News of the World
resisted. Brooks stalled. There was a tense meeting. Tom Crone arrived with Ian Burton, the senior partner of Burton Copeland. According to one of those who was at the meeting, Lewis made it clear that he thought Burton was ‘a bullshitting twat’ and when Burton told the meeting that they should hold back the emails and merely talk to police, Lewis told him he was not prepared to get dragged into the shit by him. Since the emails were very likely to be disclosed in open court to Mr Justice Vos, Brooks agreed that they be handed to police. That evening, she could show them to Rupert Murdoch.

Lewis’s group also wanted Edmondson sacked. So, too, did some of James’s camp. His chief press aide, Alice Macandrew, became embroiled in a half-hour shouting match with Brooks: Brooks wanted Edmondson to stay, Macandrew wanted him to go and for the company to run a real internal inquiry. Brooks agreed to sacrifice Edmondson but failed to set up a rigorous internal inquiry. When Lewis suggested they call in an outside law firm, Clifford Chance, to run a full investigation with independent accountants, she gently pushed the plan away, saying that it was an interesting idea but she would need time to think about it.

James Murdoch emerged from this confusion claiming to his father’s advisers in New York that – as one of them recalled – ‘he had put the hacking into a box’. London would handle the hacking; he would cross the Rubicon. Even from faraway Manhattan, it didn’t look like that. There, News Corp executives recalled how repeatedly James and Rebekah had told them that the
Guardian
stories were nothing more than fiction and spite from a newspaper which hated News International. Now, however, their alarm bells were ringing loud. Now what they saw was James – whom they disliked and distrusted – losing his way and leaning for advice on Matthew Anderson who, in their eyes, thought all problems could be handled by making PR moves to tweak public opinion. ‘If you’re a hammer, everything looks like a nail,’ as one New York executive put it. Tossing out Edmondson, they warned, was simply a short-term gesture to score them a law-abiding point, but it was not nearly enough if there was still more dirt to be uncovered in News International’s stable.

Murdoch’s in-house counsel, Lawrence ‘Lon’ Jacobs, was insisting that they must root out the whole scandal, even if that meant sacrificing Rebekah. Jacobs’ problem was that he had lost favour with his chairman, apparently because he had led the opposition to Murdoch’s plan to buy the $30 million ‘chicken farm’ from his friend Ken Cowley. Rupert Murdoch was not speaking to him or listening to him. He was listening to Brooks. And what really interested him was the bid for BSkyB.

It was like two bare electrical wires slowly coming together: the
Guardian
stories that had been swatted away with such indifference for the past eighteen months; and the big deal that had been planned for more than three years. If the scandal came to a head while the deal was still unsealed, there was going to be a white flash and a mighty explosion. The best way forward was clear: that the scandal would emerge only slowly while James’s team hit the accelerator hard to speed up the bid. For Rupert Murdoch, it was all about timing.

*   *   *

As he took a grip on events on 25 January, Rupert Murdoch had good reason to be grateful for his special relationship with the government.

With Vince Cable ousted, the BSkyB bid was in the hands of the far more amiable Jeremy Hunt. The immediate problem, however, was that on 31 December, Ofcom had backed Cable’s judgement, reporting to Hunt that the bid could jeopardise the public interest by reducing the number of independent news outlets. James Murdoch once again had been furious, not only at the content of the report but by the reaction of Jeremy Hunt who returned from his Christmas holiday on 5 January, met James’s team the following day and appalled the young Murdoch by saying that he accepted the report and was intending to call in the Competition Commission – a move which, at worst, might kill the deal and, at best, would stall it for many months. One News Corp adviser cynically suggested that Hunt was frightened of being accused of being pro-Murdoch and was now hiding behind the regulators just as the previous year, on his way to dine with James Murdoch, he had hidden behind trees. Hunt said he was simply following the law.

But Hunt was no enemy. Where Cable had refused even to speak to News Corp for fear of jeopardising his quasi-judicial role, now Hunt left his door open to them, holding a series of formal meetings with James Murdoch and his executives. But much more important: where Cable’s special adviser had refused to engage with Fred Michel, now Hunt’s adviser – Adam Smith – started to act as a secret backchannel, providing a gushing source of information and support with no regard to the limits which Cable had observed. Michel phoned, emailed and texted Smith hundreds of times as the bid was being discussed. One forty-eight-hour period saw Michel send him thirty-five texts. And repeatedly Smith responded in helpful terms.

At the Leveson Inquiry the following year, Hunt was cornered by the evidence of this backchannel. He admitted that he knew Smith was in contact with News Corp but claimed he had not known the scale of the contact nor the tone and content of most of it. He also denied telling Smith to ignore the quasi-judicial boundaries, although he admitted that he had never told him to observe them. Smith, then aged twenty-nine, presented a rather different picture. It was clear that he was a key member of Hunt’s team: they had worked closely together for four and a half years; their offices were on the same corridor; they met and spoke by phone regularly on a daily basis. Smith told the Leveson Inquiry that Hunt and others in the department ‘were all generally aware of my activities’ and that, in some cases, they had asked him to sort out particular problems with Michel. Michel also said he thought that Hunt was aware of the backchannel, that he understood that when he was told something by Smith or any of Hunt’s other advisers, ‘it was always on behalf of the minister and after having conferred with him’. This was very different to the separation which had been observed by Vince Cable and his officials, and very different to the ‘strong legal advice’ which had been given to Hunt by his own officials. In his defence, Hunt claimed that the permanent secretary in his department, Jonathan Stephens, had given his blessing to the backchannel. Stephens himself was asked about this by a House of Commons select committee and repeatedly refused to confirm it.

Lord Justice Leveson later concluded that the relationship between Adam Smith and Fred Michel had been ‘a serious hidden problem’ which gave rise to ‘at least the appearance of bias in the process’. Smith had got ‘far too close’ to Michel; Michel had ‘sought vigorously to exploit’ the relationship; their communications had been ‘highly unsatisfactory’; and Hunt’s decision to allow Smith to liaise with News Corp without giving him clear boundaries created a risk which ‘should have been obvious from the outset’.

It should be said that the accuracy of some of Michel’s messages to News Corp was seriously questioned at the Leveson Inquiry. Very often, Michel claimed to have been in touch directly with Hunt, when in truth it was Smith who had spoken to him. Nevertheless, the existence of the backchannel was clear, and the flow of information from Hunt’s office was to become a powerful aid for News Corp.

On 10 January, four days after he had met James Murdoch, Hunt met the head of Ofcom, Ed Richards. An account of that private meeting then passed straight down the backchannel from Adam Smith to Fred Michel, who passed it all on to James Murdoch. This included Michel offering advice, which he claimed came direct from Adam Smith, that they must attack the Ofcom report by finding technical legal errors in it. James then instructed his lawyers to do so, and they produced their own report which complained that Ofcom’s process had been ‘seriously flawed’ and that Vince Cable had been ‘biased against the interests of News Corp’. Knowing that this might fail, the lawyers also came up with a second tactic, similarly designed to bring the bid process to a rapid conclusion.

They devised an ‘undertaking in lieu’ – a scheme which would allow Hunt to accept the bid instead of referring it to the Competition Commission as Ofcom wanted. All of Ofcom’s concerns focused on one part of BSkyB – the Sky News channel. James’s lawyers suggested that if they took the channel out of BSkyB and spun it off as a separate and independent company, baptised internally as Newco, nobody could possibly complain that the takeover was having any effect on the number of organisations which owned news outlets. On 14 January, they sent Hunt their attack on Ofcom; on 18 January, they sent him their plan for Newco.

On 20 January, Hunt again met James and his team and told them that he was still minded to bring in the Competition Commission. But crucially he then added that he would consider the Newco plan as an alternative, although, to James’s habitual fury, he also added that he would ask Ofcom to check it out for him. He would announce this to Parliament, he said, on Tuesday 25 January – the day that Rupert Murdoch was to take charge of events in London. That night, Michel sent Hunt a text: ‘Great to see you today.’

It was on the next day, Friday 21 January, that Andy Coulson resigned, allegedly with encouragement from Rebekah Brooks in an attempt to release some political pressure over the hacking.

During the next few days, Hunt prepared his statement for Parliament. The opposing media alliance were locked out of the process, but Fred Michel was able to make regular contact through the secret backchannel to Adam Smith and occasionally directly to Jeremy Hunt. This allowed Michel to tip off James Murdoch that they were winning – that Hunt had already decided that he would green-light the BSkyB bid. Michel’s messages to his bosses gave the clear impression that Hunt was now conniving with News Corp to conceal his decision from Parliament and public while he went through the motions of asking Ofcom what they thought of the crucial Newco plan. Hunt denied this at the Leveson Inquiry.

As a first move, Michel suggested, on 25 January Hunt would publish the existing report from Ofcom which had criticised the bid. That would expose News Corp to attack but Michel spoke to Adam Smith and reported that Hunt wanted them ‘to take the heat … He very specifically said that he was keen to get to the same outcome and wanted JRM [James Murdoch] to understand he needs to build some political cover on the process.’ After more contact with Smith, Michel then forecast a second move, that Hunt would steer the Newco plan through Ofcom: ‘He said he would be able to send it to them with a specific question to limit their ability to challenge it … He said Ofcom would not be able to create major obstacles in that way.’