For the longest time, Murdoch has been known for his aggressive stance toward taxes. His deftness at minimizing them is legendary. So when the scandal broke last week in Israel, his rivals understandably might have gloated that the magnate was about to get his comeuppance. For now, though, that apparently is not to be. Rather than discovering him to be a fraud, Israeli authorities may actually find him to be a victim of a conspiracy.
At least, that’s the story sketched out by Murdoch’s spokesmen last week in a statement alleging an extraordinary extortion attempt by an erstwhile business associate. And in fact, at the weekend Israeli tax authorities confirmed that they were focusing not on Murdoch but his Israeli company, News Datacom, a key link in his global satellite-TV services. Meanwhile, NEWSWEEK has obtained a copy of a lawsuit by Murdoch in Britain against the alleged swindler, outlining a labyrinthine plot to bilk him of $25 million to $30 million.
Filed in February, the suit targets a global web of companies and individuals. Chief among them is one Michael Clinger, whom Murdoch’s camp describes as a high-living con man and the U.S. Attorney’s Office in New York considers an international fugitive. The suit alleges that Clinger, while employed by News Datacom, conspired with others to lock the company into buying so-called ““smartcards,’’ used for decoding satellite-TV broadcasts, at inflated prices. They were allegedly purchased from a single supplier, a company in which Clinger allegedly held a secret stake. Last Friday Clinger (who disputes the ““fugitive’’ tag) and his British lawyer pledged a vigorous defense against Murdoch’s charges. Clinger has already countersued in Britain, accusing Murdoch in turn of ripping off him and others for tens of millions of dollars. Clinger charges, too, that Murdoch illegally transferred technology to one flagship U.K. satellite-TV operation and dispatched private eyes to tap his phone.
Details of this tangled affair remain murky. What’s known is that it began with Murdoch’s effort in the late 1980s to expand into the global satellite-TV business. (He succeeded, as everyone knows, first with his British Sky Broadcasting and later with such ventures as Star TV in Asia.) Along the way, he assembled a kind of United Nations of partners, investors and employees: Australians, Israelis, an American–all of whom converged on Jerusalem to help harness the requisite technology Murdoch needed for a satellite-TV service. Murdoch came to Israel in the first place because it was home to technologies he needed for the business. Researchers at the prestigious Weizmann Institute, for instance, were pioneers in encryption and data scrambling. It was also in Israel that Murdoch or his emissaries crossed paths with Michael Clinger.
Clinger, now 41, had begun his career respectably enough. In the 1970s, he worked as a credit analyst at Chase Manhattan Bank; he then joined a medical-supply company, and later founded a U.S. laser-distribution company. But in 1987, he left for Europe and Israel after settling SEC charges of financial improprieties. (In 1990 he was indicted on sweeping federal charges ranging from insider trading to obstruction of justice. Clinger says he is attempting to negotiate the charges with U.S. authorities.) In Israel, he joined an investment group, which included Murdoch (with a 60 percent stake), that launched News Datacom to exploit the Weizmann Institute’s encryption technology. When Murdoch bought out his fellow venture partners in 1992, Clinger left. But, the Murdoch suit alleges, he had already set in motion the plan to supply the overpriced ““smartcards’’ through Phoenix Micro Inc., in which he was allegedly a secret part owner. Murdoch now charges that Clinger locked out other potential suppliers and received secret profits from Phoenix while on News Datacom’s payroll. Clinger denies the charges.
Swimsuits: The alleged scheme began to come to light when others of Clinger’s associates and former colleagues began to turn on one another. Among them was a certain Leo Krieger, News Datacom’s former chief financial officer. This is where the tale gets lurid. Krieger was carrying on a relationship with Clinger’s ex-wife, a former swimsuit model and arts patron dubbed by one Israeli newspaper as the ““Baroness of Jerusalem.’’ To get even, Krieger suspects, Clinger reported him to Israeli authorities for alleged income-tax evasion in connection with Krieger’s employment at News Datacom. Last year, authorities arrested Krieger. In turn, Krieger exacted a revenge of his own. He went to Murdoch’s camp, told him about Clinger’s alleged double-dealings with News Datacom–and claimed that Clinger was ripping the publisher off. In an interview, Murdoch’s top in-house lawyer acknowledges that Krieger supplied crucial information, including tape recordings of Clinger. Murdoch paid Krieger for his help, reportedly as much as $350,000. And to dig further into Clinger’s dealings, he also hired the vaunted British investigative firm Argen, started by a former British spy. Says Arthur Siskind, Murdoch’s general counsel: ““We know everything about him,’’ right down to the $250,000 Swiss glass staircase installed in his $1.5 million Jerusalem mansion. Murdoch thereupon ceased all dealings with Clinger, including payments he was to have made for Clinger’s original stake in News Datacom.
That’s when the alleged extortion began, according to Siskind, who claims that Clinger dispatched his own attorneys to New York earlier this year to deliver a threat. If Murdoch didn’t pay up, Clinger would turn him over to Israeli tax authorities for corporate tax evasion at News Datacom. Says Clinger: ““I don’t control the strings of government.’’ But he adds that he did provide some data. The Murdoch lawyer (based on phone records obtained by Murdoch’s hired snoops) also accuses Clinger of being the source of reports in The Financial Times concerning tax practice by Murdoch’s News Datacom. That would seem to make the newspaper an accomplice to blackmail, Siskind suggests. Of course, that’s a farfetched notion. But it’s a sign of just how tangled this saga may yet become. As the Baroness of Jerusalem says, ““it seems more like a soap opera’’ than a tax-fraud case.
