Murdoch’s Private Spies

by Neil Chenoweth
Allen & Unwin, 402pp.

This book reads like a spy novel, but the combatants work for private corporations, not states. There are no innocent parties, only winners and losers, in a world where law is seen as a tool and business ethics are for wimps. And because it is true, the story raises serious questions over the ability of national governments to provide a business environment in which rule of law can be taken seriously.

The competition is for control of a small item costing $2 – the credit-card sized smart cards that give access to satellite PayTV. The security of those cards is the key to billions of dollars in PayTV revenues. Since the inception of pay television, independent hackers and organized pirate rings have repeatedly broken the codes to provide unauthorized access via a black market in forged smart cards.

Naturally, investors in PayTV have fought back to defend their revenues. News Corporation, planning a global satellite television empire, acquired its own card security development company – News Datacomm (later NDS). It was based in Israel and employed mainly ex-Israeli military and intelligence operatives. Its first CEO turned out to be a convicted American swindler on the run from US authorities, but the staff were expert in their fields. Their primary task was to develop the DataCrypt system for News Corporation’s PayTV systems

But NDS also ran intelligence operations against pirate card makers and against News Corporation’s competitors. They infiltrated the internet chatrooms where hackers would boast about their achievements, developed contacts, and recruited agents. They employed former police detectives and intelligence operatives for many nationalities, including a former head of Scotland Yard’s criminal intelligence bureau. These agents used their contacts with state agencies, bugged phones, burgled homes, set traps, and employed every device familiar to readers of crime fiction – with apparent disdain for the law. As in the high times of maritime piracy, one man’s pirate would be another man’s privateer.

In this shady world, hackers and agents were often on police watch lists of one kind or another, so they were flown around the world with false passports. The senior NDS officer responsible for undercover operations in Australia and East Asia was the wife of an Israeli diplomat, based in Taiwan. Her job was to protect the interests of News Corporation.

Whenever someone was caught out or things got sticky, the massive political, legal and public relations resources of News Corporation could usually protect them. If an operation was exposed too blatantly, agents would be jettisoned and denied. In one case, News pretended to be suing a hacker who was, in fact, on their own payroll.

The most creative hackers were often difficult individuals. One seems to have been murdered, KGB-style, in a Berlin park, after East European gangsters concluded he was a threat to their lucrative piracy business. Another on the NDS payroll was arrested in a Bulgarian bar after shooting another man in a drunken rage.

By Chenoweth’s account, this activity went well beyond defending a legitimate business against criminal attack. News Corporation was accused of using its smart card “security” operations to damage its competitors. News wanted its NDS card system to be the standard everywhere, but there were several European and American competitors in the smart card business.

When big contracts were coming up for review, there were suspiciously frequent public releases of codes to crack the cards of NDS’ competitors. The main victims of these sabotage releases were the American services DirecTV and Echostar, and the French Canal+. These corporations established their own intelligence operations to find out what was going on, and for several years there was running underground warfare. In the heat of it, some star European and American hackers seem to have been double agents, triple agents, or simply playing all sides for as long as they could.

At the corporate level, News Corporation was trying to buy a 30% shareholding in DirecTV that was held by General Motors. NDS provided the smart-cards to DirecTV, and card piracy was a factor in the price of those shares. Chenoweth reports evidence that one of NDS prize hackers had developed a cure-all solution for piracy on their current cards, but NDS did not release that code during the time that News Corporation had an interest in keeping DirecTV share prices low.

Eventually Canal+ and the US Echostar system sued NDS for sabotaging the security of their competitor’s codes. The claims were for hundreds of millions in lost revenue, let alone any share price implications or criminal liability. News Corporation had twenty lawyers in the California court-room, the plaintiffs had three. Despite compelling evidence, and all indications that the judge was convinced by it, NDS was found guilty of only a minor misdemeanour with a $45 penalty. Even the judge’s costs award against NDS was overturned by an appeals court of California’s notoriously partisan, elected judiciary. By this time, New Corporation was a significant political asset of the Republican Party.

Australian Financial Review journalist Neil Chenoweth has been a hound of News Corporation for many years. His investigative work on this story, over more than four years, has accumulated extraordinary detail from across the globe. We get potted biographies and character sketches of most of the key characters. I’m not sure we needed to know the names of the two dogs who sniffed a suspicious package at a critical moment in a Texas parcel depot – but it proves Chenoweth was thorough. It is a rare employer who would underwrite such an intensive journalistic project.

Chenoweth notes the legal hazards of investigating News Corporation, whose normal approach to litigation he describes as “thermonuclear”. At many points in this story, the threat of massive legal costs seems to have been enough to extinguish open challenges to News Corporation’s version of the truth.

This story is full of personal drama, colourful identities, and issues of high principle. Many episodes are presented in a cinematic present tense, but the large caste and complex plot would challenge any screenwriter. Chenoweth concludes with a number serious questions about accountability of globalised corporations. I wonder who will dare to make the movie.

Richard Thwaites was working on broadcasting policy issues while Australia’s pay television system was being introduced.