The Dark Side of Murdoch's Russian Billboard Business

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Holding on to that position, however, required not just cash but the good graces of the Russian government, and Murdoch's ownership was likely not much help in that regard. His first major partnership in Russia, years before he went into the billboard business, had been with the oligarch Boris Berezovsky, one of Putin's oldest foes. In Moscow's political circles, some viewed Murdoch as an enemy by association. His main projects with Berezovsky, including plans to jointly control a major television channel, were blocked by the state in the late 1990s, and in 2001 Berezovsky fled to London after criminal cases were opened against him. (Berezovsky, who was granted political asylum in the U.K., has always denied the charges and claims they were politically motivated.) His departure finally severed Murdoch's most useful link to the Russian market, and it was up to the media mogul's Russian executives to make up for that.

A priority for them, as for practically every major business in Moscow, was to establish decent relations with city hall, which Mayor Yuri Luzhkov ran from 1992 until last year. The mayor's son Alexander Luzhkov also happened to be in the billboard business, and he developed a close relationship with Murdoch's firm: News Outdoor had exclusive rights to market and service all of the younger Luzhkov's billboards.

Tkachev, the News Outdoor CEO, denies that this relationship earned his company any special treatment from authorities in Moscow. But while the relationship held, News Outdoor and the firm owned by Alexander Luzhkov won joint contracts for prime billboard space, including exclusive rights to post bills along the Third Ring Road that runs around central Moscow. In 2005, after Mayor Luzhkov renewed those contracts, his deputy, Vladimir Resin, wrote a letter to the mayor complaining that News Outdoor was unfairly cornering the city's billboard market. "I ask your permission to cancel these agreements and hold [a tender] for these advertising opportunities," Resin wrote, pointing out that city hall had ruled in 2001 that Moscow's billboard space should be handed out competitively. But the mayor dismissed his deputy's claims as "unfounded" and no competitive tender was held.

"That was the mayor's right," says Vladimir Makarov, who was head of the city's advertising committee at the time. "Since the mayor signed the first order [in 2001], he could sign another order." And it seemed to matter little if they contradicted each other.

That was the way the Russian billboard market operated. The whim of a local official could decide whether your billboards were granted a discount or taken down completely. And in many quarters, it was accepted practice that backroom deals were the way such matters got decided. As a result, interviewing the businessmen and bureaucrats involved in this market often feels like talking to the one unlucky saint in a den of thieves. All four of the nationwide players TIME spoke to said that the market is thoroughly corrupt, with envelopes of cash changing hands with officials as a matter of course. But all said they had not taken part in or been party to bribery themselves. Even Makarov, the former head of Moscow's ad committee, continues to profess his innocence, after having been convicted earlier this year of abuse of office for handing out discounted billboard space to two companies that News Outdoor later acquired. News Outdoor's offices were searched in 2008 in connection with the case, but no charges were ever filed against its managers, who deny any wrongdoing.

There is no evidence that Murdoch knew of the crimes allegedly committed in the Russian advertising market. Tharani, the former financial director of News Outdoor, says Murdoch's involvement in the Russian business was "practically zero." But a former employee of News Corp. intimately familiar with the operations in Russia says News Outdoor was by no means naive. "There is a great temptation in that business for low-level bribery," the former employee tells TIME. "You're trying to get a permit or you're trying to get permission to put a board up some place, and guess what, a person working at a very low level is sitting on it. So there is a great temptation to take him out for dinner or do something to get him off his butt." Asked whether News Outdoor had ever given in to that temptation, he says they did their best to follow News Corp.'s ethical standards. "But I cannot tell you with 100% surety that it did not happen." When TIME put the same question to Tkachev, he said News Outdoor had never taken part in corruption.

Only once, as far as TIME's investigation could discern, was News Corp. confronted head-on with claims of alleged corruption at its Russian subsidiary. In the fall of 2006, Martin Pompadur, who was chairman of News Corp. Europe at the time, met in a Moscow hotel with three Russian advertising executives. (That meeting was arranged by a former Russian security agent named Andrei Lugovoi, a mutual acquaintance of the executives, who would gain infamy later that year in connection with the murder in London of Alexander Litvinenko, a former Russian spy.) The ad executives complained to Pompadur of bribery, phone tapping and corruption at News Outdoor, and asked him to investigate the allegations. Reached by phone in New York City, Pompadur declined to comment on the meeting. Tkachev, the News Outdoor CEO, denies all of the claims of corruption and phone tapping, saying they are part of a "black p.r." campaign, and he declined to comment on any follow-up the Moscow hotel meeting may have led to.

But regardless of whether News Corp. looked into these claims internally, the Russian government began a series of probes and regulatory shake-ups in the billboard market after 2008, when Dmitri Medvedev replaced Putin as Russia's President. News Outdoor was hit with a $45 million tax claim, and new regulations have forced many of its billboards to be taken down or put up for competitive tenders. The departure of Mayor Luzhkov, whom Medvedev sacked last year, has also meant a reshuffle in city hall. Makarov, the head of the city's advertising committee, was fired in March; a few months later, he was found guilty of abuse of office. His former deputy, Igor Gavrilov, is now serving a three-and-a-half-year sentence handed down in 2009 for conspiracy to commit fraud.

And as the regulatory winds turned over the past few years, Murdoch scrambled to sell his 79% stake in News Outdoor. "The more successful we'd have been, the more vulnerable we'd be to having it stolen from us," he complained to the Financial Times in 2008. "Better we sell now." But three years, one financial crisis, and two sets of failed negotiations later, Murdoch settled last month for a price tag of around $270 million, sources close to the deal confirmed. It was a long way to fall from the $1.65 billion valuation News Outdoor had in 2008. This, of course, would likely be among the least of Murdoch's worries at the moment, and maybe he should even feel glad that his days in the Russian billboard game are over. He has managed to come away clean after a decade in a very messy business.