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February 2012

The persecution of Lord Black

by Andrew C. McCarthy

A review of A Matter of Principle by Conrad Black

How about tobacco?” The question was really a proposed assignment. By then, I had spent many years prosecuting monstrous criminals. A parade of tobacco execs did not seem to me to fit that bill, even if they’d had the temerity to eschew a treacly show of contrition when grilled by lawmakers about the health risks of their wares. This faux pas had the news cycle spinning and editorial pages in high dudgeon. As night follows day, carnal fever gripped our ambitious little piranha tank: visions of headlines as big-name defendants were laid low by swashbuckling government lawyers, not merely doing justice but doing . . . good. That was the zeitgeist.

As Conrad Black has painfully learned, the tune in our Manichean legal theater is called by the progressive vanguard—the media, the academy, and, in particular, the Lawyer Left. A Matter of Principle is Black’s often gripping memoir of his nightmarish trek through America’s justice system and business governance culture—a system that can work grave injustice, a culture that is all government and no business.1 The nightmare endures: Lord Black of Crossharbour, international newspaper mogul, British peer, distinguished presidential biographer, and for most of his life a lover of the United States, sits for a few more months in a federal prison—convicted, he compellingly argues, of crimes he did not commit.

Conrad—my fellow National Review columnist and one of the most impressive men it has been my good fortune to meet—is undoubtedly guilty of two grievous modern offenses. He is a conservative and he is a capitalist—thoughtfully and ethically on each count, but unabashed nonetheless. These are not explicitly crimes, and thus the rule of law is supposed to be our insurance against their implicitly being treated as such: Justitia bearing her level scales, blind to transient pieties, upholding justice without fear or favor—“prosaic justice,” a very wise judge once admonished me, “not poetic justice.”

Increasingly, though, “rule of law” is just Big Government’s version of “social justice.” Heroes and villains are assigned their fates in accordance with the vanguard’s transgressive obsessions: income inequality, race, anti-Americanism, etc. The laws, rules and regulations proliferate until no one is invulnerable, reminiscent of Republican Rome’s death throes, when the emperor Nero (as Justice Antonin Scalia recounts in A Matter of Interpretation) posted his edicts high up on the pillars, rendering them impossible to read. Defendants are capriciously selected, made an example of, as much for what they represent as for what they’ve done. If you are a Democratic former National Security Adviser filching classified documents from the national archives or a Black Panther swinging a billy-club outside a polling station, you get our understanding. If you are Big Tobacco or Conrad Black, you’d better get counsel. Quaint notions of culpability are beside the point, because law is not about maintaining order but inculcating “our values.” Guilt and innocence are as irrelevant as the mordantly obvious question that rolled off my underwhelmed lips when the tobacco investigation was broached—How can there be fraud when the commercial activity is legal and everybody’s eyes are open to the risks?

Lord Black found out how, the hard way. He spent over thirty years building modest publishing enterprises into an international powerhouse that answered a market craving for professional reporting coupled with a right-of-center editorial voice. Its crown jewels were The Telegraph in Britain, Canada’s National Post, and the Chicago Sun Times, along with numerous small-town newspapers. It was a ceaseless struggle, fraught with financing squeezes, low margins, sharp-elbowed competitors like Rupert Murdoch (a constant and frequently churlish antagonist), and an evolving media environment in which the internet and changing habits remorselessly nudge print newspapers toward obsolescence. Through grit and acumen, though, starting with a small paper he bought for $500, Black and his business partners put together a transcontinental dynamo that became a force in Anglo-American politics and created nearly $2 billion in value.

That delighted most of the shareholders, but not all of them. And here we come to this wrenching tale’s first wolf in sheep’s clothing: the “corporate governance” movement, waving the Orwellian banner of “shareholders’ rights.” In a free market, personal profit is not a sin but an objective, and notions of “value” vary widely—some seeking to maximize quick financial gain, others in a business for the long haul, prioritizing reasonable returns and growth. Economic liberty accommodates this diversity, and the small but salient role of law enforcement is to guard against theft and extortion, while the civil courts referee contractual disputes and tortious misbehavior.

Corporate governance, as the racket styles itself, is a euphemism for the imposition of one-size-fits-all ethics regulations on business practices. It coerces conformance with the vanguard’s professed ideals, subordinating the creation of wealth to trendy, expansive notions of “fairness” and a “good corporate citizenship.” It does this by worsening the metastasis of legal and administrative regimes, whose ominous presence engenders a climate wherein the mere suspicion of wrongdoing, let alone formal accusation, can be a profitable venture’s undoing.

Black’s conglomerate had a complex structure, enabling him to retain control of his publishing endeavors by having his public companies (which he managed and in which he owned controlling shares of stock) operate under the direction of a private company he controlled. His management team, which was adept at converting basketcase newspapers into polished, successful products, was paid management fees through the private corporation. Due to the specter of self-dealing—perfectly legal as long as it is transparent—the public companies (particularly Hollinger International in the U.S.) maintained an audit committee and independent directors (persons of renown and presumed rectitude, such as Henry Kissinger, the former Illinois Governor Jim Thompson, and the economist-philanthropist Marie-Josée Kravis). Counted among management, moreover, were business law experts responsible for ensuring that transactions were properly documented and mandatory government filings accurately submitted.

As is wont to happen, Hollinger was infiltrated by a cabal of corporate governance activists who were bent on forcing its sale. When Black resisted, these minority shareholders agitated about high management fees, focusing especially on non-competition payments. These are an industry convention. When newspapers are sold, buyers naturally do not want the sellers to set up rivals who will vie for their former readership. Hollinger not only bought newspapers but also sold them (often in tranches of community papers) in order to raise capital, pay debt, and concentrate on the most profitable papers.

Most shareholders were delighted with the arrangement. Black’s fees were healthy but not astronomical, and you get what you pay for—which, in Hollinger’s case, meant a high return that dwarfed the fees. The agitators, however, perceived fertile ground in the claim that Black had run afoul of his fiduciary duty to minimize Hollinger’s costs. The management team, as Black ruefully recounts, gave their critics a “smoking gun . . . pre-targeted to our foreheads” by failing to ensure that $30 million dollars in non-compete payments were formally authorized by the audit committee. The overwhelming evidence indicates that this was an oversight—the non-competes in question traced to management fees that had been approved, were duly displayed to company auditors, and were repeatedly documented in annual reports. But the inability of Black’s subordinates to explain how the error happened gave it a sinister cast. The minority shareholders had the leverage they needed to goad the company into accepting an independent investigation run by an outside counsel.

Black knew not what fire he was playing with. At the recommendation of the director Richard Burt, a former diplomat, Richard Breeden was recruited as counsel to this “special committee.” Breeden had once chaired the Securities and Exchange Commission. Since then, he’d made a private sector fortune not creating value but advising businesses on compliance with the ever-expanding labyrinth of government regulations, earning a reputation as “America’s Mr. Corporate Governance.” He thrives on powerful demonstrations of the wages of non-conformance. Black seemed made to order: a wealthy, brash, unsympathetic success. Breeden made it his purpose to make Black’s life a living hell.

The special committee’s voluminous report found fraud behind every blade of grass. Black was publicly accused of orchestrating a “$500 million kleptocracy.” Gradually, he was ejected from the businesses he’d spent his professional life erecting. Under the guise of protecting the shareholders, Breeden flexed his muscles to block sales of Black’s companies, evaporating hundreds of millions in equity until the businesses were worthless—but for the king’s ransom in fees paid to Breeden and his cadre of accountants and monitors. More significantly, Breeden sold his kleptocracy narrative to the Justice Department, the second of our sheep-clad wolves. The result was a sweeping indictment brought by the U.S. Attorney’s Office in Chicago. As they browbeat subordinates in an effort to implicate him, Black depicts rabid prosecutors mobilizing to deny him access to the funds he needed to hire top-flight legal counsel—including the Washington firm which dropped him when he could not pay a $25 million trial retainer after it had milked him for $8 million while failing to persuade the government not to press charges.

Black is a writer of great force and panache. His character studies are especially fascinating. Some stretches of the memoir detail dizzying arrays of financial arrangements. These, though, frame the anguish that follows—the relentless condemnation of Black in the court of public opinion, fed by leaked innuendo; the years-long struggle of Black and his wife, the glamorous, accomplished journalist, Barbara Amiel, to cope with the onslaught and stay a half-step ahead of the campaign to ruin them; the wrenching betrayal of fair-weather friends; and the abiding loyalty of a solid few. Mostly, the book is testament to the strength Black draws from an unshakable belief in his complete innocence amid the shattering of his love affair with America—driven by the justice system’s abandonment of its first principles: the presumption of innocence and basic due process.

We need not, at this point, trot out the inevitable allusions to Kafka, Job’s tribulations, or Tom Wolfe’s Bonfire of the Vanities. True, in shoring up the indomitable spirit that fairly leaps off every page, Black refreshed himself in their lessons, just as he did in the deep wells of his Catholic faith and the unstinting constancy of his family. Black, however, coins his own neologism to describe the dystopia he makes of modern America: a “prosecutocracy.”

When he finally got his day in court, Black and his co-defendants destroyed the foundation of the government’s case: There had been no fraud—much less tax fraud and racketeering, a charge the Justice Department usually reserves for hitmen. David Radler, the prosecution’s slippery star witness and Black’s estranged business partner, was ground to pulp in cross-examination. The self-serving amnesia of the independent directors proved incredible in the face of the countless times they were shown to have signed off on the purportedly secret management fees.

The jury acquitted the defendants on the fraud trumpeted by Breeden and echoed by the Justice Department. Yet the government had an escape hatch: the ever-elastic theory of denying “honest services.” Originally concocted to deal with the peculiar circumstance of bribery—e.g., a judge who takes money to fix a case, depriving the public of his expected probity—this doctrine was stretched by corporate governance activists to criminalize alleged ethical lapses. Though neither intending nor effecting a fraud, an official can find himself in the soup over loose allegations of self-dealing at the company’s apparent expense.

Black was convicted on three counts of this hopelessly vague offense. Tacked on for good measure was a bizarre obstruction of justice charge, involving his removal to his home of thirteen boxes out of a company office from which he’d been evicted. Inspectors and lawyers had had free reign to copy all relevant documents for three years, Black had permission from the acting company president to remove the materials, he was unaware there was any American investigation to obstruct, he was unaware of the contents of the boxes, and he had dutifully surrendered over 100,000 documents as demanded. The jury, however, was doubtless influenced by a prosecutor’s repeated false implication that the removal violated a Canadian court order.

The defendants exposed the patent emptiness of the government’s case, prevailing on nine of thirteen charges. They illustrated that the whole woebegone exercise was government’s heavy-handed attempt to criminalize a private dispute over whether a company should be sold—at most, the stuff of civil lawsuits, not grand jury indictments. Breeden’s half-billion dollar horror story was utter fiction—slashed by the verdict to no more than an “honest services” breach of $2.9 million—not enough to pay Breeden & Co. for more than a sliver of the months they’d spent bankrupting the business. Yet, driven by federal sentencing guidelines, these “crimes” computed to a seventy-eight-month prison term.

In the prosecutocracy’s cruel piece de resistance, Black was sent a ray of hope. In 2010, the Supreme Court reversed his convictions, sharply limiting the honest services statute to bribery cases. Further, the justices unanimously rebuked the reasoning by which the appeals court—under the direction of Judge Richard Posner—had strained to affirm the prosecution. Black was released from jail, but the high court kept him in an aching limbo, sending the case back to Posner to review his own handiwork. Black’s sketch of Posner as a grandstanding public intellectual is worth the price of admission. True to form, Posner ignored the defense arguments, let the obstruction conviction stand, and reinstated a single honest service count as if it were a plain vanilla fraud—the theory the jury implicitly rejected. On the government’s best spin, its ruinous, astronomically expensive pursuit of Conrad Black netted one dubious caper worth $600,000—about one percent of Breeden’s slanderous “kleptocracy” claim.

Though he’d already served over two years—surpassing the sentence often imposed for actual obstruction of actual fraud—the district judge refused to release Conrad outright. He is serving seven additional months. That fig leaf of seriousness cannot disguise this shameful episode. He is to be released this spring. He has never wallowed, using the time in jail in redemptive introspection, mentoring prisoners, and redoubling the determination to clear his good name. A Matter of Principle goes a long way toward that end. Once free, Lord Black will bid adieu to the United States. It will be our profound loss.

Andrew C. McCarthy is the author of the The Grand Jihad (Encounter).


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This article originally appeared in The New Criterion, Volume 30 February 2012, on page 64

Copyright © 2014 The New Criterion | www.newcriterion.com

http://www.newcriterion.com/articles.cfm/The-persecution-of-Lord-Black-7286

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