Martin Hickman: Can James Murdoch avoid the fallout from this ticking time bomb?

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Amid the lies, cover-up, obfuscation and blame-dodging, there is one glaring fact about the phone-hacking scandal: in June 2008, James Murdoch authorised a secret, out-of-court settlement of £500,000 to Gordon Taylor, the chief executive of the Professional Footballers' Association.

The payment shows that Mr Murdoch, whose role as the European chief executive of News Corp gave him responsibility for the News of the World, knew about phone hacking.

And not only did Mr Murdoch know; he was prepared to pay a victim an astonishing sum to buy his silence. The pay-off, which included costs, was 10 times the damages that would have been awarded in a civil action for breach of privacy. Why was News International willing to pay Mr Taylor so much? A clue is the number of reporters who may have known about phone hacking. Clive Goodman, the NOTW's royal editor, was the only journalist jailed, in January 2007, for hacking phones.

But when Mr Taylor was earlier approached by a NOTW reporter about a (non-existent) extra-marital affair, it was not Goodman at his doorstep but the paper's chief reporter, Neville Thurlbeck.

Yet when News International's top executives appeared before the Commons Culture, Media and Sport Committee in 2007 and 2009, they insisted that internal investigations had pointed only to Goodman, the "rogue reporter". There was, they maintained, "no evidence" anyone else was involved.

Now we know, courtesy of The Sunday Times – its master's (often silent) voice – that there was indeed damning evidence and that it was suppressed. The paper reported yesterday: "An internal News International report in 2007 uncovered evidence indicating that hacking was more widespread than previously admitted and that money might have been paid by the paper's journalists to the police." It quoted a News International executive as saying: "We were sitting on a ticking time bomb." This bomb is now primed to explode, but who is likely to feel its force?

Last week Mr Murdoch admitted mistakes in his handling of the affair, particularly the Taylor pay-off. He claimed, however, that he had been badly advised by "executives and lawyers".

News International is privately saying that Mr Murdoch "was not aware" of the devastating internal report when he agreed to Mr Taylor's settlement in 2008. Nor, it says, was Rebekah Brooks, the current chief executive, who has been so publicly backed by News Corp's chief executive, Rupert Murdoch. Ms Brooks and James Murdoch are aggressively defending their position and appear to be blaming others for mounting a cover-up.

Already this newspaper scandal has probably wrecked News Corp's chances of taking full control of Britain's biggest broadcaster. It now looks likely to ruin the reputations of top executives. The question is: which ones?

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