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Phone hacking scandal shakes UK Govt -

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What started as a small scale phone hacking scandal at one of Britain's tabloids has erupted -
involving royals, celebrities and politicians.

Transcript

TRACY BOWDEN, PRESENTER: In Britain, what started as a small-scale phone hacking scandal by a
journalist four years ago has become something much more controversial. Thousands of prominent
people - celebrities, sports stars, royals and politicians - may have been victims of phone hacking
scams where their message banks were illegally accessed.

The Prime Minister's director of communications has quit his job, a former deputy prime minister is
taking legal action against the police and even Rupert Murdoch is in on the act with a major media
deal hanging in the balance - and that could be just the beginning.

Europe correspondent Philip Williams reports.

PHILIP WILLIAMS, REPORTER: It's a scandal that like so many started small, but has now reached into
the heart of British politics and threatens the reputation of a mighty news empire.

KEVIN MAGUIRE, DAILY MIRROR: No-one knows where this is gonna end now, because there seems to be so
many people launching legal actions, demanding money, compensation payments as high as ?1 million
being paid out by the News of the World. It's almost unlimited, this.

PHILIP WILLIAMS: When the Prime Minister's communications director Andy Coulson resigned last week,
it was for his past life as editor of the Murdoch-owned News of the World that forced the walk.

Four years ago under his watch, the News of the World's royal editor, Clive Goodman, was jailed,
along with a private detective, Glen Mulcaire. Their crime? To hack the voice messages of prominent
people, perhaps thousands of them.

It cost Andy Coulson his job as editor, but he always maintained he knew nothing of the hacking.

ANDY COULSON, FORMER EDITOR, NEWS OF THE WORLD: I never condoned the use of phone hacking and nor
do I have any recollection of incidences where phone hacking took place. My instructions to the
staff were clear: we did not use subterfuge unless there was a clear public interest in doing so.

PHILIP WILLIAMS: Andy Coulson went on to become part of David Cameron's inner circle, his role as
communications director widely credited with keeping his Etonian boss in touch with the other
Britain.

DANIEL FINKELSTEIN, FMR CONSERVATIVE PARTY ADVISER: They found someone in Andy Coulson that they
could trust. Over personal difficulties and as well as over political ones, David Cameron in
particular built a close relationship with Andy Coulson.

DAVID CAMERON, BRITISH PRIME MINISTER: I've always felt that he's been punished for the same
offence twice, but I quite understand his decision and wish him well for the future.

PHILIP WILLIAMS: That very closeness has turned what started as a media-done-wrong story into a
Prime Minister-makes-bad call angle. It's allowed the Opposition a free kick.

ED MILLIBAND, OPPOSITION LEADER: We think he should have gone earlier. He has now done the right
thing. I think there are questions about David Cameron's judgment about hanging on to him as long
as he did.

PHILIP WILLIAMS: But beyond political advantage, other Labour leaders have also had cause to take
notice of the story. It's been revealed the former Prime Minister Gordon Brown asked police to
check if his phone had been hacked and former Deputy Prime Minister John Prescott is taking legal
action against the police for what he says was their failure to warn and properly investigate his
suspicions that his phone was also compromised.

JOHN PRESCOTT, FORMER DEPUTY PRIME MINISTER: It was the police who told me that they could find no
evidence of me being - having my phone tapped. And then when I pressed, I found out there were two
payments of ?250,000 made by the Murdoch Press to this Mulcaire. So to that extent, why didn't the
police investigate it? They kept telling me there's no evidence.

PHILIP WILLIAMS: The suspicion is that thousands of people's private messages may have been hacked,
that a police investigation has inexplicably failed to find the evidence. Despite allegations that
the private detective jailed in the original court case had a long list of hackees.

MARK STEPHENS, MEDIA LAWYER: The security person that they employed, Glen Mulcaire, actually made
very careful and assiduous notes with the details of the names and initials of people that he was
commissioned by and what he was asked to do. So, if you like, there's a smoking gun in that case
which makes the legal connectivity which allows court actions.

PHILIP WILLIAMS: Mark Stephens is used to communications intrigue. As WikiLeaks' Julian Assange's
lawyer, the possibilities of electronic eavesdropping is no shock at all.

Do you think your phone's been hacked?

MARK STEPHENS: I don't know. I'm waiting for Mr Prescott's court case to find out whether it has.
I'm certain that many of my clients have, and indeed some of them have been in to ask what they can
do about it.

PHILIP WILLIAMS: And what's all that got to do with Andy Coulson and the News of the World? Well
possibly nothing.

But even one of his own former employees finds it hard to believe that as editor he didn't ask
basic questions: where did this information come from?

MATT DRISCOLL, FORMER REPORTER, NEWS OF THE WORLD: As any decent editor would, he would be a part
of all the big stories that were being made by the paper each week. He'd want to know exactly where
things had come from, especially if it was something that was a bit controversial or a bit
sensational.

PHILIP WILLIAMS: And in the last few hours, it's been revealed the head of news from the News of
the World, Ian Edmonson, has been sacked following an internal inquiry. It's being reported
damaging emails have been discovered. Police have confirmed they've launched a fresh investigation
based on significant new information.

DAVID CAMERON: Phone hacking is wrong, phone hacking is illegal, and I think that it's quite right
that the Director of Public Prosecutions is reviewing all of the evidence and they should follow
the evidence wherever it leads.

PHILIP WILLIAMS: All of this comes at a very inopportune moment for Rupert Murdoch. The head of
News Corporation, which through News International runs the News of the World. It's bad timing,
because all this controversy comes as he's trying to get the Government here to approve his buyout
of the highly successful British satellite broadcaster, BSkyB.

KEVIN MAGUIRE: The timing is a nightmare for Rupert Murdoch because he wants to buy the 61 per cent
of BSkyB, the satellite TV company, and I think you can almost hear now the frustration coming from
Wapping, Rupert Murdoch's headquarters in London, about this whole row around the News of the World
actually just making it very difficult for him to clinch that TV deal.

PHILIP WILLIAMS: Have you ever had your phone hacked?

KEVIN MAGUIRE: Some of my messages I believe were once listened to by somebody I investigated who
was employed in dirty tricks by another newspaper. But most journalists, it's a completely
different world to them, it's totally alien to what we do.

PHILIP WILLIAMS: Is it credible that the News of the World was the only villain in this piece?
Already the business and political ramifications are being felt. Now the legal wheels are turning
again - destination: who knows where?

TRACY BOWDEN: Philip Williams reporting from London.