According to multiple sources including the London Times, the UK’s Solicitor General floated the possibility that Google executives may face criminal prosecution for revenue share agreements with terrorist supporters posting videos on YouTube that Google monetized with advertising.  So not only would Google be in breach of its promises to advertisers, Google might also have breached the UK’s terror laws, money laundering statutes, or committed the usual list of lesser and included crimes.

Google could be prosecuted under anti-terrorism legislation if it fails to remove illegal content from its YouTube video platform, ministers said yesterday.

Robert Buckland, QC, the solicitor general, said that the internet giant could be criminally liable if it was found to have “recklessly” disseminated videos posted by extreme groups such as National Action, a far-right group proscribed as a terrorist organisation in December.

Mr Buckland also revealed that the government was considering adopting a German law which would allow huge fines to be levied on social media companies that failed to crack down on hate speech and illegal content.

Before you either snicker or drool at the idea of Google executives being frog marched out of their palatial offices in handcuffs and leg irons, remember a few of the examples of corporate crooks and just how long it took to actually get them into the pokey.  But also remember this–if you had told a room full of MBAs in 1985 that in a few years time Drexel Bernham Lambert would be bankrupt and Michael Milken would be in prison, you would have been laughed out of the room.

And yet it happened.

Also remember Google came very close to criminal prosecution for very similar failures with the sale of illegal drugs even under the auspices of the very pro-Google administration of President Obama.  The Department of Justice allowed Google to pay a fine of $500,000,000 under a non prosecution agreement to stop a Rhode Island grand jury from indicting Google executives–and the U.S. Attorney leading the investigation said that “[Google CEO] Larry Page, “knew what was going on.”  I’m sure that deal had nothing to do with the relationship between Google lawyer and long-time Washington insider Jamie Gorelick and then Attorney General Eric Holder, not to mention Schmidt’s own relationship with President Obama.

Google was so apprehensive about their executives exposure to criminal liability for violations of the Controlled Substances Act that Google’s Eric Schmidt took the Fifth on questions about illegal drug advertising posed by Senator John Cornyn in a Senate investigation into Google.   (Princeton grad and all-round smart guy Schmidt later claimed he was “confused” by one of the most easily anticipated questions from Senator John Cornyn.  Easily anticipated and easily prepared for by Google’s legal team, remembering the crime/fraud exception to the attorney-client privilege).

Morgan Stanley analyst Brian Nowak inadvertently put his finger on another source of potential criminal liability for Google executives, including Eric “RICO suave” Schmidt himself, in a Barron’s interview:

[T]he actual threat to Google revenue is low.]  That said, as long as GOOGL addresses these [advertising] issues, we put a low probability on this materially impacting GOOGL’s near-term results. 3 reasons.

First, advertisers who have pulled their advertising dollars from GOOGL are only pulling ad revenue from YouTube and the Google Display Network.

Second, we estimate these businesses in aggregate make up 21% of GOOGL gross revenues (with YouTube 12%) and 10% of net revenue. Even if 10% of this revenue went away (which would seem draconian) it would only impact GOOGL’s net revenue by 1%.

Third, we believe Google’s revenue is diversified across millions of clients – with the top 100 ad spenders likely representing less than 20% of total ad revenue – given the strength of its core search product.

GOOGL stock isn’t expensive (17X ’18 adj EPS for 22% ’16-18 EPS growth) and so the extent to which GOOGL is pressured over the coming days/weeks we would recommend buying the stock. We remain [overweight] on GOOGL with a $1,000 [price target].

There’s a whole lotta “ifs” in that quote, most of which assume that the status quo is static and not dynamic–meaning that the only thing that changes is the really huge accounts pulling out, a kind of “anchoring bias.”

That would leave the bottom 80% of “ad spenders” to continue advertising at the same rates either because they don’t care about their ads appearing on hate videos, they aren’t influenced by big brands jumping ship, or, more likely, they have nowhere else to go because their business is dependent on Google’s advertising monopoly.  Those people are also known as “the suckers”.

And you don’t suppose that Google would have reached out to analysts to try to keep them from downgrading the stock, do you?  Because that never happened before.

Whatever the case, the one thing that we know is that Google has been sharing revenue with some pretty unsavory characters and Google knows who they are, where they got paid, probably took a tax deduction for those payments and may well have filed an IRS form 1099 or otherwise reported to a local tax authority.  If HMRC comes knocking, they may well find some rabbit holes worth going down.

According to the Daily Mail, the Solicitor General said:

‘There is an offence of recklessly disseminating this material, and the criminal law is there is a clear boundary beyond which they should not stray.

‘I think the legislation is clear. It is my hope and expectation that these organisations will indeed come to heel and obey the law but the law is there if necessary.’

Mr Buckland warned Google that the 2006 Terrorism Act could apply to companies as well as individuals.

The criminal side of Google’s business could become very important.  I would assume that if the UK Solicitor General is talking about it, an investigation has already started.