Magyar Telekom Plc of Hungary and its majority owner Deutsche Telekom AG of Germany will pay a combined $63.9 million criminal penalty to the DOJ to resolve Foreign Corrupt Practices Act charges.
Magyar will also pay $31.2 million in disgorgement and prejudgment interest to settle civil charges with the SEC.
The case will join our list of the top ten FCPA corporate enforcement actions of all time.
The DOJ filed a criminal information against Magyar and a two-year deferred prosecution agreement in the U.S. District Court for the Eastern District of Virginia. Magyar was charged with one count of violating the antibribery provision of the FCPA and two counts of violating the FCPA's books and records provisions.
When the offenses occurred, Magyar's American Depository Receipts traded on the New York Stock Exchange, making the company an 'issuer' subject to the FCPA.
Magyar will pay a $59.6 million criminal penalty. Its sixty-percent owner, Deutsche Telekom, will pay a separate $4.36 million penalty. It failed to keep 'books and records that accurately detailed the activities of Magyar,' the DOJ said.
The SEC also sued three former Magyar employees -- CEO Elek Straub, Andras Balogh, and Tamas Morvai. It said they violated or aided and abetted violations of the antibribery, books and records, and internal controls provisions of the FCPA; knowingly circumvented internal controls and falsified books and records; and made false statements to the company's auditor. The SEC is seeking disgorgement and civil penalties against them. All three are Hungarian citizens and are living there.
The executives used 'sham consultancy contracts with entities owned and controlled by a Greek intermediary' to pay €4.875 million which they knew or should have known would be passed on to Macedonian officials, prosecutors said. The sham contracts were recorded as legitimate in Magyar's and Deutsche Telekom's financial statements. The SEC said bribes to Macedonian officials in 2005 and 2006 were meant 'to prevent the introduction of a new competitor and gain other regulatory benefits.'
Magyar was also charged in the criminal case with 'falsifying its books and records in regard to its activity in Montenegro.' The company made improper payments in connection with its acquisition of a state-owned telecommunications company, the DOJ said.
The SEC said it had help from the Hungarian Financial Supervisory Authority, the German Federal Financial Supervisory Authority (BaFin), and the Swiss Office of the Attorney General.
View the DOJ's December 29, 2011 release here.
View the SEC's Litigation Release No. 22213 (December 29, 2011) in SEC v. Magyar Telekom Plc. and Deutsche Telekom AG, Case No. 11 civ 9646 (S.D.N.Y.) and SEC v. Straub, et al., Case No. 11 civ 9645 (S.D.N.Y.) here.