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FCPA Blog Daily News

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Monday
Apr242017

Hungarian telecom execs pay penalties for FCPA offenses

Two former executives of Magyar Telekom who were headed for trial this month against the SEC agreed instead Monday to pay penalties and accept officer-and-director bars to settle FCPA violations.

Magyar Telekom's former CEO Elek Straub will pay a $250,000 penalty. The chief strategy officer, Andras Balogh, will pay $150,000.

Both executives accepted a five-year bar from serving as an officer or director of any SEC-registered public company.

The SEC’s civil complaint had charged them with using sham contracts to funnel millions of dollars in bribes to foreign officials.

The settlements are subject to court approval.

Hungary-based Magyar Telekom and its majority owner Deutsche Telekom AG paid $95 million in December 2011 to settle civil and criminal FCPA charges. Magyar Telekom admitted bribing officials in Macedonia and Montenegro to win business and shut out competitors.

A third former executive of Magyar Telekom settled FCPA charges in February this year. Tamas Morvai agreed to pay the SEC a $60,000 penalty without admitting or denying the charges.

All three former executives are Hungarian citizens. The SEC sued them in December 2011.

They used "sham consultancy contracts with entities owned and controlled by a Greek intermediary" to pay €4.875 million ($5.3 million) that they knew or should have known would be passed on to Macedonian officials, the SEC said.

The agency alleged they violated or aided and abetted violations of the anti-bribery, 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.

In 2014, the SEC dropped some of the charges against Morval, Straub, and Balogh related to alleged bribes to officials in Montenegro. But the SEC kept other allegations that the executives bribed officials in Macedonia.

In 2013, a federal judge in New York City denied the defendants' motion to dismiss the SEC complaint. They argued that the U.S. lacked personal jurisdiction over them, that the SEC's claims were barred by the the FCPA's five-year statute of limitations, and that the complaint failed to state a cause of action.

Judge Richard Sullivan rejected their motion "in its entirety" and ordered all three to stand trial on the charges.

“The executives in this case were charged with spearheading secret agreements with a prime minister and others to block out telecom competitors,” the SEC's Stephanie Avakian said Monday.

“We persevered in order to hold these overseas executives culpable for corrupting a company that traded in the U.S. market,” she said.

In a statement emailed to the FCPA Blog, Balogh's lawyer, William Sullivan at Pillsbury, said:

Despite defending against these allegations from the initiation of the case almost six years ago, for personal and family reasons (most specifically, the seriously declining health of his elderly father, which has recently required expert medical intervention), Mr. Balogh finally concluded that under these circumstances he could not travel to New York in May to personally appear at trial in his own defense against the SEC’s allegations, but instead should resolve the case consistent with the negotiated settlement terms and without either any admission of liability or further denials of misconduct. Accordingly, the allegations in the SEC’s civil complaint have not been, and will now never be heard, evaluated, or decided by a jury in a court of law.

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Richard L. Cassin is the publisher and editor of the FCPA Blog.