Magyar And Deutsche Telekom In $95 Million Settlement

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.

Download the SEC's complaint against the companies here and against the executives here.

Bloomberg: SEC Sues Deutsche Telekom, Magyar, And Three Execs

[Editor's note: This post was updated here.]

Thom Weidlich of Bloomberg has just reported from federal court in Manhattan that the SEC has filed a civil suit againt Deutsche Telekom AG and its Magyar Telekom unit for FCPA offenses.

The SEC also sued three former Magyar employees -- CEO Elek Straub, Andras Balogh, and Tamas Morvai, Bloomberg said.

The 'court filing doesn’t indicate whether a settlement has been reached' and the SEC and Deutsche Telekom had no comment, according to Bloomberg.

The SEC hasn't released any information yet. When it does, we'll post it.

In June, Hungary's Magyar Telekom said it had reserved about $62 million for an expected settlement of FCPA-related charges with the SEC.

The company's internal investigation found potentially illegal payments of about $44 million by its Montenegrin or Macedonian units.

Magyar Telekom -- Hungary's largest telecommunications firm -- is a consolidated subsidiary of Germany's Deutsche Telekom.

"The Company, without admitting or denying the allegations against it, would consent to a U.S. court order permanently enjoining it from any future FCPA violations and to the payment by the Company of disgorgement and a conditional civil penalty," Magyar's statement said.

The company said it is still trying to resolve the case with the DOJ.

[Updated] Motorola Investigation Launched, Source Reports

An Austrian news weekly reported a few days ago that U.S. enforcement authorities are investigating an Austrian lobbyist and Motorola over alleged bribes to government officials, according to an AFP story.

"From April 2004 onwards, Motorola apparently transferred up to €2.2 million ($3.12 million) to three firms controlled by lobbyist Alfons Mensdorff-Pouilly," the report said.

Motorola's agent, Mensdorff-Pouilly, then allegedly used the money to make "illegal payments" to key political figures in Europe and the Middle East, it said.

Mensdorff-Pouilly, 58, was charged in 2010 by the U.K. Serious Fraud Office in connection with the BAE case. The charges were later dropped. The Austrian aristocrat was reportedly awarded €430,000 in compensation for the week he spent in custody in the U.K.

A German-language Wikipedia entry alleges a possible link between Mensdorff-Pouilly and the Siemens bribery scandal. The prosecutor's office in Vienna, the entry says, examined Mensdorff-Pouilly's 2007 work for Siemens as a consultant for part of a Hungarian truck toll project. He has denied any wrongdoing.

Motorola was in a consortium with Telekom Austria, which was separately accused of other corrupt payments and is the subject of investigations in Austria.

The report said the SEC is investigating Motorola's alleged role.

Motorola Inc., based in Schaumburg, Illinois, changed its name  in January to Motorola Solutions, Inc.

Motorola Solutions, Inc. trades on the NYSE under the symbol MSI.

Our thanks to the reader who sent the link to the story.

Magyar Telekom To Settle With SEC

Hungary's Magyar Telekom has reserved about $62 million for an expected settlement of FCPA-related charges with the SEC, according to reports by Reuters and others.

The company's internal investigation found potentially illegal payments of about $44 million by its Montenegrin or Macedonian units.

Magyar Telekom -- Hungary's largest telecommunications firm -- is a consolidated subsidiary of Germany's Deutsche Telekom.

"The Company, without admitting or denying the allegations against it, would consent to a U.S. court order permanently enjoining it from any future FCPA violations and to the payment by the Company of disgorgement and a conditional civil penalty," Magyar's statement said.

The company said it is still trying to resolve the case with the DOJ.

Magyar Telekom's SEC Form 6-K, Report of Foreign Private Issuer, filed December 3, 2009 said:

• Between 2000 and 2006, a small group of unnamed former senior executives from headquarters and a Macedonian affiliate spent €24 million through over twenty consultancy, lobbying, and other contracts that were probably phony.

• The contracts were used to create a pool of unaccounted cash.

• The purpose of the contracts and slush fund was to "obtain specific regulatory and other benefits from the government of Macedonia."

• The scheme worked. Magyar "generally received the benefits sought and then made expenditures under one or more of the suspect contracts."

• Lawyers hired by Magyar's audit committee couldn't track down who got the illicit cash. “[T]he Investigation did not uncover evidence showing receipt of payments by any Macedonian government officials or political party officials.”

• The company couldn't say whether it violated the Foreign Corrupt Practices Act's antibribery provisions. But it did commit accounting offenses. "These contracts were not appropriately recorded in the books and records of the Company and its relevant subsidiaries.  . . . the Company has already reclassified . . . the accounting treatment relating to certain of these contracts to more accurately account for these expenditures."

Magyar Telekom's American Depositary Shares trade over the counter in the pink sheets under the symbol MYTAY.PK.

The Compliance World Series

Holding countries publicly accountable for antibribery enforcement is a key to global compliance. Measuring performance inning by inning and posting the results on the scoreboard tells each government where it stands. And it tells the citizens of each country what their leaders are doing to fight global graft.

Last week we talked about Trace's contribution to the compliance scoreboard with its first-ever Global Enforcement Report -- a remarkable summary of "all known international anti-bribery enforcement actions since the FCPA’s passage some 33 years ago."

This week there's more good news. The OECD's Working Group on Bribery has just published enforcement data from 37 of its 38 members that measures  enforcement activity. It includes "criminal, administrative and civil cases of foreign bribery that have resulted in a final disposition, such as a criminal conviction or acquittal, or similar findings under an administrative or civil procedure." The numbers go back to 1999, the year the OECD's Antibribery Convention came into force.

The highlights: One hundred forty-eight individuals and 77 entities were sanctioned under criminal proceedings for foreign bribery in 13 Parties (member countries) between 1999 and the end of 2009. At least 40 of the sanctioned individuals were sentenced to prison. Combined fines of up to €1.24 billion have been imposed on companies sanctioned for foreign bribery. About 280 investigations are ongoing in 21 Parties to the Antibribery Convention.

The low-lights: Germany records the most acquittals in enforcement actions with 24. Japan, the world's second largest economy, reported eight enforcement actions during the 10 years from 1999, and France, the world's fifth largest economy, reported one. (Hungary, with about the world's 70th biggest economy, reported 27 enforcement actions).

The Working Group's enforcement data can be downloaded from the OECD's site here.