With Magyar In New Top Ten, It's 90% Non-U.S.

Here's the current top ten list for corporate defendants.*

Magyar Telekom and Deutsche Telekom (part of one enforcement action) today replaced Johnson & Johnson, which joined the list in April this year.

Nine of the biggest cases now involve non-U.S. companies.

1. Siemens (Germany): $800 million in 2008.

2. KBR / Halliburton (USA): $579 million in 2009.

3. BAE (UK): $400 million in 2010.

4. Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365 million in 2010.

5. Technip S.A. (France): $338 million in 2010.

6. JGC Corporation (Japan) $218.8 million in 2011.

7. Daimler AG (Germany): $185 million in 2010.

8. Alcatel-Lucent (France): $137 million in 2010.

9. Magyar Telekom / Deutsche Telekom (Hungary /Germany): $95 million in 2011.

10. Panalpina (Switzerland): $81.8 million in 2010.

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*An individual, Jeffrey Tesler  of the U.K., agreed to an FCPA-related forfeiture of $149 million in 2011.

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.

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.

Magyar's Magnum Opus

We liked it. All 1,162 words. Magyar Telekom's SEC disclosure last week about its internal investigation into fraudulent contracting practices could have been short and bland and very ordinary. A typical corporate blank wall. Instead it was abundant in length and detail  -- one of the most rewarding public disclosures about an internal investigation we've ever read. It appeared in the company's SEC Form 6-K, Report of Foreign Private Issuer, filed December 3, 2009 here. (Another disclosure we admired earlier this year came from Pride International Inc.; it contained 1,168 words.)

What did we learn about Hungary's Magyar? Among other things that:

• 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."

• The lawyers hired by Magyar's audit committee, White and Case, 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.”

• So the company can'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."

So that's the news. But why, we wondered, did Magyar put an extra thousand words into its disclosure? Why didn't it stick to the usual script -- "An internal investigation has concluded that improper payments may have been made to influence the award of certain contracts. Remedial action has been taken. Discussions with authorities in the U.S. and other countries are ongoing." Why War and Peace when it could have gotten away with a Hallmark greeting card?

Here are five reasons that come to mind:

The internal report is good news. There's been a dark cloud over Magyar since it discovered the corruption during its 2005 audit and launched the investigation in 2006. But the disclosure brings sunny skies. Why not make the most of it? It cleared everyone now there and pinned the blame on people who are already gone. "Nothing in the Final Report implicates any current senior executive or Board member of the Company in connection with any wrongdoing."

Magyar's management team is young. Executive chairman and CEO Christopher Mattheisen is 47; CFO Thilo Kusch is 43; and COO Róbert Pataki is 37. They've got a lot of open road and ambitious regional plans ahead of them. The detailed disclosure should help them put Magyar's past practices in the rearview mirror.

The CEO is American. His Forbes Profile says Mattheisen "studied economics and finance at Indiana University of Bloomington and at Columbia University. He first came to Hungary in 1990 to start a strategic planning and business consulting company." Expat American CEOs are all "domestic concerns" and are usually savvy about the FCPA and its risks. The mega disclosure may reflect Mattheisen's heightened sensitivity. 

Magyar has a couple of important shareholders. German giant Deutsche Telekom owns 59.52% of the company and the public owns most of the rest. No doubt DT wanted a quick and clean end to Magyar's corruption mess, to avoid the risk of association with another German giant, Siemens. Its corruption made global headlines for most of 2007 and 2008. Then there's the Hungarian government. It still owns a golden share in Magyar (the company was formed from the privatized state phone system). With its EU integration in full swing, Hungary's leaders wouldn't want a lingering corruption scandal either.

Bang for the buck. The internal investigation was expensive -- $28 million last year alone. The detailed disclosure helps management justify the price tag.

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What's next for Magyar? It said the U.S. Justice Department and SEC are still investigating the company, along with Macedonia's Inerior Ministry. The company said it can't "predict what the final outcome of those investigations may be or the impact, if any, they may have on [its] financial statements or results of operations." More ominously for the unnamed former senior executives, Magyar said the Hungarian National Bureau of Investigation has started "a criminal investigation into alleged misappropriation of funds  . . ."

Back in the U.S., the DOJ and SEC should be happy with the way management has handled the investigation, disclosure, and remedial steps. The approach has been aggressive -- maybe a bit too aggressive. The company said it faces a new problem  -- "the possible misuse of personal data of employees" duirng the internal investigation. Hungary's authorities are looking into it.

Magyar Telekom Plc's American Depositary Shares trade on the New York Stock Exchange under the symbol MTA.