2 Telecom Cos Agree to Pay $64M in Combined FCPA Penalties
The Justice Department has announced that Magyar Telekom Plc., a Hungarian telecommunications company, and its parent company, Deutsche Telekom AG, have agreed to pay a combined $63.9 million criminal penalty to resolve a Foreign Corrupt Practices Act (FCPA) investigation. The investigation concerned activities by Magyar Telekom and its subsidiaries in Macedonia and Montenegro to bribe government officials in those countries.
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Magyar Lobbied Macedonian Gov't to Prevent New Liberalized Telecomm Laws
According to court documents, Magyar Telekom’s scheme in Macedonia stemmed from potential legal changes being made to the telecommunications market in that country. In early 2005, the Macedonian government tried to liberalize the Macedonian telecommunications market in a way that Magyar Telekom deemed detrimental to its Macedonian subsidiary, Makedonski Telekommunikacii AD Skopje (MakTel). Throughout 2005, Magyar Telekom executives, with the help of Greek intermediaries, lobbied Macedonian government officials to prevent the implementation of the new telecommunications laws and regulations.
Signed Agreement with Officials to Delay Market Entrance of a New Competitor
Magyar Telekom eventually entered into an agreement with certain high-ranking Macedonian government officials. In the so-called "protocol of cooperation," the officials agreed to delay the issuance of a license to a new competitor in the Macedonian telecommunications market, as well as other regulatory benefits to mitigate other adverse effects of the new law to Magyar Telekom.
Used Sham Contracts & Intermediary to Forward Bribes to Macedonian Officials
According to court documents, in order to secure the benefits in the protocol of cooperation, the Magyar Telekom executives paid approximately $6 million to a Greek third-party intermediary under a series of sham contracts with the intention that the intermediary would forward money to the Macedonian government officials. Magyar Telekom also promised a Macedonian political party the opportunity to designate the beneficiary of a business venture in exchange for the party's support.
The sham contracts were recorded as legitimate on MakTel’s books and records, which were consolidated into Magyar Telekom’s financials. Deutsche Telekom, which owned approximately 60 percent of Magyar Telekom, reported the results of Magyar Telekom’s operations in its consolidated financial statements.
Also Paid Bribes for Favorable Acquisition of State-Owned Co in Montenegro
Additionally, the same executives made improper payments of approximately $9 million to government officials in Montenegro in return for their support of Magyar Telekom's acquisition of a state-owned telecommunications company on terms favorable to Magyar Telekom. These payments were documented on Magyar Telekom’s books and records through the execution of four bogus contracts. For example, two of the contracts were backdated and concealed the true counterparties, and no legitimate services were provided under the contracts. A family member of a top Montenegrin government official also received payments.
Combined $64M Penalties Reflect Voluntary Disclosure, Remedial Steps, Etc.
In its two-year deferred prosecution agreement (NPA) with the DOJ, Magyar Telekom agreed to pay a $59.6 million penalty for violating the FCPA's anti-bribery and books and records provisions. As part of the agreement, Magyar Telekom also agreed to implement an enhanced compliance program and submit annual reports regarding its efforts in implementing it and remediating past problems. DOJ also entered into a two-year NPA with Deutsche Telekom, which agreed to pay a $4.36 million penalty in connection with the inaccurate books and records and to enhance its compliance program
Both agreements acknowledge the companies' voluntary disclosure of the FCPA violations to the DOJ and the leadership of Magyar Telekom’s audit committee. They also highlight that the companies have already undertaken remedial measures and have committed to further remedial steps through the implementation of an enhanced compliance program.
Magyar Agreed to Pay $31.2M in Related SEC Injunction, 3 Execs also Charged
In a related matter, the Securities and Exchange Commission (SEC) has announced civil charges against Magyar Telekom and Deutsche Telekom as well as three former Magyar Telekom executives. Magyar Telekom and Deutsche Telekom consented to the entry of a permanent injunction against FCPA violations. Magyar Telekom agreed to pay $31.2 million in disgorgement and prejudgment interest.
The three Magyar Telekom executives charged for orchestrating the bribery schemes are: (1) Elek Straub, former Chairman and CEO; (2) Andras Balogh, former Director of Central Strategic Organization; and (3) Tamas Morvai, former Director of Business Development and Acquisitions.
DOJ press release is available here.
SEC press release is available here.