Deutsche Telekom Says Raids Were ‘Disproportionate’

Deutsche Telekom AG CEO Rene Obermann
Since taking over Deutsche Telekom in 2006 CEO Rene Obermann, seen here, has tried to revive the company’s U.S. and U.K. units, both of which have lagged behind market leaders. Photographer: Jacob Kepler/Bloomberg

Deutsche Telekom AG, Europe’s biggest phone company, said Bonn prosecutors acted excessively when they raided the home of Chief Executive Officer Rene Obermann last month as part of a corruption probe.

Obermann, 47, is one of eight suspects in the investigation that centers on alleged bribery payments at central and eastern European units, Manfred Balz, Deutsche Telekom’s management board member for legal affairs, told reporters today on a conference call. German prosecutors searched the home of Obermann and didn’t confiscate any items, he said.

The case, which is also being investigated by U.S. securities regulators and the U.S. Department of Justice, concerns Deutsche Telekom units in Hungary and Macedonia. The prosecutors are investigating whether bribes were used to prevent Macedonia from opening the nation’s telecommunications to competition.

“Bonn prosecutors were asked for assistance by U.S. authorities but these raids were disproportionate and went beyond what they were asked for,” said Balz. “We expect that the probe against Mr. Obermann will be closed swiftly.”

There are claims Obermann told the chief executive of the Makedonski Telekom unit he would only approve dividend payments if the nation’s telecom market remained closed, Balz said. Because the Macedonian state was a shareholder, dividend levels may have affected government decisions.

The allegations against Obermann are false, Balz said. At the meeting between Obermann and the Makedonski Telekom unit chief, such issues weren’t discussed, Balz said. No other board member is a suspect in the Bonn probe. Six other suspects are Deutsche Telekom employees and another one works at a consulting firm.

Bonn Prosecutors

“Obermann is a suspect because we have some initial indications forcing us to investigate the matter,” Friedrich Apostel, spokesman for Bonn prosecutors, said in an interview today. “It’s possible that people who are suspects now may be cleared and others who aren’t may become suspects. But that’s true of any criminal probe.”

Prosecutors opened their own bribery probe after they were asked by the U.S. Securities and Exchange Commission for assistance.

“The raids have nothing to do with the request by the Americans,” Apostel said. “We decided to do them because we have our own case and are looking into suspicions that people here may have violated German anti-corruption laws.”

SEC spokesman John Nester declined to comment. Laura Sweeney, a Justice Department spokeswoman, also declined to comment.

Offices, Homes Raided

Prosecutors raided the private homes of people at Bonn-based Deutsche Telekom as well as offices of other companies on Aug. 31 as part of the probe. Offices and homes of several people who aren’t suspects were also searched, said Apostel.

The alleged misconduct occurred from 2000 to 2007 and includes 27 contracts totaling 32 million euros ($41.6 million) of possible wrongful payments, Balz said.

Deutsche Telekom said in a Feb. 25 SEC filing that an independent investigation initiated by the audit committee at the Hungarian unit, Magyar Telekom, revealed sham contracts that may have been used for bribes.

Some payments were authorized by former Magyar Telekom executives and Deutsche Telekom employees previously assigned to the units. No legitimate purpose for the contracts could be established, the company said in the filing.

Macedonian authorities filed charges against four individuals in 2008, including one Deutsche Telekom employee, the company said. Hungarian authorities are also investigating.

Deutsche Telekom shares gained 0.1 percent to 10.48 euros in Frankfurt.

EU Approval

Since taking over Deutsche Telekom in 2006, Obermann has tried to revive the company’s U.S. and U.K. units, both of which have lagged behind market leaders. In March, the company won European Union approval to combine its U.K. operations with France Telecom SA’s Orange U.K., creating the largest British mobile operator. The companies estimated the deal would save more than 4 billion euros.

Obermann joined Deutsche Telekom in 1998 and became a board member in 2002. His telecom career began when he co-founded ABC Telekom, a retailer of answering and fax machines, as a 23-year-old student at the University of Muenster.

Phone Records

Deutsche Telekom was also investigated from 2008 through 2010 over allegations that its managers attained phone records of journalists and supervisory board members to search for the sources of news leaks. A former security manager is currently on trial in Bonn in that case.

Deutsche Telekom’s supervisory board offered Obermann the extension of his term as chief executive officer regardless of the probe against him, Handelsblatt reported, citing unidentified people at the German government.

The decision was taken at the beginning of September after Obermann informed the supervisory board that he’s a suspect in the Bonn investigation, the newspaper said in a preview of an article for tomorrow’s edition. The German government is Deutsche Telekom’s largest shareholder.

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