Deutsche Telekom, Magyar Unit Settle Bribery Case With U.S.

SEC Says Deutsche Telekom Violated Corrupt Practices Act
The logo of Deutsche Telekom is seen on top of the company's headquarters in Bonn. Photographer: Wolfgang von Brauchitsch/Bloomberg News

Deutsche Telekom AG, Europe’s biggest phone company, and its Magyar Telekom unit will pay $95 million to settle allegations they violated the Foreign Corrupt Practices Act.

Magyar Telekom, based in Budapest, will disgorge $31.2 million and pay a $59.6 million criminal penalty as part of a deferred prosecution agreement with the U.S. Justice Department, according to a statement today by the U.S. Securities and Exchange Commission. The Bonn-based parent company will pay $4.36 million as part of a DOJ non-prosecution agreement, the SEC said. Both companies settled a civil suit filed today with the SEC.

“Magyar Telekom’s senior executives used sham contracts to funnel millions of dollars in corrupt payments to foreign officials who could help them keep competitors out and win business,” Kara Novaco Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit, said in the release.

Magyar Telekom, Hungary’s former phone monopoly, in June said it set aside 11.7 billion forint ($48.7 million) as it negotiated a settlement with the SEC over FCPA violations.

Separate Lawsuits

The SEC filed separate lawsuits in federal court in Manhattan against the companies and three former executives of Magyar Telekom. The defendants are former Chief Executive Officer Elek Straub, former Director of Central Strategic Organization Andras Balogh and former Director of Business Development and Acquisitions in the Central Strategic Organization Tamas Morvai.

“Deutsche Telekom has not been accused of violating the ban on bribery,” the company said in an e-mailed statement forwarded by spokeswoman Elpida Trizi. “The settlement terminates the investigations against Deutsche Telekom without a criminal charge.”

“The final settlements recognize the DOJ’s and the SEC’s consideration of the company’s self-reporting, thorough internal investigation, remediation and cooperation with the DOJ’s and the SEC’s investigations,” Magyar Telekom said in a statement.

Lawyers for the three former executives couldn’t immediately be reached for comment about the lawsuit. All three are Hungarian citizens believed to be residing in that country, according to the complaint.

In January Bonn prosecutors said an investigation turned up no evidence of wrongdoing against Deutsche Telekom Chief Executive Officer Rene Obermann related to the bribery allegations in Hungary and the Republic of Macedonia.

New Competitor

According to the complaints filed today, Straub, Balogh and Morvai in 2005 and 2006 executed a plan to bribe government officials in Macedonia to delay or prevent a new competitor from operating in that country and to obtain regulatory benefits, according to the complaint. Magyar Telekom paid $4.88 million euros ($6.3 million) during that period to an intermediary under the guise of consulting and marketing contracts, according to the complaints.

“The former executives also offered or promised Macedonian political party officials a valuable business opportunity in return for the party’s support of Magyar Telekom’s desired benefits,” the SEC wrote.

In 2005, Straub, Balogh and Morvai conducted a second scheme in which they authorized Magyar Telekom to make 7.35 million euros in corrupt payments to Montenegrin officials to facilitate the company’s acquisition of Telekom Crne Gore AD in Belgrade, Serbia, according to the SEC.

‘Bogus Contracts’

“At least two Montenegrin government officials involved in the TCG acquisition received cash payments made through the bogus contracts,” the SEC said.

AT&T Inc. ended its $39 billion bid to acquire Deutsche Telekom’s T-Mobile USA on Dec. 19.

The cases are U.S. Securities and Exchange Commission v. Magyar Telekom Plc, 11-cv-9646, and U.S. Securities and Exchange Commission v. Straub, 11-cv-9645, U.S. District Court, Southern District of New York (Manhattan).

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