Magyar and Deutsche Telekom Agree to $95 Million Settlement

29 December 2011 Publication

On December 29, 2011, Magyar Telekom Plc (“Magyar”) of Hungary and its majority owner, Deutsche Telekom AG (“Deutsche Telekom”) of Germany, agreed to pay a combined $95 million to resolve Foreign Corrupt Practices Act (“FCPA”) charges with the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”). Magyar agreed to pay a $59.6 million criminal penalty to DOJ and entered into a two-year deferred prosecution agreement in the U.S. District Court for the Easter District of Virginia. Magyar’s 60 percent owner, Deutsche Telekom, agreed to pay a separate $4.36 million criminal penalty for failing to keep accurate and detailed books and records. Separately, Magyar also agreed to pay $31.2 million in disgorgement and prejudgment interest to settle civil charges with the SEC.

According to court documents, Magyar’s conduct related to legislation in Macedonia that was intended to liberalize the Macedonian telecommunications market. Magyar is alleged to have entered into a secret agreement with senior Macedonian government officials to delay or preclude the issuance of a telecommunications license to a new competitor and mitigate other adverse aspects of the new law. As part of this agreement, Magyar paid approximately $6 million to intermediaries under sham contracts with the intention that the money would be used to make payments to the government officials. Magyar also allegedly promised a Macedonian political party the opportunity to designate the beneficiary of a business venture in exchange for the party’s support.

Magyar also allegedly used intermediaries to pay bribes to government officials in return for their support of Magyar’s acquisition of the state-owned telecommunications company on favorable terms.

The SEC also filed a complaint against three former Magyar employees: Elek Straub, Andras Balogh, and Thomas Morvai, for their role in these activities.