German phone company Deutsche Telekom AG and a Hungarian unit will pay more than $95 million to settle U.S. criminal and civil probes into the bribery of government officials in Macedonia and Montenegro.
The settlements resolve Department of Justice and U.S. Securities and Exchange Commission charges that Deutsche Telekom and its 60 percent-owned Magyar Telekom unit violated the federal Foreign Corrupt Practices Act.
U.S. investigators said former Magyar executives arranged in 2005 and 2006 for the payment of 12.2 million euros ($15.8 million) to intermediaries, expecting some of it to be funneled to the government officials in exchange for benefits to help it run or expand its business.
The SEC filed separate civil charges against three former Magyar executives: Chief Executive Elek Straub, director of central strategic organization Andras Balogh, and director of business development and acquisitions Tamas Morvai.
"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 unit handling FCPA cases, said in a statement.
Thursday's settlements include $64 million of criminal penalties assessed by the Justice Department and a $31.2 million civil penalty imposed by the SEC.
The Justice Department also agreed not to prosecute both companies if they comply with the law over the next two years. Both companies also agreed to improve compliance programs.
Deutsche Telekom will pay $4.36 million of the criminal penalty. Magyar will pay the remaining $59.6 million, plus more than $31.2 million in disgorgement and interest to the SEC.
THREE EXECUTIVES CHARGED BY SEC
Magyar said it previously set aside the full $90.8 million (21.75 billion forints) it owes in the settlements, and has taken several steps to improve its practices.
Deutsche Telekom also confirmed the settlements. The executives plan to challenge the SEC's charges.
Straub "adamantly denies having engaged in any wrongdoing," according to his lawyer Carl Rauh, a partner at Hogan Lovells.
William Sullivan, a partner at Pillsbury Winthrop Shaw Pittman representing Balogh, said: "No one has ever uncovered evidence of bribery of any government officials for the simple reason that none ever occurred."
Michael Koenig, a partner at Greenberg Traurig representing Morvai, said: "There is a vast difference between allegations and actual evidence. Simply because the SEC says it does not make it so."
SHAM CONTRACTS ALLEGED
Investigators said Magyar used sham consulting and marketing contracts to pay 4.88 million euros ($6.31 million) in 2005 and 2006 to an intermediary.
Magyar expected some of the money to go to Macedonian officials who would provide regulatory benefits and keep a rival out of their market, the investigators said.
Meanwhile, in Montenegro another 7.35 million euros ($9.51 million) was paid in 2005 to consultants under four sham contracts, under a plan to help Magyar buy state-owned phone company Telekom Crne Gore AD on favorable terms, the SEC said.
Magyar entered a deferred prosecution agreement with the Justice Department, and Deutsche Telekom a nonprosecution agreement for maintaining inaccurate books and records.
The Justice Department filed formal charging documents in court only against Magyar.
Deutsche Telekom was charged because it had filed financial statements with U.S. regulators that improperly reflected the payments. The company and Magyar also had American depository receipts that traded at the time of the payments.
Last week, AT&T Inc ended its $39 billion bid to buy T-Mobile USA, a unit of Deutsche Telekom.
The Justice Department filed its case with the U.S. district court in Alexandria, Virginia, while the SEC filed with the U.S. district court in Manhattan.
The cases are U.S. v. Magyar Telekom Plc, U.S. District Court; Eastern District of Virginia, No. 11-cr-00597; SEC v. Magyar Telekom Plc et al, U.S. District Court, Southern District of New York, No. 11-09646; and SEC v. Straub et al, U.S. District Court, Southern District of New York, No. 11-09645.
(Reporting by Jonathan Stempel in New York; Additional reporting by Jeremy Pelofsky in Washington, D.C., Marton Dunai in Budapest, and Peter Maushagen and Maria Sheahan in Frankfurt; Editing by Dave Zimmerman, Matthew Lewis and Steve Orlofsky)