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$95 Million in Penalties for FCPA Violations in Eastern Europe Telecom Markets

Thursday, January 05, 2012
Sandler, Travis & Rosenberg Trade Report

The largest telecommunications provider in Hungary and its German majority owner will pay $95.1 million in criminal and civil penalties to settle allegations that they bribed government and political party officials in Macedonia and Montenegro to win business and shut out competition in the telecommunications industry.

Under a deferred prosecution agreement with the Department of Justice, the Hungarian company will pay a combined $63.9 million criminal penalty to resolve charges that it violated the anti-bribery and books and records provisions of the Foreign Corrupt Practices Act and will also implement an enhanced compliance program and submit annual reports regarding its efforts in implementing the enhanced compliance measures and remediating past problems. The German parent company has entered a non-prosecution agreement requiring it to pay a $4.36 million penalty and enhance its compliance program. The Hungarian company will also pay $31.2 million in disgorgement and prejudgment interest to settle related charged by the Securities and Exchange Commission.

According to court documents, the company’s scheme in Macedonia stemmed from potential legal changes being made to the telecommunications market in that country. Company executives lobbied Macedonian government officials to prevent the implementation of these changes, and the company eventually entered into a secret agreement with certain high-ranking Macedonian government officials to resolve its concerns. To secure the benefits in this agreement the company’s subsidiaries in Macedonia made approximately $6 million in illegal payments under the guise of bogus consulting and marketing contracts. The company was also charged with using sham contracts to funnel about $9 million to government officials in Montenegro in connection with its acquisition of the state-owned telecom company in that country.

DOJ states that both non-prosecution agreements acknowledge the companies’ voluntary disclosure of the FCPA violations and the leadership of the Hungarian company’s audit committee in pursuing a “thorough global internal investigation concerning bribery and related misconduct.” The agreements also highlight that the companies have already undertaken remedial measures and committed to further remedial steps through the implementation of an enhanced compliance program.

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