Key Challenges: The telecommunications industry has undergone rapid global expansion over the last several decades, accompanied by a corresponding increase in compliance risk. As indicated by several high-profile cases in recent years, a key area of risk involves conducting business through local third party sales and marketing agents. In these circumstances, a company’s ability to monitor and restrain illegal activity becomes greatly reduced.
In addition, the regulatory environment itself has become more aggressive as countries that were negatively impacted by the 2008 global financial crisis attempt to recoup losses through the imposition of penalties. In this environment, the situation where telecommunication companies that are in breach of the law are forced to pay fines to more than one country is on the rise.
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|Company: ||Magyar Telekom PLC |
|Charges: ||Bribing government officials |
|Penalty: || |
Magyar Telekom was founded in 1991 as a subsidiary of Deutsche Telekom AG. The company, which is based in Budapest, provides a range of services to residential and business customers in Hungary, Macedonia and Montenegro.
In 2011, the SEC charged Magyar Telekom and three of its top executives with bribing government and political party officials in Macedonia and Montenegro in order to win business and shut out competition. According to the SEC, Magyar’s subsidiary in Macedonia made $6 million in illegal payments under the guise of consulting and marketing contracts. The company also paid $9 million through four sham contracts to funnel money to government officials Montenegro.
Magyar Telekom agreed to pay more than $31.2 million in disgorgement and pre-judgment interest in order to settle the SEC's charges. Magyar also agreed to pay a $59.6 million criminal penalty as part of a deferred prosecution agreement announced by the U.S. Department of Justice. Deutsche Telekom settled the SEC's charges, and as part of a non-prosecution agreement with the Department of Justice, agreed to pay a penalty of $4.36 million.
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