In December 2011, the DOJ and SEC brought related FCPA enforcement actions against Magyar Telekom and Deutsche Telekom alleging various bribery schemes in Macedonia and Montenegro. (See here for the prior post). Total fines and penalties were approximately $95 million ($59.6 million against Magyar Telekom via a DOJ deferred prosecution agreement, $4.4 million against Deutsche Telekom via a DOJ non-prosecution agreement, and $31.2 million against Magyar Telekom via a settled SEC civil complaint).
As indicated in the prior post, the sole jurisdictional allegations in the enforcement action (other than the companies made filings with the SEC) were two e-mails that passed through, were stored on, and transmitted to servers located in the U.S. The prior post also highlighted that the alleged improper conduct occurred in 2005 and 2006.
The Magyar Telekom enforcement action was a rare instance that also involved charges against individuals. As noted in the prior post, the SEC, in addition to charging the company, also brought civil charges against former Magyar Telekom executives: Elek Straub (former Chairman and CEO of Magyar Telekom) and Andras Balogh and Tamas Morvai (two former senior executives in Magyar Telekom’s Strategy Department) based on the same alleged Macedonia and Montenegro bribery schemes.
The prior post provided the following summary of the individual charges. In both schemes, the SEC alleged that the individuals authorized or caused the payments at issue with “knowledge, the firm belief, or under circumstances that made it substantially certain” that all or a portion of the money would be forwarded to foreign officials. The complaint also alleged that the individuals caused the payments to be falsely recorded in Magyar Telekom’s books and records. The complaint charged the defendants with violating or aiding and abetting violations of the anti-bribery, books and records, and internal controls provisions of the FCPA; knowingly circumventing internal controls and falsifying books and records; and making false statements to the company’s auditor.
Litigation of jurisdictional issues (heck litigation of any issue) in corporate FCPA enforcement actions is nearly non-existent. However, foreign nationals individually charged with FCPA offenses are more likely to contest aggressive jurisdictional theories. Indeed, a notable development from 2011 was judicial rejection of the DOJ’s asserted jurisdiction in prosecution of a foreign national in the Africa Sting case. (See here for the prior post regarding Africa Sting defendant Pankesh Patel).
Litigation of statute of limitations issues is also nearly non-existent in FCPA enforcement actions. Dig into the details of most FCPA enforcement actions and one quickly discovers that the conduct at issue is old – in some cases very old. However, cooperation is the name of the game in corporate FCPA inquiries and asserting statute of limitations issues is not cooperating. Thus, most companies the subject of FCPA scrutiny enter into tolling agreements with the enforcement agencies or otherwise waive statute of limitations defenses. However, individuals charged with FCPA offenses tend to fight more including by asserting black letter legal defenses such as statute of limitations.
Which brings us back to the former Magyar Telekom executives. As reported last week by Law360, lawyers for the defendants argued last week at an initial appearance in the U.S. District Court (S.D. of New York) that the court lacks jurisdiction over the defendants. William Sullivan (Pillsbury Winthrop Shaw Pittman - here, counsel for Balogh) is quoted as follows concerning the jurisdictional issues. “The allegations that an email may have been caught in a U.S. server without the knowledge of the alleged sender is not enough.”
The Law360 article also suggests that the defendants are likely to raise statute of limitation defenses.
Straub is represented by Saul Pilchen of Skadden Arps Slate Meagher & Flom LLP (see here).
Morvai is represented by Michael Koenig and Victoria Lane of Greenberg Traurig.
In an order issued last week, Judge Richard Sullivan set the following schedule for the defendants’ contemplated omnibus motion to dismiss.
- Oct. 29, 2012 (Defendants to file their motion and accompanying brief)
- Nov. 30, 2012 (SEC to file its opposition brief)
- Dec. 14, 2012 (Defendants to file their reply brief)
- Jan. 17, 2013 (Oral argument)
Given that the enforcement agencies have continued to push the envelope on jurisdictional and statute of limitations issues (coupled with the fact that the DOJ recently lost a jurisdictional challenge in the Africa Sting case), the judicial challenge by the former Magyar Telekom executives is a notable development. It is also a needed development in that the expected challenge will facilitate judicial scrutiny of these issues
It will be a busy end of the year for the SEC’s FCPA unit. As noted in this previous post (and links embedded therein), on October 31st oral arguments will take place in the S.D. of Texas on defendants’ motion to dismiss in the Jackson and Ruehlen SEC FCPA enforcement action.