In a case that illustrates the extensive reach of the government's enforcement arm under the Foreign Corrupt Practices Act, a New York federal judge ruled last week that the Securities and Exchange Commission may go forward with civil bribery charges against three former executives of Hungarian telecommunications company Magyar Telekom for violations of the FCPA.

The case, SEC v. Straub, stems from a lawsuit filed by the SEC in December 2011 against former Magyar Telekom executives Elek Straub, Andras Balogh, and Tamas Morvai over allegations that they bribed government and political party officials in Macedonia and Montenegro in 2005 and 2006 to win business and shut out competition in the telecommunications industry.

The SEC also charged Magyar Telekom's parent company, Deutsche Telekom, with books and records and internal controls violations of the FCPA. Magyar Telekom and Deutsche Telekom agreed to a total $95.2 million settlement with the SEC and Justice Department to resolve the civil and criminal charges.  

The defendants argued that the SEC's case should be dismissed on three principal grounds:

The court lacked personal jurisdiction over them because the alleged wrongdoing took place overseas;

The SEC's claims are time-barred by the FCPA's five-year statute of limitations; and

The complaint failed to state a cause of action.

On Feb 8, U.S. District Court Judge Richard Sullivan of the Southern District of New York rejected the defendant's motion to dismiss in its entirety.

Regarding the personal jurisdiction claim, the crux of the issue hinged on whether the SEC had jurisdiction over emails that were sent from locations outside the United States but routed through U.S. servers. “According to the defendants, because the SEC fails to allege that defendants personally knew that their emails would be ‘routed through and/or stored' on servers within the United States, the SEC's allegations cannot state a claim under the FCPA's bribery provision.”

Sullivan found, however, that enough evidence existed to suggest the defendants intended harm in the United States, because both Deutsche Telekom and Magyar Telekom made regular filings with the SEC and had shares listed on the New York Stock Exchange prior to the alleged violations. “Because these companies made regular quarterly and annual consolidated filings during that time, defendants knew or had reason to know that any false or misleading financial reports would be given to prospective American purchasers of those securities,” he wrote.

Sullivan also disagreed that the SEC's claims were time-barred, holding that the statute of limitations didn't start to run until the defendants were residing in the United States.

He further rejected the defendants' argument that the SEC failed to allege sufficient facts to establish that the recipients of the intended bribes were “foreign officials” under the FCPA. “The language of the statute does not appear to require that the identity of the foreign official involved be plead with specificity,” Sullivan wrote.

Straub, Balogh, and Morvai will now stand trial on the charges.