Sweden opens investigation into bribery at Ericsson

Prosecutors at Sweden’s National Unit against Corruption have opened a preliminary investigation into Ericsson after ICIJ’s recent leak of Ericsson’s internal compliance documents depicted the telecom giant engaging in suspected bribery and secret dealings in Iraq.

As reported by Swedish news outlet SVT the investigation “is about suspicions of giving bribes in Iraq in 2014, 2015 and onwards” said prosecutor Leif Görts, at the National Unit against Corruption.

In addition, a preliminary investigation is underway for similar crimes in China, according to Leif Görts.

The report obtained by ICIJ, which details the results of an internal investigation conducted by Ericsson, reveals Ericsson made tens of millions of dollars in suspicious payments in Iraq, financed slush funds, trips abroad for defense officials, and payoffs to executives at corporate customers and possibly ISIS terrorists. The internal investigation describes a pattern of bribery and corruption so widespread, and company oversight so weak, that millions of dollars in payments couldn’t be accounted for.

Trial in Sweden

In May 2021, Sweden prosecutors opened criminal investigations related to four former Ericsson employees suspected of involvement in prior bribery cases. According to court documents, the four Swedish citizens are alleged to have bribed Djibouti officials, including the country’s Attorney General, in 2011 and 2012, in order to win a contract with state-owned phone company, Djibouti Telecom SA. I cover this case in more detail in this earlier blog post.

The trial will begin this month in Solna District Court against the former Ericsson executives.

Release of Liability & Class Action

Earlier this month, Ericsson’s shareholders voted to hold the company’s CEO Börje Ekholm accountable for the telecom giant’s mishandling of the Iraq bribery scandal and revelations about possible payments to the Islamic State terror group.

Shareholders, including the giant Swedbank Robur asset manager and a group representing small investors, refused to discharge Ekholm and the company’s board of directors from liability for the previous year; meaning Ekholm and other board members could be technically held personally liable for their actions.

In the United States, Ericsson’s executives are being sued as part of a class action lawsuit against the company. On March 3, Ericsson’s CEO Börje Ekholm and CFO Carl Mellander were named as defendants in the lawsuit.

The class action lawsuit is alleging the telecom giant paid bribes to ISIS in order to gain access to certain transport routes in Iraq.

This case reminds us that CEOs & executive directors don’t hold almighty power. Since Shareholders elect the Directors and Directors elect the officers, Shareholders technically hold the ultimate position of authority in a company.
Secondly, we are reminded that both Officers and Directors have a duty of care in regard to running the corporation and this includes the duty to inquire & investigate. This means that shareholders may very well elect to hold their Officers and Directors personally liable if they fail to take appropriate action to protect the company.

Fines in the United States

Last week, Ericsson said in a  statement it couldn’t estimate just how big a penalty the US Justice Department (DOJ) might levy following the company’s breach of its 2019 Deferred Prosecution Agreement (DPA) with the DOJ. Ericsson confirmed that it will likely face new fines for failing to fully disclose its corruption in Iraq, as per the terms of its DPA.

“We are currently engaging with the Department of Justice regarding the breach notices it issued relating to the Deferred Prosecution Agreement,” the company said. “The resolution of these matters could result in a range of actions by DOJ, and may likely include additional monetary payments, the magnitude of which cannot at this time be reliably estimated.”

The DOJ stated on March 1 that Ericsson violated its DPA by failing to fully disclose details of the company’s operations in Iraq between 2011 and 2019. The DOJ also deemed Ericsson’s internal investigation regarding its activities in Iraq insufficient. The DOJ notified Ericsson of an additional DPA breach in October 2021. That would be the second time in less than six months that the DOJ formally informs Ericsson it is in violation of  the agreement.

In 2019, Ericsson agreed to pay a staggering $1 billion in penalties to the US Authorities for the company’s widespread bribery and corruption in multiple countries. This included a criminal penalty of over $520 million to be paid to the DOJ and approximately $540 million to be paid to the U.S. Securities and Exchange Commission (SEC) in a related matter.

Some Additional Thoughts

The least that could be said in light of the multiple investigations taking place in different countries, is that Ericsson is in a desperate need for a governance and compliance overhaul. We are once again reminded that multinational companies face many legal challenges with cross-border bribery investigations.

Because cross-border bribery matters involve by definition more than one jurisdiction, each of them may claim the right to prosecute, and this may result in the “piling on” of penalties.
At present the double jeopardy defense does not apply internationally, and entering into a settlement agreement with the authorities of one country may expose companies to the risk of multiple prosecutions and convictions before other jurisdictions in international corruption cases.
Aside from the corruption matter, the allegations that the company may have engaged with a designated terrorist group raises other legal considerations. The DOJ and other US regulators may for example be looking at additional misconduct the Company may have engaged in, such as Money Laundering, Terrorism Financing, Crimes against humanity, Sanctions violations, or Export Controls violations if the equipment was subject to US control.
In the meantime Ericsson shares are now at risk of becoming “uninvestable,” according to Citibank analysts, reminding us that bribery which may seem like a lucrative and easy way to do business, often results in hidden costs and reputational damage for multinational organizations in this era of heightened anticorruption enforcement. Corporate bribery is simply bad for business.

 

 

 

 

 

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