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Ericsson warns shareholders: be prepared for penalties

Ericsson building sign

Ericsson has warned shareholders to be prepared for bad news, following a US decision to investigate its alleged corruption in Iraq.

The company issued a terse, 70-word statement last night to acknowledge that the US Securities and Exchange Commission (SEC), the financial regulator, has begun an investigation into the Iraq affair.

“It is too early to determine or predict the outcome of the investigation, but Ericsson is fully cooperating with the SEC,” the company said, without attributing the comment to any particular executive.

The possible options for Ericsson are a fine on top of the US$1 billion paid in 2019 deferred prosecution agreement (DPA), when it admitted to a different set of corrupt practises – or a full-blown prosecution that could lead to years of embarrassing revelations and perhaps an even higher fine.

This headache for Ericsson started in February when the International Commission of Investigative Journalists (ICIJ) posted on its site a number of articles about what it called “years of bribery and fraud” by Ericsson in Iraq.

Ericsson’s share price has dropped from a peak of 116.78 Swedish before the ICIJ published its report, to 78.33 kronor (€7.44) today, after the statement about the SEC investigation.

Ericsson had tried to forestall the February allegations 12 days earlier when it published a statement admitting it broke rules in Iraq for an eight-year period in the last decade.

But the sting in the tail for Ericsson is that back in 2019 it had already told the US Department of Justice (DoJ) that it had behaved corruptly in China, Djibouti, Egypt, Kuwait and Vietnam, and had to pay $1,060,570,432 in civil and criminal penalties under the DPA.

It should have admitted to any misdeeds in Iraq at the same time, especially as it was aware in 2019 via an internal investigation that there were “unusual expense claims in Iraq, dating back to 2018”.

The ICIJ said the company had “sought permission from the terrorist group known as the Islamic State to work in an ISIS-controlled city [in Iraq] and paid to smuggle equipment into ISIS areas”.

The ICIJ said Ericsson “made tens of millions of dollars in suspicious payments over nearly a decade to sustain its business in Iraq, financing slush funds, trips abroad for defence officials and payoffs through middlemen to corporate executives and possibly terrorists”.

Ericsson has already admitted in a statement that “the disclosure made by the company [in 2019] … was insufficient” and that “the company breached the DPA by failing to make subsequent disclosure related to the investigation post-DPA”.

But Ericsson’s future and that of its senior executives are now in the hands of the SEC.

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