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Breaking Iraq sanctions is $220m in ‘other operating expenses’, says Ericsson

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Ericsson has said it is hoping the penalties it has to pay the US because of illegal operations can be kept to US$220 million.

The company said this morning that it has set aside 2.3 billion Swedish kronor – approximately $220 million – even though it has yet not reached a resolution with the US Department of Justice (DoJ).

Only a month ago Ericsson said its tussle with the DoJ and the Securities and Exchange Commission (SEC) would go on until June 2024.

In 2019 Ericsson entered into a deferred prosecution agreement (DPA) with the DoJ and a consent judgment with the SEC to resolve violations of the Foreign Corrupt Practises Act.

However, a year ago the company admitted it had not been candid with the authorities, as required by the DPA. It had been working with Iraqi insurgents to smuggle equipment into telecoms sites in the country. That was illegal and, worse, Ericsson did not tell the DoJ and the SEC.

It’s not clear whether Ericsson has now won a nod from the DoJ and SEC that these issues can be resolved quickly, but the company said it is making provision in fourth quarter of 2022 in relation to potential breach of the 2019 DPA.

Ericsson said it “believes that this is a sufficiently reliable estimate of the financial penalty associated with any potential breach resolution, and this provision also includes estimated expenses for the previously announced extended monitorship”, a ruling that Ericsson has to put in place measures to ensure it keeps on the right side of the law.

The company agreed in December 2022 to extend its independent compliance monitorship until June 2024 to further its “efforts to embed best-in-class compliance, risk management and internal controls frameworks across the organization”.

In a characteristically Swedish comment, Ericsson said: “The provision will be booked as Other Operating Expenses in the income statement of Segment Other”.