Ericsson Pays $1 Billion to Settle U.S. Corruption Probe

(Bloomberg) -- A unit of Ericsson AB pleaded guilty to foreign bribery and the parent company agreed to pay more than $1 billion to resolve a long-running U.S. corruption investigation involving payoffs in Asia and the Middle East.

The Stockholm-based company admitted to a years-long campaign of corruption aimed at solidifying its grip on the telecommunications business, U.S. Attorney Geoffrey S. Berman in Manhattan said in announcing the settlement that outlined tens of millions of dollars in illicit payments in five countries.

“Through slush funds, bribes, gifts and graft, Ericsson conducted telecommunications business with the guiding principle that ‘money talks,’” Berman said in a written statement announcing the settlement.

Criminal Penalty

From 2000 to 2016, Ericsson conspired with others to violate the U.S. Foreign Corrupt Practices Act, paying bribes, falsifying books and records and failing to implement reasonable internal accounting controls, the Justice Department said. The company bribed government officials through third-party agents and consultants, it said.

The settlement includes a $520 million criminal penalty imposed by the U.S. Justice Department and a civil payment of about $540 million to the Securities and Exchange Commission. As part of a deferred-prosecution deal, an Egyptian subsidiary of the company pleaded guilty to a conspiracy charge.

‘Unacceptable Behavior’

“This is a reflection of some hugely embarrassing and unacceptable behavior in the past, and of course that is something we as a company are ashamed of and I personally am ashamed of,” Ericsson’s Chief Executive Officer Borje Ekholm said in a phone interview. “But the settlement also allows us to put an end to a very long and wide-ranging process so now we can move forward and build a much stronger company for the future.”

The company will add an independent monitor to ensure its compliance with anti-bribery laws as part of the settlement in federal court in New York, which had been expected.

The government, in its settlement announcement after the close of U.S. markets, outlined bribery spanning the globe.

Sham Contract

By way of a subsidiary, the company made approximately $2.1 million in bribe payments between 2010 and 2014 to high-ranking government officials in Djibouti to obtain a contract with the state-owned telecommunications company, it said. An Ericsson subsidiary entered into a sham contract and approved fake invoices to conceal the payments, it said.

In China, Ericsson subsidiaries caused tens of millions of dollars to be paid to consultants and service providers over 16 years through 2016, the government said. Some of that went to fund a travel expense account in China that covered gifts, travel and entertainment for foreign officials, it said. The government outlined $45 million in off-the-book payments to create slush funds to win business in Indonesia, and described other off-the-book schemes in Vietnam and Kuwait aimed at winning business.

‘Adequate Actions’

In September, Ericsson said it had set aside 12 billion kronor ($1.2 billion) to cover U.S. penalties. Ericsson has said it’s been cooperating with U.S. investigators since 2013.

The Justice Department said Ericsson earned a 15% reduction in penalties for its cooperation. However, it said Ericsson didn’t receive full credit for cooperation because it didn’t disclose some allegations of corruption, didn’t produce certain documents and failed to take adequate disciplinary measures against some employees.

Ericsson said 49 individuals who were involved in misconduct have either had their employment terminated or left the company voluntarily.

“We weren’t timely enough to take adequate actions: sometimes actions were taken based on incomplete information, and some people were able to resign before actions were taken,” Ekholm said. “As soon as you start investigating, some people jump ship because they know the situation.”

Ericsson has been moving to resolve the matter as it competes with Nokia Oyj for 5G network supply contracts and tries to take advantage of a U.S.-led boycott against Huawei Technologies Co., an Ericsson rival.

The $1 billion overall penalty is near the top of foreign-corruption cases and above those assessed against other telecommunications companies. Telia Co. paid $965 million in penalties in 2017 after admitting to paying hundreds of millions of dollars in bribes to a government official in Uzbekistan.

Ekholm said the company will now need to rebuild trust with its clients.

“So far we see that we have good traction with our customers, but we’re humble enough to say that we need to continuously keep our eyes on this ball,” he said.

©2019 Bloomberg L.P.

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