Serious breach of business ethics could be expensive
The US Securities and Exchange Commission (SEC) has opened an investigation into Ericsson’s business practices following the revelations in the Iraq corruption report. In a statement, Ericsson said it is “fully cooperating with the SEC”, but said it’s “too early to determine or predict the outcome of the investigation.”
Class action
The investigation puts more pressure on Ericsson, by empowering its legal opponents. The equipment maker is facing a class action from shareholders which is being led by Robbins Geller Rudman & Dowd, the US lawyers who won $7.2bn from Enron. The litigation specialist currently leads the league table of 2021 ISS Securities Class Action Services, by recovering nearly $2 billion for investors last year alone. Ericsson’s settlement could run into multiple billions, insiders say.
Disclosure
The trouble stems from 2018, when Ericsson allegedly made payments to ISIS to gain access to certain transport routes in Iraq. Ericsson’s CEO Börje Ekholm admitted that Ericsson had identified “unusual expenses dating back to 2018” but had not yet determined the final recipient of the funds for those expenses. In February 2022 Ericsson disclosed the results an internal investigation undertaken in 2019 into its activities in Iraq. It revealed serious breaches of the company’s business ethics policies, at the time Ericsson raised the possibility that payments may have been made to terrorist organisations. Ericsson found evidence of: staff making monetary donations without a clear beneficiary, paying a supplier for work without a defined scope and documentation, using suppliers to make cash payments, funding inappropriate travel and expenses and improper use of consultants and sales agents.
Full exposure
However, despite these disclosures, the pressure was raised on February 27, 2022, when the International Consortium of Investigative Journalists (ICIJ) went further and revealed more details of Ericsson’s alleged dealings with ISIS in Iraq, citing a leaked internal investigation that revealed that Ericsson had reportedly made “tens of millions of dollars in suspicious payments” over nearly a decade to keep its business in Iraq. The ICIJ report also alleged that “a spreadsheet lists company probes into possible bribery, money laundering and embezzlement by employees in Angola, Azerbaijan, Bahrain, Brazil, China, Croatia, Libya, Morocco, the United States and South Africa,” which “have not been previously disclosed.
DoJ
In March 2022, the US Department of Justice (DoJ) informed Ericsson disclosures made about the Iraq investigation prior to entering into a Deferred Prosecution Agreement in late 2019 were insufficient. It also claimed the agreement had been breached by failing to make subsequent disclosures on its investigation.