Ericsson gets a $150 million bargain on its corruption fine from the US

Swedish kit vendor Ericsson got a $150 early Christmas present from US authorities after its fine for violating corruption laws was finally revealed.

Scott Bicheno

December 9, 2019

6 Min Read
bribe money cash

Swedish kit vendor Ericsson got a $150 million early Christmas present from US authorities after its fine for violating corruption laws was finally revealed.

The consequence of being found guilty of using back-handers to grease the wheels of commerce in Djibouti, China, Vietnam, Indonesia and Kuwait as recently as Q1 2017 is a fine of SEK10.1 billion. But since Ericsson had already accounted for a fine of SEK 11.5 billion that means it now has ~150 million bucks more than it expected to. It can now spend that bonus wedge on Christmas presents which, of course, it will account for in a transparent and correct manner.

To be fair to Ericsson this is probably common business practice in some or all of those countries, but the trick is not to get caught isn’t it? Both the US Department of Justice and the Securities and Exchange Commission have a piece of this action and seem to have split the winnings equally, so Christmas should be fun there too.

The DoJ is trousering $520,650,432 in return for promising to drop all charges if Ericsson keeps its hands clean for the next three years. Presumably, if Ericsson does comply and the charges are dropped, the DoJ won’t pay back the half a bil in spite of Ericsson no longer being legally guilty of doing anything wrong. That makes the whole thing smell like state extortion, but what do we know?

Meanwhile the SEC prefers to round its takings to the nearest 10k and is pocketing $539,920,000, which hilariously includes $81,540k in interest. This fine seems to be for the same activities so it’s not clear why Ericsson has to pay it twice. Maybe the fine was always going to be around a bil and the DoJ and SEC couldn’t agree on jurisdiction, so decided to split it down the middle.

“The DoJ proceeding is a criminal enforcement action and the SEC proceeding is a civil enforcement action,” explains the Ericsson announcement. “The agencies resolve their investigation independently of one another using their own discretion and applying different standards of proof.  As a result, the DoJ and SEC have come to different conclusions based on the same facts.”

“I am upset by these past failings,” said Ericsson CEO Börje Ekholm. “Reaching a resolution with the US authorities allows us to close this legacy chapter. We can now move forward and build a stronger company. The settlement with the SEC and DOJ shows that we have not always met our standards in doing business the right way. This episode shows the importance of fact-based decision making and a culture that supports speaking up and confronting issues. We have worked tirelessly to implement a robust compliance program. This work will never stop.”

“Through slush funds, bribes, gifts, and graft, Ericsson conducted telecom business with the guiding principle that ‘money talks.’” said U.S. Attorney Geoffrey Berman. “Today’s guilty plea and surrender of over a billion dollars in combined penalties should communicate clearly to all corporate actors that doing business this way will not be tolerated.”

“Implementing strong compliance systems and internal controls are basic principles that international companies must follow to steer clear of illegal activity,” said Don Fort, Chief of IRS Criminal Investigation.  “Ericsson’s shortcomings in these areas made it easier for its executives and employees to pay bribes and falsify its books and records.  We will continue to pursue cases such as these in order to preserve a global commerce system free of corruption.”

So the IRS got a piece of the action too – nice. Here are the specific pieces of naughtiness Ericsson admitted to committing to the DoJ, the charges for which, don’t forget, will probably be dismissed in three years’ time.

Between 2010 and 2014, Ericsson, via a subsidiary, made approximately $2.1 million in bribe payments to high-ranking government officials in Djibouti in order to obtain a contract with the state-owned telecommunications company valued at approximately €20.3 million to modernize the mobile networks system in Djibouti.  In order to effectuate the scheme, an Ericsson subsidiary entered into a sham contract with a consulting company and approved fake invoices to conceal the bribe payments.  Ericsson employees also completed a draft due diligence report that failed to disclose the spousal relationship between the owner of the consulting company and one of the high-ranking government officials.

In China, between 2000 and 2016, Ericsson subsidiaries caused tens of millions of dollars to be paid to various agents, consultants and service providers, a portion of which was used to fund a travel expense account in China that covered gifts, travel and entertainment for foreign officials, including customers from state-owned telecommunications companies.  Ericsson used the travel expense account to win business with Chinese state-owned customers.  In addition, between 2013 and 2016, Ericsson subsidiaries made payments of approximately $31.5 million to third party service providers pursuant to sham contracts for services that were never performed.  The purpose of these payments was to allow Ericsson’s subsidiaries in China to continue to use and pay third party agents in China in contravention of Ericsson’s policies and procedures.  Ericsson knowingly mischaracterized these payments and improperly recorded them in its books and records.

In Vietnam, between 2012 and 2015, Ericsson subsidiaries made approximately $4.8 million in payments to a consulting company in order to create off-the-books slush funds, associated with Ericsson’s customers in Vietnam, that were used to make payments to third parties who would not be able to pass Ericsson’s due diligence processes.  Ericsson knowingly mischaracterized these payments and improperly recorded them in Ericsson’s books and records.  Similarly, in Indonesia, between 2012 and 2015, an Ericsson subsidiary made approximately $45 million in payments to a consulting company in order to create off-the-books slush funds, and concealed the payments on Ericsson’s books and records.

In Kuwait, between 2011 and 2013, an Ericsson subsidiary promised a payment of approximately $450,000 to a consulting company at the request of a sales agent, and then entered into a sham contract with the consulting company and approved a fake invoice for services that were never performed in order to conceal the payment.  The sales agent provided an Ericsson employee with inside information about a tender for the modernization of a state-owned telecommunications company’s radio access network in Kuwait.  An Ericsson subsidiary was awarded the contract valued at approximately $182 million; Ericsson subsequently made the $450,000 payment to the consulting company and improperly recorded it in its books.

There was clearly a fair amount of dodgy stuff going on in the above cases, but none of it is especially shocking. Under-the-table payments are an endemic issue everywhere in the business world and the trick is to launder them such that they look legit. Ericsson clearly failed to do this and that’s really what it’s being punished for.

But nobody seems to be questioning the US’s jurisdiction in prosecuting this matter. None of the back-handers were paid in the US or even seemed to involve US companies, so why is the US policing this matter? Maybe the answer lies in the fines, none of which will apparently find their way to the countries supposedly corrupted by all this. Even with a $150 million discount, the US authorities are now the ultimate beneficiaries of Ericsson’s global naughtiness.

About the Author

Scott Bicheno

As the Editorial Director of Telecoms.com, Scott oversees all editorial activity on the site and also manages the Telecoms.com Intelligence arm, which focuses on analysis and bespoke content.
Scott has been covering the mobile phone and broader technology industries for over ten years. Prior to Telecoms.com Scott was the primary smartphone specialist at industry analyst Strategy Analytics’. Before that Scott was a technology journalist, covering the PC and telecoms sectors from a business perspective.
Follow him @scottbicheno

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