Ericsson counts the potential cost of Iraq corruption case

Executives at Swedish telecoms giant Ericsson may find themselves liable for a corruption case involving bribes to terrorist groups in Iraq, after some of the company’s biggest shareholders stated that they would vote against a motion to clear some of Ericsson’s board members of responsibility. These include Norway’s €1.2trn sovereign wealth fund and Swedish activist investor Cevian Capital. “When voting on a proposal to discharge the board of responsibilities, we will consider whether any information raises reasonable doubt about the board’s actions,” stated the Government Pension Fund of Norway. Meanwhile the co-founder of Cevian, Christer Gardell, told the Financial Times: “There’s a complete lack of trust in Ericsson’s corporate governance. It needs to be re-established.” Swedish financial institution Swedbank is another shareholder expected to vote against the motion, as is Danish investment firm Nordea. Should more than 10% of shareholders vote against discharging the board members of liability, it would give investors the right to use board members in the future, according to Swedish law. It could also lead to some departures from the board, as well as a further drop in share price. CEO Borje Ekholm has come under considerable pressure over the revelations that Ericsson paid bribes to Islamic State (IS) in Iraq. Proxy firm Glass Lewis has recommended that he be removed from the board at Ericsson’s annual general meeting on 29 March. Ekholm and CFO Carl Mellander were also named in a class action lawsuit filed in New York in March by Ericsson shareholder David Nyy. The lawsuit claims that Ericsson misled investors over the work it had done to eliminate the use of bribes. The company was forced to disclose that it could have made such payments to the terror group IS, which controlled many of the transport routes in Iraq at the time, said Ekholm. The disclosure came on the back of the work done by Swedish newspapers and the International Consortium of Investigative Journalists, and the publication of the ‘Ericsson List’, which, based on leaked reports from Ericsson’s compliance department, detailed a number of suspicious payments made in Iraq. The original corruption case, brought by the US Department of Justice (DoJ), was originally settled in 2019 when Ericsson agreed to pay more than $1bn as part of a three-year deferred prosecution agreement (DPA) to resolve the investigation into violations of the Foreign Corrupt Practices Act. “Ericsson’s corrupt conduct involved high-level executives and spanned 17 years and at least five countries, all in a misguided efforts to increase profits,” said assistant attorney general Brian Benczkowski of the DoJ’s criminal division, at the time. The settlement revealed that Ericsson used third-party agents and consultants to make bribe payments to government officials and/or to manage off-the-books slush funds. Criminal conduct took place in Djibouti, China, Vietnam, Indonesia and Kuwait. However, the DoJ declared in October 2021 that Ericsson had breached the terms of its DPA by not disclosing further cases of corruption involving possible payments to IS in Iraq. Then, in March 2022, the DoJ said the agreement had been breached for a second time, stating that an internal investigation conducted by Ericsson into the alleged corruption in Iraq was “insufficient”. Part of the three-year DPA was that Ericsson would continue to cooperate with the DoJ in any ongoing investigation. This news led analysts at investment bank Citi to state: “We expect Ericsson stock to be uninvestable for most investors for the foreseeable future.” Ericsson has since announced another internal investigation into its payments policy. A statement from Ericsson chairman Ronnie Leten said that while the company has taken “significant steps” in improving its ethical and compliance culture, “further efforts are underway to ensure the company operates at all times ethically and with integrity including in relation to the current issues before the DoJ”. The board has also given its full backing to CEO Ekholm.

Ericsson counts the potential cost of Iraq corruption case

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