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October 26, 2021updated 22 Feb 2022 11:09am

Ericsson moves two steps forward one step back on governance

By GlobalData Technology

Telecoms equipment vendor Ericsson has worked diligently to re-establish the trust of customers and regulators following an embarrassing and longstanding bribery scheme. However, based on a new filing by the US Department of Justice (DOJ), it may still have work to do.

Ericsson entered into a Deferred Prosecution Agreement with the DOJ in December 2019 that enabled the vendor to avoid prosecution for violations of the US Foreign Corrupt Practices Act. Among other violations, according to the DOJ, Ericsson admitted to:

  • Embarking on a longstanding scheme from 2000 to 2016 that included paying bribes to government agents, making payments through sham contracts pursuant to false invoices, in China, Indonesia, Vietnam, Kuwait, and Djibouti.
  • Paying $2.1 million in bribes between 2010 to 2014 to high-ranking government officials in Djibouti in order to obtain a €20.3 million mobile network contract with the state-owned telecommunications company.
  • Paying tens of millions of dollars to Chinese agents, consultants and service providers between 2000 and 2016 in part to fund 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.
  • Paying $50 million to consulting companies in Indonesia and Vietnam between 2012 and 2015 in order to create off-the-books slush funds to pay third parties who would not be able to pass Ericsson’s due diligence processes.
  • Paying a Kuwaiti consulting company $450,000 to obtain inside information about an ongoing contract tender valued at $182 million that Ericsson eventually won.

As part of the deferred prosecution agreement with the DOJ, Ericsson agreed to pay a fine of more than $1 billion, provide an independent compliance monitor, and undertake significant reforms to its Ethics and Compliance. The company also paid $97 million in May 2021 to settle a lawsuit with rival Nokia related to the anti-competitive behavior outlined in the DOJ settlement.

The company has clearly adopted a clean slate approach going forward, frequently enunciating a zero tolerance policy for corruption and a focus on rebuilding trust since announcing the DOJ settlement in December 2019.

However, its prior behavior continues to haunt it. The company announced October 21 that the DOJ believes Ericsson breached its obligations under the settlement agreement by failing to provide certain documents and factual information.

Ericsson says it will have the opportunity to respond in writing to explain the nature and circumstances of such breach, as well as actions it has taken to address and remediate the situation. And to be clear, the DOJ charges are related to Ericsson’s past behaviour.

However, inadequate governance procedures related to the DOJ settlement are likely to raise questions as to whether Ericsson’s governance practices related to current and future business practices are as locked down as the company says they are.