Ericsson says it may have paid Isis terror group in Iraq

Shares in Ericsson fell sharply after Borje Ekholm, chief executive of the Swedish telecoms equipment maker, conceded it could have made payments to terror organization Isis in Iraq.

Ericsson said late on Tuesday that an internal investigation from 2019 had found serious breaches of compliance rules in Iraq including payments for transport routes to evade local customs.

“What we are seeing is that transport routes have been purchased through areas that have been controlled by terrorist organisations, including Isis,” Ekholm told Swedish newspaper Dagens Industri on Wednesday.

Shares in Ericsson closed down 14 per cent on Wednesday.

Ericsson paid more than $1bn in December 2019 to settle US criminal and civil investigations into foreign corruption in countries spanning China, Indonesia, Vietnam, Djibouti and Kuwait.

Line chart of Trading over past six months in Stockholm showing Ericsson shares tumble after corruption probe findings

The Swedish group said in October the US Department of Justice had warned that it had breached its obligations under a deferred prosecution agreement by failing to provide documents and information. The Iraq allegations were not the cause of October’s breach, according to a person familiar with the situation.

Ericsson said that unusual claims expenses dating back to 2018 sparked an internal investigation that found serious breaches of its compliance and ethics rules for “corruption-related misconduct”.

The evidence included making donations without a clear beneficiary; paying suppliers without documents; using suppliers to make cash payments; inappropriate travel and expenses; and improper use of sales agents and consultants. It also found violations of Ericsson’s internal financial controls, conflicts of interest, non-compliance with tax laws and obstruction of the investigation, the company added.

Its investigators could not determine the ultimate recipient of payments for alternative transport routes but they occurred at a time when Isis and other terror organizations controlled some of the routes. The probe also found cash payments that “potentially created the risk of money laundering”.

The Swedish group said it “could not identify that any Ericsson employee was directly involved in financing terrorist organisations” but added that several workers “were exited from the company”.

Ekholm told the Financial Times: “It’s an embarrassment to be in this situation. You find yourself with an echo, a shadow of the past. At the same time, it’s fair to say we’re on a journey to change the culture. One element of that journey is to deal with the past.”

He added that Ericsson did not disclose the internal probe in 2019 because it could not establish who the beneficiaries of the payments were, and whether they were terror organizations or not.

“It becomes hard when you can’t substantiate anything to communicate,” he added.

The revelations constitute a big difficulty for Ekholm after he tried to put the corruption investigation behind him as part of his restructuring of the Swedish group, which has regained its crown as the world’s biggest network gear maker due to its success in 5G telecoms contracts.

Steve Peikin, then co-director of the Securities and Exchange Commission’s enforcement division, said in 2019 that Ericsson had “engaged in an egregious bribery scheme for years, spanning multiple continents, by surreptitiously using slush funds and funnelling money through sham intermediaries”.

Ekholm said at the time: “We have worked tirelessly to implement a robust compliance programme. This work will never stop.”

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