Securities and Exchange Commission opens new investigation into Ericsson over its handling of reporting on ongoing Iraq corruption issues concerning money allegedly flowing to Iraq state militant group. US DOJ also probing breach of 2019 settlement agreement

The Securities and Exchange Commission (SEC) has opened an investigation into Ericsson’s handling and reporting of its ongoing Iraq corruption issues. The investigation is the latest by the SEC into the Ericsson following its payment of $1.06 Billion

The SEC probe relates to Ericsson admitting to multiple incidents of bribery and corruption by its operations in Iraq between 2011 and 2018. According to reports, Ericsson disclosed in February that an internal investigation had found it may have made payments to the Islamic State militant group in Iraq – misconduct it said “started at least back in 2011.”

During the vendor’s most recent earnings call, CEO Börje Ekholm provided scant, though ominous, details on Ericsson’s potential total punishment.

The U.S. Department of Justice recently determined the company breached a $1.06 billion settlement it reached with the agency in 2019 related to a 17-year period of criminal wrongdoing in six other countries. 

In December of 2019, the SEC announced that the Sweden-based Telefonaktiebolaget LM Ericsson was charged with engaging in a large-scale bribery scheme involving the use of sham consultants to secretly funnel money to government officials in multiple countries. The bribes netted Ericsson hundreds of millions in profits. To resolve these alleged violations of the Foreign Corrupt Practice Act (FCPA) and charges from a parallel criminal investigation, Ericsson has agreed to pay more than $1 billion to the SEC and the U.S. Department of Justice and to install an independent compliance monitor. A copy of the SEC Complaint can be seen here: https://www.sec.gov/litigation/complaints/2019/comp-pr2019-254.pdf

The SEC’s complaint alleges that from 2011 through 2017, Ericsson subsidiaries obtained business valued at approximately $427 million by using third parties to bribe officials in Saudi Arabia, China, and Djibouti. As alleged, Ericsson also had third parties pay for lavish trips and entertainment for government officials or their family members. In exchange for the bribes, Ericsson received lucrative contracts from state-owned telecommunications entities in these countries. The complaint alleges that Ericsson’s subsidiaries further violated the FCPA in Vietnam, Indonesia and Kuwait, by maintaining slush funds, using code names, and creating sham transactions and invoices.

“As we allege in our complaint, Ericsson engaged in an egregious bribery scheme for years, spanning multiple continents, by surreptitiously using slush funds and funneling money through sham intermediaries,” said Steve Peikin, Co-Director of the SEC Enforcement Division. “The remedial measures required by our settlement, including the appointment of an independent compliance monitor, reflect the Commission’s commitment to preventing these serious violations of our laws.”

Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office, added, “Today’s settled action seeks to hold Ericsson accountable for the profit it obtained as a result of these unlawful bribes and ensure that robust remedial compliance measures are put into place.”   

The SEC’s complaint alleges that Ericsson violated the anti-bribery, books and records, and internal controls provisions of the federal securities laws.  Ericsson agreed to pay more than $539 million in disgorgement and prejudgment interest to settle the SEC’s charges. To resolve parallel criminal charges by the DOJ, Ericsson agreed to pay a $520 million criminal penalty and enter into a deferred-prosecution agreement. An Ericsson subsidiary, Ericsson Egypt, pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA.  Ericsson must retain an independent compliance monitor for at least three years.  

Ericsson shareholders earlier this year did back Ekholm’s continued leadership at the vendor but did not let him off the hook for any future potential liability.

The latest investigation could also impact Ericsson’s pending $6.2 billion purchase of Vonage. The deal, which was announced last November, could be hindered by a national security or Committee on Foreign Investments in the United States (CFIUS) review. Vonage noted in an SEC filing last month that it had granted Ericsson a 3-month extension to close the deal.

 Ericsson (ERICb.ST) said on Thursday that the U.S. securities regulator has opened an investigation concerning the matters described in the company’s 2019 Iraq investigation report.

JEFFREY NEWMAN, FORMER PROSECUTOR IS A WHISTLEBLOWER LAWYER WITH THE FIRM NEWMAN & SHAPIRO. HE HANDLES FALSE CLAIMS ACT CASES AS WELL AS SECURITIES AND EXCHANGE COMMISSION WHISTLEBLOWER CLAIMS AND CAN BE REACHED AT 978-880-4758 OR JNEWMAN@NEWMANSHAPIRO.COM