Clouds are gathering on Ericsson’s sky. After having had to suspend its activities in Russia indefinitely due to the invasion of Ukraine, the Swedish telecom equipment manufacturer must now face the financial consequences of a lawsuit with strong repercussions on the American market. The mobile infrastructure giant confirmed on Thursday that it will likely be fined by the US regulator following allegations of corruption in Iraq. Enough to bring down its share price, which has suffered a 30% discount since the scandal broke.
As a reminder, the Swedish supplier is accused by the American authorities of having paid bribes in Iraq. These could be perceived by members of the Islamic State in Iraq and the Levant (IS). The facts would have taken place when the Islamic State controlled part of the Iraqi territory. During this period, Ericsson employees would have “paid for road transport in areas controlled by terrorist organizations, including IS”, said the management of the Scandinavian group.
The facts were confirmed by the company itself following an internal investigation conducted to shed light on this burning issue involving some of its employees. In mid-February, Ericsson management had confirmed “serious violations of its rules of legal compliance and of the group’s business ethics”, committed between 2011 and 2019 on Iraqi soil.
Operating profit falls
The internal investigation carried out in recent months by the equipment manufacturer has identified “evidence of wrongdoing in terms of corruption” carried out by employees, vendors and suppliers of the company. However, “the investigation could not identify the direct involvement of any Ericsson employee in the financing of terrorist organizations”, it is argued on the side of the Scandinavian giant, which rather points the finger at the responsibility of local collaborators.
The response from the American authorities should not be long in coming, now indicates Ericsson’s staff. The retaliatory measures taken by Washington “could probably include additional monetary payments, the magnitude of which cannot be reliably estimated at this time”, acknowledged the group’s CEO, Borje Ekholm, in a press release released on Friday. . “As this process is ongoing, we remain limited in what we can say about past events covered by the Iraq investigation and our ongoing engagement on this issue,” the leader also said.
This would not be a first for Ericsson. This new fine would come on top of a previous one, worth a billion dollars, paid to the United States Department of Justice in 2019 to settle corruption cases in several countries. At the time, the telecommunications equipment supplier had also agreed to be supervised by regulators for a period of three years in order to be permanently cleared. The lull was only short-lived.
This news comes all the more badly as Ericsson must also face the suspension of its activities in Russia, following the invasion of Ukraine. Ericsson recently announced an 11% drop in adjusted operating profit for the first quarter of the current fiscal year to $500 million, after provisioning no less than $95 million to deal with the shutdown of its activities in Russia.