Failure to comply with the terms of a 2019 Deferred Prosecution Agreement (DPA) has cost telecomms giant Ericsson $206m in an additional criminal penalty. The company has agreed to plead guilty. 

The Department of Justice said Ericsson breached the DPA “by violating the agreement’s cooperation and disclosure provisions”. The company will plead guilty to engaging in a long-running scheme of violating the Foreign Corrupt Practices Act (FCPA) by paying bribes, manipulating books and records, and failing to implement proper internal accounting controls in several countries. 

“When the department afforded Ericsson the opportunity to enter into a DPA to resolve an investigation into serious FCPA violations, the company agreed to comply with all provisions of that agreement,” said Assistant Attorney General Kenneth A Polite, Jr. of the Justice Department’s Criminal Division. “Instead of honoring that commitment, Ericsson repeatedly failed to fully cooperate and failed to disclose evidence and allegations of misconduct in breach of the agreement.”

Bribed government officials

Ericsson used third-party agents and consultants from 2000 to 2016 to pay bribes to government officials, and to manage off-the-books slush funds in Djibouti, China, Vietnam, Indonesia, and Kuwait. Many of these agents were engaged through sham contracts and paid via false invoices – all improperly accounted for in the company’s books and records.

Ericsson entered a DPA in 2019, paid a criminal penalty of over $520m and agreed to work with an independent compliance monitor for three years.

The subsidiary, Ericsson Egypt Ltd, did also submitted a guilty plea to a one-count criminal information-charging conspiracy to violate the anti-bribery provisions of the FCPA. 

Breached agreement

However, Ericsson failed to comply with the 2019 agreement and breached the DPA by not disclosing all factual information and evidence related to the Djibouti scheme, the China scheme, and other potential violations of the FCPA’s anti-bribery or accounting provisions. The company also failed to promptly report and disclose evidence and allegations of conduct in relation to its business activities in Iraq, which is currently under investigation for possible violations of the FCPA.

“Ericsson engaged in significant FCPA violations and made an agreement with the Department of Justice to clean up its act,” said US Attorney Damian Williams for the Southern District of New York. “The company’s breach of its obligations under the DPA indicate that Ericsson did not learn its lesson, and it is now facing a steep price for its continued missteps.

“Ericsson’s multiple cooperation and disclosure failures led to this breach, resulting in the company having to plead guilty and pay additional penalties,” said Chief James C Lee of the IRS Criminal Investigation.

“The company’s breach of its obligations under the DPA indicate that Ericsson did not learn its lesson, and it is now facing a steep price for its continued missteps.”

US Attorney Damian Williams

Enhanced internal controls

Ericsson has agreed to plead guilty to the original charges deferred by the 2019 DPA: one count of conspiracy to violate the anti-bribery provisions of the FCPA, and to one count of conspiracy to violate the internal controls and books and records provisions of the FCPA. The company must also serve a probation term through June 2024, and has agreed to a one-year extension of the independent compliance monitor. It will also pay an additional criminal penalty of $206,728,848 – which includes the elimination of any cooperation credit originally awarded pursuant to the DPA. 

“This resolution is a stark reminder of the historical misconduct that led to the DPA. We have learned from that and we are on an important journey to transform our culture. To be a true industry leader, we must be a market and technology leader while also being a leader in how we conduct our business”, said Börje Ekholm, CEO of Ericsson in a statement. 

Ekholm also said that the company will stay committed to its compliance transformation, and that it will ”continue to implement stringent controls and improved governance, ethics and compliance across our company, with corresponding enhancements to our risk management approach”.

He added: “The change continues and we are a very different company today and have made important changes since 2017 and over 2022”.

Compliance program

The DOJ has acknowledged the changes, and said in the agreement that “[Ericsson] has significantly enhanced its compliance program and internal accounting controls through structural and leadership changes, including but not limited to the hiring of a new Chief Legal Officer and new Head of Corporate and Government Investigations and the establishment of a multi-disciplinary Business Risk Committee comprised of Group-level senior executives … and has committed to continuing to implement and test further enhancements.”  Further, “[Ericsson] has significantly enhanced its cooperation and information sharing efforts.”

Ericsson also addressed that the company is continuing to cooperate with the DOJ and the SEC in the ongoing investigations regarding earlier operations in Iraq, where unusual expense claims triggered an investigation.

“As previously disclosed, the Company’s 2019 investigation did not conclude that Ericsson made or was responsible for any payments to any terrorist organization; and the Company’s significant further investigation over the course of 2022 has not altered this conclusion”, the company said.