Sweden’s Ericsson “may have paid Daesh” in Iraq, claims the CEO
The Swedish supplier of telecommunications equipment Ericsson may have made payments to the terrorist organization Daesh in Iraq “in an attempt to gain access to the Iraqi market”, said its CEO Borje Ekholm.
Ericsson said on February 15 that an internal investigation in 2019 had found “serious violations” of its compliance rules in Iraq from 2011 to 2019.
The Swedish telecom giant said it could not identify if any of its employees had “directly” financed Daesh, the terrorist group also known as ISIS, which controlled parts of Iraq in 2014 and 2015.
But it said it had identified intermediary payments and “the use of alternative transport routes in connection with circumventing Iraqi customs at a time when terrorist organizations, including (Daesh), were controlling certain transport routes.”
The statements by Ekholm to a local financial newspaper that was later quoted by Bloomberg sent down the share in Ericsson by more than 14% during trading on Wednesday afternoon Swedish local time. The company was only recently fined $ 1 billion by the United States for paying bribes to secure telecommunications contracts in five countries, including Vietnam.
“If new facts come to light … we will definitely resume the investigation and run it at full speed to investigate those cases,” said Ekholm.
Ekholm’s excuse for not arguing earlier is that the transactions it discovered from 2011 to 2019 did not reach Ericsson’s “materiality” limit.
It is unlikely that it will go well with the US Department of Justice (DOJ), which has a weak view of anything less than complete disclosure in anti-corruption investigations. Given the damage that Daesh inflicted on Western interests, including significant civilian and military casualties, it will also go bad for the public. It is no wonder that Ericsson shares fell more than 10%, removing $ 4 billion from market value.
It is possible to approximate the size of the DOJ penalty. The company’s $ 37 billion settlement in 2019 over transplants in China, Vietnam, Indonesia, Kuwait and Djibouti made it clear that the hefty size of the fine was due in part to Ericsson’s lagging behind. Keeping Iraqi debt secrecy a secret when negotiating with the Fed is a distinctly bad look.
But the market reaction may also reflect the potential impact on Ericsson’s strategy. Ekholm had benefited from Washington’s diplomatic push against Huawei Technologies, which was pushing the Chinese technology group – the largest supplier of 5G mobile phone kits – from the US and most European markets.
During the last quarter of last year, Ericsson’s sales in North America, which account for almost a third of its revenue, increased by 17% compared to the previous year. This more than offset the $ 800 million decline in China, as Beijing demanded revenge on Huawei from Western equipment suppliers.
With Finnish Nokia, the only other major Western 5G kit maker, Ericsson’s position in America had looked secure.
But South Korea’s Samsung Electronics is rapidly strengthening, after concluding a $ 6.6 billion supply agreement with US carrier Verizon 2020.
Amazon Web Services also makes moves. If Ekholm’s Iraqi mess leads to ongoing distrust of both America and China, fines will be the least of his problems.