Ericsson improperly partnered with sales agents and consultants in Iraq, not to mention potentially bribing ISIS.

So says the Swedish telecommunications company, which determined through an internal investigation that certain employees made payments to avoid customs in Iraq. These bribes put the employees on alternate routes that in some cases operated under the control of military groups like ISIS.

“What we are seeing is that transport routes have been purchased through areas that have been controlled by terrorist organizations, including ISIS,” Ericsson CEO Börje Ekholm told a Swedish newspaper earlier this week.

According to a statement from Ericsson, the company in 2019 reviewed “unusual expense claims” in Iraq that went back to 2018. The review led to an internal investigation that included external legal counsel. The investigation covered Ericsson’s activities in Iraq from 2011-2019 and found multiple violations.

“It identified evidence of corruption-related misconduct, including: making a monetary donation without a clear beneficiary; paying a supplier for work without a defined scope and documentation; using suppliers to make cash payments; funding inappropriate travel and expenses; and improper use of sales agents and consultants,” the company stated. “In addition, it found violations of Ericsson’s internal financial controls; conflicts of interest; non-compliance with tax laws; and obstruction of the investigation.”

“Several” employees left the company following the investigation; however, Ericsson said it did not know if any employee provided direct funding to ISIS.

Ericsson shared its findings with the U.S. Department of Justice in 2019. Ericsson was working on a deferred prosecution agreement (DPA) with the Department in 2019 for various corruption probes it was facing.

Reactions

Ericsson’s share price has dropped 16% since the news broke.

Shareholder litigators Schall Law Firm and Bragar Eagel & Squire are investigating false or misleading statements the company might have made. The International Consortium of Investigative Journalists said Ericsson has not addressed specific questions put to it about about various activities. The consortium said it will soon publish its findings.

Cevian Capital is a large Ericsson shareholder. Cevian managing partner and co-founder Christer Gardell called Ericsson’s actions “unacceptable.” However, Gardell attributed the incident to past “mismanagement” that recent restructuring hopefully has curtailed.

“The company today takes these issues very seriously and has invested significant resources in solving the historical problems and ensuring that no new issues arise,” Gardell said. “It needs to urgently address the remaining complexity and loss making businesses to help reduce such mismanagement in the future.”

Gardell, whose company is investing in Ericsson, called the drop in stock a “strong overreaction.”

An analyst told Reuters that a deeper DoJ investigation into potential bibery could end in large fines.

Background

This week’s news follows a long history of corruption allegations against Ericsson.

Ericsson in 2019 shelled out more than $1 billion for attempting to violate the Foreign Corrupt Practices Act. According to the Department of Justice, company employees were accused of “bribing government officials, falsifying books and records, and failing to implement reasonable internal accounting controls.” These alleged actions occurred in five countries: Djibouti, China, Vietnam, Indonesia, and Kuwait.

Last September the Department of Justice named the Ericsson employee who helped pay approximately $2.1 million in bribes to Djibouti government officials. The scheme allegedly occurred between 2010 and 2014, according to court documents.

Ericsson Acquisitions

Ericsson’s $6.2 billion acquisition of Vonage will close in the first half of 2022. Many analysts anticipate that Ericsson made the acquisition in order to tap into Vonage’s CPaaS capabilities. Vonage’s stock is sitting at $20.11 per share. The price dipped slightly from $20.80, where it sat before the news broke.

Ericsson has also purchased wireless WAN provider Cradlepoint. That deal was worth $1.1 billion.