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Ericsson sets aside $220m for potential US fine

Swedish kit maker Ericsson is preparing for another slap on the wrist from the US Department Justice (DoJ).

The company said this week it has made a provision totalling SEK2.3 billion ($220 million) in relation to a potential resolution of allegations that it breached the terms of a $1 billion settlement reached with US authorities in 2019.

That settlement was called the Deferred Prosecution Agreement (DPA), and related to corruption charges concerning Ericsson’s conduct in China, Djibouti, Indonesia, Kuwait, and Vietnam between 2011 and 2019. As well as a $1 billion pay-off, Ericsson also agreed to a three-year period of compliance monitoring courtesy of the DoJ.

However there were one or two other skeletons in the closet, most notably that Ericsson employees in Iraq may have indirectly bribed ISIS in order to retain access to certain transport routes.

US authorities were quick to assert that this constituted a breach of the DPA. While it is true that Ericsson had disclosed back in 2019 that it was conducting an internal investigation of its Iraqi unit, the DoJ claimed these disclosures were insufficient. It also accused Ericsson of failing to make subsequent disclosures once it became aware of exactly what had been going on at the division.

The $220 million provision will be accounted for in Ericsson’s fourth quarter financials – due to be published on 20 January – as ‘other operating expenses’. In addition to the provision, Ericsson also recently agreed to let the DoJ monitor it for a further 12 months. The amount was presumably a bit lower than expected, as Ericsson’s shares jumped on the release of the news, only to creep back downwards soon after.

“The company believes that this is a sufficiently reliable estimate of the financial penalty associated with any potential breach resolution, and this provision also includes estimated expenses for the previously announced extended monitorship,” said Ericsson, in a statement on Thursday.

Meanwhile, Ericsson reiterated the lengths it has gone to in an effort to ensure this sort of thing never happens again.

“Since 2019, Ericsson has taken significant remedial measures, overseen by the board of directors. These include enhancing its group-wide approach to risk management and strengthening its compliance program and internal controls,” it said.

Last March, it also hired Scott Dresser as its new chief legal officer. Dresser was chief legal counsel at Veon in 2016, when the Netherlands-based telco group agreed a $795 million deal with US and Dutch authorities to settle charges that it bribed its way into Uzbekistan’s telecoms market.

It’s fair to say Ericsson has had an eventful start to 2023. In addition to allocating $220 million to re-settle its settlement with the DoJ, it also recently warned that the reorganisation of its struggling Cloud Software and Services division will lower Q4 2022 earnings to the tune of $76 million.

Meanwhile, the company this week announced that chairman Ronnie Leten will not seek re-election at March’s AGM, and that current board member Jan Carlson has been proposed as his replacement.

Once Carlson gets the nod from shareholders – and there doesn’t appear to be any reason why he won’t – he could be forgiven for hoping that things might settle down a bit.

 

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