Ericsson sets aside $1.2 billion in preparation for corruption fine

Since 2013, Ericsson has been the focus of two investigations concerning the Swedish vendors compliance with the US Foreign Corrupt Practices Act (FCPA), and now it is preparing for the fine.

The investigation officially ended in the fourth quarter of 2017, though Ericsson has been in a continued dialogue with the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) since. With the team found to have broken the law in six markets, Ericsson is expected the combined fines to be north of $1 billion. Today’s announcement is to prepare investors for the hit.

“With today’s announcement we confront another legacy issue and take the next step in resolving it,” said Ericsson CEO Börje Ekholm.

“We have to recognize that the Company has failed in the past and I can assure you that we work hard every day to build a stronger Ericsson, where ethics and compliance are cornerstones in how we conduct business. Over the past two years, we have made significant investments in our ethics and compliance program including our investigative capabilities and have taken actions against employees who have transgressed our values and standards.”

Corrections have been made to internal procedures in the six years since the probes begun, though it casts a dark shadow on the vendor. Corruption allegations are never favourable, irrelevant as to how far in the past they were.

Starting in 2013, the SEC launched a probe with the DoJ joining the party in 2015. The investigations covered a four-year period, ending in 2017, relating to bribes which were offered to Government officials. Ericsson was found to be non-compliant with the FCPA in six markets; China, Djibouti, Indonesia, Kuwait, Saudi Arabia, and Vietnam.

Like every other law, there are hundreds of provisions and clauses to the FCPA, though there are two which it is most readily known for. Firstly, rules dictating accounting transparency requirements under the Securities Exchange Act of 1934, and secondly, concerning bribery of foreign officials.

In short, the rules state it is unlawful to provide anything of material value to government officials to obtain or retain business. On the accountancy transparency side, these rules are to ensure there is an effective compliance and accountability system to internally prevent illegal activity.

Although Ericsson has been co-operative with the agencies during the investigation, the $1 billion fine might only be part of the problem. The Ericsson management team has pointed to additional risks associated with this saga, including reputational damage. The team will have been working hard to smooth over the cracks, however the official fine might well encourage other parties to have a closer look at the relationships in place.