Ericsson Fined More Than $1 billion for FCPA Violations in Five Countries

Telefonaktiebtolaget LM Ericsson, a multinational telecommunications company based in Sweden, was fined more than $1 billion for violations of the Foreign Corrupt Practices Act, the Justice Department said in a Dec. 6 press release. The penalty, stemming from a scheme to bribe government officials and falsify records, includes more than $520 million in criminal penalties and a $540 million penalty owed to the Securities and Exchange Commission.

Between 2000 and 2016, Ericsson worked with others to pay bribes and falsify books, and failed to impose “reasonable” internal accounting controls, the Justice Department said. The company made bribes and managed slush funds through third-party agents, who were often employed through “sham contracts” and paid by fake invoices, the press release said. The scheme involved criminal conduct in Djibouti, China, Vietnam, Indonesia and Kuwait.

Ericsson made about $2 million in bribes to government officials in Djibouti to secure a $20 million contract with the country’s state-run telecommunications company, the press release said. An Ericsson subsidiary allegedly entered into a “sham contract” with a consulting company to conduct the scheme, approving fake invoices to hide the bribes. Ericsson also did not disclose the “spousal relationship” between the owner of the consulting company and a government official in Djibouti.

In China, Ericsson subsidies paid tens of millions of dollars to “various agents, consultants and service providers,” which helped fund a travel expense account to give gifts to Chinese officials and customers from state-owned telecommunication companies, the press release said. Ericsson subsidiaries made about $30 million in payments to third-party service providers through sham contracts, the Justice Department said, and “knowingly mischaracterized” them in company records.

In Vietnam, subsidiaries paid a consulting company about $5 million to create “off-the-books slush funds” to hide payments to third parties that could not pass Ericsson’s due diligence process, the press release said. Ericsson also did this in Indonesia, paying about $45 million to a consulting company to create slush funds to hide the payments from Ericsson’s records.

An Ericsson subsidiary promised a consulting company in Kuwait about $450,000 for “inside information” about a “tender for the modernization of the state-owned telecommunications company’s radio access network,” the Justice Department said. An Ericsson subsidiary eventually secured the contract, valued at about $182 million.

As part of a deferred prosecution agreement, Ericsson agreed to pay a total criminal penalty of about $520 million within 10 days of its sentencing hearing and will cooperate with the Justice Department’s investigation. Ericsson also promised to improve its compliance program and to hire an “independent compliance monitor” for three years.

The Justice Department said Ericsson’s penalty was due to its failure to voluntarily disclose the violations and the “seriousness” of the offense. The company received “partial credit” for cooperation with the Justice Department, the press release said, which included a “thorough internal investigation,” regular “factual presentations to the department,” voluntarily making foreign-based employees available for interviews in the U.S., and providing “extensive” documentation and evidence of misconduct that the Justice Department had not found.

The company did not receive full credit for cooperation and remediation because it did not disclose corruption violations in two matters and gave the Justice Department “certain materials in an untimely matter,” the agency said. Ericsson also did “not fully remediate, including by failing to take adequate disciplinary measures with respect to certain employees involved in the misconduct,” the press release said.