Ericsson plans to take $1.23B hit for corruption fine in Q3

Börje Ekholm
The corruption scandal probably relates to bribery. (Monica Alleven/FierceWireless)

Ericsson today said it will apportion $1.23 billion in its third quarter 2019 earnings to cover an estimated fine of $1 billion, plus other related costs, related to a corruption investigation by the U.S. Securities and Exchange Commission and the U.S. Department of Justice.

Ericsson has been cooperating since 2013 with the SEC and since 2015 with the DOJ in regard to Ericsson's compliance with the U.S. Foreign Corrupt Practices Act (FCPA).

The company says the investigation covers a period ending in the first quarter of 2017 and involves its activities in six countries: China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam. Ericsson has not said what the corruption investigation pertains to, although some press reports have said it relates to bribery scandals dating back more than a decade.

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The FCPA is a U.S. law consisting of both anti-bribery provisions and accounting transparency provisions. It requires that every company listed on a U.S. stock exchange must maintain accurate and detailed records and maintain an internal control system to ensure the accuracy of those records.

RELATED: Ericsson earnings shine, but a corruption investigation looms

In a statement today, Ericsson said, “It is the company's assessment that the breaches are the result of several deficiencies, including a failure to react to red flags and inadequate internal controls, which enabled a limited number of employees to actively circumvent internal controls for illegitimate purposes.”

Apparently, some employees were fired and disciplinary measures were taken against other individuals.

Hans Vestberg served as CEO of Ericsson from 2010 through July 2016, when he was ousted from the company following poor financial results. He would have led the company during the period when the alleged corruption occurred and also during the time when Ericsson began cooperating with the SEC and DOJ. In January 2017, Ericsson named Borje Ekholm as president and CEO. Hans Vestberg has gone on to become CEO of Verizon.

Today, Ekholm touted his accomplishments during his tenure. "Over the last two years we have operationally turned around our company and established a strong portfolio and competitive cost structure,” said Ekholm in a prepared statement. “With today's announcement we confront another legacy issue and take the next step in resolving it. 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."

Last month, The Swedish publication Dagens Industri reported that Ekholm would be replaced by outgoing Saab CEO Hakan Buskhe within six months. But, Ericsson later said that report was not accurate.

Today, the company said the $1.23 billion constitutes its current estimate of funds necessary to resolve the U.S. investigations.

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