Shares in Ericsson were down nearly 15% at one point today as investors reacted to reports that Ericsson may have made payments to the ISIS terror organization to gain access to certain transport routes in Iraq. It was its biggest share drop in a day since July 2017.
Ericsson’s statement read in part: “Ericsson invested significant time and resources to understand these matters. The investigation could not identify that any Ericsson employee was directly involved in financing terrorist organizations.”
Ericsson said the investigation included the conduct of Ericsson employees, vendors and suppliers in Iraq during the period 2011-2019. It found “serious breaches of compliance rules” and 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.”
As a result of the investigation, Ericsson said several employees were “exited from the company” and multiple other disciplinary and other remedial actions were taken.
Ericsson CEO Borje Ekholm told the Swedish newspaper Dagens Industri this week that Ericsson has spent “considerable resources trying to understand this as best we can. Financing terrorism is completely unacceptable and something we do not allow at all,” according to Bloomberg.
RELATED: DoJ says Ericsson breached corruption-related settlement terms
The latest reports come after years of regulatory investigations at the Swedish company. Last year, the U.S. Department of Justice (DoJ) notified Ericsson of breaching its corruption-related settlement by failing to provide certain documents and information.
It’s not like Huawei
What does this mean for Ericsson’s role as a major supplier of U.S. wireless networks? The company supplies 5G gear for all three of the biggest U.S. carriers, AT&T, T-Mobile and Verizon. Ericsson’s former CEO, Hans Vestberg, left the vendor in 2016 and is now CEO and chairman of Verizon.
“It’s difficult to say,” said IDC research director and analyst Daryl Schoolar. “This all appears to be part of an ongoing investigation. We don’t know if this is something totally new or totally different” or part of what’s already being investigated.
“I don’t think it’s going to open up any competitive advantages for someone like Samsung or Nokia here in the United States,” Schoolar said. “I don’t think it’s going to shift the competitive landscape in someone else’s favor.”
In 2019, Ericsson paid more than $1 billion in penalties to resolve bribery and corruption investigations by the DoJ and the Securities and Exchange Commission (SEC) over violations of the U.S. Foreign Corrupt Practices Act. Authorities found Ericsson had made and falsely recorded tens of millions of dollars in bribes as part of a long-running scheme.
Worldwide, telecom infrastructure suppliers have a history of bribery accusations. Years ago, U.S. authorities accused Germany-based Siemens of bribing officials with suitcases stuffed with money. That was before its telecom infrastructure unit merged with Finland’s Nokia. In 2013, Nokia agreed to pay $2.21 billion to acquire Siemens' 50% stake in the Nokia Siemens Networks venture.