Swedish telecommunications equipment provider Ericsson may have made payments to terrorist organization Daesh in Iraq “in an effort to gain access to the Iraqi market,” its CEO Borje Ekholm said.
Ericsson said on Feb. 15 a 2019 internal investigation had found “serious breaches” of its compliance rules in Iraq from 2011 to 2019.
The Swedish telecom giant said it could not identify if any of its employees had “directly” financed Daesh, the terrorist group also known as ISIS that controlled swathes of Iraq in 2014 and 2015.
However, it said it had identified payments to intermediaries and “use of alternate transport routes in connection with circumventing Iraqi customs at a time when terrorist organizations, including (Daesh), controlled some transport routes.”
The statements by Ekholm to a local financial tabloid later cited by Bloomberg sent shares of Ericsson down by more than 14% during trading as of Wednesday afternoon Swedish local time. The company was only recently fined $1 billion by the United States for paying bribes to secure telecommunications contracts in five countries including Vietnam.
“If new facts come to light ... we will for sure reopen the investigation and run it full speed ahead to investigate those matters,” Ekholm said.
Ekholm’s excuse for not fessing up earlier is that the transactions it uncovered from 2011 to 2019 didn’t meet Ericsson’s “materiality” threshold.
That’s unlikely to sit well with the U.S. Department of Justice (DOJ), which takes a dim view of anything less than full disclosure in anti-corruption probes. Given the damage that Daesh inflicted on Western interests, including significant civilian and military casualties, it will also go down badly with the general public. Little wonder Ericsson shares fell more than 10%, wiping $4 billion off its market value.
It is possible that approximates the size of the DOJ penalty. The $37 billion company’s 2019 settlement over graft in China, Vietnam, Indonesia, Kuwait and Djibouti made clear that the hefty size of the fine was partly due to Ericsson’s foot-dragging. Keeping any Iraqi skullduggery under wraps while in negotiations with the Feds is a distinctly bad look.
Yet the market reaction may also reflect the potential impact on Ericsson’s strategy. Ekholm had been a beneficiary of Washington’s diplomatic push against Huawei Technologies, which squeezed the Chinese tech group – the biggest provider of 5G mobile phone kit – out of the United States and most European markets.
In the final quarter of last year, Ericsson’s North American sales, which account for nearly a third of its revenue, leapt 17% year-on-year. That more than compensated for the $800 million decline in China, as Beijing exacted revenge for Huawei on Western equipment providers.
With Finland’s Nokia, the only other major Western 5G kit maker, Ericsson’s position in America had looked secure.
However, South Korea’s Samsung Electronics is muscling in fast, having snaffled a $6.6 billion supply deal with U.S. carrier Verizon in 2020.
Amazon Web Services is also making moves. If Ekholm’s Iraqi mess leads to ongoing distrust in America as well as China, fines will be the least of his problems.