Ericsson breached its US deferred prosecution agreement for a second time by withholding information about possible payments to the Isis terror group in Iraq, as the crisis surrounding the Swedish telecoms equipment maker deepened.
The world’s largest network gear manufacturer said on Wednesday that the US Department of Justice told Ericsson its disclosure about its internal investigation into Iraq was “insufficient” ahead of a 2019 $1 billion (€900 million) settlement over corruption.
It added that the DoJ decided it had breached its deferred prosecution agreement again – following a first infringement reported in October for unknown causes – by failing to make additional disclosures about Iraq after 2019.
Ericsson conceded last month that it might have made payments to Isis and other terror groups in Iraq on transport routes in the country.
Analysts at Citi said on Monday that “we expect Ericsson stock to be uninvestable for most investors for the foreseeable future”.
The group’s shares fell as much as 13 per cent on Wednesday.
The fallout from the Iraq probe, disclosed under pressure from Swedish media and the International Consortium of Investigative Journalists (ICIJ), now represents the biggest test of chief executive Borje Ekholm in his five years in charge.
He initially won plaudits for turning around Ericsson's operating business, and allowing it to win more business in new 5G telecoms networks than rivals Huawei of China and Nokia of Finland. He also appeared to put to bed damaging corruption and bribery scandals by agreeing the 2019 settlement with the DoJ over cases in China, Indonesia, Vietnam, Djibouti and Kuwait.
But investors have taken fright over the new allegations in Iraq. The ICIJ reported that Ericsson sought permission from Isis to work in a city it controlled and made payments to transport equipment into areas run by the terror group.
"If the reports are confirmed true, then management's credibility and judgment will be called into question; even if they are ultimately untrue, we think it will take some time before innocence can be proven," said Andrew Gardiner, analyst at Citi.
Europe's largest activist fund Cevian Capital, which has a stake in Ericsson, said the group needed to clarify what information the DoJ say they were not provided with and why was it not given to them.
"This is either the mother of all governance failures, and then there needs to be accountability and consequences for the board, or a more limited governance issue that has been blown out of proportion by a further communications screw-up, and then that needs to be corrected," said Christer Gardell, managing partner and co-founder.
Premature to judge
Ericsson said it was “committed to co-operating” with the DoJ over Iraq but said it was premature to judge the outcome.
It added that “based on our current review” the reports by the ICIJ were covered by its internal investigation, which found that no Ericsson employee had paid Isis. But Mr Ekholm told the FT last month that Ericsson could not determine where some money ended up, and it could have reached the hands of terror groups including Isis.
“We can never get rid of the history. We just need to deal with it as much as we can,” Mr Ekholm said in the interview.
One problem for the Ericsson chief executive is that while the 2019 settlement dealt with historical issues under previous management the current Iraq scandal relates to his time in charge as he started in January 2017. – Copyright The Financial Times Limited 2022