The Swedish mobile phone supplier Ericsson has new problems. On Sunday evening, SZ, NDR and WDR, in cooperation with the International Consortium of Investigative Journalists (ICIJ), reported how deeply the group was involved in possible cases of corruption in Iraq. On Wednesday, Ericsson announced that the Justice Department in Washington has accused them of violating a key agreement — for the second time. As a result, the share price fell again by ten percent.
The research “The Ericsson List” shows that between 2011 and 2019 Ericsson employees in Iraq bribed officials and business partners, embezzled funds and fabricated invoices. There are also numerous other violations in 14 other countries. The worst allegation: The group cannot rule out that bribes were paid to the terrorist organization Islamic State (IS).
13 billion euros loss
Ericsson himself made the latter public in mid-February in response to inquiries from the ICIJ and its partners. The share price then collapsed. Since February 15, Ericsson has lost around 35 percent of its value, which corresponds to a loss of almost 13 billion euros.
Investors’ concerns are likely to have something to do with the US authorities: At the end of 2019, Ericsson had reached an agreement with the Department of Justice and the SEC. The Swedes paid a $1 billion fine in exchange for the Americans suspending corruption charges in five countries. The regulation is valid for three years. As early as October 2021, the Swedes announced that the Ministry of Justice had accused them of violating the agreement. New mail was received from Washington on Tuesday; that the group announced on Wednesday morning.
The accusation of the US judiciary: Ericsson did not provide sufficient information about the internal investigation in Iraq even before the agreement was reached. Part of the agreement are further reporting obligations, but Ericsson has not complied with them either.
“Enormously embarrassing and enormously unsatisfying.”
In a telephone call with investors, analysts and media representatives on Wednesday, Ericsson boss Börje Ekholm assured that the company was cooperating with the authorities and was taking the matter very seriously. However, he also emphasized that the allegations relate to the company’s past. The misconduct of the employees is “enormously embarrassing and enormously unsatisfactory” and unacceptable. Since the internal investigation, several employees have been laid off and a new “cultural journey of correct behavior” has begun. But the latter takes time.
When asked by analysts, Ekholm also made it clear that the first breach of the agreement had nothing to do with Iraq. Which begs the question: What else has Ericsson been hiding?
Earlier in the week, a Citibank analyst said it doesn’t expect Ericsson shares to be “investable” for investors anytime soon. It is currently unclear what the mail from the USA means for the group. The Swedes could face high penalties, and they could also be excluded from orders in the US market.
Ericsson on the German market
The group is internationally involved in the expansion of the network infrastructure. The main focus is on the new 5G mobile communications standard. The Chinese competitor Huawei is not well liked in many countries due to political concerns. Ericsson and its Finnish competitor Nokia will benefit from this.
The major German mobile communications providers Deutsche Telekom, Vodafone and Telefónica (O2) have also concluded contracts with Ericsson for the 5G expansion in recent years. Telekom replied to an SZ inquiry that technical components were obtained from many companies. “We closely monitor reports of alleged or potential legal or compliance incidents,” said a company spokesman. At Telefónica, it is said that business relationships and the underlying contracts are not commented on in detail.