Last week the Justice Department (DOJ) announced a resolution of the long stand Foreign Corrupt Practices Act (FCPA) enforcement action involving Telefonaktiebolaget LM Ericsson (Ericsson), a multinational networking and telecommunications equipment and services company headquartered in Sweden. The matter was stunning in the total amount of fines and penalties assessed, coming in at over $1 billion, consisting of a criminal fine assessed by the DOJ at just over $520 million. Separately the Securities and Exchange Commission (SEC) assessed profit disgorgement of nearly $540 million. Over the next several blog posts, I will be considering the Ericsson FCPA enforcement action. Today, I begin with an introduction and overview of the matter.
The documents reference herein consist of the following:
- DOJ Press Release (Press Release);
- SEC Complaint against Ericsson (SEC Compliant);
- DOJ Deferred Prosecution Agreement with Ericsson (DPA);
- Ericsson Egypt Ltd. Plea Agreement (Ericsson Egypt Plea Agreement);
- DOJ Superseding Information with Ericsson Egypt (Ericsson Egypt Information); and
- DOJ Information with Ericsson (Ericsson Information)
Announcing the decision via a Press Release, Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division said, “Ericsson’s corrupt conduct involved high-level executives and spanned 17 years and at least five countries, all in a misguided effort to increase profits. Such wrongdoing called for a strong response from law enforcement, and through a tenacious effort with our partners in the Southern District of New York, the SEC, and the IRS, today’s action not only holds Ericsson accountable for these schemes, but should deter other companies from engaging in similar criminal conduct.”
US Attorney Geoffrey S. Berman of the Southern District of New York, where the case was fined, noted, “Today, Swedish telecom giant Ericsson has admitted to a years-long campaign of corruption in five countries to solidify its grip on telecommunications business. Through slush funds, bribes, gifts, and graft, Ericsson conducted telecom business with the guiding principle that ‘money talks.’ Today’s guilty plea and surrender of over a billion dollars in combined penalties should communicate clearly to all corporate actors that doing business this way will not be tolerated.” Don Fort, Chief, Internal Revenue Services (IRS) Criminal Investigation, added, “Implementing strong compliance systems and internal controls are basic principles that international companies must follow to steer clear of illegal activity. Ericsson’s shortcomings in these areas made it easier for its executives and employees to pay bribes and falsify its books and records. We will continue to pursue cases such as these in order to preserve a global commerce system free of corruption.”
Dick Cassin, writing in the FCPA Blog, said, “The resolution [totaling approximately $1,060,000] is the second biggest FCPA case, behind only Petrobras’s $1.78 billion global settlement in 2018. Ericsson becomes the fourth mobile phone company to appear on the FCPA Blog’s current top ten list, joining Sweden’s Telia, MTS of Russia, and VimpelCom of Holland.” Cassin also noted, “Ericsson’s $540 million payment to the SEC is the second biggest FCPA disgorgement, also behind only Petrobras.” This now makes numbers 2-5 of the FCPA Blog’s Top Ten FCPA Enforcement Actions consist solely of telecom companies.
The bribery schemes were pervasive, long running, had senior management support and involvement and were run on a global scale. It led to a criminal plea by Ericsson’s Egyptian subsidiary, Ericsson Egypt, of one count of conspiracy to violate the FCPA. The countries where bribes were paid included Djibouti, China, Kuwait and Vietnam.
Many of the bribes paid across the globe were funded out of Ericsson Egypt. While the bribery schemes were massive in scope, they were almost pedestrian in execution. Some of the bribery schemes and payment amounts, as set out in the Ericsson Information, included the following. In Djibouti, between 2010 and 2014, Ericsson, via a subsidiary, made approximately $2.1 million in bribe payments to high-ranking government officials in order to obtain a contract with the state-owned telecommunications company valued at approximately €20.3 million to modernize the mobile networks system in Djibouti.
In China, between 2000 and 2016, Ericsson subsidiaries caused tens of millions of dollars to be paid to various agents, consultants and service providers, a portion of which was used to fund a travel expense account in China that covered gifts, travel and entertainment for foreign officials, including customers from state-owned telecommunications companies. In addition, between 2013 and 2016, Ericsson subsidiaries made payments of approximately $31.5 million to third party service providers pursuant to sham contracts for services that were never performed.
Additionally, in China, another $19.5 million was paid to third party consultants to fund gifts and leisure trips for Chinese foreign officials and were inaccurately characterized in Ericsson’s books and records. Ericsson used the travel expense account to win business with Chinese state-owned customers. This included travel to a large number of locations where Ericsson did not have operations such as locations in the US, including Palo Alto, Las Vegas, Phoenix, Chicago, trips to London and the Caribbean, including a week-long luxury cruise that included ports of call in Barbados, St. Lucia, Antigua and St. Martin.
In Vietnam, between 2012 and 2015, Ericsson subsidiaries made approximately $4.8 million in payments to a consulting company in order to create off-the-books slush funds, associated with Ericsson’s customers in Vietnam, that were used to make payments to third parties who would not be able to pass Ericsson’s due diligence processes.
In Kuwait, between 2011 and 2013, an Ericsson subsidiary promised a payment of approximately $450,000 to a consulting company at the request of a sales agent and then entered into a sham contract with the consulting company and approved a fake invoice for services that were never performed in order to conceal the payment.
Ericsson did not self-disclose its FCPA violations and apparently continued to try and hide additional violations even after it was initially confronted by the DOJ. Further, while Ericsson did receive some credit under the DOJ’s FCPA Enforcement Policy for cooperation and its remediation efforts, it did not receive full credit available, according to the Press Release “it did not disclose allegations of corruption with respect to two relevant matters; it produced certain materials in an untimely manner; and it did not fully remediate, including by failing to take adequate disciplinary measures with respect to certain employees involved in the misconduct.” At the end of the day, Ericsson received a 15% discount under the FCPA Corporate Enforcement Policy for its actions.
Apparently, the DOJ and SEC were not satisfied with neither the cooperation of Ericsson nor its remediation as was required to maintain a corporate monitor for three years after entry of the DPA. The case has been assigned to US District Judge Alison J. Nathan of the Southern District of New York.
Join me tomorrow where I consider the bribery schemes utilized by Ericsson.
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© Thomas R. Fox, 2019