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Ericsson admits it may have paid off ISIS terrorists

Share price down after word of 'unusual expense claims' emerges

"Unusual expense claims in Iraq, dating back to 2018" triggered a review that led Ericsson to suspect it paid the self-styled terrorist group Islamic State while doing business in the country, the Swedish giant said last night.

Ericsson's statement comes a day after CEO Börje Ekholm gave an interview to Swedish newspaper Dagens Industri revealing the existence of a "previously completely unknown internal investigation [where] Ericsson identified such serious shortcomings in Iraq that they suspect [intermediaries] of having paid IS terrorists to get through transports" (translated from the Swedish).

In other words, Ericsson may have indirectly paid off ISIS to get equipment shipped through the terrorists' roadblocks in Iraq.

According to Ericsson, it "uncovered compliance concerns," and "investigations of these concerns led to a subsequent and detailed internal investigation that was undertaken by Ericsson in 2019, supported by external legal counsel." The company's share price dropped 12 per cent on NASDAQ after the admission.

The investigation probed Ericsson employees, vendors, and suppliers in Iraq covering a period stretching from 2011 to 2019, and "identified evidence of corruption-related misconduct."

As listed by the vendor itself, this included: 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; improper use of sales agents and consultants; violations of Ericsson’s internal financial controls; conflicts of interest; non-compliance with tax laws; and obstruction of the investigation.

Crucially, investigators also identified payments to intermediaries and the use of alternate transport routes in connection with circumventing Iraqi customs, during a period when various terrorist organisations – among them Islamic State aka Da'esh – "controlled some transport routes."

Ekholm told the paper the firm's investigators "could not determine the ultimate recipients of these payments."

The firm stressed that the probe had not identified any Ericsson employee as being "directly involved" in financing terrorist organizations, adding that as a result of the investigation, "several employees were exited from the company and multiple other disciplinary and other remedial actions were taken."

The cost of doing business

Ericsson is the second-biggest network gear maker in the world due to its dominance in 5G telecoms contracts. The Nordic biz said it planned to continue the Iraq country business, albeit with "enhanced training and awareness activities, policies and procedures, and third-party management processes."

It's not great timing for Ericsson, which has been undergoing a restructure, but beat fourth-quarter earnings expectations when it reported yearly revenues several weeks ago. According to industry research firm Dell'Oro, Huawei is the top global radio access network vendor by revenue year-to-date, followed by Ericsson, which is gaining ground outside of China, along with the third of the Big Three full-stack networking solutions sellers: Nokia.

This has been helped along by US sanctions restricting Huawei's access to chip supplies but probably more so by the rip and replace mandates for Huawei radios in national rollouts of 5G networks in the US (whose FCC has designated it a national security threat and excluded it from carrier rollouts) and allied countries.

Huawei has always denied any claims its kit is insecure or that it is beholden to the Chinese state.

Sweden was the second country in Europe (after the UK) to issue a ban and a rip-and-replace order on Huawei kit. The Chinese tech behemoth initiated arbitration proceedings against Sweden after it instituted a ban on Huawei hardware in its national 5G rollout in October 2020. At the time, a backlash in China saw Ericsson's revenues plunge 74 per cent in the Middle Kingdom.

Nonetheless, the firm reported networks sales grew organically by 3 per cent for its in Q4 ended 31 December 2021, "despite considerably lower volumes in Mainland China." It reported sales of 71.3 billion SEK ($7.69bn) for the quarter and net income of 10.1bn SEK ($1.09bn) up from 7.2bn SEK ($780m) in Q4 2020.

The Swedish firm talked up its November purchase of cloud firm Vonage for $6.2bn in its full-year results for 2021. Vonage will be run as a separate segment reporting directly to the CEO, and the Ericsson boss said at the time it would gain "1 million developers" by swallowing the cloud platform. ®

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