Did you see press coverage of the Ericsson bribery allegations in November 2016? Perhaps you were shocked. Maybe you felt disappointed that another industry icon had failed to live up to its image. I hadn’t really been aware of the allegations previously and I was surprised that Ericsson had screwed up so badly. I was sufficiently curious to research the history of events that led up to the damaging headlines, to see what lessons can be learned. Here is what I found…
New readers start here
When I first encountered the telecoms industry in 1994, it seemed like every bit of kit was made by either Ericsson or Nokia and the whole mobile industry revolved around Scandinavia. Ericsson was everywhere and supplied everything; it was a boom time for mobile.
The first public allegations against Ericsson surface in 2000, when the press report an Italian businessman’s claims that he was the front man for Ericsson’s payments in the United Arab Emirates. In 2002, a Swedish prosecutor starts a related investigation into tax evasion and in 2004, the prosecutor is contacted by Swiss Authorities regarding suspicious Ericsson transactions reported by UBS Switzerland. In 2005, seven people linked to Ericsson are indicted for tax evasion but all are acquitted.
Things remain quiet until 2012, when former employee Liss Olof Nenzell contacts the US Securities and Exchange Commission (SEC) as a whistle-blower, claiming that Ericsson has paid hundreds of millions in bribes. In June 2016, Swedish newspaper Svenska Dagbladet (SvD) reported that the SEC and US Department of Justice (DoJ) was investigating alleged corruption relating to Ericsson China. Then in November 2016, Dagens Nyheter (DN) reported that the whistle-blower Nenzell was about to hand over a significant volume of material showing the methods that Ericsson used to obtain contracts. DN’s report was re-published around the world and supplemented with other stories which, in summary, alleged that Ericsson had paid bribes in:
- United Arab Emirates
- Costa Rica
- Hong Kong
What’s your reaction – ‘no smoke without fire’? You’re not alone; that’s a lot of smoke. I was disappointed and annoyed that a major industry player had allowed this situation to occur. Why hadn’t they done something about it? I began to run through the things they should have done and I wondered why they hadn’t prevented or detected the alleged bribery. So I decided to find out.
Who, what, where, when, why, how much?
I can’t help it, but I like evidence. Facts are even better. So that was my starting point – I pulled together all the public domain material that I could find, seeking to nail down what we ‘know’ about these allegations. There has been some excellent investigative journalism on this issue and reporters often refer to seeing documentary evidence, but very little has been produced. Consequently, when you run through the allegations, this is what you find:
|Country||Alleged Amount USD||Dates||Details||Names||Evidence|
Why is there an asterisk against ‘Yes’ in the ‘Evidence’ column? These are allegations that have progressed to legal proceedings so I’m assuming that evidence was submitted as part of the process but, for the most part, the evidence and testimony considered in those proceedings isn’t publicly available.
What can you see through the smoke?
United Arab Emirates – In 2000, Italian businessman Federico Marcellusi told the Swedish newspaper Expressen that he transferred more than USD 7 million to a secret bank account in Abu Dhabi on behalf of Ericsson. Marcellusi had been engaged as a middleman in 1998 and 1999 but the arrangement ended in disagreement and Marcellusi prepared legal action against Ericsson because he claimed it had destroyed his reputation. The allegations grabbed the attention of Sweden’s tax authorities and in 2001 they found 33 more companies which had been transferring money on behalf of Ericsson, resulting in the payment of a further USD 88 million in taxes. In 2005, seven people linked to Ericsson are indicted for tax evasion relating to USD 374 million of allegedly false invoices used to hide other payments, but the Italian businessman doesn’t show up to the 2006 trial in Stockholm District Court and the accused are acquitted.
Romania – This little pearl surfaced during a legal dispute between Ericsson and Thomas Lundin, the former CEO of Ericsson Romania, who worked for Ericsson from 1979 to 2003; some of the documents are available online.
The case papers say that Ericsson set up the World Commission System (WCS), a network of offshore companies, as a means of making payments to agents and intermediaries on its behalf. This extra layer between Ericsson and its agents was said to prevent disclosure of Ericsson’s agents and protect their anonymity. The intermediary companies charged one percent of the total amount Ericsson transferred to its agent. An Ericsson internal audit in 2000 discovered irregularities, leading to WCS being shut down. Ericsson immediately signed a new contract with a newly incorporated Cypriot company, TelworldAG Consulting & Marketing Ltd, to act as Ericsson’s agent for the Romanian market.
Ericsson claims it is owed USD 23 million and that Lundin should pay back USD 7 million of funds paid to accounts he controls. Lundin’s defence is that he doesn’t have the money as it was used to pay bribes to two former Romanian Communication Ministers on behalf of Ericsson. According to the Organised Crime and Corruption Reporting Project (OCCRP), Lundin told the court:
The market share increased from almost zero to about 60 percent. This increase in the market share was due to bribes. These bribes were eventually supplied by Ericsson.
Greece – Sveriges Radio broke the story of former employee Liss Olof Nenzell during April 2014. It was reported that Nenzell handled many of Ericsson’s trade agents at the time, and that Ericsson paid over 10 million Euros (USD 11mn) to an agent in connection with the sale of Ericsson’s military radar system Erieye, a ten-year deal worth over 400 million Euros (USD 440mn) in total. This was an important order for Ericsson as Greece was the first NATO member to buy the system. Nenzell claims the money was paid to politicians, generals and senior civil servants. Swedish Radio News reported that they had obtained secret internal documents from Ericsson, including two payment orders for USD 13.8 million from January 2000. The documents had been signed by two senior managers at Ericsson. Sveriges Radio also reported that Antonis Kantas, a senior manager at the Department of Defence, had admitted to receiving more than USD 15 million in bribes from big corporations in relation to arms contracts, including a bribe from Ericsson’s agent in Greece.
In June 2016, an Ericsson press release disclosed that Greek authorities were investigating a 1999 agreement in which Ericsson Microwave Systems delivered an airborne radar system to Greece.
Ericsson Microwave Systems was sold by Ericsson in 2006. In March 2017, a council of Greek Appeal Court judges received the 363-page prosecutor’s recommendation that 17 accused should stand trial for bribes paid to officials in connection to the purchase of defence equipment, including the Ericsson flight radar.
China – Media stories regarding Ericsson in China began emerging in June 2016. Ericsson confirmed in a statement that US officials had “a number of questions” for them. The statement also said that Ericsson…
…will not provide any detailed comments on the request as such, but can say that it relates to Ericsson’s anti-corruption programme and questions related to the Foreign Corrupt Practices Act.
Ericsson didn’t say whether US enquiries included China.
In contrast, SvD was more forthcoming on the issue. They stated that the SEC-led enquiry related to a recently fired senior manager’s interests in a subcontractor company with a virtual monopoly on delivering to Ericsson in China. SvD reported that Ericsson’s former CEO Carl-Henric Svanberg had been informed of the suspected corruption a decade earlier. An internal investigation was initiated, but the consequence was that the whistle-blower was fired by a senior manager who was also fired later on.
Global Laundromat – In 2014, a group of journalists working with OCCRP broke the ‘Global Laundromat’ story – details of an operation which moved money out of Russia between January 2011 and October 2014. In March 2017, OCCRP said that Ericsson, amongst other large international companies, had received money transfers of USD 1.3 million as a part of Laundromat activities. When questioned on this issue, Ericsson said it does not normally comment on individual transactions, but this was a single payment for one of its customer contracts, and that…
We don’t know today why the payment was made by a company other than the customer, but in light of the information that has now emerged, we will take a closer look at this payment and see if we have adequate procedures and control mechanisms.
This brings us up to date.
In part 2 we will discuss what happened to the whistle-blower, the actions taken by the SEC and DoJ, and Ericsson’s response to the scandal. Try to keep an open mind until you know the complete story. In the meantime, here is some recommended reading:
UAE – Expressen
Romania – OCCRP
Greece – Sveriges Radio
Laundromat – OCCRP