The link between the payments and Isis is not proven, but the vendor admits transport arrangements were designed to avoid local customs
Swedish telecoms equipment vendor Ericsson is in trouble again as it has disclosed possible payments to Isis terrorists in Iraq after an internal audit.
The audit revealed serious breaches of compliance with rules in Iraq including payments for transport routes to avoid paying local customs.
Ericsson’s CEO, Börje Ekholm (pictured in happier times) acknowledged that the company had paid to transport equipment through territory controlled by extremists since 2014.
“What we are seeing is that transport routes have been purchased through areas that have been controlled by terrorist organisations, including Isis,” Ekholm was quoted saying in the Swedish newspaper Dagens Industri earlier this week.
Scandal hits share price
Its shares fell by as much as 14% at the news as investors wondered about the consequences in terms of fines, settlements and further reputational damage: in 2019, Ericsson settled alleged corruption charges for activities between 2000 and 2016 with the US Department of Justice.
This cost the company more than $1 billion to settle US criminal and civil investigations into corruption in China, Djibouti, Indonesia, Kuwait and Vietnam – about double the suspected profits resulting from bribery.
Regarding the current scandal, Ericsson said a second, external investigation into the payments in Iraq is underway.
There is no proven link between the payments for transport and Isis but Ericsson has confessed that the transport arrangements were intended to avoid Iraqi customs. If and how much Ericsson benefited will be subject to scrutiny by various regulators.
Not a good look
Last October, Ericsson also disclosed that the US Department of Justice said the company had breached its obligations under a deferred prosecution agreement by failing to provide documents and information. Apparently, this has nothing to do with events under investigation in Iraq according to an unnamed source.
As the Financial Times noted, these are jittery times on the stock markets and Ericsson’s shares trade at less than 6x its forward ebitda, among their lowest in the last decade.
In April 2021, Ericsson put out a news story entitled, ‘rock star’ CEO Börje Ekholm awarded as Change leader citing his success the turnaround at Ericsson which is once again the world’s largest telecoms equipment maker, although it has been helped somewhat in this by the geopolitical situation regarding Chinese companies and Nokia’s struggles.
Accepted businesses practice in ‘rogue’ nations do not look so rock star-like under western scutiny however.