Ericsson AB yesterday said that it expects to pay US$1 billion to resolve investigations by US authorities into business ethics breaches in six countries, including China, in one of the costliest corruption cases on record.
The Sweden-based telecommunications equipment maker has made a provision of 12 billion kronor (US$1.2 billion), which would dent third-quarter earnings, it said in a statement.
The company said it could not comment on details of the process with the US Securities and Exchange Commission (SEC) and US Department of Justice.
Ericsson has cooperated with investigators since 2013, when the SEC began its probe into possible Foreign Corrupt Practices Act (FCPA) breaches.
The company did not disclose details of the ethics breaches under investigation, although it said in 2013 that the probe by US authorities was related to a payment system used to win contracts in the 1990s.
“We are ashamed about the historical conduct, and we’re very unhappy about that and sad about being in this position, but we are confronting the issue,” chief executive Borje Ekholm said in a telephone interview. “Our compliance program has not been fit for purpose so over the last two years we have worked very hard to strengthen our program as much as possible, to do what is in our power to avoid these type of situations going forward.”
The FCPA prohibits US companies and overseas firms with stocks trading on US exchanges from paying bribes to foreign officials.
The company is moving to resolve the probes as it battles Nokia Oyj for 5G network supply contracts and looks to win customers amid a US-led boycott against rival vendor Huawei Technologies Co (華為).
Ericsson in July said that the first big deployments in Asia would gradually pull down margins, although not enough to jeopardize profitability targets for next year.
Asked in the phone interview whether the ethics breaches would make it harder for the company to win 5G contracts, Ekholm said that “of course there is a risk,” but that the company’s “focus on making sure we have a very competitive product portfolio is still in place.”
Third-quarter net income is expected to drop about 15 percent to 2.3 billion kronor, according to the average of analyst estimates compiled before Ericsson’s statement.
Penalties of US$1 billion would surpass the US$965 million payment imposed on Sweden-based Telia Company AB in 2017 after it admitted to paying hundreds of millions of dollars in bribes to a government official in Uzbekistan.
Ericsson’s announcement has “some clear negative implications” with “meaningful cash outflows down the line,” analysts at Citigroup, including Amit Harchandani and Robert Lamb, said in a note.
They also see potential risks of prosecution or charges against executives.
Ericsson’s estimate is “within the ballpark” of similar settlements, such as that of Telia Co, the Citigroup analysts said.
The “overhang” around the case would probably go away by next year, they said.
The SEC has undertaken 11 enforcement actions under the FCPA this year, including fines against Walmart Inc, Microsoft Corp and Deutsche Bank AG and Telefonica Brasil SA, according its Web site.
Ericsson has acted to address shortcomings after identifying breaches of its code of business ethics and the FCPA, it said.
It also failed to react to red flags, enabling some employees to circumvent internal controls, it added.
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