Ericsson finalizes $1B FCPA settlement

In a Sept. 26 media call, Ericsson executives announced they had set aside $1.2 billion as a potential settlement. Chief Legal Officer Xavier Dedullen said during the call the $1.2 billion provision constituted its “best estimate” of expenditures at the time for resolving the U.S. investigation, including the cost of a potential compliance monitor. “It would not be a surprise if we ended up with a monitorship,” he said.

Dedullen was right. A deferred prosecution agreement entered into with the Justice Department includes the imposition of an independent compliance monitor for a period of three years. The settlement, filed Dec. 6 in the Southern District of New York, also includes a $520.65 million criminal penalty, charging Ericsson with conspiracies to violate the anti-bribery, books and records, and internal controls provisions of the FCPA. It must also pay approximately $540 million in disgorgement and prejudgment interest to the Securities and Exchange Commission in a parallel action.

An Ericsson subsidiary, Ericsson Egypt, pleaded guilty that same day for its role in the scheme violating the anti-bribery provisions of the FCPA. The case is assigned to U.S. District Judge Alison Nathan of the Southern District of New York.

The scheme

“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,” said Assistant Attorney General Brian Benczkowski of the Justice Department’s Criminal Division. According to Ericsson’s admissions, beginning in 2000 and continuing until 2016, the company conspired with others to violate the FCPA by engaging in a longstanding scheme to pay bribes, to falsify books and records, and to fail to implement reasonable internal accounting controls.

“Through slush funds, bribes, gifts, and graft, Ericsson conducted telecom business with the guiding principle that ‘money talks,’ ” said U.S. Attorney Geoffrey Berman of the Southern District of New York.

Ericsson used third-party agents and consultants to make bribe payments to government officials and/or to manage off-the-books slush funds. These agents were often engaged through sham contracts and paid pursuant to false invoices, and the payments to them were improperly accounted for in Ericsson’s books and records.

The resolutions cover the company’s criminal conduct and FCPA violations in five countries: Djibouti, China, Vietnam, Indonesia, and Kuwait. Ericsson’s parallel settlement with the SEC adds Saudi Arabia to the list.

Settlement details

As part of the DPA, in addition to retaining an independent compliance monitor for three years, Ericsson has agreed to continue to cooperate with the Department in any ongoing investigations and prosecutions relating to the conduct, including of individuals, and continue to enhance its compliance program.

The Justice Department said it reached this resolution with Ericsson based on numerous factors, including the company’s failure to voluntarily disclose the conduct to the Department and the nature and seriousness of the offense. Nor did Ericsson receive full credit for cooperation and remediation, because 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 concerning certain employees involved in the misconduct.

Ericsson did, however, receive partial credit for its cooperation with the Department’s investigation, including conducting a thorough internal investigation, making regular factual presentations to the Department, voluntarily making foreign-based employees available for interviews in the United States, producing extensive documentation, and disclosing some conduct of which the Department was previously unaware, the Justice Department stated.

Additionally, the company has been enhancing and committed to further enhance its compliance program and internal accounting controls. For example, Dedullen shared during the media call that areas where the company has been focusing on include leadership and culture; assessing its tone from the top; training and engagement; and making enhancements to its third-party risk management program. Accordingly, the total criminal penalty reflects a 15 percent reduction off the bottom of the applicable U.S. Sentencing Guidelines fine range.