In this series, we examine compliance violations and the resulting fines paid by companies. We will also explore the details of the violations to help other organizations steer away from these pitfalls.
In this tenth post, we will look into Ericsson’s bribery schemes across many countries and how they resulted in massive fines from the Department of Justice (DOJ). Read on to know what this case is all about and more importantly, how you can stay away from these gaping holes.
Background of the Case
Ericsson, a renowned Swedish telecommunication company, was involved in one of the most prolific violations of the Foreign Corrupt Practices Act (FCPA) in recent history. It all started in 2019 when Ericsson pleaded guilty to FCPA violations and entered into a Deferred Prosecution Agreement (DPA) with the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). It agreed to pay over $1 billion in penalties to resolve allegations of corruption in many countries like Djibouti, China, Kuwait, Indonesia, and Vietnam. However, Ericsson failed to fully disclose critical information and continued misconduct, which led to further legal consequences and penalties.
Initial Violations and Deferred Prosecution Agreement
Let’s take a look at the initial violations first.
From 2000 to 2016, Ericsson indulged in extensive bribery schemes using off-the-books slush funds and third-party agents to pay bribes to government officials. The company used sham contracts, false invoices, and undisclosed funds to facilitate these corrupt payments. In Djibouti alone, Ericsson paid $2.1 million in bribes to secure a contract worth over 20 million euros. In China, bribes included leisure travel and entertainment provided to officials from state-owned telecommunications companies, in turn, for lucrative contracts.
When these bribery schemes were investigated by the DOJ, Ericsson pleaded guilty to them. The DPA in 2019 was intended to resolve these allegations, with Ericsson agreeing to pay a significant fine and implement rigorous compliance measures. However, the agreement required Ericsson to cooperate fully with the DOJ’s ongoing investigations and disclose any additional information relevant to the case.
Breach of the DPA and Guilty Plea
In 2021, the DOJ notified Ericsson that it had violated the terms of the DPA by failing to disclose key information regarding its activities in Iraq, Djibouti, and China. Specifically, Ericsson did not reveal bribery payments made to facilitate the transportation of telecom equipment in Iraq. The DOJ’s investigation uncovered internal investigation errors, such as withholding key documents and failing to disclose relevant emails.
One significant breach involved an email exchange in Italian between two executives overseeing the Djibouti scheme, which was not disclosed until May 2021. Similarly, in China, an email containing allegations of senior executive involvement in bribery was not revealed until April 2021. Additionally, Ericsson’s external counsel concluded its investigation in Iraq five days after entering the DPA but failed to disclose its findings.
As a result of these breaches, Ericsson was charged with violating the anti-bribery and internal audit provisions of the FCPA. The DOJ imposed an additional $206 million penalty.
This Ericsson case is intriguing because the executives knowingly violated the DPA terms. Also, internal audit failures, delayed investigations, and the cover-up of evidence with the intent to cheat have valuable lessons for other companies.
Learnings from the Settlement
This Ericsson case can be a storehouse of knowledge for organizations looking to strengthen their internal compliance programs and avoid penalties. Here are some key learnings from this settlement.
Importance of Full Disclosure and Transparency
Ericsson’s failure to disclose key information to the DOJ led to further fines and reputational damage. For other organizations, it highlights the importance of transparency and cooperation with regulatory authorities. You must provide all relevant documents and details during investigations to demonstrate your commitment to compliance and ethical conduct. Also, establish a culture of transparency and accountability to maintain strong relationships with regulators and avoid further legal repercussions.
Strong Internal Controls and Compliance Programs
The pervasive and systemic violations discussed above put the spotlight on robust internal controls and compliance measures. Implement comprehensive compliance programs that include thorough documentation, regular audits, and effective oversight. Moreover, improve your internal accounting controls and leadership structures to prevent and detect fraudulent activities across the entire organization.
Leadership Accountability and Cultural Change
Ericsson’s case brings up the need for corporate culture and leadership when it comes to compliance efforts. The company’s failure to create an ethical culture and promote accountability contributed to its widespread misconduct. Senior executives must lead by example, prioritizing compliance and ethical behavior throughout the organization. You must also establish a multidisciplinary risk mitigation strategy and hire experienced compliance professionals to drive cultural change and strengthen compliance efforts.
Effective Communication and Coordination with External Counsel
The failures in Ericsson’s internal investigations and interactions with external counsel highlight the importance of effective communication and coordination. Regardless of whether you work with internal or external counsel, you must establish transparent and collaborative relationships to ensure a thorough investigation process. Regular engagement with external advisors can also provide valuable insights and enhance the effectiveness of your compliance efforts.
Document Retention and Responsiveness
A key failure was to maintain proper documentation, and more importantly, disclosing the existing ones to investigators. To avoid similar pitfalls, establish clear protocols for retaining and producing relevant documents during investigations. More importantly, timely and accurate document disclosure can help demonstrate compliance intent, which in turn, can earn you voluntary credits.
While these are the key learnings, you can use the details of this case to streamline your existing compliance processes and improve internal controls.
Final Thoughts
When a large and renowned company like Ericsson gets involved in multi-country bribery schemes, it can be an eye-opener for other organizations. Though the bribery scheme execution is nothing new, the measures that it took to conceal key documents and, more importantly, its continued misconduct offer many lessons for others. We hope such cases are not the norm and the learnings can help companies to strengthen their internal controls and audit processes.