Shares of Ericsson plunged on Wednesday after the Swedish telecom equipment maker said an internal investigation identified that it may have made payments to the terror organization ISIS in Iraq.
Ericsson’s (ticker: ERIC) U.S-listed shares dropped 13.65% in premarket trading on Wednesday, echoing losses seen in Stockholm.
In a statement late Tuesday, Ericsson said that an internal investigation in 2019 found “serious breaches of compliance rules” for “corruption-related misconduct” in Iraq.
These included using suppliers to make cash payments; funding inappropriate travel and expenses; and improper use of sales agents and consultants.
“The investigating team also identified payments to intermediaries and the use of alternate transport routes in connection with circumventing Iraqi Customs, at a time when terrorist organizations, including ISIS, controlled some transport routes”, Ericsson said.
Ericsson said it could not determine who the final recipient of the money was, or whether any of its employees were directly involved in financing terrorist groups.
The probe was triggered by unusual expense claims in Iraq dating back to 2018 and was conducted with external legal counsel, Ericsson said. It was and closed a year later, but the company did not disclose the details of the investigation because it did not deem them to be material enough.
On Tuesday, Ericsson said it was reviewing its investigation as a result of media inquiries raised by Swedish and international news outlets. Several employees had left the company as a result of the investigation, Ericsson said, and that it had stopped working with a few third parties. It said it had also closed gaps in its internal processes in the region and incorporated lessons from the investigation into its ethics and compliance program.
“Despite the statement from Ericsson, the company has not addressed specific questions put to it by our journalists in relation to a wide range of corrupt behavior in connection to its business in Iraq and elsewhere,” the International Consortium of Investigative Journalists (ICIJ) said in a statement.
Ericsson agreed to pay the U.S. Department of Justice (DOJ) $1 billion in 2019 to resolve an investigation into violations of the U.S. Foreign Corrupt Practices Act.
The DOJ said the case arose from Ericsson’s scheme to “make and improperly record tens of millions of dollars in improper payments around the world”. The DOJ named Djibouti, China, Vietnam, Indonesia and Kuwait as the countries involved.
However, in October Ericsson said the DOJ had determined that the Swedish telecoms group had breached its obligations under a deferred prosecution agreement by failing to provide certain documents and factual information.
