Ericsson CEO, CFO sued in class action corruption case

Ericsson, which has been under scrutiny since February for potential bribery payments to the ISIS terror organization, is now facing a U.S. class action lawsuit. On March 3, Ericsson’s CEO Börje Ekholm and CFO Carl Mellander were named as defendants in the lawsuit.

The class action lawsuit alleges that Ericsson paid bribes to ISIS in order to gain access to certain transport routes in Iraq. The U.S. Department of Justice stated on March 1 that Ericsson violated its 2019 deferred prosecution agreement (DPA) by failing to fully disclose details of the company’s operations in Iraq between 2011 and 2019. The DoJ also deemed Ericsson’s internal investigation regarding its activities in Iraq insufficient.

In 2019, Ericsson paid over $1 billion in penalties for the company’s involvement in multiple cases of bribery and corruption in multiple foreign countries. The DoJ notified Ericsson of a prior DPA breach last October.

Cevian Capital, Europe’s largest activist investor, is calling for an overhaul in Ericsson’s corporate governance. 

“Inferior corporate governance of Ericsson is costing shareholders $14 billion,” Cevian co-founder Christer Gardell told the Financial Times. Gardell argued that Investor and Industrivarden, Ericsson’s two largest traditional investors, hold a disproportionate amount of voting power over the other company shareholders.

Ekholm informed Swedish press on February 16 that it had yet to determine the recipients of expenses dating back to 2018 and that the company was using “considerable resources” to resolve the situation. Following Ekholm’s statement, Ericsson’s shares dropped by nearly 15%.

The International Consortium of Investigative Journalists(ICIJ) published a report on February 27 unveiling Ericsson’s alleged dealings with ISIS in Iraq, claiming that Ericsson made "tens of millions of dollars in suspicious payments" for the past decade to maintain its business relations in the country.

Ericsson shares are now at risk of becoming “uninvestable,” according to Citibank analysts, while the DoJ proceeds with its investigation.

Ericsson has had “significant control failures in the past” with managing suspicious expense claims and activities, Ekholm said in a media conference call on March 2. The company reported over 2,000 compliance concerns in the past year, compared to only 145 reports in 2016.

While the increased number of allegations indicates progress in reporting unusual activity, Ekholm added that further internal discussion within Ericsson is necessary to “drive commitment to compliance.”