IMPACT

Lawmaker calls for probe of Ericsson’s 5G contract in Malaysia, investors file suit in New York as Ericsson List fallout continues

The telecom giant weighs the prospect of civil suits and criminal penalties after revelations of misconduct in Iraq.

A Malaysian opposition lawmaker called on the country’s anti-corruption agencies to probe a $2.6 billion government contract with the multinational telecom giant Ericsson following allegations of possible financing of terrorism in Iraq and wide-scale corruption in more than a dozen countries.

Fahmi Fadzil, a member of Malaysia’s People’s Justice Party, asked the Malaysia Anti-Corruption Commission and other authorities to investigate possible corruption and to conduct a full audit of Ericsson’s 10-year-contract with a government-owned entity tasked to oversee the country’s 5G  network.

The call for a probe in Malaysia is the latest in a series of international repercussions and comes days after the International Consortium of investigative Journalists and 30 media partners published the Ericsson List, an investigation exposing tens of millions of dollars in suspicious payments to sustain its business in Iraq, including possible payments to Islamic State terrorists, from 2011-2019. The investigation was based on leaked internal reports compiled by Ericsson’s compliance department and obtained by ICIJ.

On Wednesday, Ericsson disclosed that the U.S. Department of Justice had told the company that it had failed to disclose sufficient information about possible misconduct in Iraq before a 2019 criminal settlement. The DOJ also told Ericsson that it had “breached” the settlement by “failing to make subsequent disclosures” after signing it. Ericsson paid more than $1 billion to settle the case, which did not mention Iraq.

Ericsson fell 9% the day after Wednesday’s disclosure.

In a conference call that day, Ericsson Chief Executive Börje Ekholm called the findings of wrongdoing in Iraq “hugely embarrassing” for the company and defended the steps it has taken to improve compliance.

In its annual report issued Friday, Ericsson listed a series of possible scenarios in the aftermath of DOJ’s finding, including civil and criminal penalties, and the risk of “severe reputational damage.”

On Wednesday, Fadzil, the Malaysian lawmaker, expressed fears that the agreement between Ericsson and the state-owned telecom firm, Digital Nasional Berhad, could turn into another financial scandal as massive as the 1MDB and Goldman Sachs.

The 1MDB is a multi-billion dollar fund which was ostensibly devoted to developing the Malaysian economy. Instead, billions were illicitly siphoned from the fund, often via offshore accounts, to wealthy elites, politicians and Goldman Sachs bankers.

Last year, the Wall Street banking firm Goldman Sachs agreed to pay $3 billion as part of its settlement with the U.S. Department of Justice, over its role in the massive bribery scheme and agreed to have its Malaysian subsidiary plead guilty in a Brooklyn court to conspiring to violate U.S. bribery laws.

“Are we going to see the same thing with DNB and Ericsson?” Fadzil said. He was quoted by Free Malaysia Today, an independent news portal.

In a statement a day later in response to “recent comments,” Ericsson asserted that its contract with DNB followed the “strictest standards of governance.”

“Ericsson is committed to conducting business with integrity and strongly refutes any and all allegations that the contract with DNB was won for any reasons other than merit, based on the above-mentioned criteria,” the company said in a statement on Thursday.

The same opposition party made similar calls for an investigation last year after Ericsson sealed the contract, claiming the Chinese telecom rival, Huawei Technologies “could have done the job” for half the price.

“We want this to be questioned so that there is no chance of corruption, abuse of power and excessive payment of commissions,” the opposition leader Anwar Ibrahim said at the time.

Also, an American law firm said on Friday that it had filed a class action lawsuit on behalf of Ericsson investors alleging the company and its officers made “materially false and misleading statements regarding the company’s business, operations, and compliance policies.”  Citing possible payments to the Islamic State terrorist group to gain access to certain transport routes in Iraq, the Pomerantz law firm said the complaint alleged that the company revenues stemmed from “unlawful misconduct and thus unsustainable.”

On its website, Ericsson disclosed the class action lawsuit, filed in federal court in New York, but made no further comment.

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