This prior post covered the 2019 Foreign Corrupt Practices Act enforcement action against Ericsson. The enforcement action concerned conduct in Djibouti, China, Vietnam, Kuwait, Indonesia, and Saudi Arabia and included a DOJ and SEC component. The DOJ matter involved a one count criminal information against Ericsson subsidiary Ericsson Egypt Ltd. charging conspiracy to violate the FCPA’s anti-bribery provisions resolved through a plea agreement and a criminal information against Ericsson charging conspiracies to violate the FCPA’s anti-bribery, books and records, and internal controls provisions resolved through a deferred prosecution agreement. The DOJ matter was resolved through payment of a $520 million criminal penalty.
As highlighted in this prior post, in 2021 the DOJ suggested that Ericsson was in breach of its DPA obligations.
Recently, the DOJ announced that “Ericsson has agreed to plead guilty and pay a criminal penalty of more than $206 million after breaching a 2019 Deferred Prosecution Agreement (DPA).” (See here for the prior post).
The plea agreement contains an attachment titled “Factual Basis for Breach” and it makes for an interesting read. Among other things, the DOJ does assert any additional criminal conduct by Ericsson, nor does the DOJ assert that any of Ericsson’s alleged breaches prevented it from addressing the substantive conduct at issue in the 2019 enforcement. In addition, certain of the blame (seemingly much blame) for Ericsson’s alleged breaches appears to be the result – per the DOJ – of decisions or omissions by Ericsson’s “prior outside counsel.” Although “prior outside counsel” is not identified in the recent “Factual Basis for Breach,” Ericsson’s outside counsel in connection with the 2019 FCPA enforcement action was Simpson Thacher & Bartlett LLP attorneys Cheryl Scarboro, Joshua Levine and Diana Wielocha.
Prior to highlighting various portions of the recent “Factual Basis for Breach,” it is useful to recall what the DOJ said of Ericsson’s cooperation in connection with resolving the 2019 FCPA enforcement action.
In the words of the DOJ, Ericsson:
“conduct[ed] a thorough internal investigation; ma[de] regular factual presentations to the Fraud Section and the Office; provid[ed] facts learned during witness interviews conducted by the Company; voluntarily ma[de] foreign-based employees available for interviews in the United States; produc[ed] extensive documentation, including documents located outside of the United States as well as translation of foreign language documents; and proactively disclos[ed] some conduct of which the Fraud Section and the Office were previously unaware.”
Back to the recent “Factual Basis for Breach.”
After setting forth relevant breach and cooperation provisions in the 2019 DPA, the DOJ states: “in an exercise of discretion conferred upon it by the agreed upon terms of the DPA … [the DOJ] has determined that Ericsson violated [relevant portions of the DPA] and declared a breach of the DPA.”
The “Factual Basis for Breach” then states:
“Relevant considerations in arriving at that determination and making that declaration include the following:
• LM Ericsson’s failure to truthfully disclose all factual information and evidence regarding the Djibouti scheme, the China scheme, and other potential violations of the FCPA anti-bribery or accounting provisions; and
• LM Ericsson’s failure to promptly report and disclose evidence and allegations of conduct related to its historical business activities in Iraq that may constitute a violation of the FCPA.”
Under the heading “Substantially Delayed Disclosures of Key Factual Information and Evidence – China, Djibouti Investigations,” the DOJ states in summary fashion:
“LM Ericsson failed to disclose to the United States certain evidence, factual information, and documents that were required to be disclosed pursuant to [the DPA]. The substantially delayed disclosures hindered the United States’ investigations and possible prosecutions of certain individuals and criminal conduct. Based upon the totality of the conduct described below, the United States, which can declare a breach of its own discretion, has determined that the Company is in breach of the DPA.”
The “Factual Basis for Breach” then addresses a “May 2011 E-Mail Between Employee 1 and Employee 3 Regarding the Djibouti Bribery Scheme” and states:
“The Statement of Facts included in the DPA described the Djibouti bribery scheme, explaining, in part, that “[i]n or about and between 2010 and 2014, LM Ericsson, through certain of its agents, including Ericsson Egypt, Ericsson AB, Employee 1, Employee 2, Employee 3, Employee 4, and others knowingly and willfully conspired and agreed with others to corruptly provide approximately $2,100,000 in bribe payments to, and for the benefit of, foreign officials in Djibouti, including Foreign Official 1, Foreign Official 2, and Foreign Official 3, in order to secure an improper advantage in order to obtain and retain business with Telecom Company A and to win a contract valued at approximately €20,300,000 with Telecom Company A (the ‘Telecom Company A Contract’).” DPA, Attachment A-2, at ¶ 34. Although the United States anonymized Employee 1, Employee 3 (now former employees), and the relevant foreign officials in the Statement of Facts, the Company knew the true identities of those individuals and their roles in the Djibouti bribery scheme.
The Company failed to disclose to the United States until May 2021 a significant May 2011 email between two of the principal Ericsson executives who orchestrated the Djibouti bribery scheme (the “May 2011 Email”). In the May 2011 Email (which was in Italian), now former Employee 1, the Head of the Customer Unit in North East Africa, informed now former Employee 3, a high-level executive, that the Company had just won a contract and had been assisted in that effort by its agent, “who is [Foreign Official 2] in person!” Employee 3 replied, “Ok, Understood.” Employee 1 and Employee 3 frequently communicated by email in Italian, and the Company produced to the United States a number of other emails between Employee 1 and Employee 3 that were written in Italian. The May 2011 Email was responsive to search terms agreed upon between the United States and LM Ericsson had the Company run those terms in Italian. In addition, the May 2011 Email was part of a broader email chain about the Djibouti Telecom contract. Prior to entering into the the DPA, the Company produced other branches of the same email chain. However, the Company failed to produce to the United States this key piece of evidence—which confirmed that its executives had knowingly paid a foreign official in order to obtain the telecommunications contract for the Company—until May 2021, more than one year after the Company entered into the DPA and one month after the same email was provided to a foreign authority. That disclosure failure prevented the United States from bringing certain charges against certain individuals.”
It is clear from the above language (as well as the 2019 DPA) that the DOJ knew about the Djibouti bribery scheme and that it involved various employees. The DOJ is not claiming in the “Factual Basis for Breach” that the May 2011 e-mail had any impact on corporate resolution of matter, but rather that the issue “hindered the U.S.’s investigations and possible prosecutions of certain individuals and criminal conduct” or “that disclosure failure prevented the U.S. from bringing certain charges against certain individuals.”
This is a rather convenient and self-serving statement for the DOJ to make. For years, the DOJ (and rightfully so) has faced scrutiny for the lack of individual criminal charges in connection with a significant majority of corporate FCPA enforcement actions. The DOJ’s unreviewable, uncontested, discretionary statements should be viewed as just that: unreviewable, uncontested, and discretionary statements.
Moreover, the specific deficiencies that the DOJ identifies: failure to run search terms in a specific foreign language and failure to provide other “branches” of an e-mail are not uncommon in multi-year, internal investigations involving millions of potentially relevant documents in various languages.
The “Factual Basis for Breach” then states as follows regarding “The February 2018 Email Between Ericsson Manager and LM Executives Regarding the China Scheme.”
“As part of the DPA, the Statement of Facts described the criminal conduct relating to China, explaining, in part, that “[i]n or about and between at least 2000 and 2016, LM Ericsson, through certain of its employees and agents, including CBC, EHK, ENC, Employee 5, Employee 6, Employee 7, Employee 8, and Employee 9, caused tens of millions of dollars to be paid to various agents, consultants, and service providers in China, at least a portion of which was used to provide things of value, including leisure travel and entertainment, to foreign officials, including employees of Telecom Company B.” DPA, Attachment A-2, at ¶ 65. Although the United States anonymized Employee 5, Employee 6, and Employee 8 (now former employees) in the Statement of Facts, LM Ericsson knew the true identities of these individuals and their roles in the China books and records and internal controls scheme.
Nonetheless, the Company failed to disclose a significant email that an LM Ericsson manager (the “Ericsson Manager”) for the North East Asia Market, which included China, sent to a senior officer at LM Ericsson in February 2018 (the “February 2018 Email”). In the February 2018 Email, the Ericsson Manager raised several allegations against former senior executives of LM Ericsson and its subsidiary in Asia—including Employees 5, 6, and 8—who played central roles in the China criminal scheme. The Ericsson Manager alleged how the senior executives in China had engaged in improper relationships with third-party agents who were at the heart of the China criminal scheme and had known of and approved very large payments from LM Ericsson to the agents without much, if any, work being performed by the agents. In the February 2018 Email, the Ericsson Manager also alleged a “conspiracy by certain of the top management in the company to withhold information” and noted that the “conspiracy may also be criminal if it was to withhold information from the Board or the US authorities.”
Upon receipt of the February 2018 Email, senior leadership of LM Ericsson recognized its significance to the United States’ investigation and immediately asked the Company’s prior outside counsel to investigate the allegations. For more than three years, the Company failed to produce the February 2018 Email to the United States or disclose all of the facts gathered during its independent investigation into the February 2018 Email’s allegations as part of its cooperation with the United States. The Company did not disclose the February 2018 Email to the United States until April 2021. That late disclosure harmed the United States’ ongoing criminal investigation, including by preventing the United States from taking key investigative steps that were foreclosed by the time the Company finally produced the February 2018 Email.”
Once again, the above language (as well as the 2019 DPA) make clear that the DOJ knew about the China bribery scheme and that it involved various employees. The DOJ is not claiming in the “Factual Basis for Breach” that the February 2018 e-mail had any impact on corporate resolution of matter. Rather, and once again, the DOJ merely makes the convenient, self-serving and vague statement that the “late disclosure harmed the United States’ ongoing criminal investigation, including by preventing the United States from taking key investigative steps that were foreclosed by the time the Company finally produced the February 2018 Email.”
More broadly, if there is fault for not disclosing the February 2018 e-mail sooner, whose fault is it?
After all, the DOJ states: “Upon receipt of the February 2018 Email, senior leadership of LM Ericsson recognized its significance to the United States’ investigation and immediately asked the Company’s prior outside counsel to investigate the allegations. For more than three years, the Company failed to produce the February 2018 Email to the United States or disclose all of the facts gathered during its independent investigation into the February 2018 Email’s allegations as part of its cooperation with the United States.”
It sure sounds as if DOJ is assigning fault (whether in whole or in part) for this issue to “prior outside counsel.”
The “Factual Basis for Breach” then contains a separate section titled “Thousands of Responsive Documents Stored at Ericsson’s Headquarters.” It states in full:
“For many years, including prior to and during the United States’ investigation, LM Ericsson maintained certain hard copy records—such as agreements with third parties, third-party invoices, and due diligence files—in safes and locked filing cabinets in secured storage areas in basements of various buildings at the Company’s headquarters in Sweden. In addition, LM Ericsson personnel maintained two USB drives that contained records regarding third-party payments and agreements, including records regarding who approved and signed those agreements and who approved the payments. Those materials contained information relevant to the United States’ investigation into bribery, books and records, and internal control schemes—including significant evidence concerning the China criminal conduct charged in the Information. LM Ericsson failed to produce those materials to the United States until April 2021, even though some Company employees knew about their existence as early as 2015.
Specifically, certain LM Ericsson employees and now former executives, as well as prior outside counsel, were aware of these records and understood that they were required to produce them to the United States. For example, as early as 2015, certain LM Ericsson employees knew of documents in a secure storage area at the Company’s headquarters that contained information relating to third parties, including significant evidence related to the China criminal conduct— such as invoices for payments to third parties known to be involved in the China scheme. These disclosure failures, including at least hundreds of documents containing key evidence of the bribery, books and records, and internal controls schemes, impaired the United States’ ongoing criminal investigation.”
Once again, the above language (as well as the 2019 DPA) make clear that the DOJ knew about the China bribery scheme and that it involved “various agents, consultants, and service providers in China.” The DOJ is not claiming in the “Factual Basis for Breach” that the document issues had any impact on corporate resolution of matter.
Moreover, the specific deficiencies that the DOJ identifies: potentially relevant documents being located in various locations of a mutli-national company and “two USB drives” being missed in a document production are not uncommon in multi-year, internal investigations involving millions of potentially relevant documents.
In addition, and once again, if there is fault for these document issues whose fault is it?
After all, the DOJ states that “prior outside counsel [among others] were aware of these records and understood that they were required to produce them to the United States.”
It sure sounds as if DOJ is assigning fault (whether in whole or in part) for this issue to “prior outside counsel.”
The final section of the “Factual Basis for Breach” is titled “Failure to Disclose Evidence or Allegations of Conduct that May Violate the FCPA – Iraq Investigation” and states:
“On November 22, 2019, two weeks prior to entering into the DPA and at the direction of senior corporate leadership, LM Ericsson’s prior outside counsel disclosed generalized information to the United States relating to a new internal investigation it was conducting concerning the Company’s operations in Iraq (the “2019 Iraq Disclosure”). Prior outside counsel’s disclosure omitted key details related to the Company’s investigative findings to that date that were known to the Company and its prior outside counsel at the time. LM Ericsson finalized the Iraq investigation report on December 11, 2019—five days after its entry into the DPA—LM Ericsson’s prior outside counsel did not update the United States on the findings and conclusions of the investigation despite being required to do so by the terms of the DPA. More than two years later, in February 2022, both the United States and LM Ericsson received requests for information from an investigative journalist consortium regarding the Company’s business in Iraq. Following the requests to the Company, it contacted the United States and conducted a review of the 2019 Iraq Disclosure. After reviewing the 2019 Iraq Disclosure, LM Ericsson, through new outside counsel, provided an updated disclosure to the United States regarding the Company’s 2019 internal investigation into the Iraq business (the “2022 Iraq Disclosure”). The 2022 Iraq Disclosure included information and evidence of possible FCPA violations and other serious misconduct that had not previously been provided to the United States as part of the 2019 Iraq Disclosure and as required by the DPA. Although LM Ericsson leadership had directed prior outside counsel to disclose the Iraq investigation to the United States in late 2019, the 2019 Iraq Disclosure provided during a telephone call by the Company’s prior outside counsel omitted material facts and information, as well as evidence of possible misconduct, known to the Company and its prior outside counsel. The full details of the Iraq investigation were not disclosed to the United States until after LM Ericsson became aware of the potential news report in 2022.”
As the above language makes clear, the DOJ was made aware of Ericsson’s “new internal investigation it was conducting concerning the Company’s operations in Iraq” prior to entering into the 2019 DPA. Thus, the DOJ presumably could have put the brakes on the 2019 resolution if it have had any questions or concerns regarding the Iraq conduct.
Moreover, and once again, if there is fault for Iraq disclosure issues, the DOJ seems to be assigning fault (whether in whole or in part) to “prior outside counsel.”
Specifically, the DOJ states:
- “Prior outside counsel’s disclosure omitted key details related to the Company’s investigative findings to that date that were known to the Company and its prior outside counsel at the time.”
- “LM Ericsson finalized the Iraq investigation report on December 11, 2019—five days after its entry into the DPA—LM Ericsson’s prior outside counsel did not update the United States on the findings and conclusions of the investigation despite being required to do so by the terms of the DPA.”
- “Although LM Ericsson leadership had directed prior outside counsel to disclose the Iraq investigation to the United States in late 2019, the 2019 Iraq Disclosure provided during a telephone call by the Company’s prior outside counsel omitted material facts and information, as well as evidence of possible misconduct, known to the Company and its prior outside counsel. The full details of the Iraq investigation were not disclosed to the United States until after LM Ericsson became aware of the potential news report in 2022.”
