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 accused Ericsson of breaching its DPA obligations.
As in common in FCPA DPAs, the DPA imposed a variety of obligations upon Ericsson and included the following breach clauses.
Breach of the Agreement
“If, during the Term, the Company (a) commits any felony under U.S. federal law; (b) provides in connection with this Agreement deliberately false, incomplete, or misleading information, including in connection with its disclosure of information about individual culpability; (c) fails to cooperate as set forth in [the] Agreement; (d) fails to implement a compliance program as set forth in [the] Agreement and Attachment C; (e) commits any act that, had it occurred within the jurisdictional reach of the FCPA, would be a violation of the FCPA; or (f) otherwise fails to completely perform or fulfill each of the Company’s obligations under the Agreement, regardless of whether the Fraud Section and the Office become aware of such a breach after the Term is complete, the Company shall thereafter be subject to prosecution for any federal criminal violation of which the Fraud Section and the Office have knowledge, including, but not limited to, the charges in the Information […], which may be pursued by the Fraud Section and the Office in the U.S. District Court for the Southern District of New York or any other appropriate venue. Determination of whether the Company has breached the Agreement and whether to pursue prosecution of the Company shall be in the Fraud Section and the Office’s sole discretion. Any such prosecution may be premised on information provided by the Company or its personnel. Any such prosecution relating to the conduct described in the attached Statement of Facts or relating to conduct known to the Fraud Section and the Office prior to the date on which this Agreement was signed that is not time-barred by the applicable statute of limitations on the date of the signing of this Agreement may be commenced against the Company, notwithstanding the expiration of the statute of limitations, between the signing of this Agreement and the expiration of the Term plus one year. Thus, by signing this Agreement, the Company agrees that the statute of limitations with respect to any such prosecution that is not time-barred on the date of the signing of this Agreement shall be tolled for the Term plus one year. In addition, the Company agrees that the statute of limitations as to any violation of federal law that occurs during the Term will be tolled from the date upon which the violation occurs until the earlier of the date upon which the Fraud Section and the Office are made aware of the violation or the duration of the Term plus five years, and that this period shall be excluded from any calculation of time for purposes of the application of the statute of limitations.
In the event the Fraud Section and the Office determine that the Company has breached this Agreement, the Fraud Section and the Office agree to provide the Company with written notice of such breach prior to instituting any prosecution resulting from such breach. Within thirty days of receipt of such notice, the Company shall have the opportunity to respond to the Fraud Section and the Office in writing to explain the nature and circumstances of such breach, as well as the actions the Company has taken to address and remediate the situation, which explanation the Fraud Section and the Office shall consider in determining whether to pursue prosecution of the Company.
In the event that the Fraud Section and the Office determine that the Company has breached this Agreement: (a) all statements made by or on behalf of the Company to the Fraud Section and the Office or to the Court, including the attached Statement of Facts, and any testimony given by the Company before a grand jury, a court, or any tribunal, or at any legislative hearings, whether prior or subsequent to this Agreement, and any leads derived from such statements or testimony, shall be admissible in evidence in any and all criminal proceedings brought by the Fraud Section and the Office against the Company; and (b) the Company shall not assert any claim under the United States Constitution, Rule 11(f) of the Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence, or any other federal rule that any such statements or testimony made by or on behalf of the Company prior or subsequent to this Agreement, or any leads derived therefrom, should be suppressed or are otherwise inadmissible. The decision whether conduct or statements of any current director, officer, or employee, or any person acting on behalf of, or at the direction of, the Company, will be imputed to the Company for the purpose of determining whether the Company has violated any provision of this Agreement shall be in the sole discretion of the Fraud Section and the Office.
The Company acknowledges that the Fraud Section and the Office have made no representations, assurances, or promises concerning what sentence may be imposed by the Court if the Company breaches this Agreement and this matter proceeds to judgment. The Company further acknowledges that any such sentence is solely within the discretion of the Court and that nothing in this Agreement binds or restricts the Court in the exercise of such discretion.”
This recent post also highlighted how the monitor – imposed in connection with the 2019 enforcement action – was extended for an additional year.
Yesterday, the DOJ announced:
“Ericsson has agreed to plead guilty and pay a criminal penalty of more than $206 million after breaching a 2019 Deferred Prosecution Agreement (DPA).
Ericsson breached the DPA by violating the agreement’s cooperation and disclosure provisions. Based on the same underlying criminal conduct that gave rise to the DPA, Ericsson will plead guilty to engaging in a long-running scheme to violate the Foreign Corrupt Practices Act (FCPA) by paying bribes, falsifying books and records, and failing to implement reasonable internal accounting controls in multiple countries around the world.”
[…]
Following the 2019 resolution, Ericsson breached the DPA by failing to truthfully disclose all factual information and evidence related to the Djibouti scheme, the China scheme, and other potential violations of the FCPA’s anti-bribery or accounting provisions. Ericsson also failed to promptly report and disclose evidence and allegations of conduct related to its business activities in Iraq that may constitute a violation of the FCPA. These disclosure failures prevented the United States from bringing charges against certain individuals and taking key investigative steps.
Under the terms of the plea agreement, which must be accepted by the court, Ericsson agreed to plead guilty to the original charges deferred by the 2019 DPA: one count of conspiracy to violate the anti-bribery provisions of the FCPA and one count of conspiracy to violate the internal controls and books and records provisions of the FCPA. Ericsson will also be required to serve a term of probation through June 2024 and has agreed to a one-year extension of the independent compliance monitor. The plea agreement also requires Ericsson to pay an additional criminal penalty of $206,728,848 – which includes the elimination of any cooperation credit originally awarded pursuant to the DPA.”
The advisory Guidelines range set forth in the 2019 DPA for the conduct at issue was $612 million – $1.22 billion and the 2019 DPA stated “the appropriate resolution in this case is a deferred prosecution agreement with the Company; a criminal monetary penalty of $520,650,432, which reflects an aggregate discount of fifteen percent off the bottom of the otherwise-applicable U.S. Sentencing Guidelines fine range; the imposition of an independent compliance monitor; and a guilty plea by the Company’s subsidiary Ericsson Egypt Ltd. (“Ericsson Egypt”).”
With yesterday’s announcement, an additional $206,728,848 will be added to the original $520,650,432 settlement amount for a total DOJ settlement amount of approximately $727 million from the 2019 FCPA enforcement action. The SEC component of the 2019 FCPA enforcement action was $540 million in disgorgement and prejudgment interest.
Thus, the total settlement amount of the 2019 FCPA enforcement action now stands at approximately $1.27 billion.
In the DOJ release, Assistant Attorney General Kenneth Polite of the Justice Department’s Criminal Division stated:
“When the department afforded Ericsson the opportunity to enter into a DPA to resolve an investigation into serious FCPA violations, the company agreed to comply with all provisions of that agreement. Instead of honoring that commitment, Ericsson repeatedly failed to fully cooperate and failed to disclose evidence and allegations of misconduct in breach of the agreement. As a result of these broken promises, Ericsson must plead guilty to two criminal offenses and pay an additional fine. Companies should be on notice that we will closely scrutinize their compliance with all terms of corporate resolution agreements and that there will be serious consequences for those that fail to honor their commitments.”
U.S. Attorney Damian Williams for the Southern District of New York stated:
“Ericsson engaged in significant FCPA violations and made an agreement with the Department of Justice to clean up its act. The company’s breach of its obligations under the DPA indicate that Ericsson did not learn its lesson, and it is now facing a steep price for its continued missteps. As Ericsson’s anticipated guilty plea makes abundantly clear, the Southern District of New York will hold to account companies that fail to live up to obligations to root out and voluntarily report their misconduct to the Department of Justice.”
Chief James Lee of the IRS Criminal Investigation stated:
“[The] more than $200 million criminal penalty against Ericsson underscores the significant consequences that result when a DPA is breached. Ericsson’s multiple cooperation and disclosure failures led to this breach, resulting in the company having to plead guilty and pay additional penalties.”
In this release, Ericsson stated:
“[The company] has reached a resolution with the U.S. Department of Justice (DOJ) regarding non-criminal breaches of its 2019 Deferred Prosecution Agreement (DPA). Under the agreement, and as provided for by the DPA, LM Ericsson will enter a guilty plea regarding previously deferred charges relating to conduct prior to 2017. In addition, Ericsson will pay a fine of $206,728,848. The entry of the plea agreement will bring the 2019 DPA to an end.
In 2019, Ericsson entered into the DPA to resolve previously disclosed Foreign Corrupt Practices Act (FCPA) violations relating to conduct in several countries between 2010 and 2016. Since the start of the DPA, the DOJ has not alleged or charged Ericsson with any new criminal misconduct, and no new illegal conduct has been alleged or charged today. As previously announced in October 2021 and March 2022, however, the DOJ notified Ericsson that it had failed to provide documents and information to the DOJ in a timely manner and had not adequately reported to the DOJ information relating to a 2019 Iraq-related internal investigation.
Under the DPA, the DOJ has the sole discretion to determine that the Company has breached its obligations, and if it makes this determination, it has the ability to prosecute the Company for the past misconduct covered under the DPA. As a result, the Company has entered a guilty plea for the FCPA violations to which it previously admitted as part of the DPA. The Company is not adjusting the long-term financial targets it has given, as it does not expect any material deviations from these.”
In the release, Ericsson CEO Börje Ekholm stated:
“Taking this step today means that the matter of the breaches is now resolved. This allows us to focus on executing our strategy while driving continued cultural change across the company with integrity at the center of everything we do. This resolution is a stark reminder of the historical misconduct that led to the DPA. We have learned from that and we are on an important journey to transform our culture. To be a true industry leader, we must be a market and technology leader while also being a leader in how we conduct our business. The Ericsson Executive Team and I remain committed to this transformation and we continue to implement stringent controls and improved governance, ethics and compliance across our company, with corresponding enhancements to our risk management approach. The change continues and we are a very different company today and have made important changes since 2017 and over 2022.”
Ronnie Leten, Chairman of the Board of Directors, stated:
“Since 2017, under the strong leadership of Börje Ekholm, the Company has substantially improved its approach to risk management and compliance, including an overhaul of its Anti-Corruption Program to prevent and detect problematic conduct. The Board continues its active oversight, and with our full support, Börje and his leadership team will continue to embed these changes into the governance and culture of the Company.”
The Ericsson release further states:
“With respect to the historical conduct in Iraq, the Company continues to thoroughly investigate the facts in full cooperation with the DOJ and the U.S. Securities and Exchange Commission. As previously disclosed, the Company’s 2019 investigation did not conclude that Ericsson made or was responsible for any payments to any terrorist organization; and the Company’s significant further investigation over the course of 2022 has not altered this conclusion.”
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