Foreign Corrupt Practices Act settlement amounts are one obvious consequence of FCPA non-compliance and tend to generate the most headlines.
However, as has been discussed on these pages for years including in this article “FCPA Ripples”, settlement amounts are only one consequence of the overall financial ramifications of FCPA scrutiny and enforcement.
As highlighted in this prior post, in late 2019 Swedish telecom company Ericsson (a company with American Depositary Shares traded in the U.S.) resolved a $1.06 billion net FCPA enforcement action concerning conduct in Djibouti, China, Vietnam, Kuwait, Indonesia, and Saudi Arabia.
Regarding Djibouti, the enforcement action alleged that Ericsson (through certain subsidiaries and agents) provided approximately $2,100,000 in bribe payments to, and for the benefit of, foreign officials in Djibouti, including a high-ranking government official in the executive branch of the Djibouti government who had influence over decisions made by a state-owned telecommunications company and the CEO of the state-owned telecom company, in order to secure an improper advantage in order to obtain and retain business with the Telecom Company and to win a contract valued at approximately €20,300,000 with the Telecom Company.
Recently Ericsson announced that it “has reached an agreement with Nokia for settling a damages claim against Ericsson.”
According to the release:
“The settlement relates to events that were the subject of a 2019 resolution with the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) of investigations into Ericsson’s violations of the U.S. Foreign Corrupt Practices Act (FCPA).
As communicated in 2019, the resolution with DOJ related to criminal charges of books and records and internal controls violations of the FCPA in five countries including in Djibouti and a guilty plea to one instance of bribery in Djibouti. The resolution with the SEC related to allegations of violations of the books and records and internal controls provision of the FCPA in six countries and of the bribery provision of the FCPA in three of these six countries.
The agreement with Nokia contemplates the payment by Ericsson of a total settlement amount of EUR 80 m (SEK 0.8 b equivalent). The amount reflects uncertainty, risk, expense, and potential distraction from business focus associated with a potentially lengthy and complex litigation. The settlement will have an impact of EUR 80 m on EBIT and EUR 26 m on cashflow in Q2 2021. The remainder of the settlement amount will be made in similar installments in 2022 and 2023 respectively, impacting cash-flow. The settlement amount will be recorded as Other Operating Expenses under Segment Emerging Business and Other. Further details of the terms of the settlement are confidential. Ericsson has a zero-tolerance policy for corruption and has in recent years worked hard to strengthen its Ethics and Compliance program and to build a culture of compliance.”