Ericsson Slides After DoJ Warns Of Deal Breach Over Iraq Probe

Shares in Ericsson, at the centre of a scandal over potential payments to Islamic State, slumped on Wednesday after the U.S. Department of Justice said it was in breach of a 2019 deferred prosecution agreement (DPA) for failing to fully disclose details of its operations in Iraq.

The DOJ said the Swedish telecoms company had failed to make sufficient disclosures about its activities in Iraq before entering into the 2019 agreement and failed to make subsequent disclosures after the deal was signed, according to a statement from Ericsson on Wednesday.

"It's quite clear that we've had shortcomings in the past," Ericsson CEO Borje Ekholm told Reuters. "We have the DPA which outlines that we had systemic internal control failures and I would add that we had a culture that didn't allow us to capture wrongdoings."

The company, whose shares sank 13%, said it was cooperating with the DoJ and that it was too early to predict the outcome of the breach, including potential fines.

"We need to understand what that means in detail. We received a communication last night that there was insufficient disclosure," Ekholm said.

Under the conditions of the 2019 DPA, Ericsson paid more than $1 billion to resolve a series of corruption probes, involving bribery in China, Vietnam and Djibouti, and agreed to cooperate with the department for ongoing investigations.

The company's dealings in Iraq emerged last month when, in response to media reports of bribery, Ericsson said that an internal probe from 2019 had identified payments designed to circumvent Iraqi customs at a time when militant organisations, including Islamic State, controlled some routes.

"The investigation could not identify that any Ericsson employee was directly involved in financing terrorist organizations," the company said on Wednesday.

Since details of its probe were published last month, Ericsson has lost more than a third of its market value.

"While it might be a bit early to predict the outcome all options remain open," Paolo Pescatore, an analyst at PP Insights told Reuters of the DPA breach. "Nothing can be ruled out, whether that be more rigorous actions by the authorities or further fines."