Yahoo Finance How Islamic State terrorists may have been bankrolled by a Swedish tech titan
As mea culpas go, there can be few more embarrassing than having to admit your business may have accidentally helped to finance gun-toting terrorists.
Yet this was what Börje Ekholm, chief executive of Ericsson, did on Wednesday as his telecoms company revealed an internal investigation had uncovered possible bribes paid by its staff to Islamic State (IS) in Iraq.
The bombshell findings sent shares in the Swedish business plunging, and raised the prospects of further damaging revelations as Ericsson admitted it was still trying to clarify key details.
For investors, it also carries unwelcome echoes of a high-profile corruption scandal Ericsson sought to move on from three years ago via a $1bn settlement with US authorities.
Discussing the fresh allegations, Ekholm told Swedish newspaper Dagens Industri: "What we see is that people paid for road transport through areas controlled by terrorist organisations, including Isis.
“With the means we have, we haven't been able to determine the final recipients of these payments.”
Even since the fall of Saddam Hussein in 2003, Iraq has been seen as one of the riskiest yet potentially most lucrative global markets for telecoms companies. Just one per cent of Iraqis - less than 300,000 people - were able to access the internet at the time of the former dictator’s death. As of 2021 that figure has leapt to more than 30m, according to non-profit Freedom House.
But the country remains a difficult place to operate for foreign businesses, who have been forced to grapple with repeated destruction of infrastructure during intermittent conflict as well as rampant corruption among local officials.
Ericsson - one of the world’s largest manufacturers of telecoms equipment - has been present in Iraq since 2003, supplying companies including Korek, Zain Telecom and Asiacell.
By 2009 it had opened its first office in the country, in the city of Erbil, with regional boss Bo-Erik Dahlström declaring: “Ericsson is now in Iraq and is open for business.”
A decade later, however, concerns about its Iraqi operations were beginning to emerge among staff at its Stockholm headquarters.
Internal alarm bells were triggered by “unusual” expense claims in 2019, a statement from the company said.
With help from outside lawyers, Ericsson started to comb through records going back to 2011, examining the conduct of the division’s employees, suppliers and vendors.
Investigators discovered evidence of a litany of corrupt and unethical behaviours, including alleged payments of bribes, unexplained handouts to suppliers, “inappropriate” travel and expenses and an “improper use” of sales agents and consultants.
Moreover, local staff appeared to have ignored rules designed to prevent such scenarios, with the probe discovering conflicts of interest, a failure to follow tax laws and even attempts to obstruct investigators.
Worst of all, however, was that Ericsson staff may have paid bribes to IS.
At its peak in 2014, IS controlled huge swathes of northwestern Iraq, including 20 major cities housing more than five million people. This meant travellers on key roads across these regions, which included Mosul, were forced to hand over bribes to gun-toting militants in exchange for safe passage.
During this period, Ericsson is understood to have carried on trying to fulfil its contracts to roll out mobile network equipment across Iraq - even in areas controlled by IS.
This led to the company’s employees, while transporting telecoms equipment across Iraq, making payments through intermediaries for the “use of alternate transport routes in connection with circumventing Iraqi customs”.
Terrorist organisations, including IS, controlled some of these transport routes, Ericsson said, although investigators were unable to confirm who the ultimate recipients of the payments were.
“The investigation could not identify that any Ericsson employee was directly involved in financing terrorist organisations”, it said in a statement published late on Tuesday.
Still, the company saw fit to fire “several” employees from its Iraqi business following the probe. It also cut ties with several businesses in the country.
These findings emerged three years after Ericsson agreed to pay American authorities $1bn to settle an investigation into alleged bribes the company paid in Djibouti, China, Vietnam, Indonesia and Kuwait, which US prosecutors said were part of efforts to “solidify its grip on telecommunications business”.
Geoffrey Berman, attorney of the Southern District of New York, said in 2019: “Through slush funds, bribes, gifts, and graft, Ericsson conducted telecom business with the guiding principle that ‘money talks.’
“Doing business this way will not be tolerated.”
Yet the Swedish giant is not the only telecoms company to have found itself in trouble in the Middle East.
French rival Orange also got its fingers burnt when it jointly pumped $800m into Iraq with Kuwaiti investment firm Agility. The two companies had backed Korek Telecom, run by powerful Iraqi businessman Sirwan Barzani, but were frozen out when a local regulator suddenly withdrew approval for the deal years later.
A lawsuit filed in response by Orange and Agility claimed that Barzani and other Iraqi investors had bribed regulators in a bid to “misappropriate” the business. Barzani and the local regulators deny all allegations of wrongdoing.
Meanwhile, Chinese telecoms giant Huawei became embroiled in an international legal battle over claims it had used an “unofficial subsidiary” to evade American sanctions and sell computer equipment to Iran. Huawei was also said to have misled its bank, HSBC, about the relationship.
The allegations by the US Department of Justice led to the arrest of Meng Wanzhou, the finance chief and daughter of Huawei’s founder, at Vancouver airport in Canada. She denied the charges and was eventually released last year after striking an out-of-court settlement.
But for Ericsson, the misadventures in Iraq may still cause further pain.
On Wednesday, as plunging shares wiped billions of dollars off its £31bn market cap, the company warned that it was still yet to “understand these matters fully”.
“As in all investigations, we cannot exclude the possibility that we may not have found all the underlying facts,” the firm said.
It amounts to a tacit admission that more may still come out. This may not be the last time Ekholm is forced to apologise.
