Analysis
17 November 2021

Ericsson’s violation of the terms of its Deferred Prosecution Agreement concluded with the Department of Justice and the Securities and Exchange Commission

On 22 October 2021, Ericsson indicated that it received correspondence from the US Department of Justice (DoJ) accusing the group, by failing to disclose certain documents and factual information, of having breached certain obligations imposed by the Deferred Prosecution Agreement (DPA) signed on 6 December 2019 with the U.S. authorities [1].

 

Let’s take a look back at the details of this case which illustrates some of the DoJ’s recent decisions in the fight against economic crime.

 

I. Recognition of Ericsson’s corruptive system

In 2019, Ericsson agreed to pay more than a billion dollars to close the investigations conducted by the US authorities for violation of the Foreign Corrupt Practices Act (FCPA),[2] admitting having put in place with other companies, from the 2000s until 2016, a system consisting in paying bribes, falsifying accounting documents while not implementing adequate internal accounting controls. [3]

Ericsson used intermediaries to pay bribes to foreign officials as well as to manage slush funds not included in the accounting records. These intermediaries were often engaged through fictitious contracts and paid via false invoices inappropriately recorded in the company’s accounts.[4]

The investigation revealed that Ericsson’s subsidiaries succeeded, through this system of bribery of foreign officials, to obtain several highly lucrative contracts with public telecommunications companies in several countries, such as Djibouti, China, Vietnam, Indonesia, Kuwait, or Saudi Arabia. To obtain those contracts, Ericsson inter alia paid, through several intermediaries, for travel and leisure to the benefit of those officials and their family members.[5]

For example, between 2012 and 2013, Ericsson made payments to two Saudi consultants through one of its subsidiaries via fictitious contracts for services never performed. These payments were authorized knowing – or recklessly ignoring – that there was a high probability that at least some of these commissions would be passed on to public officials of Saudi state-owned enterprises to secure telecommunications contracts. The internal procedures put in place by the company were not respected since the prior due diligence mechanism of the group’s counterparties was initiated almost a year after the signing of these fictitious contracts. By paying around $40 million to the two consultants, Ericsson managed to secure nine contracts from Saudi state-owned enterprises with a total value of more than $700 million.[6]

 

II. Terms of the DPA with the Department of Justice and the Securities and Exchange Commission

In addition to a fine of more than $1 billion, the DPA concluded with the DoJ and the Securities and Exchange Commission[7] (SEC) also requires Ericsson to (i) continue to cooperate with the DoJ in all ongoing investigations and prosecutions relating to its alleged conduct, including those concerning individuals related to this case, (ii) improve its compliance program and (iii) use an independent monitor for three years.[8]

The authorities imposed this very constraining agreement to Ericsson for two reasons: on the one hand, the company did not voluntarily disclose its conduct to the DoJ, and on the other hand, there was an involvement of the group’s senior executives in corrupt practices in several countries. [9] However, the authorities also found that Ericsson cooperated by (i) conducting a thorough internal investigation, (ii) regularly informing the authorities of its progress, (iii) voluntarily making its foreign-based employees available to the authorities for interviews in the United States, (iv) producing numerous documents to the authorities and (v) disclosing certain misconduct of which the DoJ was not yet aware.[10]

 

III. Violation of the DPA

On October 21, Ericsson, after referring to the DoJ’s correspondence alleging[11] non-compliance with certain obligations under the DPA, indicated having a right of written reply to explain the nature and circumstances of the violation, as well as the measures taken to remedy the situation. [12]

The company also stated that it intended to respond to the DoJ and continue to cooperate in accordance with the terms of the DPA, including the document production requirements.[13]

On several occasions, the DoJ already warned the public about the consequences of violating the terms of a DPA although this situation is in practice particularly rare.[14]

The correspondence addressed to Ericsson comes after a senior DoJ official said in early October 2021 that violating agreements with the DoJ would henceforth have serious repercussions for violators.[15]

This case seems to illustrate the DoJ’s stated willingness to deal severely with breaches of such agreements. This approach echoes Deputy Attorney General Lisa Monaco’s speech, announcing a tougher DoJ approach to fighting economic crime.[16]

Although it is premature at this stage to predict the outcome of this case, it reminds to the various actors (companies, organizations, practitioners) (i) the importance of the effective implementation of a compliance program covering all the activities of an international group as well as (ii) the particular attention that should be paid to the monitoring of the obligations imposed by a DPA after its conclusion with the prosecuting authorities.

Related content

Press review
Press review - Week of 19 September 2022
23 September 2022
Press review – Week of 19 September 2022
In this week's press review, you will discover the criminal initiatives at the European Union level announced by the President of the European Commission, and the new Fre...
Press review
Press review - Week of 12 September 2022
16 September 2022
Press review – Week of 12 September 2022
In this week's press review, you will find three articles on white collar crime. Firstly, clarifications related to the cumulation of qualification for tax fraud and omis...
Press review
Press review - Week of 29 August 2022
2 September 2022
Press review – Week of 29 August 2022
In this press review you will find the implications for France following the delay of transposition of the European directive on whistleblowers. The French Conseil d'Etat...
Press review
Press review - Week of 25 july 2022
29 July 2022
Press review – Week of 25 July 2022
In this review, you will discover two CNIL’s recent decisions, the first one aiming at protecting data rental cars’ users and the second one aiming at regulating the ...
Press review
Press review - Week of 11 july 2022
15 July 2022
Press review – Week of 11 July 2022
In this press review you will find a decision of the French Cour de cassation which clarifies the interpretation of the principle of speciality in extradition matters. Mo...
Analysis
Transposition of the European Whistleblowers Directive: Towards a reinforcement of the French protection system
14 July 2022
Transposition of the European Whistleblowers Directive: Towards a reinforcement of the French protection system
The text of the law aimed at improving the protection of whistleblowers, drafted by the Joint Committee, was approved by the National Assembly on 8 February and by the Se...
Analysis
The challenges of environmental criminal law in the light of the deferred prosecution agreement in environmental matters
14 July 2022
The challenges of environmental criminal law in the light of the deferred prosecution agreement in environmental matters
A new deferred prosecution agreement in environmental matters is an opportunity to review the creation of this new mechanism serving French environmental criminal law, bu...
Publication
BDN 2022
14 July 2022
Bastille Day Newsletter 2022
On this 14th of July, lawyers at Navacelle offer you, as it does every year, a selection of noticeable events which occurred in France during the last 12 months in the fi...
Analysis
transfer of criminal liability following a merger or acquisition
14 July 2022
Transfer of criminal liability following a merger or acquisition
In a ruling of April 13, 2022, the Court clarified the nature of the control that must be performed by judges on prosecutions against absorbing companies after its histor...
Analysis
The cumulation of criminal and administrative sanctions in tax fraud
14 July 2022
The cumulation of criminal and administrative sanctions in tax fraud
The judges of the Court of Cassation recently ruled on the cumulation of criminal and fiscal sanctions in tax fraud cases. This decision confirms the case law which permi...
Publication
The Guide to Sanctions -GIR (2022)
10 July 2022
The Guide to Sanctions (2022) – GIR
Navacelle co-author of the third edition of the Global Investigation Review's Guide to Sanctions.
Press review
Press review - Week of 4 july 2022
8 July 2022
Press review – Week of 4 July 2022
In this press review, you will find two decisions of the French Court de cassation regarding criminal procedure with regards to sentencing as well as to the admissibility...