Ericsson estimates SEK12 billion hit to resolve US probes

Ericsson president and CEO said his company has to recognise it failed in the past.

Ericsson has been the subject of investigations by United States authorities into its compliance with the Foreign Corrupt Practices Act (FCPA) for a number of years

The US Securities and Exchange Commission (SEC) kicked off its investigation into Ericsson back in 2013, and the Department of Justice (DOJ) became involved in 2015.

The investigation covers a four-year period that ended in the first quarter of 2017, and according to Ericsson, revealed breaches of the FCPA and its code of business ethics in six countries: China, Djibouti, Indonesia, Kuwait, Saudi Arabia, and Vietnam.

The FCPA consists of US laws focusing on anti-bribery and accounting transparency .

The anti-bribery laws dictate it is unlawful to provide anything of value to a foreign government official in order to obtain or retain business; while the accounting transparency laws require that every US stock exchange-listed company maintain accurate and detailed books and records, maintain an internal control system to ensure accuracy of those books and records, and prevent illegal activity.

Ericsson said failure to meet the FCPA's requirements could result in charges regardless of whether there was evidence of bribery.

While the process to find a resolution is still ongoing, Ericsson has announced it will set aside a 12 billion Swedish krona (SEK) -- approximately $1 billion -- provision relating to the investigations.  

The hit will impact the company's third quarter 2019 results.

"While Ericsson cannot comment in detail on the ongoing process with the US authorities, the company can, with current visibility, now estimate the cost and thus make a provision," the company said in a statement on Thursday.

The provision constitutes the company's current estimate of expenditure related to resolving the US investigations, when combining both the SEC and DOJ activities, as well other costs it said were related to resolving the investigation.

"Over the last two years we have operationally turned around our company and established a strong portfolio and competitive cost structure," president and CEO Börje Ekholm said. "With today's announcement, we confront another legacy issue and take the next step in resolving it.

"We have to recognise that the company has failed in the past and I can assure you that we work hard every day to build a stronger Ericsson, where ethics and compliance are cornerstones in how we conduct business."

The Swedish equipment maker said that based on a thorough internal and external assessment of its ethics and compliance program, the company has implemented significant reforms to address identified gaps and further strengthen the program, with work still ongoing.

The company said it will "remain relentless in striving to improve and safeguard a strong ethical and compliance culture throughout the company".

"Over the past two years, we have made significant investments in our ethics and compliance program including our investigative capabilities, and have taken actions against employees who have transgressed our values and standards," Ekholm added.

It was reported by Reuters in October that Ericsson dismissed 50 employees over the corruption probe.

For the second quarter of 2019, Ericsson's net income increased to SEK1.8 billion, a reversal of the SEK1.8 billion net loss it accrued in the same period a year ago.

The uptick was primarily driven by new 5G contracts and the increased rollout of next-generation networks.

The company's overall sales for Q2 grew 7% year over year, up to SEK54.8 billion, and its overall gross margin increased from 34.8% to 36.6% year over year. R&D expenditure remained steady at SEK9.5 billion.

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