Missteps by Ericsson and his lawyers led to new sanctions against the company

A court filing from federal prosecutors earlier this month details a series of alleged missteps that prompted Ericsson SA to agree to a $207 million fine. In particular, prosecutors stressed how the failure of the Swedish telecom company’s external lawyers contributed to their decision to seek the new penalties.

The Justice Department said in early March it would take the rare step to end a $1 billion settlement Ericsson reached in 2019 to solve bribery crimes in China, Djibouti and three other countries. In a filing detailing how Ericsson allegedly breached the agreement, prosecutors attributed certain misconduct to Ericsson’s outside counsel, including attorneys from Simpson Thacher & Bartlett and Freeh Sporkin & Sullivan.

In one case described by prosecutors, Ericsson executives asked Simpson Thacher to report findings of an ongoing internal investigation into allegations of bribery in Iraq. Ericsson investigators had found evidence of corrupt payments and other serious misconduct by its employees and business partners, but when Simpson Thacher called prosecutors in November 2019, two weeks before the settlement with Ericsson was finalized, that’s what the law firm relayed about the investigation , inadequate and went at least partially in the dark, according to the Justice Department filing.

Simpson Thacher, referred to in the Justice Department filing as Ericsson’s “previous outside counsel,” omitted “material facts and information and evidence of possible wrongdoing” within its Iraq operations, which both company executives and its attorneys have acknowledged Simpson were known to Thacher at the time of the call, prosecutors said.

Officials from Simpson Thacher and Freeh Sporkin & Sullivan LLP said separately that the companies stand behind their work and have had limited opportunities to comment on the matter.

Simpson Thacher & Bartlett said it was his work for Ericsson. Photo: ANDREW KELLY/REUTERS

A spokeswoman for Simpson Thacher said the firm was not involved in preparing or advising Ericsson’s Iraq report. An attorney representing Freeh Sporkin said he was not charged with disclosing any matters that led to Ericsson’s alleged violations.

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A final report by Ericsson’s investigators detailing their findings in Iraq was completed weeks later — just five days after the settlement — but Simpson Thacher didn’t go any further after the phone call to update prosecutors on the findings, the filing says of the Ministry of Justice. The law firm told Ericsson on various occasions over the following months that the Justice Department did not appear interested in the investigation and that there was no need to make further disclosures about it, according to two people familiar with the matter.

Prosecutors assigned to Ericsson’s case also did not inquire further about the Iraq disclosure, the people said, and the matter was dormant until 2022, when a copy of the report was leaked to an international consortium of journalists.

The Justice Department told Ericsson last year that failure to properly disclose the Iraq matter to prosecutors constituted a breach of its 2019 agreement, a type of settlement known as a deferred prosecution agreement, in which Ericsson acknowledged the misconduct of the Bribery in China, Djibouti, and three other countries. As a result, Ericsson has agreed to pay an additional $207 million fine – on top of the $1 billion already paid – and plead guilty to violating US anti-corruption laws on the same underlying wrongdoing. Ericsson is scheduled to file its lawsuit at a court hearing next week.

Ericsson said in a statement earlier this month that it had agreed to the new penalties, noting that the Justice Department has sole discretion to determine that the company violated its agreement. A representative declined to comment further on the DOJ’s filing.

Legal experts believe the case is the first in which prosecutors have cited failures in disclosure as the basis for finding a violation of a stay-of-prosecution agreement, under which prosecutors agree to waive criminal charges if a company completes a probationary period.

The series of events leading up to the breach of Ericsson’s 2019 agreement is described by the Justice Department in a March 2 filing in federal court in New York. Additional details regarding the circumstances surrounding the disclosure errors were provided to The Wall Street Journal by people with knowledge of the events.

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Simpson Thacher’s spokeswoman said there were significant inaccuracies and omissions in the account described by the journal, but client confidentiality prevented the firm from identifying them.

“We are not aware of any allegation by the Justice Department to this effect [Freeh Sporkin’s] The performance of his duties to Ericsson’s board of directors has been deficient in every respect, and the statements and documents do not indicate otherwise,” Freeh Sporkin’s attorney said. “Such a claim would also not be justified.”

Freeh Sporkin was hired by Ericsson’s board of directors in 2016 to work with Simpson Thacher. While Simpson Thacher took the lead in reaching out to US authorities, including through disclosures and responding to prosecutors’ requests for documents, Freeh Sporkin was more focused on assisting Ericsson’s efforts to address a range of bribery-related allegations in its global Operated to investigate people in the know.

A first round of disclosure errors emerged shortly after the Ericsson agreement was finalized, when another law firm hired by the company to perform routine compliance and risk assessment work discovered documents it believed likely should have been turned over before the Justice Department settlement, said two people familiar with the matter.

In early 2021, Ericsson began disclosing to the Justice Department more evidence from the plans in China and Djibouti included in its 2019 settlement, according to the Justice Department filing.

Some of the documents were known to Ericsson’s management and its outside counsel prior to the 2019 settlement, the filing said. Among the materials were emails that prosecutors say helped them trace several of the employees involved in the bribery plots that led to the agreement.

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The company was in the process of fixing the first round of disclosure errors when the leaked copy of its Iraq probe report led to inquiries from reporters.

Ericsson’s internal investigation into Iraq, conducted by the company’s compliance department, focused on a period between 2011 and 2019 when the country was in transition. In an attempt to keep operations there, employees made payments to various intermediaries that posed high risks of corruption and money laundering, as Ericsson’s later description of the report’s findings shows.

One plan Ericsson investigators looked into was hiring a transportation company to bring equipment to a construction site in Iraq, the company’s description said. Investigators found that the routes the airline had used bypassed Iraqi customs and passed through areas controlled by terrorist groups, including Islamic State. According to Ericsson, the company’s investigators ultimately found no evidence that employees were directly involved in the financing of terrorist groups.

During the November 2019 phone call reporting the Iraq probe to the Justice Department, Simpson Thacher addressed Iraq’s customs evasion system, but the company did not mention the presence of terrorist groups along alternate shipping routes, according to three of the people familiar with the matter. No Ericsson employee answered the call, and the company did not pre-screen Simpson Thacher’s talking points or only receive them months later, the people said. An attorney for Freeh Sporkin was also on the phone, they said.

The failure to properly disclose the Iraq matter constituted a second disclosure failure, prosecutors said in their filing earlier this month. Ericsson’s 2019 agreement committed the company to keeping the Justice Department updated on its findings in Iraq, they said.

Ericsson had said it was cooperating with Justice Department and SEC investigations into the behaviors described in the Iraq report.

Write to Dylan Tokar at [email protected]

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