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The Guardian - UK
The Guardian - UK
Business
Rob Evans and Michael Safi

Revealed: leaked files show how Ericsson allegedly helped bribe Islamic State

Guardian graphic depicting the Ericsson logo and Islamic State fighters against an Iraqi desert background
The leak of internal investigations at Ericsson, which also found that the firm had put its contractors at risk and allowed them to be kidnapped by the militants, is potentially damaging for the multinational. Composite: Guardian Design/Rex/Shutterstock/Getty Images/iStockphoto/AP

Confidential documents have revealed how the telecoms giant Ericsson is alleged to have helped pay bribes to the Islamic State terrorist group in order to continue selling its services after the militants seized control of large parts of Iraq.

The leak of internal investigations at Ericsson, which also found that the firm had put its contractors at risk and allowed them to be kidnapped by the militants, is potentially damaging for the multinational.

In addition to the findings about the alleged payments to IS, the investigations uncovered allegations the company was involved in corruption in at least 10 countries across four continents.

That would suggest a pattern of wrongdoing by Ericsson that is far wider than what the telecoms giant publicly admitted to in 2019, when it entered into a $1bn (£750m) settlement with the US Department of Justice (DoJ).

Ericsson, which is headquartered in Stockholm, employs 100,000 people and sells telecoms equipment in 180 countries. It plays a leading role in developing the next generation of 5G mobile phone technology in the UK.

Two weeks ago, Ericsson’s stock price plunged by 14% when, alerted to the fact media organisations had been leaked the internal reports, it released a public statement admitting to “serious breaches of compliance rules” in Iraq between 2011 and 2019.

Since then the telecoms firm has been bracing for the full disclosure of the reports, which were leaked to the International Consortium of Investigative Journalists (ICIJ) which then shared them with media partners including the BBC, the Washington Post and the Guardian.

The leaked documents, running to 101 pages, were produced in 2019 and 2020. They record the results of internal investigations commissioned by Ericsson into alleged corruption by the company around the world.

Investigators concluded that the multinational firm was likely to have been involved in channelling bribes to IS to allow its products to be transported across parts of Iraq that were held by the terrorists.

The payments were made through a slush fund run by contractors working for the Swedish multinational, according to the investigators.

Ericsson puts out a statement

After questions from journalists about the leaked documents earlier this month, Ericsson appears to have sought to get ahead of a public relations crisis by publishing the statement on its website partially admitting to the investigators’ findings.

In the statement, Ericsson said the investigating team had “identified payments to intermediaries and the use of alternate transport routes in connection with circumventing Iraqi customs, at a time when terrorist organisations, including Islamic State, controlled some transport routes.

“Investigators could not determine the ultimate recipients of these payments. Payment schemes and cash transactions that potentially created the risk of money laundering were also identified.”

The statement also conceded Ericsson employees had engaged in widespread misconduct in Iraq and committed “serious” violations of its regulations, including irregular payments and non-payment of tax, between 2011 and 2019.

Ericsson said it had published the statement because it was “committed to transparency”. Nevertheless, the telecoms giant declined to answer multiple questions from the Guardian, ICIJ and other media, including about potential wrongdoing in several countries that were not mentioned in its 2019 settlement with the DoJ.

Ericsson pleaded guilty to paying tens of millions of dollars in corrupt payments through slush funds between 2000 and 2016 in the settlement. The admissions related to just five countries: Djibouti, China, Vietnam, Indonesia and Kuwait.

But the leaked documents list evidence of alleged corruption and wrongdoing in a further 10 countries over the past decade.

They chronicle suspicious payments totalling at least $37m in Iraq, along with a range of alleged misconduct such as inflated invoices and paying officials to go on holidays to Spain and Sweden.

In Lebanon, the company allegedly used a slush fund to give gifts, entertainment and hospitality to members of the government between 2010 and 2019. The total size of the slush fund appears to have been as large as $800,000. Bribes were also allegedly paid in Bahrain and Angola.

Ericsson was accused in the documents of being involved in corruption during the award of a contract in South Africa, and acting fraudulently during the acquisition of a company in the US. Other alleged misconduct was identified by the investigators in Brazil, Azerbaijan, Libya and Morocco.

Ericsson and the DoJ declined to comment when asked if evidence of potential wrongdoing in the further 10 countries had been disclosed to US prosecutors before they agreed the terms of the 2019 settlement. The DoJ has the right to launch a new prosecution if it believes that Ericsson had not disclosed all allegations of wrongdoing.

‘An uncontrolled slush fund’

After taking charge of Mosul in 2014, IS controlled about 40% of Iraq, financing the administration of the territory through a mixture of taxes, the sale of oil and looting until it was driven out in 2017.

According to the investigators, Ericsson, which has operated in Iraq for years and sold $1.9bn worth of equipment between 2011 and 2018, received offers from firms that were prepared to transport their infrastructure through Iraq.

The multinational chose a contractor that cost more money than other firms, but promised guaranteed, quicker deliveries. This premium-priced option became known as “speed way service” in contrast to “the legal way”, the documents record.

According to the investigators, “the higher cost has likely been used for bribery and payments to local [militants] along transportation routes”. Improper payments were also made to customs officials to circumvent border taxes.

The investigators found 18 invoices that had been paid by Ericsson to one of the suppliers to transport equipment, such as mobile phone masts, on trucks through Iraq. The payments were three times higher than the normal cost of hiring these trucks, and for one consignment, it was 20 times the usual cost.

After plotting the routes on a map of Iraq, and noting that the infrastructure was delivered to areas held by IS and other militias, investigators concluded Ericsson may have engaged in “bribery or illegitimate payments” to carry out its transportation operations.

“Although there is no firm interview confirmation of bribery, facilitation payment or potential illicit financing of terrorism, there is evidence of emails indicating illegal bypassing of customs and passing through IS-controlled areas in connection to transportation in Iraq,” the report said.

The investigators, who questioned Ericsson employees and associates, added: “There were numerous interviews stating it was more important to do business and deliver to customers, than ensuring the transportations were conducted according to laws and regulations.”

They said there was no evidence that Ericsson employees were directly involved in any payments to IS.

The total size of what the investigators call “an uncontrolled slush fund” between 2016 and 2018 that was likely to have been used to fund the transportation routes is not identified in the documents. But they point out that one individual was able to embezzle $308,000 from this fund.

In its statement, Ericsson said that as a result of the investigation, several employees left the company and “multiple other disciplinary and other remedial actions were taken”. It added that it stopped working with a number of firms and ensured that its employees in Iraq underwent enhanced training.

The leaked documents also show how Ericsson jeopardised their contractors in Iraq in the pursuit of profits, as managers strove to continue the firm’s commercial operations even after IS took control of Mosul.

According to investigators, emails showed “this persistence resulted in the kidnapping of [contractors] while doing fieldwork for Ericsson”. The investigators added that even after the kidnapping, Ericsson sought to carry on doing business in the area.

One of the contractors who was kidnapped told Amir Musawy, a reporter working for the Germany TV station NDR, that he had felt pressure from Ericsson and his firm to continue working.

“There were pressures on us,” he said. “Either you continue to work or the contract would be withdrawn. Ericsson put pressure on my company and my company put pressure on us as teams.”

The engineer, who cannot be identified for his own safety, said he was kept under house arrest by IS for a month, during which time Ericsson staff turned off their phones and did not answer his calls for help. He was eventually let go.

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