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ERICSSON’S DECADE OF BRIBERY AND CORRUPTION IN IRAQ LAID BARE
A LEAKED INTERNAL REPORT SHOWS THE SWEDISH TELECOM GIANT CONCEALED FRAUD IN THE
WAR-TORN COUNTRY AND SUSPECTED ITS CORRUPT PRACTICES HAD SPREAD TO MORE THAN A
DOZEN OTHERS
about an hour ago
ICIJ
Baghdad city: Ericsson’s business in Iraq relied on politically connected fixers
and unvetted subcontractors. Photograph: Amir Musawy
Telecom giant Ericsson sought permission from the terrorist group known as
Islamic State to work in an Isis-controlled city and paid to smuggle equipment
into Isis areas on a route known as the “Speedway”, according to a leaked
internal investigation report obtained by the International Consortium of
Investigative Journalists.
The report reveals that the Swedish-based firm made tens of millions of dollars
in suspicious payments over nearly a decade to sustain its business in Iraq,
financing slush funds, trips abroad for defence officials and payoffs through
middlemen to corporate executives and possibly terrorists.
The internal investigation describes a pattern of bribery and corruption so
widespread, and company oversight so weak, that millions of dollars in payments
couldn’t be accounted for – all while Ericsson worked to maintain and expand
vital cellular networks in one of the most corrupt countries in the world. The
review, which has not been made public, covers the years 2011-2019.
Ericsson’s business in Iraq relied on politically connected fixers and unvetted
subcontractors. It was marked by sham contracts, inflated invoices, falsified
financial statements and payments to “consultants” with nebulous job
descriptions. In one instance a member of a powerful Kurdish family, the
Barzanis, collected $1.2 million (€1.06 million) for “facilitation to the
chairman” of a mobile phone operator – also a Barzani, the report says.
Most of the corrupt conduct came after Ericsson, a key actor in the West’s
battle with China over the future of global communications, acknowledged in 2013
that it was co-operating with US authorities investigating bribery allegations
elsewhere. The US investigation, which does not mention Iraq, resulted in a $1
billion bribery settlement in 2019 with the US Department of Justice and the
Securities and Exchange Commission.
The International Consortium of Investigative Journalists (ICIJ) shared the
leaked records with the Washington Post, SVT in Sweden and 28 other media
partners in 22 countries as part of a project known as the Ericsson List. ICIJ
and its partners verified the records’ authenticity and spent months examining
other documents and interviewing ex-employees, government officials, contractors
and other industry insiders in Iraq, London, Washington, Jordan, Lebanon and
elsewhere.
The leaked documents include 73 pages of a 79-page report on Ericsson’s Iraq
business, including summaries of 28 witness interviews and 22.5 million emails.
ICIJ and partnering news organisations sent detailed questions to Ericsson about
the secret internal review. Instead of answering, Ericsson issued a public
statement on February 15th acknowledging “corruption-related misconduct” in Iraq
and possible payments to Isis.
Ericsson chief executive Börje Ekholm granted interviews to news outlets not in
possession of the leaked documents. He said that Ericsson may have made illicit
payments but that the company had often struggled to identify the final
beneficiary.
“We can’t determine where money sometimes really goes, but we can see that it
has disappeared,” Ekholm told a Swedish newspaper.
Ericsson cited its “commitment to transparency” in its recent disclosures. But
the company made no mention of other internal investigations described in the
leaked documents.
The records show that besides Iraq, the company examined alleged misconduct in
Lebanon, Spain, Portugal and Egypt. In addition, a spreadsheet lists company
investigations into possible bribery, money laundering and embezzlement by
employees in Angola, Azerbaijan, Bahrain, Brazil, China, Croatia, Libya,
Morocco, the United States and South Africa. These investigations have not been
previously disclosed.
A 2014 decision stands as pivotal for Ericsson. As Isis conquered towns,
pillaged homes and beheaded hostages, two employees proposed halting operations
in Mosul and elsewhere in Iraq. Senior regional executives rejected the
recommendation. Leaving would “destroy our business”, the report quotes the
executives as saying.
Less than a month later Ericsson asked a regional partner, Asiacell
Communications, to seek “permission from ‘local authority Isis’” to continue
work in Mosul. This led to gun-toting Isis fighters kidnapping a crew chief with
an Ericsson subcontractor, according to the report and the kidnap victim.
Asiacell did not respond to repeated requests for comment.
Ericsson’s investigators said they could not rule out the possibility that the
company financed terrorism through its subcontractors, though they couldn’t
identify any Ericsson employee as “directly involved”.
Ericsson’s compliance department, which monitors the transnational company’s
activities, prepared the confidential records with the help of Simpson Thacher &
Bartlett, a high-powered New York law firm, which handled its defence in the US
bribery investigation.
The internal review, while damning, often fails to reach specific conclusions
and suggests an incomplete investigation into some of the most explosive
allegations, including that payments were made to terrorists. Internal
investigators did not interview officials of the main transport firm moving
Ericsson equipment through Isis territory or the subcontractors the company
relied on to work in Isis-held Mosul, for example.
Questions from ICIJ and its partners that Ericsson has refused to address
include why a regional executive was promoted during the corruption
investigation and why workers’ lives were put at risk by company operations in
Iraq.
It is not clear how much the US justice department and Securities and Exchange
Commission (SEC) knew about abuses in Iraq or whether Ericsson fully disclosed
its internal findings to the agencies. The justice department and SEC declined
to comment on any aspect of the Ericsson case. Simpson Thacher did not respond
to requests for comment.
Ekholm told Reuters the 2019 settlement “limits our ability to comment on what
is disclosed or not disclosed”.
He said the company chose not to disclose the Iraq investigation because “the
materiality of our findings did not pass our threshold to make a disclosure”.
Ericsson’s share value plunged $4.4 billion, or more than 10 per cent, the day
after Ekholm’s admission that the company might have paid Isis.
Law firms soon began to solicit Ericsson investors for a possible lawsuit
alleging that the company withheld “material information” about possible
payments to militants.
In a news release the company said that it was “committed to conducting business
in a responsible manner, applying ethical standards in anti-corruption,
humanitarian and human rights terms”.
‘BRIBES, KICKBACKS AND EMBEZZLEMENT’
The internal report alleges that at least 10 current and former employees
violated Ericsson’s ethics code. Among the “breaches” identified by the report
were bribery, fraud, money laundering and obstruction of the investigation.
Ericsson showered clients with artwork, clothes and other perks like iPads,
watches and Mont Blanc pens, the report says. It paid for trips to Spain and
Sweden for 10 Iraqi defence ministry officials.
In its recent news release Ericsson said it had taken disciplinary actions and
that several employees had left the company as a result of the investigation.
But other employees implicated in misconduct remain at Ericsson. At least one
was promoted.
Ericsson warehouse in Iraq: the company issued a public statement on February
15th acknowledging ‘corruption-related misconduct’ in Iraq and possible payments
to Isis. Photograph: Amir Musawy
Investigators found that Elie Moubarak, Ericsson’s account manager for Korek
Telecom, a mobile phone carrier and the company’s largest customer in Iraq,
engaged in “corruption and financial irregularities”.
In one instance Moubarak asked for a $50,000 “donation” to Kurdistan’s Peshmerga
forces “for fighting Isis”, the report says. The militia was led by Sirwan
Barzani, also a major shareholder of Korek and board chairman at the time. The
official request indicated that the donation was to benefit refugees and
displaced children in Kurdistan, the report says.
Rafiah Ibrahim, the company executive in charge of the Middle East and East
Africa, endorsed the donation to “try to get mileage from the Korek chairman”,
the report says. Ericsson funnelled the money through a charitable group.
Internal investigators couldn’t identify the ultimate beneficiaries.
Ibrahim was named a senior vice-president and member of the executive team under
Ekholm in 2017, and she became an adviser to Ekholm in 2019. Moubarak was
promoted to country manager of Iraq in 2019. Neither Ibrahim nor Moubarak
responded to requests for comment.
VULNERABLE TO CORRUPTION
Ericsson’s problems in Iraq illustrate the risk of corruption in the $1.6
trillion telecom industry. Large profits can flow from government licenses and
telecom equipment contracts, and anti-bribery enforcement is weak. Conducting
business in Iraq “may in itself pose significant political, financial and legal
risks and requires diligent controls”, the internal review says.
The investigation also calls attention to the US justice department’s handling
of corporate crime. The billion-dollar settlement with Ericsson in 2019 was one
of the largest, and the company admitted to engaging in bribery and other
misconduct in Djibouti, China, Vietnam, Indonesia and Kuwait in 2000-2016.
Under the deal, known as a deferred prosecution agreement, Ericsson avoided a
criminal trial, and none of its top executives were held accountable. The US
government reserves the right to bring charges if it decides that Ericsson
hasn’t lived up to the terms of the deal, including disclosing all allegations
of wrongdoing.
Critics say such deals, negotiated by prosecutors and corporate defence lawyers
behind closed doors, protect top executives from criminal prosecution and do not
provide effective punishment. Innocent shareholders suffer, they say, instead of
guilty executives.
In October, Ericsson said it received notice from the justice department that it
had violated its plea deal “by failing to provide certain documents and factual
information”. Ekholm told a Swedish newspaper that the violation wasn’t related
to Iraq.
LOCAL START, GLOBAL BATTLEGROUND
Officially known as Telefonaktiebolaget LM Ericsson, the company generates
annual revenue of $25 billion and has roughly 100,000 employees in more than 140
countries. It is a leading supplier of towers, radio base stations and mobile
switching centres – the foundation of modern communications.
Ericsson traces its origins to 1876, when Lars Magnus Ericsson, a farmer’s son,
opened a telegraph repair shop in Stockholm. The company went on to pioneer
automated telephone switching, international calling, mobile telephones and, in
the 1990s, the mobile internet.
After a string of corporate scandals and bad business bets in the 2000s, Western
telecom companies, including Ericsson, lost ground to new Chinese equipment
giants, including Huawei Technologies Co.
Chief executive Börje Ekholm said that Ericsson may have made illicit payments
but that the company had often struggled to identify the final beneficiary.
Photograph: Pontus Lundahl/AFP via Getty Images
Ericsson tried to keep up by outsourcing work to local sales agents and other
middlemen, distancing itself from the sometimes dirty business of securing
contracts and doing business in developing countries. In the case that led to
the 2019 settlement, the US described slush funds, inflated costs, false
invoices, rigged bidding, unvetted middlemen and bribery in five countries – the
same pattern of behaviour the internal review describes in Iraq.
In 2010, Hans Vestberg, a longtime Ericsson manager, became the company’s chief
executive. Vestberg left in 2016 amid corruption investigations into the company
and was replaced by the current chief executive, Börje Ekholm.
The US has favoured Western mobile companies in their rivalry with Huawei,
warning that the Chinese company’s links to the Communist Party make it a
national security threat. The race for dominance in the next generation of
mobile communications, known as 5G, has raised the stakes. An adversary in
control of the network could shut down vital systems during times of conflict,
US officials say.
In 2020, two months after Ericsson’s corruption settlement, then-US attorney
general William Barr gave an unusual speech in which he suggested the US
government consider buying a stake in Ericsson or another Western telecom firm,
Nokia. He did not mention the Ericsson case.
With contracts in many developed countries locked up, the battleground for
global dominance is playing out in the Middle East, Africa and other
fast-growing markets.
Ericsson has been a presence in Iraq since the 1960s when it helped install a
telephone system in Baghdad. The dictator, Saddam Hussein, restricted possession
of mobile phones to a tiny elite. After the US invasion in 2003, Iraq emerged as
one of the world’s few virgin mobile phone markets.
Ericsson won lucrative post-Iraq War contracts to supply the state-run Iraq
Telecommunication and Post Co with new technology. Ericsson also won contracts
to supply towers and to upgrade equipment and networks for Iraq’s three main
mobile operators: Asiacell, a Qatari-owned firm; Zain Iraq, part of a Kuwaiti
telecom group; and Korek, controlled by Sirwan Barzani, who is also a nephew of
the former president of Iraq’s semiautonomous Kurdistan region.
Ericsson sales in Iraq totalled about $1.9 billion in 2011-2018, the internal
report says.
The Barzanis are a family of Kurdish oligarchs, and the US considers them top
allies in the fight against Isis. The internal report details several suspect
transactions between Ericsson and members of the family. In one deal, the report
says, Rasech Barzani had “no clear role” as a consultant who collected $1.2
million for offering “business intelligence and facilitation to the chairman of
Korek”.
Ericsson’s report shows that Korek evaded taxes and fees amounting to $375
million and threatened to “demolish rival company towers in Kurdish territory”.
Rasech Barzani did not respond to requests for comment. Sirwan Barzani did not
respond to questions about Korek’s relationship with Ericsson. In a statement a
spokesman emphasized Barzani’s history of fighting Isis, also known as
Daesh.“After Daesh took Mosul in 2014, Sirwan Barzani rejoined the Peshmerga –
stepping back from Korek – to return to the frontline to defend his country and
the Western world from the threat that Daesh posed,” the spokesman said.
‘CLOSE TIES PULL STRINGS’
As Ericsson’s sales agent, Jawhar al-Sourchi helped the company navigate Iraq’s
bureaucracy for 15 years. Through his firm, Al-Awsat Telecommunication Services,
al-Sourchi secured contracts for Ericsson with government agencies and the
mobile operators Asiacell and Zain.
Al-Sourchi told internal investigators that his “close ties” to people in power
allowed him to “pull strings” for Ericsson and that he did “many favours” for
the company, helping it win contracts in “extreme times”. Ericsson couldn’t have
succeeded in Iraq without his company, al-Sourchi said.
Al-Awsat, which means “the middle” in Arabic, was a conduit for tens of millions
of dollars in suspicious payments, the internal review found. Among these: $10.5
million to an Al-Awsat-linked company, where the ultimate beneficiary could not
be identified; and $27 million for consultancy services, for which investigators
found “deficient proof of work”. An audit showed that most of the money went to
al-Sourchi’s personal account in Jordan.
According to the report, Al-Awsat also secretly paid for air fares for
executives at Iraq’s state-owned telephone company.
Ericsson empowered Al-Awsat to sign contracts on its behalf. Al-Awsat steered
work to firms owned by family members and friends, the report says.
The report says al-Sourchi’s firm over time came to be known simply as
“Ericsson”.
As Isis conquered towns, pillaged homes and beheaded hostages, two Ericsson
employees proposed halting operations in Mosul (pictured) and elsewhere in Iraq
but senior regional executives rejected the recommendation. Photograph: Amir
Musawy
Two senior employees told investigators that Ericsson directed $500,000 in
“commission” payments through Al-Awsat to Asiacell’s chief executive to win a
network upgrade contract known as the Peroza Project. The project included
replacing and expanding Asiacell’s network, assembling telecom towers in a
warehouse, testing them and sending them to be installed across Iraq.
The report says Ericsson’s top Iraq executive, Tarek Saadi, approved the
payment, which was routed through Al-Awsat using two sham purchase orders, each
for $250,000, marked as for “security services”. The report calls the Peroza
Project bidding a “manipulated” selection process.
Saadi, an American-educated engineer, pushed his staff to issue purchase orders
to Al-Awsat every month, “regardless of whether there were deliveries ongoing or
not”, the report says.
Saadi declined to comment, referring questions to Ericsson, which he left in
2017. He became an adviser to Korek.
In two interviews with ICIJ partner the Washington Post, al-Sourchi acknowledged
that his extensive political connections helped foreign companies compete in
Iraq. “My strength was, I knew the people, knew all the prime ministers,” he
said, and he listed the prime ministers by name.
He denied winning contracts through bribery or engaging in any sort of
corruption, and he said he never saw Ericsson do so. Of the allegations, he
said, “somebody is trying to discredit” the company. “Whatever is said is from
jealousy.’’
Overall, Ericsson investigators couldn’t document “proof of work” for $27.5
million paid to Al-Awsat in consultancy services in 2013-2018, the report says.
Ericsson severed the relationship in 2018.
THE RISE OF ISIS
In 2013 Ericsson acknowledged that the US Securities and Exchange Commission had
opened an investigation into its business practices in Romania. A former
Ericsson executive had alleged that the company used a slush fund to win
contracts there by paying off officials. Over time, the investigation broadened
to include other countries, attracting the attention of the justice department,
which joined the investigation two years later.
Ericsson hired the Simpson Thacher law firm to monitor the company’s internal
corruption investigations. The legal team was composed of three former US
officials, including Cheryl Scarboro, who previously served as chief of the
SEC’s anti-bribery unit.
According to Swedish court records, the law firm told US prosecutors about a
whistleblower’s allegations that Ericsson may have improperly paid more than $2
million to win a contract also sought by Huawei in Djibouti, in the Horn of
Africa. As the investigation progressed, Ericsson’s attorneys also provided a
list of the company’s outside consultants in 10 countries, including Iraq,
according to documents reviewed by ICIJ’s Swedish partner SVT. The documents
included Ericsson contracts with Al-Awsat.
As US authorities ramped up the bribery investigation, Ericsson and its
customers grappled with a new problem: the rise of Isis, a terrorist group
notorious for its massacres of religious and ethnic minorities, its use of
chemical weapons and its public beheadings. At its peak the group ruled more
eight million people in parts of Iraq and Syria. It also made extensive use of
mobile phone technology to spread images of beheadings and to traffic sex
slaves.
Ericsson and its subcontractors kept working. The day after Isis swept into
Mosul in 2014, the company was searching for contractors to work on Asiacell’s
Peroza Project upgrade, the internal report said.
Some employees thought Iraq was becoming so unsafe that the company should
invoke the so-called force majeure clause in its contracts. Force majeure would
provide a legal defence if Ericsson stopped work because of events beyond the
parties’ control.
Tom Nygren, then vice-president and general counsel for Ericsson in the Middle
East, made a “strong recommendation” to his supervisors to invoke force majeure,
according to the report.
Roger Antoun, an Ericsson manager for Asiacell’s Peroza Project, said the
proposal to invoke force majeure was “escalated” to the executive office. “I
raised it verbally as well,” he told investigators.
Antoun would become a key figure in the internal investigation after it was
determined that he had embezzled $308,000 through an “uncontrolled slush fund”
set up through subcontractors. The revelation triggered a wider investigation
into potential payments to terrorists.
Antoun later paid the money back. Ericsson said it fired him in January 2019.
Antoun declined to comment.
Saadi, the company’s top Iraq executive, and Rafiah Ibrahim, head of the Middle
East and Africa region , opposed invoking force majeure, the report says.
‘ABANDONED’ TO ISIS
A month after Ericsson’s decision to press ahead in Mosul, an engineer
conducting tests of cell towers as part of the Peroza Project delivered a letter
to an office where Isis had set up operations, according to the engineer, who
asked to be identified only by his first name, Affan. The letter from Ericsson
and Asiacell sought permission from the terrorist group to continue working in
the area, he said.
The engineer, who worked for a subcontractor called Orbitel Telecommunication,
said in interviews that the three companies insisted that work continue even
after Isis detained several of his colleagues. Ericsson and his supervisor told
him to deliver the letter in person, Affan said.Orbitel declined to comment.
Affan said an Isis militant later called and summoned him to a bridge overpass,
where men with scarves hiding their faces put a hood over his head, shoved him
into the back seat of a Toyota pickup and took off.
One assailant, a sheikh, forced him to call a senior Ericsson manager in the
northern city of Sulaymaniyah and then, shouting at the manager, threatened to
blow up Ericsson’s offices, Affan said. The sheikh demanded millions of dollars
“for every month we worked without Isis notification”, Affan said.
The internal review confirmed the kidnapping, the phone call and the demand for
money.
Affan said Isis ordered him to remain at his Mosul home until Ericsson made the
payments. He said that Ericsson and the other companies abandoned him and that
company employees almost immediately stopped answering his calls. A few weeks
later, Isis told him that he was free to leave his house.
In an interview with internal investigators an Ericsson manager said Asiacell
“made arrangements to obtain the release of the hostage and to let Ericsson
continue the work in Mosul”.
The report doesn’t say what the arrangements were.
In interviews with ICIJ and media partners NDR and Daraj, telecom employees and
contractors in Iraq said it was common knowledge that before Isis companies paid
protection money to militants to prevent attacks on their equipment and to allow
workers to do their jobs.
“If your business involves money, you have to pay,” Affan said. “If you don’t
pay, they will come after you.”
‘THE LEGAL WAY OR THE SPEEDWAY’
As part of the Peroza expansion, Ericsson and its partner Asiacell needed to
haul cell towers and equipment from Erbil, in northern Iraq, to Ramadi, in the
middle of the country. A transportation contractor, Cargo Iraq, offered two
options, according to the report: the “legal way” and the “Speedway”.
The Speedway was longer – and more expensive – but it had the advantage of
avoiding Iraqi customs checkpoints, which were often backed up for days, if not
weeks.
The problem: parts of the Speedway passed through Isis territory.
In interviews, Iraqi truck drivers and local journalists said the route was
perilous. Isis militants set up checkpoints, attacking and kidnapping travellers
to extort money along a 100km stretch, they said.
A trucker in his 40s with two children told NDR that he transported food and
other commodities via the Speedway with its Isis checkpoints. He said he once
saw a man who had been fatally shot. Nearby a truck was on fire .
“The road is isolated and terrifying and not safe,” he said.
The review identified 30 trucks – mostly 40-foot rigs – that paid $3,000-$4,000
per load to carry Ericsson equipment across areas held by Isis and other
militias. One table in the report shows that in March 2017 Ericsson paid $22,000
per truck for three loads on a single day.
“By avoiding official customs by transporting through areas controlled by
militias, including Isis, it cannot be excluded that Cargo Iraq engaged in
facilitation payments (to official customs officers), bribery and potential
illicit financing of terrorism to carry out transportation operations for
Ericsson,” the report says.
Bahez Abbas, owner of Cargo Iraq, denied in an interview that his company paid
Isis.
According to the report, Asiacell recommended that Ericsson hire Cargo Iraq.
“Evidence suggests that Asiacell have engaged in smuggling and potential
illegitimate payments directly and through Ericsson,” the report says.
Asiacell declined to comment.
‘COLLATERAL CONSEQUENCES’
Ekholm and the company have cited the company’s commitment to integrity, ethical
conduct and “doing business the right way.” At an earnings call in January, for
example, the chief executive spoke about how the company was building a “world
class compliance program” and “culture of integrity”.
Keeping wraps on an internal report describing widespread corruption appears at
odds with that rhetoric, experts say. Ericsson “seems to have fallen short of
its own and investors’ standards on anti-corruption”, said Joachim Nahem, a
partner at the Governance Group, an Oslo based research and advisory group.
As part of the deal struck with the US government in 2019, the company is
obligated to be more transparent – with government officials, at least. Ericsson
promised to report wrongdoing and submit to audits and to the scrutiny of an
outside monitor for three years.
At the plea hearing a prosecutor said the US didn’t indict Ericsson, and allowed
an Egyptian subsidiary to plead guilty instead, to avoid unspecified “collateral
consequences”. Ericsson remains eligible to bid on US government contracts.
Only one Ericsson employee has been charged in the US case. Afework Bereket was
indicted last year, charged with arranging more than $2 million in bribes to
three officials to beat out Huawei in the competition for a contract in Djibouti
. He remains at large. Bereket and three other former Ericsson employees face a
criminal trial in Sweden on charges related to the Djibouti matter.
Ekholm said the company would continue to investigate what happened in Iraq.
Contributors: Dean Starkman, Amir Musawy (NDR, Germany), Delphine Reuter, Gerard
Ryle, Fergus Shiel, Richard HP Sia, Emilia Díaz-Struck, Agustin Armendariz,
Jelena Cosic, Ben Hallman, Karrie Kehoe, Nicole Sadek, Hala Nasreddine (Daraj,
Lebanon), Greg Miller and Louisa Loveluck (Washington Post), Per Agerman and
Fredrik Laurin (SVT, Sweden), Mohammed Komani (ARIJ), Benedikt Strunz and
Jennifer Johnston (NDR, Germany), Joe Hillhouse, Scilla Alecci, Caroline
Desprat, Tom Stites, Asraa Mustufa, Hamish Boland-Rudder, Antonio Cucho Gamboa,
Whitney Awanayah, Pierre Romera
* Topics:
* Borje Ekholm
* International Consortium Of Investigative Journalists
* Ericsson
* Iraq
* Stockholm
* Sweden
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