Ericsson: Consulting Contracts Without the Consulting

In the Ericsson FCPA case, the company agreed to pay $539,920,000 to resolve the SEC’s allegations of bribery, false books and failed accounting controls. The civil amount covered the return of profits and interest. The SEC alleged that consulting contracts covered work nobody performed, service invoices hid customer entertainment and employees bypassed the company’s payment approvals. For someone inside sales, finance or compliance, the telling detail may be the invoice everyone approved even though nobody could explain the work.

Ericsson sells networking and telecommunications equipment and services, and is headquartered in Sweden. The SEC’s complaint describes a business whose shares traded in the United States and whose overseas subsidiaries’ accounts flowed into the parent’s financial statements. A payment concealed in a local office could therefore become a false entry in the accounts investors saw.

What Conduct Can Violate the FCPA?

Bribes to win business, false accounting entries and failures to control company payments formed the SEC’s allegations under the Foreign Corrupt Practices Act in Ericsson’s FCPA case. The customer decision and the accounting treatment belong in the same story: what the payment bought, who approved it and what the company called it afterward.

Under its 2019 deferred prosecution agreement, Ericsson admitted conduct spanning 2000 through 2016 in Djibouti, China, Vietnam, Indonesia and Kuwait. The admissions included bribes, payments for unperformed services and off-book funds. Ericsson Egypt separately pleaded guilty in the criminal case. The parent later pleaded guilty to the previously deferred charges after breaching its disclosure obligations to the Justice Department.

The SEC brought its own civil case, including allegations concerning Saudi Arabia. Its complaint alleged approximately $62 million in bribes in Djibouti, Saudi Arabia and China, generating approximately $427 million in profits from the business obtained. That return explains why buying access to a telecom customer’s decisions could be worth so much to the seller.

Djibouti’s Consultant and the Official Behind It

The SEC alleged that Ericsson used a consulting company controlled by a senior Djibouti official to win a networking contract from a state-owned telecom company. The consultant was owned by the official’s wife, and Ericsson’s regional leadership knew the relationship. The SEC alleged the promised consulting services were never meant to be performed.

The customer signed a contract worth approximately €20,300,000. The SEC alleged that Ericsson subsequently routed approximately $2.1 million through the consultant in three payments, using correspondent bank accounts in New York. According to the complaint, the regional executive who authorized the payments knew that a substantial portion would go to officials with power over the contract.

The complaint quotes an email from Ericsson’s head of Northeast Africa to a payment processor. The pressure came from the official, and the executive wanted the money moved:

The SEC also alleged that the consultant’s diligence report omitted the official who controlled it, while employees bypassed payment controls to get the money out quickly. The payments went into a cost-of-sales account. We see the absurdity in that sequence: a review of the consultant that left out the person who controlled it, followed by an urgent payment for services nobody expected.

For a telecom supplier, the official can sit inside the customer relationship. The ownership file, the customer decision and the demand for payment explain far more together than a signed consulting agreement does on its own.

China Kept the Agents and Changed the Paperwork

The SEC alleged that Ericsson’s China operation used sham service providers to keep paying agents after the company restricted their use in 2013. The head of the Asia Pacific region wanted to retain agents with strong connections to state-owned customers. The SEC alleged employees paid them through contracts for services the providers never delivered.

The complaint puts those payments at $31.5 million between 2013 and 2016. To avoid detection, employees processed payments manually through paper purchase requests instead of the electronic system. They recorded the spending as service expenses. The restriction existed, the agents stayed, and the paperwork acquired a different description.

The SEC separately alleged that fake service invoices funded gifts and leisure travel for Chinese officials. The complaint described trips without business meetings or product demonstrations. Hotel and travel-agency arrangements allowed agents to put officials’ expenses on Ericsson’s tab.

That connects travel and hospitality to the sales account and the payment approval. An employee who knows why the delegation traveled may understand what a service invoice conceals. An employee who processed the manual request may know how the payment escaped the ordinary purchasing system.

Vietnam and Indonesia Put the Money Outside the Books

The SEC alleged that consultants in Vietnam and Indonesia maintained slush funds through contracts for services they never performed. The consultants moved money onward while the company’s books made the transfers look like ordinary business expenses. The complaint described unknown ultimate recipients and payments disguised through code names.

In Vietnam, the alleged consultant had dissolved in 2007, but payments continued through 2015. Employees understood that the funds were connected to customers, several of them state-owned, and some money went to customers as cash gifts. A supplier file showing that a company had ceased to exist would tell a very different story from an approved invoice for its continuing services.

In Indonesia, the SEC alleged that employees directed a consultant’s use of approximately $45 million in payments. Invoices did not describe the actual services, and the payments were recorded in a customer-service account under cost of sales. Employees called one cash fund the “fridge,” and it funded off-book expenses including customer entertainment and a pleasure trip to Bali. For someone in finance or accounting, the gap between the ledger label and the person directing the cash is the case’s practical lesson.

Kuwait’s Tender Information Became a Consulting Invoice

The Kuwait allegations connect inside bid information to a consulting agreement created after the contract award. According to the SEC, a consultant provided Ericsson with competitors’ bid information for a state-owned customer’s radio access network upgrade. Ericsson won the contract, and the consultant later pressed for payment.

According to the SEC, the head of Ericsson’s Middle East region eventually agreed to a $450,000 payment through a sham agreement. The complaint quotes the employee who circulated the draft agreement:

The SEC alleged that the agreement promised marketing and sales support that was never provided. The regional head then asked for a sham invoice, and the payment traveled through New York correspondent accounts to the consultant’s bank in Qatar. The books described an operating expense. The earlier messages described an obligation left over from winning the tender.

That is why the advantage before a contract award matters to the payment story. An agreement signed afterward can give a transfer an official-looking description while the earlier communications explain what the consultant actually supplied.

Saudi Arabia’s Diligence Came After the Deal

The SEC’s Saudi Arabia allegations show how vendor review itself can become part of the disguise. The complaint said Ericsson retained consultants because their owners could influence officials at a state-owned telecom customer. The agreements described identical services that were never intended to be performed.

According to the complaint, one consultant had only Ericsson’s Saudi branch as a client and was formed almost a year after its agreement was signed. Employees completed the diligence on both consultants almost a year after signing their agreements, because the review was required before payments could begin. The SEC alleged that Ericsson paid the consultants approximately $40 million and received nine contracts worth more than $700 million.

The SEC separately alleged that Ericsson funded leisure trips for Saudi customer decision-makers to gain an advantage over competitors. Those trips, like the China travel, were booked as legitimate business expenses. The honest supplier was competing for the order while its rival allegedly paid for the customer’s private benefits.

Why the False Books Matter

The SEC alleged that Ericsson failed to enforce controls over who consultants were, who ultimately received their payments and whether the promised services happened. Its complaint described fictitious contracts, invoices and purchase orders, including hard-copy documents used to evade electronic controls. Those were the working records through which money left the company.

A 2022 review in the Journal of Forensic and Investigative Accounting, How to Avoid Inadvertently Violating the Foreign Corrupt Business Practices Act Abroad, explains that companies can still face accounting charges even when authorities cannot prove every part of a bribery charge. That distinction gives the false books and failed controls their own significance. In Ericsson’s SEC case, the accounting allegations reached payments whose ultimate recipients were unknown as well as payments alleged to benefit officials.

The telecom pattern also appeared in Telia’s entry into Uzbekistan. In its 2017 order against Telia, the SEC found that bribes flowed through sham lobbying and consulting services to a company controlled by an official. The commercial objective was market entry rather than Ericsson’s equipment orders, but the consultant supplied the same useful disguise: a service contract standing between the seller’s money and official influence.

Ericsson DPA Breach and Guilty Plea

The Ericsson DPA breach led to the parent’s guilty plea to the charges deferred in 2019. Its plea agreement was dated March 2, 2023. The factual basis for the breach describes delayed disclosure affecting the China and Djibouti investigations and failures to report Iraq-related information promptly.

For an insider familiar with an internal review, the disclosure failures point to another set of records: what the review found, who received those findings and what was later disclosed. The payment documents explain the original transaction. The internal findings and subsequent disclosure explain what the company did once it knew about the problem.

The Records Behind the Approved Payment

Ericsson’s case gives whistleblower evidence a concrete shape. A consultant’s ownership connects to an official’s decision. A purchase request connects to a service nobody delivered. A travel invoice connects to the customer’s itinerary, and an accounting entry connects to the person who approved the transfer.

Different people see different parts of that chain. Sales staff may know who supplied the bid information, finance staff may know why a payment went through manually, and compliance staff may know which relationship a diligence report omitted. We work with the person who understands the transaction to connect those parts and explain what the company’s approved paperwork concealed.

What Money Determines the Reward?

SEC whistleblower rewards use money collected in qualifying enforcement actions. The SEC’s award announcement describes a range of 10% to 30% of collected money when sanctions exceed $1 million.

In May 2023, the SEC announced an award of nearly $279 million to an unnamed whistleblower. Its award order redacts the company’s name and the whistleblower’s identity.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That is a separate program from SEC whistleblower awards for FCPA violations.

You Know What the Consultant Actually Did

If you know why a consultant was hired, what the customer demanded or who approved an invoice for nonexistent work, speak to one of our Whistleblower Experts. We build your strongest FCPA whistleblower case around that inside knowledge and bring in FCPA whistleblower lawyers who understand intermediary payments and false accounting records. We stay beside you as partners through the case, with the transaction you saw at the center of it.