Leak exposes Ericsson’s secret dealings with ISIS amid Iraq corruption spree

Telecom giant Ericsson sought permission from the terrorist group known as the 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 defense 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 to 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 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 cooperating with U.S. authorities investigating bribery allegations elsewhere. The U.S. probe resulted in a $1 billion bribery settlement in 2019 with the U.S. Justice Department and the Securities and Exchange Commission.  The settlement does not mention Iraq.

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 organizations sent detailed questions to Ericsson about the secret internal review. Instead of answering, Ericsson issued a public statement on Feb. 15 acknowledging “corruption-related misconduct” in Iraq and possible payments to ISIS.

Ericsson CEO Börje Ekholm also 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 probes described in the leaked documents.

In 2019, Ericsson admitted to bribery and corrupt business practices in five countries that took place over a 17-year period in a $1 billion agreement with U.S. authorities — one of the largest foreign corruption settlements in history.
Leaked internal documents show that in 2019, Ericsson itself examined employees’ alleged corrupt practices in 15 countries dating back to 2011. Aside from China, none of these countries were covered in Ericsson’s billion-dollar settlement with U.S. prosecutors.
The documents show that Ericsson made tens of millions of dollars in suspicious payments in Iraq — financing bribery, slush funds, payoffs and more — as well as payments tied to business in Lebanon and Portugal.

The records show that besides Iraq, the company examined alleged misconduct in Lebanon, Spain, Portugal and Egypt. In addition, a spreadsheet lists company probes 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 probes have not been previously disclosed.

A 2014 decision stands as pivotal for Ericsson in Iraq. As ISIS conquered towns, pillaged homes and beheaded hostages, two employees proposed halting operations in Mosul and elsewhere in the country. 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, leading to gun-toting ISIS fighters kidnapping a crew chief with an Ericsson subcontractor, according to the report and the kidnap victim.  Asiacell didn’t 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 defense in the U.S. bribery probe.

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 didn’t interview officials of either 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 probe and why workers’ lives were put at risk by company operations in Iraq.

It is not clear how much the U.S. Justice Department and Securities and Exchange Commission 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 probe 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%, 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 defense ministry officials.

In its recent news release, Ericsson said that 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.

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 Africa, endorsed the donation to “try to get mileage from the Korek chairman,” the report says.  Ericsson funneled the money through a charitable group. Internal investigators couldn’t identify the ultimate beneficiaries.

Excerpt from the leaked Ericsson report.

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.

A business vulnerable to bribery

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 Justice Department’s handling of corporate crime. The billion-dollar settlement with Ericsson in 2019 was one of the largest ever, and the company admitted to engaging in bribery and other misconduct in Djibouti, China, Vietnam, Indonesia and Kuwait from 2000 to 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 U.S. government reserves the right to bring charges if it decides that Ericsson hasn’t lived up to the terms of the deal, including disclosing allegations of wrongdoing.

Critics say such deals, negotiated by prosecutors and corporate defense 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.