Did Ericsson disclose its DPA to Digital Nasional Bhd? (Opinion)

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In October, Ericsson received correspondence from the United States Justice Department (DOJ) informing it that it breached obligations under a Deferred Prosecution Agreement (DPA) reached with the DOJ in December 2019 by failing to provide certain documents and factual information.

Though Ericsson and the DOJ did not provide additional details as to what document or information fell short, rumor has it that as part of an internal investigation, Ericsson conceded that it made payments for transport routes in areas under the control of terrorist groups, including the Islamic State.

Cevian Capital, one of Ericsson’s largest shareholders, confirmed this, with its managing partner Christer Gardell telling Reuters that the company’s actions were “unacceptable”, following disclosure that some payments made might have reached militant organisations.

Under the DPA, Ericsson paid more than US$1 billion (RM4.1 billion) in penalties to resolve bribery and corruption investigations by the DOJ and Securities and Exchange Commission (SEC) over US Foreign Corrupt Practices Act (FCPA) violations, in which authorities in the US found Ericsson had made and falsely recorded tens of millions of dollars in bribes.

The probes cited corrupt activities over 17 years starting from 2000 and spanning six countries outside the US, including China, Djibouti, Kuwait, Indonesia and Vietnam.

Ericsson has been cooperating in SEC investigations since 2013 and DOJ’s since 2015, and admitted to conspiring with others in the scheme that involved it using third party agents and consultants who were engaged via sham contracts and paid pursuant to false invoices, with the payments to them improperly accounted for in the company’s books and records to make bribe payments to government officials and/or manage off-the-books slush funds.

As part of the DPA settlement, Ericsson subsidiary Ericsson Egypt pleaded guilty to one count of criminal charge of conspiracy to violate the anti-bribery provisions of the FCPA.

In addition to financial penalties, the company agreed to three years of compliance monitoring by a third party – starting from June 2020 – to ensure it adhered to the terms reached with US authorities, after which bribery charges against the company will be dismissed.

The Swedish Prosecution Authority charged four ex-Ericsson employees for allegedly bribing Djibouti officials, including the country’s attorney-general, to win a contract with Djibouti Telecom in 2011 and 2012, in May.

Ericsson revealed that it reached a separate agreement with Nokia for settling a damages claim against it in the same month. The vendor said the settlement related to the events were subject to the 2019 resolution with the DOJ and SEC at the time.

In total, Ericsson planned to pay a total of €80 million (RM378 million) to its Finnish rival.

In July, Digital Nasional Bhd (DNB) announced that Ericsson was selected as the successful bidder to design and build the national 5G network.

The initial evaluation involved 14 network equipment providers (NEP), it added, with eight shortlisted and invited to bid for the tender and only four submitting their bids.

The criteria used to evaluate the bids were:

– Proven credentials in successful 5G deployment and execution of end-to-end technology solutions;

– Availability of enhanced security to safeguard users and platforms;

– Established Malaysian presence and ecosystem, as well as sound understanding of the business environment, including existing network of vendors;

– Locally based resources for immediate deployment; and,

– Effective planning for the transfer of knowledge to be acquired by domestic affiliates.

DNB said strict standards of governance were adopted with the evaluation team comprising of internal and external independent industry experts and experienced professionals throughout the tender process, as advised and facilitated by EY Consulting, and that Ericsson was ranked top in all three key components of the evaluation criteria, which were the following:

Technical: covering overall 5G technology capabilities, 5G deployment capabilities, integration approach, cyber- and network security, and operations and maintenance.

Commercial: covering financing proposal and total cost of ownership.

Socio-economic: covering local development and socio-economic impact.

Before the government planned to enact a public procurement law in 2023 to replace circulars and directives that governs the practice, Malaysia’s current public procurement framework is generally in compliance with the standards and obligations of international agreements such as the WTO Government Procurement Agreement and other bilateral and regional free trade agreements, where the selection of tenders are based on general procurement principles, pre-determined criteria and final evaluations.

There are no rules relating to the evaluation of tenders in the country, and the general criteria for the evaluation of tenders for public contracts are based on the following, among others:

– The tenderers meet all requirements stated in the tender documents;

– The tenderers’ technical capabilities;

– The tenderers’ financial capacity in terms of capital, credit facilities, value of work in hand and others; and,

– The price of tenders.

In most general procurement principles and pre-determined criteria, the pre-qualification documents usually indicate the following mandatory principles and eligibility requirements considered appropriate in establishing the qualifications of all bidders:

– Technical competence, financial resources, facilities;

– Reliability, experience and reputation of product;

– Personnel to perform the contract;

– Legal capacity;

– Solvency;

– Fulfilment of tax obligations;

– Absence of criminal record; and,

– Satisfactory past performance.

As DNB stated that the tender process was done within strict governance measures, the public presumed that rules had been complied with and the process did not result in collation of unnecessary information drawing attention away from inappropriate requirements.

And Ericsson did disclose to DNB about its legal infractions with the authorities in America, for which it is still “serving the terms” of the settlement with the DOJ in its tender bid to supply equipment for the 5G network in Malaysia.

It is not surprising that the biggest scandals in this field were uncovered first by the press, not authorities.

Unfortunately, our transparency regime is so weak that the people are unable to hold public bodies and politicians to account, thereby further distilling the eroding trust that the people have in their institutions.

Borje Ekholm, since appointed as CEO in 2017, has mandated all Ericsson employees to undergo anti-bribery and corruption training and sign a code of business ethics.

Despite that, he has talked about encountering “watermelon KPIs” – green on the outside, and red on the inside – meaning that bad news is being publicly hidden, and that Ericsson’s corporate culture is the hardest to turn around.

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