Ericsson shrugs off bribery allegations
Sweden's largest telco has been accused of dodgy dealings in the Middle East. And
the main accuser is one of its former consultants.
By Thomas Hedlund
Swedish telecom giant Ericsson has landed in hot water over
allegations that it used bribes in its dealings with Middle Eastern
businesses. The accusation, denied by the company, suggests that in
the frantic race to expand, new-economy companies might be
resorting to old-fashioned tactics.
Italian businessman Federico Marcellusi – who worked for Ericsson in
the United Arab Emirates – told the Swedish evening paper Expressen
that he had helped Ericsson secretly transfer more than $17 million
(29 million euros) to a secret bank account in Abu Dhabi, the
country's capital. He says that a senior Ericsson executive gave him
orders to do so. Marcellusi claims he has documents proving his
allegations and is willing to share them with the Swedish police.
However, the executive in question denies this version of events;
indeed, he says he has never even met Marcellusi. He goes on to
claim that a photograph of the two of them together, supposedly in
Lebanon in spring 1999, was faked.
Swedish state attorney Bo Skarinder has decided to look into the
matter, although he insists it is not a formal inquiry. "At this stage it
is too early to know if Ericsson has done anything wrong. I am not
investigating, merely gathering more information," he says. An
investigation would turn on whether Ericsson used unorthodox
accounting practices in its Middle East dealings, with possible tax
implications.
Ericsson, for its part, denies any wrongdoing. "We welcome an
investigation, since we know we have not done anything wrong and
that we can show who has been paid the money coming out of the
account in Abu Dhabi," said Mikael Widell, director of media relations
at LM Ericsson in Stockholm.
Nevertheless, Marcellusi has retained a Swedish law firm to prepare
an application for a summons against the giant telco. He accuses
Ericsson of destroying his reputation in Abu Dhabi and, as a result, his
family's company, International Business Services.
What is undisputed is that Ericsson engaged International Business
Services to act as a middleman between it and local contractors and
consultants. The local companies would invoice Marcellusi, who would
pay them from an account set up by Ericsson for the purpose.
"This lasted for about nine months between 1998 and 1999, but after
some disagreements the cooperation with Federico Marcellusi ended,"
Ericsson's Widell confirmed.
According to Widell, it is normal practice in the region to use a
middleman to handle invoices. The United Arab Emirates operates a
system that enables employees legally to keep secret which company
pays them. Ericsson's representative says using consultants is
standard in regions where Ericsson has little local knowledge.
"When we consider entering regions we know nothing about, we need
to use consultants who know the local market better than us. It
could be that [local contractors] also work with competitors and they
want to keep it confidential," he says.
In some countries in the Middle East, it is estimated that up to 30 per
cent of all business dealings involve some sort of bribery. However,
Ericsson argues that monies going through its secret bank accounts –
operated by middlemen – can be accounted for and that they have
not paid bribes to win business.
Such allegations are historically difficult to prove. Ericsson was
accused of bribery in the mid-1980s when it won a contract from
state-controlled Brazilian telephone operator Telebras, but the case
fell through due to a lack of evidence. Marcellusi, meanwhile, has had
troubles of his own. On 29 September, 1999, he was arrested in Abu
Dhabi for allegedly using the names of the ruling family to procure
business contracts. (The UAE royal family is held in great esteem and
any slight on their name is considered a state matter.)
Marcellusi claims that the police acted on a tip-off from
representatives of Ericsson, specifically Richard C Ritter, Ericsson's
lawyer in the region.
His allegations are a blow to Ericsson after a strong start to the year.
Managing director Kurt Hellstrom announced that shares had leapt
366 per cent in the first quarter of 2000.
Widell says he is not worried about Federico Marcellusi's supposed
proof.
"His allegations are completely false. We can prove he is wrong and if
he wants to sue us he can do that, of course. But he will not gain
anything."
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