Swedish telecom giant L.M. Ericsson Telephone Co. has landed in hot water over allegations that it used bribes in its dealings with Middle Eastern businesses.
he 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 US$7 million to a secret bank account in Abu Dhabi, the country’s capital. He said 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 said 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 said. 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 said 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 said.
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 argued 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 Sept. 29, 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 said he is not worried about 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.”