Swedish telecom Ericsson (NASDAQ: ERIC) has revealed that employees may have paid bribes to members of the Islamic State of Iraq and the Levant (ISIL).
The scandal is the latest in a recent string of misconduct revealed to the public. The telecom was recently required to pay $1 billion in fines to the Department of Justice for arranging bribes for government officials in five different countries, including Djibouti and Vietnam.
According to Ericsson, bribes were paid to ISIL in Iraq to gain access to certain roads. Its actions included "making a monetary donation without a clear beneficiary; paying a supplier for work without a defined scope and documentation; using suppliers to make cash payments; funding inappropriate travel and expenses; and improper use of sales agents and consultants."
However, it should go without saying that paying bribes to a radicalized paramilitary organization whose actions include ethnic-driven mass killings, the destruction of historic cultural sites, and the mass displacement of countless people is an entirely different league of misconduct.
Moral concerns aside, the scandal could have profound consequences that go well beyond Ericsson's reputation.
The telecom is looking at a rough ride ahead on Wall Street in the short term. Ericsson's shares plummeted 11.6% on Wednesday, following the initial reveal of the company's misconduct. Shares fell an additional 5% by noon on Thursday and headed further into the red as the afternoon approached. News of the scandal coincided with a broader market rout caused by Russian encroachment on Ukraine, putting further pressure on Ericsson's share price.
However, Ericsson could stand to lose ground in the 5G fight in the long term.
The U.S. Federal Government continues to take an increasingly skeptical stance on Chinese state-backed companies such as Huawei, Ericsson, and rival Nokia (NYSE: NOK) became front runners in supplying 5G equipment to American firms.
The company's previous settlement and its breach of the Deferred Prosecution Agreement attached to said settlement already set a negative precedent with the U.S. government. The acknowledgment that it had paid bribes and potentially withheld information could be detrimental to Ericsson's standing as 5G deployment intensifies in the U.S.