Ericsson AB said it expects to pay $1 billion to resolveinvestigations by U.S. authorities into business ethics breaches insix countries, including China, in one of the costliest corruptioncases on record.

The Sweden-based telecommunications equipment maker said in astatement Thursday it has made a provision of 12 billion kronor($1.2 billion) to cover the penalty, and this will dentthird-quarter earnings. Ericsson said it can't comment on detailsof the process with the U.S. Securities and Exchange Commission(SEC) and Department of Justice.

Ericsson has cooperated with investigators since 2013, when theSEC began its probe into possible Foreign Corrupt Practices Act(FCPA) violations. It hasn't disclosed details of the ethicsbreaches under investigation, though it said at the time that theprobe related to a payment system used to win contracts in the1990s. It said Thursday that the investigation covers a periodending in the first quarter of 2017 and involves FCPA breaches inChina, Djibouti, Indonesia, Kuwait, Saudi Arabia, and Vietnam.

"We are ashamed about the historical conduct and we're veryunhappy about that and sad about being in this position, but we areconfronting the issue," Borje Ekholm, Ericsson's CEO, said in aphone interview. "Our compliance program has not been fit forpurpose, so over the last two years we have worked very hard tostrengthen our program as much as possible, to do what is in ourpower to avoid these type of situations going forward."

Ericsson shares fell 0.9 percent and traded at 79.10 kronor at12:05 p.m. local time. They have gained about 3 percent this year,compared with a 16 percent advance for the benchmark OMX Stockholm30 Index.

The FCPA prohibits American companies and overseas firms withstocks trading on U.S. exchanges from paying bribes to foreignofficials.

Ericsson is moving to resolve the probes as it battles Nokia Oyjfor 5G network supply contracts and looks to win customers amid aU.S.-led boycott against rival vendor Huawei Technologies Co.Ericsson said in July the first big deployments in Asia willgradually pull down margins, although not enough to jeopardizeprofitability targets for 2020.

Asked in a phone interview whether the ethics breaches will makeit harder for the company to win 5G contracts, Ekholm said that "ofcourse there is a risk" but that the company's "focus on makingsure we have a very competitive product portfolio is still inplace."

Ekholm took over as CEO in 2017 to turn Ericsson around afterfierce competition from Chinese rivals and dwindling carrierspending on fourth-generation wireless gear led to a plunge in thecompany's shares. The new tech offers a chance to boost sales ascompanies invest big on equipment in a global market dominated byjust three players.

Third-quarter net income is expected to drop about 15 percent,to 2.3 billion kronor, according to the average of analystestimates compiled before Ericsson's Thursday statement.

Ericsson's announcement has "some clear negative implications"with "meaningful cash outflows down the line," analysts atCitigroup, including Amit Harchandani and Robert Lamb, said in anote. They also see potential risks of prosecution or chargesagainst executives.

"It's very hard for us to assess" the risk of employees gettingprosecuted, Ekholm said. "Criminal charges will be decided by theU.S. authorities or authorities in general, and I cannot speculateabout that."

Penalties of $1 billion would surpass the $965 million paymentimposed onSweden-based Telia Co. in 2017 after the telecommunications carrieradmitted to paying hundreds of millions of dollars in bribes to agovernment official in Uzbekistan.

Ericsson's estimate of the charges it faces is "within theballpark" of similar settlements, such as Telia's, the Citigroupanalysts said. The "overhang" around the case would probably goaway by next year, they said.

The SEC has undertaken 11 enforcement actions under the FCPAthis year, including fines against Walmart Inc., Microsoft Corp.,Deutsche Bank AG, and Telefonica Brasil SA, according to theregulator's website. Petróleo Brasileiro SA agreed to pay$1.78 billion last year over a bribery and bid-rigging scandal.

See also:

• U.S. Official Signals Eraof Big Corporate Penalties Is Ending

Ericsson has acted to address shortcomings after identifyingbreaches of its code of business ethics and the FCPA, it said inthe statement. The company also said it failed to react to redflags, enabling some employees to circumvent internal controls.

"We have over the last two years taken steps to address thosegaps and shortcomings, and now we have a program that is much morefit for purpose, and we're ensuring that the company and everyemployee in the company follow our code of business ethics," Ekholmsaid in the phone interview.

"And you know the reality is that in a company of 100,000employees there will be some rogue employees," he said, adding thatwhat's key now is that Ericsson has a program in place to identifyany misconduct and then take action quickly and thoroughly.

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