By Daniel Bojin and Paul Radu, with contribution from Sweden by Michell Gronlund

In a courtroom in the Swedish capital of Stockholm, a telecommunications executive and his employer have been fighting a pitched battle to see who is dirtier.  Ericsson, the Swedish telecommunication giant, claims Thomas Lundin, their former general manager in Romania, pilfered $7 million from them. 

Lundin says the $7 million was part of a company-approved slush fund used to bribe Romanian officials and decision makers to get more business.  The case raises questions about how Western businesses really work in Eastern Europe and comes at a time when Swedish prosecutors are looking at a similar case involving officials at Teliasonera who allegedly bribed Uzbek officials for a 3G license.

Lundin says those bribes are the only reason Ericsson's business in Romania grew from virtually zero to US$1 billion.

“The market share increased from almost zero to about 60 percent. This increase in the market share was due to bribes. These bribes were eventually supplied by Ericsson,” Lundin said in court records.

But while the two sides argue over how the money was used, it is clear from court records that Ericsson set up sophisticated offshore companies and bank accounts designed to purposefully hide payments of money to so-called “agents” or persons who helped the company increase its business.  Just who these agents are is not clear although Lundin said they were Romanian officials and decision makers who were bribed.

Fredrik Hallstan, a spokesperson for Ericsson said the company has never paid bribes and blamed Lundin, saying the courts had so far ruled in their favor. 

Worldwide Commission Scheme

The case between Ericsson and Lundin, a Swedish citizen who worked for the company from 1979 until 2003, developed in secrecy as both sides tried to settle the matter in aSwedish Arbitration court.  The court sided with the company and ruled that Lundin should repay more than $7 million plus interest and court costs to Ericsson.  Lundin went ahead and sued Ericsson through the civil courts. The case is ongoing with the next hearing scheduled for Wednesday (March 6).  The case might have remained secret had not a Romanian stockbroker peripherally involved in the deal accused Ericsson of paying the bribes on Icelandic television.

The cases shed light on how Ericsson operated in Romania under Lundin’s control.  They also show how the telecom company set upoffshore companies to make payments to important people – a system dubbed "The World Commission Scheme" (WCS). Lundin says the system was set up to bribe Romanian politicians and other decision makers.  Ericsson has said the system was used to make payments to people for increasing market share in new areas.

Court records say Ericsson set up WCS as a network of hidden offshore companies operating out of Cyprus, Liechtenstein and Switzerland. Lundin claims he used the network to bribe two former telecommunication ministers in Romania, Dan Nica and Sorin Pantiș. Lundin's lawyers state in court that Lundin cannot prove these payments because the politicians did not give him receipts for the alleged bribes. They also say that Ericsson's board was aware that these payments went to politicians.

"The fact that Thomas Lundin paid significant sums of money to the then minister of telecommunication in Romania, Dan Nica, he was doing so in Ericsson's interest" said a brief filed by Lundin’s lawyers.

Nica, who is a minister of telecommunications in the current Romanian government and who held a similar position from 2000-2004, denied receiving any bribe: "I'm absolutely surprised by these claims attributed to Mr. Lundin. It all seems a bad joke. I only had public, official meetings with Mr. Lundin while I was a minister of telecommunications in 2000-2004. He has never solicited any favor for Ericsson."

Pantiș also denied Lundin's claims: "It is a big stupid thing! It's idiocy! Of course, I know Mr. Lundin and Mr. Antoniu Petrescu (avice-president of Ericsson Romania) but I never had any special relationship with them."

Ericsson documents filed in the court show the company set up a series of secret financial mechanisms not associated with the company to make payments for the purposes of increasing market share and turnover in new markets like Romania.  Lundin was at one point in charge of the system.

But Ericsson claims that Lundin committed fraud and diverted US$23 million to personal accounts belonging to himself and other staff members in Bucharest.

Lundin was an employee of Ericsson until 2003 when he became a managing partner in WBS Holding, a Romanian brokerage firm.

Lundin told the court he was following instructions of his employer by secretly paying money to the decision makers in Bucharest. The WCS system set up by Ericsson was designed to pay "agents"- people who had the task of getting new contracts for the Swedish company. According to Ericsson's lawyers, agents were people who could advance the company's business: “having access to the right agent can make the difference between being expelled from a certain market and holding a leading position in that market.” Ericsson did not deny in court records that the system was put in place to secretly pay these agents but they claim the system was abused by Lundin and his colleagues.

Until 1998, these agents were paid directly by Ericsson, based on a confidential contract. According to Lundin: “payments to agents were made through a Citibank account. When LME (the Ericsson group) came to the attention of tax authorities for audit problems, because of the media exposure, but also as the result of the changes in the Swedish legislation, Ericsson designed a new system for paying agents. The main reason for the setting up of this new system – which, later on, was named Worldwide Commission Scheme -WCS– was to prevent the authorities and the media from seeing the payment documents.”

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