Nokia Unearths AlcaLu Compliance Timebomb
UPDATED: Nokia's annual report, issued Thursday, unearthed some lingering and potentially calamitous issues related to the Alcatel-Lucent business that the Finnish giant acquired in 2016.
During the course of the ongoing integration process, we have been made aware of certain practices relating to compliance issues at the former Alcatel Lucent business that have raised concerns. We have initiated an internal investigation and voluntarily reported the matter to the relevant regulatory authorities, with whom we are cooperating with a view to resolving the matter. The resolution of this matter could result in potential criminal or civil penalties, including the possibility of monetary fines, which could have a material adverse effect on our business, brand, reputation or financial position.
Holy moly! So what's the deal? To which part of the AlcaLu business does this refer? When? Where? How? And what might be the legal and financial implications?
As you'd expect, Nokia wasn't keen on sharing any further details, at least at first. "To ensure complete compliance we are now scrutinizing certain transactions in the former Alcatel Lucent business and although this investigation is in a relatively early stage, out of an abundance of caution and in the spirit of transparency, Nokia has contacted the relevant regulatory authorities regarding this review. We are proud of our reputation as one of the world's most ethical companies and this level of openness, transparency and cooperation is what you would expect from Nokia."
But a few hours later, Nokia changed its mind and issued a statement titled "Nokia comments on market rumors related to its annual report on Form 20-F":
Finland While Nokia does not typically comment on market rumors, given the market reaction and inquiries related to a disclosure in the risk factors section of its annual report on Form 20-F for 2018, the company issues this statement to clarify that the specified investigation is not expected to have a material impact on Nokia. We have seen no evidence that would suggest that criminal penalties would apply in this case, and we believe it is highly likely that any penalties that might apply would be limited and immaterial.
Nokia wishes to clarify that the context of this disclosure is the risk factors section of its annual report on Form 20-F where the company lists various risks which could potentially have a material impact on it. However, the disclosure does not reflect Nokia's assessment of the expected or likely impact of the investigation on Nokia... For audit purposes, the overall group materiality is defined as EUR 125 million as disclosed in Nokia's annual report for 2018.
That qualifier was too late to save the share price from dipping by more than 5% to €5.24 on the Helsinki exchange.
Both Alcatel and Lucent had some regrettable moments before combining to form a single company in 2010, so there is "form" in this regard, though, of course, there are no details as to what sort of compliance issues the Nokia team has uncovered. (See Lucent Admits to Bribery and Former Alcatel Exec Sentenced.)
The vendor also noted in its annual report that, given the current global political climate, it "does not intend to accept any new business in Iran in 2019 and intend[s] to only complete existing contractual obligations in Iran in compliance with applicable economic sanctions and other trade-related laws." For more on that, and other challenges related to its relationship with mobile device manufacturer HMD Global, see this article from our sister site, Telecoms.com: Nokia admits there may still be some Alcatel Lucent skeletons in the closet.
The news comes only months after Ericsson updated on its own compliance challenges, which relate to a US investigation into "corrupt practices" that may result in a "material" fine. (See Ericsson Corruption Scandal Sullies Strong Q3.)
— Ray Le Maistre, Editor-in-Chief, Light Reading