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The police would not identify the company involved, but Ericsson issued a statement saying that three people who "are employed by or have been employed by Ericsson" were taken into custody and are suspected of having "handed over top secret information to a foreign power".
The information obtained by the spies could be of use to another country's defence, but it could also be a case of industrial espionage, said Staffan Kellerborg, a spokesman for the Swedish National Police Board.
Ericsson believed the damage was "limited" as the police acted in time and the three individuals "did not hold any key positions", the company said in a statement. Ericsson, best known as the world's largest vendor of mobile phone networks, also has military contracts. The company makes radar systems and works on a Swedish fighter jet.
"We have activities within the telecom field and it is difficult to say if the espionage has military sides or not," said Henry Sténson, a spokesman for Ericsson.
"The leader of the group of three was arrested while meeting with the foreign intelligence officer," said Kellerborg. He would not specify which foreign nation was involved or for how long information was leaked, though it was "for a long period". The police are holding a package that was to be handed over on Monday.
"Today, we can't say with certainty what the consequences for Swedish security are," said Kellerborg, adding that it was Swedish security that could be at risk, not international security, as Sweden does not belong to any alliance such as NATO.
The police and Ericsson would not give any further information because of the ongoing investigation.