WASHINGTON—Telecom-equipment maker Ericsson AB agreed to pay more than $1 billion to settle U.S. allegations that it conspired to make illegal payments to win business in five countries.

The settlement includes a $520 million criminal penalty and $540 million in illicit profits that must be disgorged, the U.S. Justice Department said Friday. A subsidiary of the Swedish company, Ericsson Egypt Ltd., pleaded guilty in Manhattan federal court to conspiracy to violate antibribery laws.

Ericsson...