Oracle Settles SEC Bribery Case for $2 Million
The SEC has alleged that during a period starting in 2005 and ending in 2007, employees at Oracle India had distributors keep some funds off the books. On 14 different occasions during the course of executing eight government contracts there, some Oracle India employees added some extra “margins” to deals they did with local distributors. (See the complaint here.) The funds piled up and were used to make payments to third parties, some of which proved to be either non-existent entities or storefronts.
The actions violated the Foreign Corrupt Practices Act. Oracle disclosed the violations to the SEC and cooperated with the investigation. The SEC and FBI started their investigation last year.
Oracle is not alone in this sort of thing. Last year, IBM paid $10 million to settle similar charges stemming from incidents in South Korea and China. And Hewlett-Packard faced its own in 2010 concerning alleged violations in Russia.
Here’s Oracle’s statement on the matter:
In 2007, Oracle discovered that a few employees of its Indian subsidiary apparently had directed distributors to maintain side funds in violation of Oracle business practices. Following a thorough investigation, the employees involved were terminated. Oracle disclosed the matter to the government and has cooperated with the SEC in its investigation, culminating in today’s announcement of a $2 million settlement.
And this from spokeswoman Deborah Hellinger: “Oracle has established policies, programs and controls to deter and detect inappropriate conduct that have been recognized among the best in our industry. We will continue to maintain a high standard of compliance and accountability for our business around the world.”
Here’s the full SEC Statement:
SEC Charges Oracle Corporation With FCPA Violations Related to Secret Side Funds in India
FOR IMMEDIATE RELEASE
Washington, D.C., Aug. 16, 2012 — The Securities and Exchange Commission today charged Oracle Corporation with violating the Foreign Corrupt Practices Act (FCPA) by failing to prevent a subsidiary from secretly setting aside money off the company’s books that was eventually used to make unauthorized payments to phony vendors in India.
The SEC alleges that certain employees of the India subsidiary of the Redwood Shores, Calif.-based enterprise systems firm structured transactions with India’s government on more than a dozen occasions in a way that enabled Oracle India’s distributors to hold approximately $2.2 million of the proceeds in unauthorized side funds. Those Oracle India employees then directed the distributors to make payments out of these side funds to purported local vendors, several of which were merely storefronts that did not provide any services to Oracle. Oracle’s subsidiary documented certain payments with fake invoices.
Oracle agreed to pay a $2 million penalty to settle the SEC’s charges.
“Through its subsidiary’s use of secret cash cushions, Oracle exposed itself to the risk that these hidden funds would be put to illegal use,” said Marc J. Fagel, Director of the SEC’s San Francisco Regional Office. “It is important for U.S. companies to proactively establish policies and procedures to minimize the potential for payments to foreign officials or other unauthorized uses of company funds.”
According to the SEC’s complaint filed in U.S. District Court for the Northern District of California, the misconduct at Oracle’s India subsidiary – Oracle India Private Limited – occurred from 2005 to 2007. Oracle India sold software licenses and services to India’s government through local distributors, and then had the distributors “park” excess funds from the sales outside Oracle India’s books and records.
For example, according to the SEC’s complaint, Oracle India secured a $3.9 million deal with India’s Ministry of Information Technology and Communications in May 2006. As instructed by Oracle India’s then-sales director, only $2.1 million was sent to Oracle to record as revenue on the transaction, and the distributor kept $151,000 for services rendered. Certain other Oracle India employees further instructed the distributor to park the remaining $1.7 million for “marketing development purposes.” Two months later, one of those same Oracle India employees created and provided to the distributor eight invoices for payments to purported third-party vendors ranging from $110,000 to $396,000. In fact, none of these storefront-only third parties provided any services or were included on Oracle’s approved vendor list. The third-party payments created the risk that the funds could be used for illicit purposes such as bribery or embezzlement.
The SEC’s complaint alleges that Oracle violated the FCPA’s books and records provisions and internal controls provisions by failing to accurately record the side funds that Oracle India maintained with its distributors. Oracle failed to devise and maintain a system of effective internal controls that would have prevented the improper use of company funds.
Without admitting or denying the SEC’s allegations, Oracle consented to the entry of a final judgment ordering the company to pay the $2 million penalty and permanently enjoining it from future violations of these provisions. The settlement takes into account Oracle’s voluntary disclosure of the conduct in India and its cooperation with the SEC’s investigation, as well as remedial measures taken by the company, including firing the employees involved in the misconduct and making significant enhancements to its FCPA compliance program.
The SEC’s investigation was conducted by staff attorney Elena Ro and Assistant Regional Director Jina Choi in the San Francisco Regional Office. The SEC acknowledges the assistance of the U.S. Department of Justice, Federal Bureau of Investigation, and Internal Revenue Service.