Oracle fined $2m for FCPA violation related to misuse of funds in India

Friday, 17 August 2012 - 9:25am India News Bulletin Desk

Oracle Headquarters Redwood Shores

Image: Creative Commons (Håkan Dahlström)

Oracle has agreed to pay a $2m (£1.57m) penalty after failing to prevent a subsidiary from secretly setting aside money to make unauthorised payments to phony vendors in India, thereby violating FCPA.

The US Securities and Exchange Commission (SEC) charged the American technology company with violating the Foreign Corrupt Practices Act (FCPA) and alleged that certain employees of the India subsidiary of Oracle structured transactions with India's government on more than 12 occasions in a way that enabled Oracle India's distributors to hold approximately $2.2m (£1.73m) of the proceeds in unauthorised side funds.

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.

Oracle's Indian subsidiary documented certain payments with fake invoices, the SEC has said.

"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 Fagel, director of the SEC's San Francisco regional office.

One example of misconduct, according to the SEC's complaint, Oracle India secured a $3.9m deal with India's Ministry of Information Technology and Communications in May 2006.

As instructed by Oracle India's then-sales director, only $2.1m 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 $1.7m 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.

None of these storefront-only third parties provided any services or were included on Oracle's approved vendor list, the SEC said. The third-party payments created the risk that the funds could be used for illicit purposes such as bribery or fraud.

It is important for US companies to proactively establish policies and procedures to minimise the potential for payments to foreign officials or other unauthorised uses of company funds, Fagel added.

But Oracle failed to devise and maintain a system of effective internal controls that would have prevented the improper use of company funds, the SEC said penalising the company.