To resolve claims made by the Securities and Exchange Commission (SEC) that its companies in India, Turkey, and the United Arab Emirates (UAE) had violated the Foreign Corrupt Practices Act (FCPA), technology giant Oracle Corp. will pay more than $23 million.
The SEC said on Tuesday that Oracle subsidiaries in the UAE and Turkey utilized slush funds to pay for side trips to California or to send family members along with foreign officials to attend international technology conferences.
Oracle agreed to stop and desist from additional breaches of the FCPA's anti-bribery, books and records, and internal accounting control rules without admitting or disputing the agency's charges. Oracle will pay a $15 million fine and around $8 million in disgorgement.
According to Charles Cain, head of the SEC's FCPA Unit, "of off-book slush funds inherently gives rise to the risk those funds will be used improperly, which is exactly what happened here at Oracle’s Turkey, UAE, and India subsidiaries. This matter highlights the critical need for effective internal accounting controls throughout the entirety of a company’s operations."
This is Oracle's second slush fund-related FCPA infraction. In order to settle SEC claims relating to side funds hidden by Oracle India worth millions of dollars, the corporation paid $2 million in 2012.
According to the SEC's ruling, Oracle subsidiaries in India, Turkey, and the UAE used a variety of techniques to generate slush funds.
Because Oracle operated an indirect payment structure, where customers conducted certain sales through distributors and resellers, the subsidiaries were able to achieve this. Although Oracle's corporate staff in the US thoroughly screened these intermediaries, the SEC said that the system itself posed certain misuse concerns, including the possibility of unapproved slush funds being created.
Employees of an Oracle subsidiary are accused of working with complicit middlemen to make slush money by fraudulently obtaining larger-than-needed discounts for certain clients. The SEC said that because the company's rules and processes did not call for proof for these discount requests, slush money were made out of the discrepancy.
Another alleged plan involved Oracle subsidiary workers creating fictitious purchase orders for intermediaries to pay for marketing expenses, making sure to keep the requests under $5,000, the minimum required for verification. In 2018, Oracle Turkey sales staff were able to open purchase orders for intermediaries worth about $115,200.
According to the SEC, Oracle Turkey violated the company's internal regulations by using slush funds for bribery, travel, and lodging for end users for nearly ten years, from 2009 to 2019. After flying many important Turkish government officials to California in 2018, Oracle Turkey secured a sizable contract with the Turkish government, according to the agency. The flight was likely paid for using slush funds obtained via unlawful discounts and phony marketing purchase orders.
Oracle staff members are accused of using almost $130,000 in slush money to pay off UAE state officials in order to get six separate contracts between 2018 and 2019.
Employees of Oracle in India created a slush fund by asking for a 70% discount on business software for the country's railway system, ostensibly due to fierce competition for the bid, despite the fact that the railway already required the use of Oracle products for the project. According to the SEC, a French Oracle employee accepted the discount without obtaining more supporting information.
As part of its corrective actions, Oracle canceled contracts with complicit distributors and resellers and removed top regional managers and staff members who were allegedly implicated in FCPA breaches. More than 15 new roles in relevant fields were added internationally as the firm improved and extended its global compliance, risk, and control activities.
In order to strengthen internal audit, restrict financial incentives for third parties, boost control over the acceptance of discounts and purchase requisitions, and improve due diligence when onboarding new distributors and resellers, new rules and processes have been put in place. Employee education about internal controls, anti-corruption measures, and other compliance matters received more attention.
According to Michael Egbert, vice president of Oracle corporate communications, "outlined by the SEC is contrary to our core values and clear policies, and if we identify such behavior, we will take appropriate action."
By fLEXI tEAM