SAN FRANCISCO (CN) – Employees of Oracle’s Indian subsidiary secretly stashed $2.2 million in a side fund, “creating the potential for bribery or embezzlement,” the SEC claims in Federal Court.
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The agency claims Oracle Corp. violated the Foreign Corrupt Practices Act when employees of Indian subsidiary Oracle India Private Limited “secretly ‘parked’ a portion of the proceeds from certain sales to the Indian government and put the money to unauthorized use.”
Oracle India employees then steered payments from the side fund to purported local “vendors,” ostensibly for “marketing expenses,” according to the lawsuit.
“Several of the ‘vendors’ were merely storefronts that did not provide any services,” the SEC claims.
It claims the scheme occurred between 2005 and 2007, and Oracle failed to audit the distributors’ payments to ensure they were being used properly.
“This control would have enabled Oracle to check that payments were made to appropriate recipients,” the lawsuit states.
The parked money was completely off the books, according to the SEC, creating “a risk that they potentially could be used for illicit means, such as bribery or embezzlement.”
The agency points to the example of Oracle India’s largest government contract, a $3.9 million deal with India’s Ministry of Information Technology and Communications, in May 2006.
Oracle’s distributor accepted the full $3.9 million from the Indian government and sent about $2.1 million back to the California-based software company, according to the lawsuit. Oracle India employees allegedly told the distributor to keep $151,000 for its services and park the remaining $1.7 million in a side fund for “marketing development purposes.” Oracle India then gave the distributor eight invoices for payments to third parties, which turned out to be fake, the SEC claims.
It notes that Oracle launched an internal investigation on a tip from its Asia division. Oracle India’s senior channel sales manager had resigned and left the company by November 2007, and Oracle fired four other Oracle India employees based on the investigation.
Oracle has since taken “other remedial measures,” including conducting greater due diligence, barring the creation of side funds and severing its relationship with the distributor involved in the transactions, according to the SEC.
Nonetheless, the SEC wants Oracle to pay a civil fine for its alleged Exchange Act violations.
Marc Fagel is representing the agency.