On September 27, the SEC announced that the technology firm Oracle had agreed to pay $23 million to settle allegations that it violated the Foreign Corrupt Practices Act by using off-the-books slush funds to bribe foreign government officials to obtain business.
The FCPA makes it illegal for U.S. companies or foreign companies with certain ties to the U.S. to pay money or other forms of bribes to foreign officials to gain or keep business. The law also requires companies to keep accurate books and records and have adequate internal accounting controls.
The SEC found that Oracle’s subsidiaries financed the improper slush funds held by their resellers and distributors in two ways. First, employees in India, Turkey, and the United Arab Emirates requested discounts off Oracle’s list prices that were larger than required for legitimate business purposes. Employees often claimed, falsely, that the discounts were necessary because potential customers had budget caps or were considering purchasing from different companies.
Second, the SEC alleged that employees in Turkey and the UAE used purchase orders to allegedly “reimburse” distributors and re-sellers for marketing expenses they had not actually incurred.
Oracle’s subsidiaries took advantage of a weakness in the company’s internal controls: Oracle did not require documentary support to substantiate discount requests or purchase orders under $5,000.
The SEC alleged that from 2009–2019, Oracle Turkey’s management, including its country leader, knew about and allowed the use of the slush funds held by two distributors to pay for travel of high-end customers, including foreign officials and their families.
One of those trips occurred in connection with Oracle Turkey’s attempt to win a contract with Turkey’s Interior Ministry to support the creation of an emergency call system in the country. In May 2018, Oracle paid for a week-long trip to California for four Interior Ministry officials, purportedly for a business meeting at Oracle’s headquarters there. However, the meeting lasted less than half an hour. During the rest of the week, an Oracle Turkey employee entertained the officials in Los Angeles and Napa Valley and took them to a theme park. Later that month, Oracle received an order from the Interior Ministry related to the emergency call system project.
The SEC also found that Oracle Turkey used large discounts to fund cash bribes to officials at Turkey’s Social Security Institute in connection with two projects in 2016 and 2017.
The SEC alleged that employees at Oracle’s UAE subsidiary used excessive discounts and sham marketing reimbursement to pay for travel for customers, including foreign officials, to Oracle’s annual technology conference in violation of company policy. Oracle UAE also paid an official at a UAE state-owned enterprise $130,000 to obtain six contracts.
In India, the SEC found that Oracle’s sales employees used excessive discounts to fund payments to officials at a company owned by India’s Ministry of Railways to secure a deal. Oracle India paid roughly $330,000 to an entity that was known to pay Ministry officials and another $62,000 to an entity controlled by the very officials at the Ministry who were responsible for the deal.
Under the settlement with the SEC, Oracle will disgorge over $7 million of ill-gotten gains and pay interest and a $15 million civil penalty.
The settlement is notable because this is not Oracle’s first run in with the SEC over FCPA violations. In 2012, Oracle paid a $2 million penalty stemming from its Indian subsidiary’s use of hidden slush funds to pay purported vendors, several of which provided no services to Oracle, creating a risk that the money would be used to bribe foreign officials.
While it is unknown whether a whistleblower helped expose Oracle’s latest FCPA violations, the SEC often relies on whistleblowers to uncover bribery schemes. People who are aware of potential FCPA violations can report them to the SEC confidentially or, if represented by a lawyer, anonymously.