The Securities and Exchange Commission charged Oracle under the Foreign Corrupt Practices act for failing to keep its India subsidiary from creating a slush fund used to pay phony vendors.
According to an SEC statement, Oracle settled the charges by paying a $2 million fine. For Oracle, the SEC flap is the latest court setback. For example, Hewlett-Packard recently won lawsuit over Oracle's decision to not support Itanium. The Itanium suit is a problem for Oracle, which will likely appeal the setback since HP could garner significant damages. The Java loss vs. Google was also notable and could have given Oracle some return for its acquisition of Sun Microsystems. In addition, Oracle damages in its TomorrowNow lawsuit vs. SAP have been reduced dramatically.
The SEC said that employees of Oracle's India unit structured transactions with the government to allow distributors to hold $2.2 million in "unauthorized side funds." Those India employees then had distributors pay local vendors, which didn't provide anything to Oracle. The payments were covered up with bogus invoices.
Specifically, the hijinks occurred in 2005 to 2007. Oracle India sold enterprise software and services to the government through distributors and then parked funds off the books. The SEC provided an example of how the system worked:
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 store-front-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.
This story was first published as "Oracle pays fine to SEC over India subsidiary's side funds" at ZDNet's Between the Lines.