In a deal with the US authorities, Oracle will pay $23 million for bribery schemes that were allegedly carried out for nearly three years by foreign firm sales reps and partners.
According to the U.S. Securities and Exchange Commission, this is the second time the Austin, Texas-based database services and cloud vendor has been discovered creating slush funds abroad. The fresh accusations relate to fraud operations carried out by Oracle's affiliates in India, the United Arab Emirates, and Turkey.
The SEC's findings, which relate to conduct taken between 2016 and 2019, were not acknowledged by Oracle. However, the SEC reports that Oracle did take action to stop such schemes from happening again. In addition to a $15 million fine, Oracle will disgorge $8 million in earnings earned through illegal activity.
Oracle's cooperation with the inquiry, information sharing, provision of essential document translations, and facilitation of interviews with current and former workers of the overseas companies were factors in the SEC's decision to settle with Oracle.
The schemes illustrate "the vital necessity for robust internal accounting controls throughout the full of a company's activities," according to Charles Cain, head of the SEC's Foreign Corrupt Practices Act (FCPA) branch.
According to the SEC, the Capital Markets Board of Turkey, the Securities and Exchange Board of India, and the Emirates Securities and Commodities Authority all provided assistance with the inquiry.
In contravention of Oracle standards and procedures, the Oracle subsidiaries utilised slush funds to pay for foreign dignitaries to attend technology conferences. Officials' families occasionally travelled with them to international conferences and "side trips" to California at the expense of Turkey subsidiary employees. The SEC claims that Oracle's activities broke the FCPA.
The SEC recently penalised Oracle in 2012 for violating the FCPA when an Oracle subsidiary covertly put aside roughly $2 million from the company's books to pay "fake vendors in India." The Oracle subsidiaries used slush funds to pay for foreign officials attending technology conferences. Some of the fraudulent suppliers were stores that offered Oracle no services, and Oracle India staff covered their tracks by issuing fictitious invoices.
According to the SEC, Oracle paid a $2 million fine to resolve the 2012 allegations related to acts Oracle India did between 2005 and 2007.
According to the SEC, Oracle separated from individuals with supervisory duties and fired top regional managers and employees involved in the misbehaviour. Distributors and resellers responsible for the wrongdoing were fired.
According to the SEC, Oracle reinforced and grew its global compliance, risk, and control capabilities, adding 15 new positions and teams, to stop further misbehaviour.
Additionally, Oracle enhanced the approval procedure for discounts, established transactional controls, tightened control over the approval process for purchases and acquisitions, and restricted financial incentives and professional courtesy for third parties, particularly in public sector transactions.
According to the SEC, the business also made improvements to the customer registration and payment verification procedures associated to its technology conferences and "significantly" decreased the number of partners in its Oracle PartnerNetwork. The organisation began a compliance data analytics programme, strengthened anti-corruption training for both workers and third parties, and improved the due diligence procedures for third parties.
The SEC noted that Oracle's channel partner programme, value-added resellers (VARs), and value-added distributors (VADs) were all a part of the scheme in its cease-and-desist order against Oracle.
The order states that while Oracle used the indirect sales model for a variety of legitimate business purposes, such as to satisfy payment terms or comply with local law requirements, "it recognised since at least 2012 that the indirect model also presented certain risks of abuse, including the creation of improper slush funds."
As part of the scam, sales representatives at Oracle affiliates asked for purchase orders that were intended to pay distributors and resellers back for costs associated with promoting Oracle's products. Orders under $5,000 could be approved by first-level supervisors without supporting documentation demonstrating that the resellers and distributors performed any work.
In order to enhance the amount of money accessible in the slush funds maintained at certain channel partners, Oracle subsidiary workers headquartered in Turkey and the United Arab Emirates asked for phoney marketing reimbursements to VADs and VARs, according to the SEC. These salespeople's immediate managers, who were also engaged in the plan, approved the false requests.
"Oracle Subsidiary employees were able to develop a scheme where bigger discounts than required for legitimate business reasons were used to build slush funds with complicit VADs or VARs," the SEC added. The arrangement was successful because the channel partners kept some of the surplus deal margin.
According to the SEC, Oracle Turkey staff members "regularly used the slush funds to pay for the travel and lodging expenses of end-user customers, including foreign officials, to attend annual technology conferences in Turkey and the United States, including Oracle's own annual technology conference" between 2009 and 2019.
The SEC claims that in certain cases, these money were also utilised to cover side trips to Los Angeles and Napa Valley as well as the lodging and travel costs of the spouses and kids of foreign officials.
The SEC went on to say that Oracle Turkey's management, including the president of the nation, was aware of and approved of the conduct. Oracle lacks records pertaining to the magnitude and scope of how these off-book slush monies were spent, given how these scams were carried out.
In order to get a big discount on a deal with Turkey's Social Security Institute (SSI), an Oracle Turkey sales representative in 2016 concocted a plan in which he falsely asserted that there was fierce competition from other vendors.
A U.S.-based Oracle employee accepted the sale without requesting any extra justification for the discount.The SEC claims that instead of fierce competition, Turkey's public procurement documents at the time showed that the SSI needed Oracle products to complete the bidding, precluding competition from other original equipment manufacturers. The Turkey Sales Representative increased the amount of money held in a slush fund that the VAD kept for the deal by using the surplus margin.
The following year, the same Oracle Turkey sales person created a slush fund for SSI executives by using a reseller working on a database infrastructure purchase. According to the SEC, Oracle U.S. employees authorised "a large discount" for the trade, earning a margin of nearly $1.1 million, "only some of which was used to acquire legal products such as software licences."
The majority of the cash were transferred to other entities, including one that was under the authority of (an SSI) Intermediary, while the Turkey VAR obediently carried out the Turkey Sales Representative's orders. "At least $185,605 was paid to the Intermediary-controlled entity that was in charge of giving the cash bribes to SSI officials."
The same Oracle Turkey employee "attempted to improperly influence" Ministry of Interior (MOI) authorities for work on the nation's 112 emergency call system, which is comparable to 911 in the U.S., in 2018.
According to the SEC, the Oracle Turkey employee sent four ministry representatives to California for a week "that was presumably paid for with cash from a VAD account."
The ministry's "budgetary limitations" and "strong competition from other original equipment manufacturers" were the reasons the Oracle Turkey sales account manager said he needed an unreasonable, out-of-the-ordinary discount for the project, according to the SEC.
The SEC claims that "in actuality, the MOI did not conduct a competitive bidding process for this contract." The MOI demanded that all bidders who responded to the tender offer include Oracle goods in their offers, instead.
Oracle's main office at the time was in Redwood Shores, California. Ministry representatives visited Oracle's corporate headquarters for around 15 minutes while in California. Together, they travelled to Los Angeles, Napa Valley, and an unknown theme park over the course of the following week.
According to the SEC, Oracle Turkey obtained "a sizable follow-on order linked to the" emergency call system project.
From at least 2014 to 2019, Oracle United Arab Emirates (UAE) sales representatives allegedly exploited excessive discounts and marketing reimbursement payments to create "wallets" at resellers.
In contravention of Oracle's corporate regulations, "Oracle UAE sales employees guided the VARs on how to spend the funds and used the wallets to pay for the travel and lodging costs of end customers, including foreign dignitaries, to attend Oracle's annual technology conference."
A state-owned company's chief technology officer received around $130,000 in bribery from an Oracle UAE sales account manager in exchange for six contracts between 2018 and 2019. The first three bribes were paid for by two resellers who gave out disproportionate discounts. The bribes were paid by a third party that was not a public sector reseller authorised by Oracle.
According to the SEC, the entity's sole purpose was to pay bribes; nonetheless, despite not being an authorised Oracle reseller for public sector transactions, it was used as a reseller for the final three purchases.
In 2019, Oracle India sales representatives overcharged a transportation firm that was primarily owned by the Indian Ministry of Railways.
Oracle India sales representatives demanded a 70 percent software discount as part of the plan, citing fierce competition from other vendors. The request was granted by an Oracle employee in France without the need for additional documentation. Actually, Oracle products were required anyway, according to the deal's publicly accessible procurement page.
According to the SEC, "one of the sales representatives participating in the deal kept a spreadsheet that stated $67,000 was the 'buffer' available to possibly make payments to a certain Indian" official. A total of about $330,000 was transferred to a company with a history of paying (Indian) authorities, and another $62,000 was given to a business that was under the authority of the sales representatives in charge of the deal.
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