The United States Securities and Exchange Commission (SEC), the regulatory body overseeing the American market, fined Oracle $23 million for breaching the Foreign Corrupt Practices Act of 1977 (FCPA) in 2022. The violations occurred through Oracle's subsidiaries in Turkey, the UAE, and India, where they established and utilized undisclosed funds known as ‘slush funds’ to bribe government officials in exchange for business deals spanning the period between 2016 and 2019. The SEC found the slush funds being employed for various unauthorized purposes, including covering expenses for officials to attend technology conferences worldwide, which directly contravened the internal policies of Oracle.

Oracle India in Trouble

In 2019, an employee at Oracle India engaged in an excessive discount scheme during a transaction with a transportation company, the majority ownership of which belonged to the Ministry of Railways. The sales employees stated that due to intense competition from other original equipment manufacturers, the deal necessitated a substantial 70% discount on the software component of the agreement. Owing to the significant size of the discount, as per the internal policies, Oracle required approval from an employee based in France to authorize the request. Surprisingly, the designated Oracle representative approved the discount without requesting additional supporting documentation from the sales employee. However, the publicly available procurement website of the Indian state-owned enterprise (SOE) indicated that Oracle India faced no competition in the project. 

According to the case report, there were suspicious financial activities surrounding the transaction that suggested possible illicit dealings involving the payment of bribes or other inappropriate financial arrangements. A sales employee from the company maintained a spreadsheet with a $67,000 reserve intended for potential payments to a specific official from an Indian state-owned enterprise (SOE). Moreover, around $330,000 were channeled to an entity renowned for making payments to SOE officials, triggering suspicions of bribery, with an additional $62,000 that were transferred to an entity under the control of the sales employees overseeing the transaction.

Defaulters in the Past

Oracle India has faced scrutiny from the SEC in the past as well. In 2012, Oracle agreed to pay a $2 million penalty to settle allegations pertaining to FCPA violations related to books, records, and internal accounting controls. The SEC's complaint revealed that Oracle India allowed unauthorized side funds to be held by distributors between 2005 and 2007.

According to the SEC, in May 2006, Oracle India secured a $3.9 million deal with the Indian Ministry of Communications and Information Technology (now bifurcated into the Ministry of Communications and Ministry of Electronics and Information Technology since July 2016). However, as directed by Oracle India's former sales director, only $2.1 million was recorded as revenue on the transaction, with the distributor retaining $151,000 for rendered services.

Key takeaways

The SEC's findings underscore the need for companies to reassess the effectiveness of their compliance programs. It is crucial for companies to establish robust controls pertaining to discounts, purchase orders, business gratuities, and partnerships. These controls should encompass the following measures:

1. Requiring employees to provide valid business justifications and supporting documentation when requesting discounts, particularly in indirect transactions.
2. Ensuring that discounts are fully passed on to end customers through verification mechanisms.
3. Prohibiting employees from making payments to vendors for services (e.g., marketing) unless documented evidence verifies that the vendors have fulfilled their contractual obligations.
4. Imposing limitations on business gratuities offered to third parties, especially government officials.
5. Conducting thorough vetting and ongoing monitoring of partners engaged in business collaborations.
6. Taking decisive action to terminate partnerships involving misconduct or unethical behavior.

The case emphasizes the importance of conducting effective internal investigations. In order to enhance this process, corporates can start identifying and examining any unusual terms related to the misconduct under investigation (e.g., buffer, pool, wallet, and many more) and thoroughly reviewing relevant documents from individuals who use these terms.

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