SEC says Oracle bribed officials, imposes $23M penalty

By Jim Tyson for CFODive.com

• The Securities and Exchange Commission (SEC) fined Oracle $23 million for allegedly using slush funds to bribe officials in Turkey, India and the United Arab Emirates (UAE) from 2016 until 2019.

• Oracle subsidiaries in Turkey and UAE used the slush funds to pay for trips by foreign officials to attend technology conferences in violation of company policies, the SEC said Tuesday. A subsidiary in Turkey paid for families of officials to join them on overseas meetings or side trips in California.

• “This matter highlights the critical need for effective internal accounting controls throughout the entirety of a company’s operations,” according to Charles Cain, head of the SEC’s Foreign Corrupt Practices Act unit. “The creation of off-book slush funds inherently gives rise to the risk those funds will be used improperly, which is exactly what happened here at Oracle’s Turkey, UAE and India subsidiaries.”

Oracle paid the SEC $2 million in 2012 to settle charges that one of its subsidiaries secretly funneled $2.2 million off company books to make unauthorized payments to bogus vendors in India, the SEC said. Several vendors involved in the scheme “were merely storefronts that did not provide any services to Oracle.”

The recent instances of alleged bribery hinged on Oracle’s use of an indirect sales model that relies on various types of local distributors, the SEC said. As early as 2012, Oracle recognized that the indirect model “presented certain risks of abuse — including the creation of improper slush funds.”

Oracle employees in its subsidiaries hatched a “scheme whereby larger discounts than required for legitimate business reasons were used in order to create slush funds with complicit” local distributors, the agency said.

For example, Oracle Turkey from 2009 until 2019 used excessive discounts and sham marketing reimbursement payments to create off-book slush funds at two distributors that sales employees referred to as “moneybox” or “pool,” the SEC said.

Oracle Turkey employees routinely used the slush funds to pay for travel and lodging by officials and other customers to attend meetings, including Oracle’s annual technology conference, the SEC said.

In May 2018, four officials from Turkey’s Interior Ministry traveled to Oracle’s headquarters in California for a single, 20-minute meeting followed by travel to Los Angeles, the Napa Valley and a theme park, the SEC said.

The junket was probably funded with slush funds, the agency said, noting that Oracle received a large order from the ministry at the end of the month.

“The conduct outlined by the SEC is contrary to our core values and clear policies, and if we identify such behavior, we will take appropriate action,” Michael Egbert, vice president of Oracle Corporate Communications, said in an email statement. Oracle in its settlement with the SEC neither admitted nor denied the agency’s findings.

During the period of illicit activity, Oracle sought to control the legal, audit and compliance functions of its subsidiaries on a regional basis from its U.S. headquarters, the SEC said. The company consolidated the financial statements of the subsidiaries onto its financial statements.

Oracle has taken several remedial steps, including improving its audits, terminating several employees and distributors, strengthening its global compliance, risk and control functions, improving its discount approval process, and tightening oversight of its purchase requisition approvals, the SEC said.