Enterprise software giant Oracle Corp.'s (ORCL) agreed Thursday to pay a $2 million penalty to settle the U.S. Securities Exchange Commission's charges of violating Foreign Corrupt Practices Act (FCPA) while making secret payments in India.
The SEC release stated that, "Without admitting or denying the SEC's allegations, Oracle consented to the entry of a final judgment ordering the company to pay the $2 million penalty and permanently enjoining it from future violations of these provisions."
The SEC has charged the Redwood City, California-based parent company for failing to prevent its Indian subsidiary Oracle India Pvt. Ltd. from secretly setting aside $2.2 million for making unauthorized payments to phony Indian vendors who were not on Oracle's approved vendor list.
The SEC noted that certain employees of Oracle India structured more than a dozen transactions with the Indian government between 2005 and 2007 that helped Oracle India's distributors to secretly set aside about $2.2 million without reflecting it in the company's books.
Oracle India sold software licenses and services to the Indian government through local distributors.
The distributors were then directed by the employees to make payments out of these side funds to phony local vendors, seemingly "used for illicit purposes such as bribery or embezzlement."
According to the complaint filed in U.S. District Court for the Northern District of California, the SEC alleged that Oracle violated the FCPA's books and records provisions and internal controls provisions by failing to accurately record the side funds that Oracle India maintained with its distributors.
"Through its subsidiary's use of secret cash cushions, Oracle exposed itself to the risk that these hidden funds would be put to illegal use," said Marc Fagel, Director of the SEC's San Francisco Regional Office.
While slapping a penalty on Oracle, the SEC said it has taken into account "Oracle's voluntary disclosure of the conduct in India and its cooperation with the SEC's investigation, as well as remedial measures taken by the company."
ORCL closed Thursday's regular trading session at $32.03, up $0.48 or 1.52% on a volume of 20.33 million shares.
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