Oracle will pay the US Securities and Exchange Commission (SEC) $2m to close off an investigation into secret payments at its Indian operation.
The SEC said that it has charged the enterprise IT firm for "failing to prevent" the subsidiary from "secretly setting aside money off the company's books that was eventually used to make unauthorised payments to phony vendors in India".
It added that an estimated $2.2m was held specifically for the purposes of paying out to phony stores that had not provided it with any services. Although more money was thought to have been involved, Oracle has agreed to pay $2m to settle the charges against the subsidiary, known as Oracle India Private Limited.
The SEC explained that as part of the money-funnelling operation, Oracle India might secure a deal for $3.9m, but just record revenues from the deal as $2.1m.
The errant money would be split between the distributor for "services rendered" and a "marketing and development fund". The SEC said that it has evidence of one case where Oracle India employees created and sent out eight invoices, for sums ranging from $110,000 to $396,000 to firms that neither worked with or for Oracle.
This, said the SEC, created the impression that the money might be used for bribery, something that Oracle would neither confirm nor deny.
As well as paying the $2m settlement, Oracle has fired the employees who were involved.
“In 2007, Oracle discovered that a few employees of its Indian subsidiary apparently had directed distributors to maintain side funds in violation of Oracle business practices. Following a thorough investigation, the employees involved were terminated," said Oracle's Deborah Hellinger.
Marc Fagel, director of the SEC's San Francisco Regional Office, said that the case shows the importance of firms proactively establishing policies and procedures to minimise the potential for unauthorised use of company funds.
"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," he said.
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