The United States Securities and Exchange Commission announced on Tuesday that Oracle Corp. will pay nearly $23 million to settle allegations that its subsidiaries in Turkey, the United Arab Emirates, and India used slush funds to bribe foreign authorities in order to obtain contracts. This is the second time the SEC has charged Oracle with violating the Foreign Corrupt Practices Act (“FCPA”), the first time in 2012.
Three cases of bribery and corruption at Oracle’s sales team end that happened in the UAE, Turkey, and India are mentioned in the SEC decision. All three of them seem to be carried out via a “Discount Scheme” method.
Oracle has self-reported this conduct of certain sales employees. Oracle is also stated to have reported the remedial acts it undertook, and extended cooperation to the regulators in the investigation. The SEC also states that Oracle shared facts developed in the course of its own internal investigations, voluntarily provided translations of key documents, and facilitated the staff’s requests to interview current and former employees of Oracle’s foreign subsidiaries.
This instance serves as a reminder of the vulnerability of sales organisations to bribery and corruption, as well as how they can be a major hotspot for FCPA compliance failures. Supply chains and procurement functions are known to be another hotspot.
Let’s dissect the SEC’s Oracle FCPA violation order in order to gain a better understanding.
The India team bribery misconduct
According to the SEC ruling, an Oracle India sales staffer in 2019 appears to have routed close to $400k to middlemen to maintain a slush fund for bribes in order to secure an engagement with a company connected to an Indian PSU.
So where did these funds come from?
As per reports, the staff exploited a discount plan where an excessive discount of 70% was demanded citing intense competition in the sale. However, it was found that Oracle solutions were a mandate for the contract by default and that there was no bidding or competition based on the documents that were made accessible on the PSU’s procurement website, likely due to the influence made in the deal. The money channeled to middlemen for bribes was created using this 70% margin permitted for discounts.
The Turkey team bribery misconduct
The misconduct reported in the Oracle Turkish team was of a very similar nature.
A week-long journey to California for four client representatives was organized by the account manager for the deal in 2018 in order to secure a contract with Turkey’s Ministry of Interior (“MOI”), an existing client. The trip’s stated goal was for the officials to attend a meeting at Oracle’s corporate headquarters; however, the meeting is reported to have only lasted fifteen to twenty minutes. The account manager hosted the MOI representatives in Los Angeles and Napa Valley for the remainder of the week.
Similar to the situation in India, the salesperson purportedly asked for permission for large discounts, citing fierce competition in the market, but in fact, the customer had not even held a competitive bidding procedure for this particular contract. Instead, all bidders responding to the tender offer were mandated by the customer to include Oracle products in their offer.
It appears that the same sales employee involved in this deal executed the same scheme with Turkey’s Social Security Institute (“SSI”). While public procurement records that were accessible at the time indicated that the client required Oracle products to fulfill the tender, indicating that there was no competition at all that warranted steep discounts, essentially indicating the influence created through bribes to secure orders and minimize competition.
The UAE team bribery misconduct
In 2018 and 2019, an Oracle UAE sales account manager for a state-owned entity client (“SOE”) paid approximately $130,000 in bribes to the SOE’s CTO in return for six different contracts over the same period. Through a similar excessive discount plan and the use of two complicit channel partners, the first three bribes were paid through a different entity (the “UAE Entity”). Despite the fact that the UAE Entity was not an Oracle-approved partner for doing business with state-owned enterprises, it was the entity that actually carried out the orders with the end client for the final three deals.
Why FCPA is important?
To combat corruption on a worldwide scale, it is morally correct to enact anti-bribery and anti-corruption policies. Regulations like the FCPA level the playing field by enforcing penalties for unfair advantages gained via bribery and corruption. Businesses maintain a high level of quality control, are more accountable and are even more efficient overall when they implement processes to comply with regulations like the FCPA.
FCPA, UKBA, and other anti-corruption laws state that a business can, under certain circumstances, be held liable for the corrupt acts that their employees, customers, or suppliers commit on their behalf, irrespective of whether or not the business was aware of the corrupt conduct.
Effective implementation of anti-bribery and anti-corruption policies requires identifying and educating front-line employees. In order to gather compliance risk signals from across the firm, it is important to train workers to recognize corruption activities and provide a mechanism for anonymous reporting and escalation.
The need of creating review procedures for excessive discount requests in purchasing and sales organizations, as well as having a strong due diligence system that can recognize associated companies, cannot be overstated when it comes to FCPA compliance measure. Several of the entities involved in these transactions as VARs, such in the case of India, are known to have engaged in similar operations in the past. Third-Party Risk Assessment systems that are capable of mining public data for credibility signals can be used to identify such entities. Today, it is crucial to use a due diligence method to check out potential partners before onboarding.
Talk to us to discuss your FCPA compliance requirements and understand how SignalX Third-Party Due Diligence automation can elevate your anti-bribery and anti-corruption initiatives. Let’s discuss how we help companies assess credibility, track compliance, and build trust in their supply chain, amongst vendors, distributors, customers, and partners. Generate a third-party risk matrix and scorecard now!