In August of 2012, Oracle settled charges of civil violations of the Foreign Corrupt Practices Act with the SEC for $2 million. According to the SEC press release:
The SEC alleges that certain employees of the India subsidiary of the Redwood Shores, Calif.-based enterprise systems firm structured transactions with India’s government on more than a dozen occasions in a way that enabled Oracle India’s distributors to hold approximately $2.2 million of the proceeds in unauthorized side funds. Those Oracle India employees then directed the distributors to make payments out of these side funds to purported local vendors, several of which were merely storefronts that did not provide any services to Oracle. Oracle’s subsidiary documented certain payments with fake invoices.
The first thing worth noting here is that there was no concurrent settlement with the Department of Justice, which means there was no evidence (or not enough) that the slush funds were used to bribe Indian officials. The settlement is strictly a civil penalty for Oracle’s Indian subsidiary failing to properly account for revenue, a violation of the records-keeping provision of the FCPA. Through the bad accounting, large amounts of cash were secretly funneled to Oracle India’s distributors, who in turn made large- and questionable- payments to sketchy vendors which seem to have no legitimate purpose. One certainly wonders where these payments went to, especially because most of the diverted revenue came from contracts with the Indian government.
Apparently these violations were uncovered by Oracle in an internal audit and voluntarily disclosed to the SEC, which surely factored in to the relatively small penalty. But the available facts also lead one to believe that the circumstances resulted in an investigation of possible bribery that did not bear any fruit. The so-called “storefront” vendors likely proved a dead end in the investigation. Rather than say “ok, we can’t prove anything, you’re off the hook”, the SEC took Oracle to task for the shady accounting and fake invoices. While some critics have said that penalizing Oracle for voluntarily reporting accounting errors is unduly harsh and should be outside the scope of the FCPA, the message from the SEC is that taking steps to make money disappear from the books is not OK- especially in India, even more so relating to a government contract.
One such critic is no less than the former Assistant Chief of the DOJ’s FCPA Unit, William Stuckwisch, who recently penned an article critical of the SEC’s investigation of Oracle:
In Oracle, the SEC faulted the US parent corporation for not auditing local distributors hired by its Indian subsidiary, without alleging that the distributors (or anyone else) had made any improper payment to any foreign government official. Oracle is the latest example of the SEC’s expansive enforcement of the FCPA’s internal controls provision, and it potentially paints a bleak picture—one in which the provision is essentially enforced as a strict liability statute that means whatever the SEC says it means (after the fact).”
Did we remember to emphasize former Assistant Chief? Anyone want to guess what Stuckwisch does now, in light of his pointed remarks? If you said “working for a high-powered law firm defending FCPA violators”, congratulations, you are not only cynical but 100% correct. What Stuckwisch is doing here is a prototypical example of government regulators jumping ship to make the big bucks defending the same people they used to investigate. Not to say Stuckwisch’s comments are completely without merit- Oracle has been frequently recognized for its corporate ethics (for what that’s worth), has a seemingly robust compliance program, and voluntarily disclosed the violations when the parent company became aware of them. As he points out, like a good defense attorney, isn’t that all an upstanding corporation can do? No company can keep track of or prevent the malfeasance or ineptitude of every single employee or third part with which it transacts.
We think the SEC’s counter-argument to that is: It’s unacceptable for corporations to let large amounts of cash disappear into the hands of shady intermediaries, especially in countries notorious for corruption, especially when dealing with government contracts. We don’t have to find the smoking gun- the briefcase full of cash or the secret documents authorizing the bribes. If you or your subsidiaries lose large amounts of money through creative accounting- whether the SEC or DOJ can prove intent or prove a bribe occurred- that is enough in itself to warrant a penalty. The SEC is availing itself of the broad authority granted to it under the FCPA accounting provisions, and of the lower burden of proof required for civil cases rather than criminal prosecution.
Of course there are no allegations of bribery mentioned anywhere in the SEC settlement, as Stuckwisch points out, but this tells us nothing except that the investigation could not produce any substantial evidence of Oracle India’s slush funds being used for bribes. What Oracle India planned to do with this money is anyone’s guess- perhaps it wasn’t going to be a bribe but embezzled or stolen by employees. But the beauty of the FCPA’s accounting provisions is that it isn’t necessary to find out where the money ended up. The SEC need not rely on a whistleblower, a cooperative witness, smoking gun documents, or the cooperation of some fly-by-night storefront in India.
So while corporate defense firms will cry about government overreach and their clients being presumed guilty until proven innocent, the fact of the matter is that the Oracle settlement is, at least in our opinion, the FCPA working exactly as it was intended- to keep corporations from paying third parties to do their dirty work and hiding behind a shield of ignorance.
Whistleblower Justice Network Can Help You
Whistleblower Justice Network partners with whistleblowers worldwide to expose worldwide bribery schemes that violate the Foreign Corrupt Practices Act. Utilizing the SEC Whistleblower Program, we aid whistleblowers in bringing corporations that expand their business interests through bribery to justice.
If you have meaningful information regarding corporate bribery that you believe is in violation of the FCPA, Whistleblower Justice Network can help. Working alongside world-class legal counsel, we will ensure you are protected to the fullest extent of the law and that you receive credit for the information you bring to the U.S. government. Partnering with whistleblowers is all we do. Visit us at www.whistleblowerjustice.net, or call us at 844-WJN-4ALL.