Oracle, HP, IBM activities come under FBI bribery investigations

There are reports that Oracle is under investigation by the US Department of Justice, the SEC and the FBI for bribery in West and Central Africa. Oracle could face stiff penalties of up to $2 million per incident under the US Foreign Corrupt Practices Act which makes it illegal to bribe a government official anywhere in the world. In 2008 Siemens settled its FCPA case with the Feds for an unprecedented $1.6 billion on fines and disgorgement of profits. this would not be unconnected with several complaints from competitors especially in Nigeria where Oracle is in stiff competition with Microsoft, SAP and even IBM for big bucks government sector businesses.

It is expected that Oracle would cooperate fully and quickly with investigators because Federal sentencing guidelines allow for a reduction in penalties in the event of wrong doing if the firm can demonstrate the incident was an anomaly and that it gnerally has an effective compliance and ethics program in place. But avoiding a fine maybe only half the battle. The biggest bottom line impact could be the potential loss of business upon conviction if Oracle is banned from public sector contracting in many countries. Such was the fate of Siemens.

Important to note that no one knows the scale of the alleged offences under investigation nor the strength of the government’s case at this point in time. However, it is public knowledge about the broader scale of the corruption problem in Africa and its consequences. Take Oracle’s West Africa main base Cote d’Ivoire - it ranks an alarming 146th as one of the most corrupt countries on earth in the Transparency International Corruption Perception Index, life expectancy is a miserable 58 years with an average of 3.3 years of education provision and 23% of the population living on less than $1.25 per day.

In fact, Larry Ellison’s personal net worth of $39.5 billion according to Forbes exceeds Cote d’Ivoire’s GNP of $34.5 billion as estimated by the World Bank. Clearly, West African countries such as Cote d’Ivoire are economically vulnerable and create a vortex of social pressure for anyone doing business there. Under conditions of weak local enforcement and weak internal controls, companies can equally be pressured to succumb to the apparent norm of bribing (demand) or they can take their own permission to do so (supply). The results can be tragic as the German Ministry for International development puts it: "Corruption is one cause of poverty. It impedes poverty reduction. Poverty is one cause of corruption. It impedes the fight against corruption".

News of the investigation comes after a run of high profile challenges to Oracle’s reputation including removal from the Nasdaq OMX Sustainability index for lack of sustainability reporting, removal from the FTSE4Good Index for lack of Human Rights protections and a hostile shareholder resolution demanding a board sub committee for sustainability to ensure Oracle ‘walks its talk’ on sustainability.

HP is also currently under investigation for alleged bribery in Russia and IBM settled its FCPA case earlier this year for $10 million. IBM was accused of bribing for business in China and Korea and was found by the SEC to have had ‘deficient internal controls’. According to FTSE4Good criteria the entire tech industry, if engaged in public contracting in high risk countries, must be rated as high risk for bribery. The leading NGO/ think tank on the issue, Transparency International describes the problem of public contracting in high risk countries in its most recent annual report:

The enormous amounts of money flowing from government budgets through procurement create ideal opportunities for corruption. Contracts can be awarded without fair competition and politically connected companies can be favoured over competitors. Companies within the same industry can rig their bids, so each company gets a piece of the pie. Available research shows that corruption can add on as much as 50 per cent of a contract’s value.

The curious thing about the tech sector’s vulnerability to the risk of corruption is that of late it has celebrated the motherhood and apple pie virtues of sustainability for value creation. Its hard then to square up the problems at IBM, HP and Oracle with the promise of a Smarter Planet, A Connected World and an Eco Enterprise respectively. In recent years sustainability has become something of a gold rush though innovators would do well to remember to also take care of the basic hygiene factors - like corruction.