The US stock market regulator has fined tech giant Oracle for using slush funds to pay bribes. But what exactly are slush funds and how do they work in real life?
So, Oracle was recently ordered to pay $23 million (ie. Rs 188 crore) by the US Securities and Exchange Commission (SEC).
So, first, what is a slush fund? A slush fund is a fund or an account that is generally maintained by companies, governments, political parties (or even individuals) that is not properly accounted for, so that money from this account can be used for corrupt or illegal purposes without being tracked. Such funds are generally hidden and maintained separately from any money that is used for legitimate purposes.
Here's an example to better understand slush funds: Say a politician receives Rs 5,00,000 for his election campaign through public donations. Now, this politician hires employees on paper and pays them salaries into fake bank accounts using these ''campaign funds''.
How do slush funds work?
1. Managing the creation / cash inflow: Companies, governments, and even political parties generally receive a lot of cash from various sources like their day-to-day business operations, donations, grants, and other official or unofficial funding.
2. Creating an outlet from the system: But what happens when companies or governments have to shell out money for illegal activities? What if they want to bribe someone or shut someone up?
Since slush funds are accounts that are hidden from the general public, money is transferred into accounts under someone else's name and hidden in places where they wouldn't be easily found. (If you have watched Maharani on SonyLiv, you might remember how Bihar's Governor masterminded the fodder scam by diverting official funds into fake firms and indirectly receiving the money).
Many slush funds are also held secretly in foreign banks (ie Swiss banks), where they are protected under 'legal' facades like confidentiality laws.
3. Paying for the illegal expense: The money for the illegal activities is then paid out of these unofficial reserves so that both the source and the expense remain untraceable.
In the case of Oracle, once the money was out of the system, the employees used these funds to bribe foreign officials or provide benefits such as paying for these officials to attend tech conferences around the world.
And now, their little secret is out.