* Oracle pays $2 mln fine, no admission of wrongdoing
* Funds wrongly set aside for alleged India vendors -SEC
* Foreign Corrupt Practices Act said to be violated
* Oracle says has fired employees involved in deals
By Aruna Viswanatha and Jonathan Stempel
Aug 16 (Reuters) - Oracle Corp agreed to pay a $2 million fine to settle U.S. Securities and Exchange Commission charges that an India subsidiary secretly set aside money used to make unauthorized payments to phony vendors in that country.
Thursday's settlement, which involved no admission of wrongdoing, resolved charges that the world's third-largest software company violated the federal Foreign Corrupt Practices Act (FCPA).
In a complaint filed with the federal court in San Francisco, the SEC said that between 2005 and 2007, employees of Oracle India Private Ltd structured transactions with India's government that allowed distributors to "park" $2.2 million of proceeds, "creating the potential for bribery or embezzlement."
The SEC said the employees directed the distributors to make unauthorized payments to local vendors, several of which did no work for Oracle, and that some payments were documented with fake invoices.
It said the set asides occurred approximately 14 times and concerned eight government contracts, and that Oracle's books and records did not properly account for them.
"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," Marc Fagel, director of the SEC regional office in San Francisco, said in a statement.
Deborah Hellinger, an Oracle spokeswoman, said the Redwood Shores, California-based company fired the employees responsible for the set asides, and that their activity violated the company's business practices. She also said Oracle disclosed the matter to investigators and has cooperated with the SEC probe.
The case is among the earliest in which the SEC brought FCPA charges that did not allege actual bribery of foreign officials, but rather only the potential for bribery.
"We want (companies) to have effective controls to eliminate any possible avenues for illicit payments through local partners, and we are hoping this is a good reminder," Elena Ro, an SEC lawyer who worked on the Oracle case, said in an interview.
Oracle shares closed up 48 cents, or 1.5 percent, at $32.03 on the Nasdaq.
The case is SEC v. Oracle Corp, U.S. District Court, Northern District of California, No. 12-04310.