[비즈한국] A court ruling has revealed that a former executive at Oracle Korea misappropriated billions of won in price differences by abusing the headquarters' discount system during the sale of defense and public software. Despite the fact that there was virtually no competition for these projects, the executive fabricated the existence of competitors to secure approval for discounts of up to 89% from headquarters, and then funneled the difference between the funds received from the clients and the amount paid to Oracle through various companies. A portion of the funds created in this manner was also used for lobbying defense project officials.
The 14th Criminal Division of the Seoul Northern District Court sentenced the former Oracle Korea managing director, identified by the surname Yoon, to five years in prison and a fine of 500 million won. Most of the other 13 individuals indicted alongside him were also found guilty, with the sales manager of a distributor receiving two and a half years in prison, and an individual involved in money laundering receiving a two-year sentence. This ruling is a first-instance decision, and the sentences are not yet final.
How Was an 89% Discount Rate Approved?
The scandal involving approximately 6.4 billion won in illicit funds occurred during the execution of the "Defense On-Nara 2.0 Transition" project and the "Military Integration Applied SW Migration" project, ordered by the Defense Integrated Data Center and the Defense Information System Agency under the Ministry of National Defense, respectively.
Oracle Korea, the local subsidiary of the US company, is the de facto standard provider in the domestic public database management system (DBMS) market, holding a market share of approximately 60%. Oracle generates over 1 trillion won in annual revenue in Korea through its local subsidiary. Last year, the company recorded approximately 1.0514 trillion won in revenue and approximately 22.27 billion won in operating profit.
Coincidentally, this market influence became the backdrop for the case. Direct purchases through KONEPS (the public procurement platform) are typically subject to a 52–54% discount compared to the list price. Oracle headquarters requires a separate approval process if a higher discount rate is needed. Key systems include the NSR (Non-Standard Discount Request), where partners request exceptional discounts, and the DAS (Discount Approval System), where sales representatives obtain final approval for the discount rate.
The position of a sales representative provided access to these discount approval procedures. According to the court, Yoon instructed staff to include false information in NSR requests, claiming that competitors were involved in projects where no real competition actually existed; based on this, he secured approval for exceptional discount rates. As a result, high discount rates of 89% and 81% were applied to the "Defense On-Nara 2.0 Transition" project and the "Military Integration Applied SW Migration" project, respectively.
Funds Flowed to 'Ghost' Clients
In a normal transaction, the software payment made by the ordering agency should be settled with Oracle through the sales company and the distributor. However, in this case, the difference that was not paid to Oracle was diverted to several intermediary companies.
This process involved companies that were effectively "ghost companies" without technical support staff, and even firms with no direct connection to the supply of Oracle products. These companies issued false tax invoices as if they had actually traded goods or services, making the flow of money appear to be a legitimate transaction.
Companies run by people close to Yoon were also included in this process. A company where Yoon served as an auditor, and where his brother-in-law and sister-in-law held positions as CEO and director, also appeared in the money trail.
In this manner, approximately 6.4 billion won was funneled out of the two defense projects without being settled with Oracle. Rather than simply siphoning off company money at once, they created the difference through fake discounts and laundered the origin of the funds through multiple companies to make them usable. This is why the case has centered on the fact that the money was effectively used as a "slush fund."
The same method was repeated in later defense projects. During the software procurement process for the "Next-Generation Intelligent SDDC-based Defense Integrated Data Center Construction Project," the budget was calculated based on inflated estimates, and 10 billion won of the final payment was found to have flowed to a separate partner account rather than to a legitimate business partner.
Some Misappropriated Funds Used for Lobbying
A portion of the siphoned funds was also used for lobbying officials related to defense projects.
Yoon was found to have provided a total of approximately 40 million won to an official at the Korea Institute for Defense Analyses—who was dispatched to the Defense Integrated Data Center to handle project planning, management, and supervision—by covering overseas travel expenses for the official and their spouse, and by paying out false business income in the name of the official's spouse.
In its sentencing, the court pointed out, "The national budget, funded by the precious taxes of the people, has fallen victim to embezzlement," adding, "Given the circumstances and methods of the crime, the nature of the offense is very grave."
From the industry's perspective, the "lock-in" structure of foreign software that accounts for a massive portion of the domestic public DBMS market and the distribution practice where margins are generated opaquely through multi-stage distributor-partner chains are not issues unique to this case. Until extensive compliance-related internal training was mandated, many distributors openly engaged in such margin-padding tricks.
An IT service industry official explained, "In public software sales, discount approval is extremely complex and involves many processes between the vendor and the distributor. From a distributor's standpoint, they have no choice but to adjust the paperwork if the vendor's sales representative requests it. There was a time when writing plausible requests was considered 'sales ability,' but that is now improving."
Oracle Korea is technically a victim in that its own employee deceived the company to siphon off sales proceeds. However, it seems difficult for the company to avoid criticism regarding its internal controls, as a single executive was able to secure high discount approvals and move large sums of money through distributors and partner companies.
Regarding the ruling, as well as personnel actions taken against Yoon and future prevention measures, Oracle stated, "We have no separate statement."