Software giant Oracle has agreed to pay $2 million to settle US regulators' charges that its Indian subsidiary violated foreign anti-bribery laws by secretly setting aside money to make unauthorised payments to phony vendors.

In a complaint filed with the federal court in San Francisco, the US Securities and Exchange Commission (SEC) Thursday alleged that during a period between 2005 and 2007, employees at Oracle India had distributors keep some funds off the books.

On 14 different occasions during the course of executing eight government contracts there, some Oracle India employees added some extra "margins" to deals they did with local distributors, it alleged.

The funds piled up to $2.2 million and were used to make payments to third parties, some of which proved to be either non-existent entities or storefronts, SEC said.

For example, according to the SEC's complaint, Oracle India secured a $3.9 million deal with India's ministry of information technology and communications in May 2006.

As instructed by Oracle India's then-sales director, only $2.1 million was sent to Oracle to record as revenue on the transaction, and the distributor kept $151,000 for services rendered.

Certain other Oracle India employees further instructed the distributor to park the remaining $1.7 million for "marketing development purposes".

Two months later, one of those same Oracle India employees created and provided to the distributor eight invoices for payments to purported third-party vendors ranging from $110,000 to $396,000.

In fact, none of these storefront-only third parties provided any services or were included on Oracle's approved vendor list, the SEC complaint said.

Thursday's settlement involved no admission of wrongdoing, but in a statement Oracle said: "In 2007, Oracle discovered that a few employees of its Indian subsidiary apparently had directed distributors to maintain side funds in violation of Oracle business practices.

"Following a thorough investigation, the employees involved were terminated. Oracle disclosed the matter to the government and has cooperated with the SEC in its investigation, culminating in today's announcement of a $2 million settlement."

"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," said Marc J. Fagel, director of the SEC's San Francisco Regional Office.