Kickbacks: Meaning, Implications, Examples, Forms & FAQs

An unlawful payment used to cover preferential treatment or any other kind of inappropriate service obtained is known as a kickback. Money, gifts, credits, or anything else of value can be used as kickbacks. Kickbacks are a corrupt practice that makes it difficult for employees or public officials to make impartial judgments. A common term used to describe kickbacks is ‘bribery’.

Key Takeaways

• An illegal payment used to cover preferential treatment or any other kind of inappropriate service obtained is known as a kickback.
• A common term used to describe kickbacks is ‘bribery’.
• Kickbacks come in a variety of types and forms, but they always involve some kind of collaboration between two parties.
• Kickbacks are a corrupt practice that interferes with an employee’s or a public officer’s ability to work.

1. Variety of Forms: Kickbacks come in a variety of shapes and sizes, but they always involve some kind of collaboration between two parties. For instance, even when they are aware that the invoice for products is inflated, the accountant for a company or government agency may nevertheless authorize it. The bookkeeper may then receive a portion of the difference from the goods seller (or some other type of payment).

2. Difficulty of Detection: One of the hardest white-collar crimes to identify and look into is a kickback scheme.

3. Influence on Decision-Making: Additionally, kickbacks might be used to purchase a recommendation that favors the bribe supplier. For instance, selecting one contractor over another in the course of managing contractors for a government project like building a bridge may result in the employee receiving a bribe. A more competent contractor might not win the bid as a result of this.

4. Prevalence in Procurement Contracts: Kickback systems can thrive on procurement contracts. For instance, bids from contractors hoping to win the company are usually needed when a government contract is awarded for office equipment. Instead of being fair, a contractor may approach a procurement officer and suggest that the officer would receive a payment if the contractor prevailed. Money, tickets to a performance, etc., might be the prize.

5. Warning Signs: These are a few typical warning indicators of kickbacks. They don’t always indicate that something sinister is happening, but the possibility of a kickback scheme increases with their number.

• A construction company, XYZ Inc., is bidding on a government contract to build a new hospital.
• A government official Mr. Smith is the responsible person for reviewing bids, and he has the authority to choose the winning contractor.
• Company XYZ Inc. offers official Smith a hefty bribe (kickback) in exchange for awarding them the contract for the hospital, regardless of whether their bid is the most competitive.
• This kickback could be a cash payment, a luxury vacation, or even a promise of a future job after they leave office.
• If official Mr. Smith accepts the kickback and awards the contract to Company XYZ Inc., even if their bid is inferior, it’s a clear example of a kickback scheme.

Some common forms of kickbacks are:

• Absence of a competitive bidding procedure (or rejection of cheaper offers).
• Insufficient oversight during the procurement procedure.
• Above-average costs for products or services.
• It is suggested to utilize a seller that is avoided by others.
• A supplier having a history of legal or regulatory issues.
• Employees and vendors get along too well.
• Staff is under pressure from management to use a specific vendor.
• Vendors operate in a sector where bribery is prevalent.
• Workers still utilize suppliers who offer subpar goods or services.
• Delivery deadlines are consistently missed.

Kickbacks are a type of bribery that damage trust, sabotage honest competition, and negatively affect many facets of society. Kickbacks are unethical payments or perks given in return for special treatment; they usually have the effect of swaying judgments that ought to be made on the basis of objective standards or merit. Kickbacks are prohibited and can have serious repercussions for the person offering and receiving the bribe.

What are the negative effects of kickbacks?

Inflating contract prices, misallocating resources, and lowering competitiveness are all possible outcomes of kickback schemes. These negative consequences reduce profitability, restrict prospects for expansion, and obstruct the establishment of sustainable businesses.

Who offers and accepts kickbacks?

Kickbacks may happen in a wide range of businesses and involve different individuals. These are a few instances:

• Entrepreneurs: Providing bribes to get agreements or contracts.
• Authorities: Taking bribes in return for special treatment in areas such as contract or permission issuance.
• Healthcare Professionals: Physicians and pharmacists who accept payments in exchange for recommending or writing prescriptions for certain drugs or services.

Are kickbacks prohibited by law?

Yes, most nations forbid kickbacks. Federal laws in the United States forbid bribery, including the offering and acceptance of kickbacks.

What are the consequences of kickbacks?

When a kickback is given, both the provider and the recipient may suffer serious repercussions, such as:

• Fines: Judges have the authority to impose hefty monetary sanctions.
• Imprisonment: If the situation gets serious, jail time can be the outcome.
• Reputational Damage: People and businesses engaged in bribery may experience long-term damage to their reputations.

How can kickbacks be prevented?

There are several strategies to stop kickbacks:

• Robust Internal Controls: Companies should have strong internal controls to identify suspicious activities and explicit policies against kickbacks.
• Ethical Guidelines: Clearly defined ethical standards that encourage openness and forbid presenting or taking anything that could have an impact on choices.
• Programs for Whistleblowers: encouraging staff members to use anonymous reporting channels to disclose possible kickbacks.
• Law Enforcement: Through investigations and convictions, vigorous law enforcement activities serve to dissuade potential criminals.

Who monitors the cases of kickbacks?

The cases of kickbacks are not looked at by specific authorities. However, the majority of the Department of Justice and the SEC (Securities and Exchange Commission) overlook the cases of kickbacks. The Foreign Corrupt Practices Act (FCPA) is also a major act to monitor cases of kickbacks.

Reference:

• U.S. Securities and Exchange Commission

Note: The information provided is sourced from various websites and collected data; if discrepancies are identified, kindly reach out to us through comments for prompt correction.