how a kickback works
kickbacks can take many forms but they all feature some sort of collusion between two parties the bookkeeper for a business or government office might approve an invoice for goods knowing that the bill is inflated the seller of the goods might then pay the bookkeeper part of the difference or some other kind of reward kickbacks can also be used to buy a positive recommendation for the kickback provider a government employee who s responsible for managing contractors on an infrastructure project such as the building of a bridge might receive a kickback for choosing one contractor over another this may result in a better qualified contractor not winning the bid kickback schemes are among the most difficult white collar crimes to detect and investigate procurement contracts can be fertile ground for kickback schemes contractors who are interested in winning the business are typically required to bid against each other in the granting of a government contract such as for office equipment rather than playing fair a contractor might reach out to a procurement officer and indicate that the officer would be rewarded if the contractor were to win the reward might be cash concert tickets or anything else of desired value kickback warning signsthese are some common kickback warning signs they don t necessarily mean that anything nefarious is going on but the more of them there are the greater the likelihood of a kickback scheme kickbacks increase the cost of doing business in countries around the world they also form the basis for much of the world s government corruption companies that are looking to supply products or services to countries known for corruption may find that they have to pay numerous officials to be considered for a contract the perception that a kickback scheme will go unpunished or that punishment will be light is a primary driver for officials who are willing to take bribes they may be poorly paid and see kickbacks as a way to supplement a meager salary in some cases the u s foreign corrupt practices act makes bribing foreign officials illegal for all companies listed with the securities and exchange commission sec any company organized in the united states or any citizen or resident even if it s the local custom 1examples of a kickbackwall street brokers sometimes route all orders to a particular exchange even though they re required by law to execute trades with the exchange that offers the best terms or best execution for their clients the broker may take a kickback in exchange for routing all of their trades to a particular exchange rather than choosing one that offers the most competitive price and has the highest likelihood of completing the trade promptly this can ultimately lead to slower execution and higher transaction costs for clients the industry refers to the practice as rebates these rebates may amount to only a fraction of a cent of each share traded but considerable sums can be accrued over time kickbacks can take the form of rebates or fraudulent billing for nonexistent services in the advertising business clients pay the price with higher costs or a lower level of service than they normally would expect for their money shrinking agency fees and a hard to understand digital marketplace provide the motivation and cover for such actions 