Types of Business Corruption
29 SEP 2017
Corruption in business is a more commonplace occurrence than you might suspect. It takes on many faces and is not always blatant, but can be subtle to the outside observer. Some forms of corruption are common and are grudgingly accepted, becoming the price of doing business. The cost of corruption is often passed to consumers, and it stifles competition and subverts the free market.
Bribery is by far the most prolific form of corruption in business. It can take place between two private individuals or a public official and a private individual. Bribes take many forms. Sometimes referred to as "grease" money, public employees may require payment before granting businesses permits or licenses. Public officials may also demand bribes to accelerate approval processes and to obtain state grants, subsidies, contracts and loans. Small businesses may bribe larger companies to get contracts, and in newly developed countries, small businesses may have to provide additional payments to local utilities in order to receive phone service and electricity.
Fraud is another form of business corruption by which officers of the company misuse their office for personal gain. Numerous cases of this type of corruption continue to surface in the United States in both the public and private sectors. In many cases, particularly related to publicly owned businesses, executives convert public dollars to private gain by authorizing bonuses for themselves; payouts of vacation or other accrued time to which they are not entitled; or enriching their own salaries at the expense of lower level employees. These payouts then increase the public pensions the corrupt individuals receive, and which the taxpayers must fund.
Taking the company's goods or funds for personal gain is called embezzlement. Persons with the authority to redirect the funds, or the ability to hide the fact that the funds are missing, are typically the offenders. Embezzlement can involve taking small amounts of money over time, called "skimming," taking large amounts of goods or money at one time, then disappearing or under reporting income and keeping the difference. Additionally, embezzlement by its nature involves income tax evasion, as the embezzlers may not report the additional income to the IRS as required.
Kickbacks are payments made to businesses by vendors in exchange for contracts that overinflate the cost of the work performed at the expense of those receiving the services, and paying for the contract. In New York, for example, a building management company went out to bid on an elevator project. The bid included a kickback to the management company. The work that was done was substandard and the residents of the co-op were forced to hire another contractor to repair the prior company's work and to complete the job.
- 1 Worldbank: Expert Group Meeting on “Small Business Development and Corruption”; March 2006
- 2 Legal Information Institute: Embezzlement; August 2010
- 3 The New York Times; Co-op Manager Admits Guilt....; Julian E. Barnes; March 2000
- 4 The New York Times; 8 Charged With Getting Kickbacks at 31 Buildings; Charles V. Bagli; June 1999