Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Kickback

What it is:

A kickback is a method of bribery in which something of value is exchanged for a favorable decision.

How it works (Example):

A kickback can take many forms, all of which are illegal.  For example, a building contractor might give a portion of what he or she is paid to a government official who approved the building plans for the project.  Or, a biomedical company might offer training, travel, or other benefits to doctors who recommend theev product to patients.  Another example would be a financial institution that provides cash or bonuses to mortgage brokers who convince borrowers to select their services over another provider.

Why it Matters:

There are a number of specific laws prohibiting kickbacks.  For example, a payment to a US government official may trigger a fine of three times of value of the kickback and a prison sentence of up to 15 years.  Bank kickbacks are prohibited under the Bank Bribery Amendments Act of 1985, which, in addition to the monetary fine, can also imprison offenders for up to 30 years. The Anti-Kickback Act of 1986 specifically prohibits government contractors from kickback schemes, and subjects violators to both civic and criminal charges.

Companies should steer clear of giving any special direct or indirect favors or making payments including finder's fees, gifts, and special payments to family or friends of a banker or government official.  Such actions may be perceived as kickbacks and subject to penalties/punishment.