Potential Schemes: Hidden Interests

Project or government officials can take undisclosed financial interests in companies or suppliers that provide goods, works and services to the project.  Such firms often are shell companies, without permanent staff or significant assets, that operate out of residences or other business fronts.

RED FLAGS OF HIDDEN INTERESTS

Essentially the same as bribes and kickbacks, including primarily:

  • Reports or complaints that a project or government official has an interest in a contractor or supplier (such interests are often known to project staff and contractors)
  • The use of bid rigging schemes and other acts by project officials that tend to steer contracts to certain companies
  • Project or government officials pressure contractors to select a particular subcontractor or supplier
  • A bidder or supplier is not listed on the internet or in business or telephone directories
  • A company’s address is a residence or non-business location
  • A contractor or supplier provides a wide variety of disparate goods and services at high prices (indicating it is a broker owned by an insider)
  • A contractor subcontracts all or most of the work received (indicating it could be a shell company).

CASE EXAMPLES OF HIDDEN INTERESTS

See actual case examples of hidden interests from investigated cases.

BASIC STEPS TO DETECT AND PROVE HIDDEN INTERESTS

  1. Identify and interview all complainants and confidential sources to obtain further detail.
  2. Conduct due diligence background checks on the suspect firms and individuals to identify possible hidden ownership of vendors and suppliers. 
  3. Examine the Bid Evaluation Report and other bidding documents for the red flags listed above, particularly:
    • Interference in the bidding process by the suspect official to favor a particular bidder
    • Bidding irregularities that favor the suspect bidder, as listed in the bid rigging schemes section of this program.
    • High priced, high quantity purchases of diverse products from a single supplier.
    • Addresses, telephone numbers or personnel (e.g., relatives of the suspect project official) that link the company to a project official.
  4. Call and make an unannounced visit to the listed premises of the suspect firm to confirm its existence hidden interests by project or government officials.

See the much more detailed description of the ten basic steps in a complex fraud and corruption investigation.
A hidden interest by project or government officials in a contractor or supplier constitutes a corrupt practice.