Potential Scheme: Bribes and Kickbacks

A bribe is usually defined as the giving or receiving of a “thing of value” to corruptly influence the actions of another, most commonly to influence a contract award or the execution of a contract.  A “kickback” is a bribe paid incrementally by the contractor as it is paid, usually an agreed percentage of the contract.  Most bribes in exchange for large contract awards in international development projects are paid as kickbacks, usually totaling 5%-20% of the contract value. In highly corrupt areas, however, the percentage can be much higher, the perpetrators taking all they can, limited only by the level of oversight, or more accurately, the lack thereof.

Thing of value  

The “thing of value” need not be money, and often is not.  Any tangible benefit given or received with corrupt intent can be a bribe.  Bribes provided by bidders, contractors and consultants to project and government officials have included:

  • GTE: Inappropriate gifts, travel and entertainment
  • “Loans,” whether or not repaid; Leasing vehicles for project officials
  • Employment of the children or spouses of project officials
  • Payment of educational expenses and scholarships for the children of project officials
  • “Study tours” of the contractor’s facilities (in reality often just shopping excursion) for project personnel and spouses
  • Leases by contractors of office and living accommodations owned by project officials, usually at inflated rates
  • Gifts by contractors of their inventory or services, e.g., improving the house of a project official
  • Sexual favors provided to project officials and site inspectors
  • “Donations” to “social programs” at the direction of project officials
  • Overpaying for assets purchased from project officials
  • Subsidizing rents or mortgages of project officials
  • Direct cash payments to project officials and inspectors, or payments through subcontractors or local agents, recorded on the contractor’s books as legitimate fees and commissions.  The latter is the most common method used by large companies to pay and conceal bribes.  Cash for corrupt payments can be generated by raising false invoices for goods, works or services that were not performed, and turning the payments into cash.  Bribes also can be funded by collecting payments from subcontractors.
  • Providing hidden interests in other companies or enterprises to project officials

It may be easier to charge and prove the more ambiguous bribery schemes, e.g., the giving of gifts or favors, the leasing of property from a project official or the payment of educational expenses for the children of a project official, as a Conflict of Interest, rather than bribery, if that offense is available in the jurisdiction.  Proof of a Conflict of Interest generally does not require evidence of corrupt intent or corrupt influence, only proof that the official received a benefit that could potentially adversely affect his or her official decision, which benefit he or she did not disclose.

Corrupt influence

In schemes to pay bribes in exchange for contract awards, corrupt influence usually appears as some form of bid rigging, intended to steer the contract to the bribe payer by improper means.  The most common bid rigging methods include:

Change order abuse

Excluding qualified bidders

Leaking of bid information

Manipulation of bids

Rigged specifications

Split purchases

Unbalanced bidding

In schemes to corruptly influence on-site inspectors or supervisors to accept sub-standard goods, works or materials, corrupt influence can appear as the following schemes:

Failure to meet contract specifications

Product substitution

Change order abuse

RED FLAGS OF BRIBES AND KICKBACKS

  • The “SPQQD” factors:
    • Improper Selection of a contractor, e.g., through the use of bid rigging measures
    • The payment of unreasonably high Prices to a contractor
    • Purchase of an excess Quantity of goods, works or services from a contractor
    • Acceptance of low Quality goods, works or services from a contractor
    • Delivery of goods, works or services that do not meet contract specifications
  • Failure to adequately advertise the request for bids or proposals
  • Unreasonable pre-qualification procedures that exclude qualified bidders, or which allow unqualified bidders to compete
  • Unreasonably narrow contract specifications that favor the winning bidder and exclude others
  • Leaking of bid information to favor a certain bidder, while withholding critical information from other bidders
  • Discarding or changing bids after receipt, or improperly manipulating the scoring of bids
  • Disqualification of bidders for arbitrary or trivial reasons during bid  evaluation
  • Approval of unjustified sole source awards
  • Splitting purchases to avoid procurement thresholds
  • Pressure by project officials on contractors to select a particular subcontractor or agent
  • Contractor engages a questionable subcontractor or local agent (to handle bribe payments)
  • Long delays in contract negotiations or award (as bribe demands are negotiated)
  • Approval of unnecessary change orders to increase the contract price after award
  • Project or government officials display unexplained wealth or live beyond means
  • Project or government officials have undisclosed outside business, often shell compnay

CASE EXAMPLES OF BRIBES AND KICKBACKS

See actual case examples of bribes and kickbacks from investigated cases.

BASIC STEPS TO DETECT AND PROVE BRIBES AND KICKBACKS (in exchange for contract awards)

  1.  Identify and interview all complainants to obtain further detail.

2. Collect the relevant procurement, contract and payment documents (including preliminary drafts) such as those listed below.  Carefully examine them for (1) information that confirms or rebuts a whistleblower complaint and (2) additional red flags or indicators of wrong doing.

    • Requests for Expression of Interest and responses
    • Pre-qualification applications and shortlists
    • Requests for bids or proposals
    • Submitted bids or proposals
    • Bid or Proposal Evaluation Reports, including revised reports, with notes of the committee members
    • Contract awards or purchase orders
    • Change order requests (contract amendments or “variation orders”) and awards
    • Invoices and payment records
    • Related emails, relevant computer hard drives, correspondence and complaints
  1.  Conduct thorough due diligence background checks on the suspect companies and project officials.
  2.  Discreetly collect employment files on the suspect project or government officials, including, to the extent available at this stage of the investigation, the subject’s:
    • Correspondence files
    • Business and personal emails
    • Computer hard drive files
    • Business and personal telephone and travel records
    • Salary and employment history
  1.  Collect and review prior audit reports and investigative reports involving the same parties.
  2.  Interview and request documentation from third party witnesses, including losing or excluded bidders and subordinates of the suspect project officials.  Ask, for example, about any efforts by officials to improperly steer contracts to favored bidders or any demands for bribes, as well as, of course, addressing any other issues in the case.
  3.  Exercise contract audit rights on the winning bidder.  Look for questionable payments made through agents, subcontractors or consultants, or inflated invoices that could be used to generate bribe payments.
  4.  If necessary, do a full financial investigation of the suspect official (suspected bribe recipient) to identify the receipt of corrupt payments or sudden unexplained wealth (See Step Seven of the ten basic steps in a complex fraud and corruption investigation).
  5.  If necessary, use the evidence collected above to attempt to obtain the cooperation of an inside witness, including a middleman or less culpable member of the corruption scheme.
  6.  Interview the subject official (suspected bribe recipient) and request the subject’s financial documents (See step nine of the  ten basic steps in a complex fraud and corruption investigation).
  7.  Wrap up the case by carefully linking the evidence of improper payments to the evidence of corrupt influence, e.g., show that the bribe payer received an improper contract award approved by the official who received the bribe. Try to identify and rebut anticipated defenses, e.g., the contract award was proper; the payment to the official was the repayment of a prior loan, there was no intent to corruptly influence a decision, etc.

See a much more detailed description of the ten basic steps in a complex fraud and corruption investigation and advice on how to best organize and present the evidence of corruption.

The payment of bribes and kickbacks constitutes a corrupt practice.