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  This module is a resource for lecturers  

 

Forms and manifestations of private sector corruption

 

Corruption in business is a universal problem, affecting companies of all sizes in all countries. Companies could be both victims and perpetrators of corruption. In a business context, corruption can include false or misleading financial reporting, procurement fraud, embezzlement, bribery, and a range of other acts. Below are some examples of common schemes and manifestations of corruption in business (see Martini, 2014, and this U4 paper by Rose-Ackerman, 2007):

Commercial bribery and kickbacks

These involve employees of one company giving payments, undue advantage or expensive gifts to employees of another company to secure an advantage. Examples include paying procurement staff to sway their decision in favour of the paying company, giving an expensive gift to a bank manager to secure a loan, and various forms of kickbacks.

Extortion and solicitation

This occurs when an employee of a company requests a payment, undue advantage, expensive gifts, or sexual favours in return for conducting specific business-related tasks or making particular decisions.

Gifts and hospitality

Excessive gifts and hospitality are given to employees to influence business decisions or tasks. This kind of gift might be travel, luxury items or tickets to sporting events.

Fees and commissions

Agents and intermediaries are paid fees and commissions beyond what is considered the industry standard, for the purpose of altering business decisions or tasks. Characterizing a payment as a fee or commission might be a way of disguising the payment of a bribe.

Collusion

This occurs when, for instance, a labour union employee and a member of the company's management team exchange favours that result in employees' interests not being accurately represented.

Trading of information

This happens when a business employee offers or receives a bribe in exchange for confidential information, where the bribe could take a number of different forms. When confidential information is the basis for trading in a company's stock, bonds or other securities, this constitutes an offence called "insider trading".

Trading in influence

Sometimes referred to as influence peddling, this activity occurs when a business employee gives payments, undue advantage or expensive gifts to a public official, expecting to receive an undue advantage from the public authority in return. An example is when business people make political donations with the intent of influencing political decisions, policies or laws.

Embezzlement

This happens when employees misappropriate anything of value that was entrusted to them because of their position.

Favouritism, nepotism, cronyism, clientelism

These forms of corruption occur when a person or group of persons are given unfair preferential treatment at the expense of others.

While these examples of private sector corruption are non-exhaustive, they illustrate that corruption in business is much more than just bribery. Contrary to a popular sentiment, private sector corruption does not usually involve a suitcase or envelope full of money. The examples listed above demonstrate that there are many grey areas, where business practices may be legal but are at risk of being misused, such as gifts and hospitality. Political donations and sponsorships can also be misused for private gain. Some illegal business practices, such as kickbacks or small bribes, may be so common in some countries that they are perceived as normal and are no longer questioned.

Corruption in business takes different forms, but it can also occur at different levels of corporate activity or spheres of influence: within the company, within the supply chain, within the wider business operation, and within the societal surroundings. An image that illustrates how corruption manifests at these different levels is featured in the PowerPoint slides provided in the Additional teaching tools section.

 
Next: Consequences of private sector corruption
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