Isabella Carter
Corruption is dishonest behaviour by those in positions of power. It can take many forms, including bribery, political donations, abuse of power, insider trading, embezzlement, nepotism, extortion, and undue influence. Corruption can occur in any sector, including business, government, the judiciary, health, and sports, and can involve individuals or organizations, such as corporations or governments. It is often hidden and can be challenging to detect, but it has negative consequences, particularly for those who are financially vulnerable. Anti-corruption policies and education can help to prevent and reduce corruption, and organizations like Transparency International work to expose and eradicate it worldwide.
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What You'll Learn
Bribery and kickbacks
Kickbacks are a form of negotiated bribery where a commission is paid to the bribe-taker in exchange for services rendered. The remuneration, whether money, goods, or services, is typically agreed upon in advance. Unlike other forms of bribery, kickbacks involve implied collusion between agents of two parties, rather than one party extorting the bribe from the other. A common example of a kickback scheme involves a vendor submitting a fraudulent or inflated invoice, with an employee of the victim company assisting in securing payment.
Kickbacks and bribery are prevalent in the healthcare industry. In the United States, for instance, companies providing medical services to Medicare patients were paying doctors to refer patients to them, regardless of whether the patients required the treatment. To address this issue, the US Congress passed the Anti-Kickback Enforcement Act in 1986, which prohibits medical providers and physicians from offering or accepting kickbacks or financial benefits in return for patient referrals covered under federal healthcare programs.
To combat bribery and kickbacks, organizations should prioritize maintaining ethical standards and understanding the intricacies of these corrupt practices. Procurement offices should be vigilant in recognizing patterns that may indicate potential bribery or kickback schemes, such as bid awards that don't align with market pricing or collusion clues like identical typos in different documents.
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Abuse of power
In the context of organizations, abuse of power can manifest in several ways. For instance, senior executives or managers might engage in favouritism, showing preference to certain employees over others without merit, or they might create a toxic work environment by engaging in bullying or harassment, using their position to intimidate or exploit subordinates. Abuse of power can also involve the manipulation of hiring, promotion, or firing processes to benefit specific individuals or groups unfairly. This may involve hiring or promoting unqualified individuals due to personal connections or relationships, or it could mean bypassing qualified candidates to maintain a certain level of control or loyalty within the organization.
In the public sector, abuse of power can have far-reaching consequences. For example, law enforcement officers might selectively enforce laws or use excessive force against certain communities, violating their civil rights. Similarly, government officials can abuse their power by interfering in the operations of independent businesses, hindering their growth or impeding fair competition to benefit themselves or their allies. Regulatory bodies or agencies tasked with overseeing specific industries might also abuse their power by imposing excessive or arbitrary regulations that stifle innovation and harm businesses and consumers.
To address and prevent abuse of power, organizations should establish robust internal controls, whistleblower protection mechanisms, and compliance programs. Regular audits and transparency in decision-making processes can also help minimize the risk of abuse of power and promote accountability. By proactively addressing potential issues and staying vigilant, organizations can protect their interests and safeguard the rights and liberties of those affected by their decisions.
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Theft and embezzlement
Embezzlement differs from theft or larceny in that the perpetrator of embezzlement has the right to possess, use, or access the assets in question, but then secrets and converts them for an unintended or unsanctioned use. To prove embezzlement, it must be shown that the employee had possession of the goods by virtue of their employment and had the authority to exercise substantial control over them. This distinction can be challenging when dealing with employee misappropriations of property.
Instances of embezzlement may include fake vendor payments, taking kickbacks from vendors, skimming from fundraisers, customer credit card fraud, creating fake invoices, and diverting funds to personal accounts or those of collaborators. Embezzlers may also claim company assets, such as real estate, vehicles, or hardware, for personal use.
Employee theft, on the other hand, involves employees stealing from their employers, such as cashiers handling customer cash, retail workers taking merchandise, or management misappropriating funds. It can also include actions such as intentionally mismarking prices, hiding inventory, not ringing up cash purchases, or taking marked-out items for themselves.
Both theft and embezzlement can have severe consequences for organizations, leading to significant financial losses and contributing to business failures. Implementing internal controls, independent checks and audits, management review, and setting the right tone at the top are essential to deterring and mitigating these issues.
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Insider trading
Throughout the history of the U.S. stock market, several individuals have used their access to insider information to gain an unfair advantage. One of the earliest known instances of insider trading was conducted by William Duer, who was appointed by Alexander Hamilton to serve as the assistant secretary of the Treasury in 1789. Duer used his privileged knowledge to speculate on bank stocks.
Another notable case of insider trading involved Ivan Boesky, an American stock trader who became infamous during the 1980s. Boesky had his own stock brokerage company and received tips about upcoming corporate takeovers from corporate officers employed by major U.S. investment banks.
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Nepotism and favouritism
Favouritism, on its own, represents a conflict of interest where the private interests of a public official take precedence over their duty to remain impartial in their public function. This can lead to fraud, theft, embezzlement, bribery, and extortion. For instance, in Russia, favouritism and nepotism have intensified, jeopardizing the country's social and economic development.
Both nepotism and favouritism can hinder the effectiveness and efficiency of public service delivery and diminish public trust, and introduce irrationality in economic planning. They can also result in the monopolization of power and the erosion of transparency, perpetuating inefficiency and corruption.
To combat nepotism and favouritism, anti-corruption policies are essential. Countries like Rwanda have made significant progress in improving governance and the business environment, providing a model for post-conflict nations. Additionally, raising awareness about the societal harms of corruption, as Armenia aims to do, can help in the effort to achieve zero corruption.
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Frequently asked questions
Corruption can take many forms and can involve anyone from politicians to business people. Here are some examples:
- Bribery
- Embezzlement
- Nepotism
- Extortion
- Political donations with the intent to influence decisions
- Misuse of public funds
- Abuse of power
Corruption can be divided into three categories:
- White corruption: This type of corruption is often viewed with tolerance and may even be lawful. It is usually based on family ties and patron-client systems.
- Grey corruption: This type of corruption is considered morally reprehensible by society, but the individuals involved do not feel they are doing anything wrong.
- Institutional corruption: This refers to state institutions acting against the public interest, such as misusing public funds or engaging in immoral behaviour.
Corruption can have both social and financial consequences, and it particularly impacts those who are financially vulnerable. It can also increase criminal activity and organized crime in a community if left unchecked. Additionally, it can negatively impact the economy through tax evasion, money laundering, and increased costs for businesses.
Corruption often occurs in the shadows with the help of professionals such as bankers, lawyers, and accountants. It can also be facilitated by opaque financial systems and anonymous shell companies. Additionally, extensive and diverse public spending is inherently at risk of corruption, as it provides opportunities for cronyism, kickbacks, and embezzlement.
There are several steps that can be taken to prevent and address corruption:
- Education: Implementing mandatory education on anti-corruption practices, such as anti-money laundering (AML) courses, can help employees identify and avoid corrupt practices.
- Leadership: Senior executives and managers must set a strong culture of honesty and integrity by leading by example.
- Transparency: Transparency and accountability are key to preventing corruption. This includes freedom of information legislation, investigative reporting, and strong accounting practices.
- Anti-corruption policies: Implementing anti-corruption policies can improve the business environment and facilitate economic growth.
