Kickback

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DEFINITION of 'Kickback'

The payment of something of value to a recipient as compensation or reward for providing favorable treatment to another party.

A kickback in the form of money, gifts, credit, or anything of value may be viewed as a corrupt practice that interferes with an employee or official’s ability to make unbiased decisions.

INVESTOPEDIA EXPLAINS 'Kickback'

A kickback can be legal or illegal. A common form of kickback, in the context of investing, is a commission rebate for investors who trade frequently.

Kickbacks and other forms of bribery increase the cost of doing business in countries around the world. Companies looking to supply products or services to countries known for corruption may find that they have to pay numerous employees in order to be considered for a contract. The perception that a kickback scheme will go unpunished, or that punishment will be light, is a primary driver for officials willing to take bribes. In some cases employees are poorly paid, and see the potential for additional financial compensation in the form of a kickback as a way to boost a meager salary.

Receiving a kickback does not necessarily mean that there is a quid pro quo arrangement between the kickback receiver and the kickback provider. Payments may be used to induce favor or to induce a positive recommendation of the provider. A government employee responsible for managing contractors on an infrastructure project, such as the building of a bridge, may receive a kickback for choosing one contractor over another. This may result in the most qualified contractor not winning the bid.

Kickbacks are often associated with procurement contracts. In the case of a government contract for office supplies, contractors and sub-contractors interested in winning the business are required to bid against each other. A contractor may reach out to a procurement officer and indicate that, if the contractor were to win, the officer may receive compensation. This could mean anything from cash to tickets to a concert.

In the United States, the Foreign Corrupt Practices Act makes it illegal for companies listed with the Securities and Exchange Commission (SEC), any company organized in the United States, or any citizen or resident to bribe foreign officials.    

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