Concealing Corruption

Corruption is normally concealed. For those parties involved, there are two main reasons for concealing their corrupt activity. The first reason is to try to avoid detection and prosecution. The second is to ensure that the corrupt activity achieves the intended benefit. For example:

  • A bribe paid to win a contract must remain secret otherwise the contract award may be set aside.
  • A bribe paid to have an inflated contract claim approved must remain secret otherwise the contract claim may be rejected.
  • A bribe paid to secure planning permission must remain secret otherwise the planning approval may be set aside.

The following are some of the ways in which corruption is concealed:

  • use of intermediaries
  • use of false documentation
  • making of false statements
  • physical concealment
  • asset concealment

These circumstances are examined below.

(1) Use of intermediaries

The payment of a bribe may be made direct by the payer to the ultimate recipient who is to carry out the dishonest act.  However, it is common for a bribe to be paid through intermediaries. This is done so as to make it more difficult to detect that a bribe has been paid, and more difficult to prove that the bribe and corrupt act were linked.

The following are some common methods of concealing a bribe by the use of intermediaries:

  • Agents.
    • An agent is probably the most common form of intermediary. A company bidding for a contract which wishes to hide the payment of a bribe may appoint an agent who has contacts with a representative of the project owner or with a public official of the country concerned. The company will enter into an agency agreement with the agent which purports to be an agreement for legitimate services. However, the scope of those services will often be false or exaggerated and the size of the payment due under the agreement will often be significantly in excess of the value of the legitimate services specified in the agreement. The payment may sometimes be expressed as a percentage of the contract price.
    • The agent will normally receive the payment when the company is awarded the contract. The agent may then pass the whole or part of the payment to the representative of the project owner or the public official who has dishonestly ensured that the company would win the contract. The payment is often made into an offshore bank account.
  • Joint ventures.
    • An international joint venture, comprising joint venture partners from several countries, may arrange for an agency agreement (which conceals a bribe arrangement as described in “agents” above) to be entered into by the joint venture partner which is resident in the country which is least likely to discover or punish the bribery.
    • Alternatively, a joint venture partner may be owned by a relative of a representative of the project owner, or by a public official. In this case, the bribe may be paid by allocating to that joint venture partner a bigger share of the profit than that partner should legitimately have received.
  • Subsidiaries or other group companies.
    • Where a company is part of a multinational group, arrangements may be made by the group for a corrupt agency agreement to be entered into, or for a corrupt payment to be made, by a subsidiary or other group company which is located in a country where the bribe is less likely to be detected or punished.
    • The subsidiary or other group company will then be repaid by the company through inter-company charges for false services, or services of inflated value.
  • Sub-contractors:
    • A company may channel a bribe through a corrupt sub-contract arrangement. For example, a sub-contract may falsely provide that certain services are to be provided to the company by the sub-contractor in return for a certain payment.
    • In reality, the sub-contractor will not provide these services, or will provide services of a much lower value than the price agreed. The balance of the payment will then be passed on by the sub-contractor to the relevant party as a bribe.

In each of the above cases, the bribe may have been deliberately paid with full knowledge of all relevant parties.  Alternatively, a bribe may be paid in situations where a related party is unaware of the bribe. For example:

  • A company appointing an agent may be unaware that an agent intends to use part of the agency fee to pay a bribe.
  • A joint venture partner may be unaware that a fellow joint venture partner has paid a bribe in order for the joint venture to win the contract.
  • A company may be unaware that a subsidiary in another country is paying bribes to win a contract.
  • A company may be unaware that a sub-contractor paid a bribe to a representative of the project owner to ensure that the company won the tender.

In situations such as the above, a party may be genuinely unaware that these practices are occurring. However, in some cases, the party may have been wilfully blind to the circumstances. In other words, it may have suspected that there was a likelihood of corruption but refrained from making enquiries or taking preventive action. Such wilful blindness would be treated as culpable in most jurisdictions.

The reason why the above arrangements are used for corrupt transactions is that, in most cases, agents, joint ventures, subsidiary companies and suppliers undertake legitimate services and do not act corruptly.  Therefore, the appointment of such organisations does not normally in itself raise suspicions.  In consequence, corrupt organisations can utilise the above arrangements to disguise corrupt transactions.  Corruption using these arrangements can be particularly difficult to detect if the intermediary is partially carrying out legitimate services, and partially undertaking corrupt services.

(2) Use of false documentation

Bribery or fraud will normally be implemented or concealed by the use of false documentation. For example:

  • If a bribe is paid through an agent, then an agency agreement will normally be used to conceal the payment.  The agreement will purport to represent accurately the terms of the agency. However, it will only specify the legitimate services that are to be carried out, and will not specify those services whereby the agent is to use part of the agency fee to pay a bribe. It will also usually specify an agency fee which is considerably in excess of the value of the legitimate services specified in the agreement.  The bribe will normally be paid out of this excess in the fee.
  • A fraudulent contract claim for a variation or extension of time will normally itself be false in that it will state that sums or extensions of time are due for the reasons given when in fact this is not the case. In addition, it will usually be supported by falsified programmes, time sheets and/or work records.
  • Defective works or materials will normally be concealed by false certificates of approval or testing.

(3) Making of false statements

Bribery or fraud will normally require the making of false claims or statements. For example:

  • Where a bribe has been paid to win a contract, the subsequent contract award is a false statement because it purports to be an award made on an arms length and legitimate basis.
  • Where a bribe has been paid by a contractor to win a contract, the contractor will often seek to recover the cost of this bribe by including an equivalent amount either in the original contract price or in a later contract claim. This will involve making a false statement because the contract or claim price will purport to be the price for the goods or services to be provided, when in fact it will also include the cost of the bribe.
  • A company may wish to conceal the fact that it has used one of its subsidiary companies to pay a bribe. It may, therefore, reimburse the subsidiary for the cost of the bribe by way of inter-company charges on the basis that these are for legitimate services, when in fact this is not the case.

(4) Physical concealment

Defective works may be physically concealed by other works. For example:

  • A foundation contractor may, for corrupt reasons, supply inadequate quantities of steel reinforcement for the foundations, and then pay a bribe to the building inspector to certify the steel as correctly laid. The inadequate steel reinforcement will then be concealed by concrete.
  • A roofing contractor may accidentally damage the waterproof membrane while laying it on the roof.  Rather than incur the time and cost of replacing the damaged membrane, the contractor may fraudulently leave it in place, and cover it over with the roof covering, meaning that the roof is not fully waterproof.  The damaged membrane will be concealed by the roof covering.

(5)  Asset concealment

The assets which are acquired as a result of the corrupt act may be concealed.  For example:

  • Cash bribes may be paid through or into bank accounts maintained in tax havens which do not require or disclose ownership details.
  • Properties may be acquired in the name of a company, and the ownership of the company may be held in nominee names.

Updated on 14th May 2024