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What is Corruption

In its wider sense, “corruption” is an umbrella term which includes the criminal offences of bribery, extortion, fraud, cartels, abuse of power, embezzlement, and money laundering. 

  • Bribery is where a benefit is offered, given, requested, or accepted with the intention of inducing a person to perform a function improperly, or being a reward for performing a function improperly. 
  • Extortion is where someone demands money or other benefit in return for not inflicting personal harm or damage.
  • Fraud is where a person deceives another person in order to gain some financial or other advantage.
  • A cartel is where two or more organisations secretly collude in relation to bidding for contracts or pricing of equipment, services or materials.
  • Abuse of power is where a person in public office or a position of trust misuses her/his power so as to benefit herself/himself or someone else. 
  • Embezzlement is where a person misappropriates funds which she/he has a duty to safeguard. 
  • Money-laundering is where a person deals with cash or assets knowing or suspecting that they, or the original source of funds, were obtained by criminal activity.

These offences are examined below.

This section examines the different types of corruption which can occur in the infrastructure sector.

There is no international legal definition of corruption.

In its narrowest sense, corruption is interpreted as referring to bribery only.

In its wider sense, corruption is an umbrella term which includes the offences of bribery, extortion, fraud, cartels, abuse of power, embezzlement, and money laundering. These activities will normally constitute criminal offences in most jurisdictions although the precise definition of the offence may differ.

The wider definition is preferable as these corrupt acts:

  • are all criminal offences
  • normally involve deception
  • are concealed
  • have illegal profit as their objective
  • often occur together
  • normally result in financial loss/defective quality
  • require similar preventive/detection measures.

In this website, and in GIACC’s work generally, corruption is interpreted in the wider sense.

The following paragraphs explain these offences in more detail, and give examples.

Bribery

Bribery is where a benefit is offered, given, requested, or accepted with the intention of inducing a person to perform a function improperly, or being a reward for performing a function improperly. 

The benefit can be anything of value, such as a cash payment, a gift, hospitality, payment of school fees, a donation to a political party, payment for a holiday, or the promise of employment.

Perform a function improperly:  The improper performance which is being induced or rewarded by the bribe is an act or omission by a person in relation to their official function or duties.  So, a procurement manager, who has a duty to award contracts based on objective criteria to the best evaluated bidder, would be acting improperly if she offered the contract to the bidder which offered the most valuable personal benefit to her.

Direct or indirect payment:  A bribe may be offered, given, requested, or accepted either directly between two persons or through an intermediary (e.g. an agent). 

The bribe does not need to be completed:  The act of offering a bribe is normally an offence, even if the other party refuses to accept the bribe, or does not act in the agreed manner.  Similarly, the very act of requesting a bribe is normally an offence even if the other party refuses to pay the bribe.

Institutional bribery refers to a situation where a bribe may be paid or received with the full approval of the organisation which is the employer of the individual paying or receiving the bribe. This may occur, for example, where an organisation authorises its commercial director to pay a bribe to win a contract.

Personal bribery refers to a situation where a bribe may be paid or received by a representative of an organisation without the approval of that organisation. This may occur, for example, where a government officer receives a bribe to award a contract, where the government department in question would not approve the bribe.

Supply-side bribery refers to those persons or organisations who are responsible for offering or giving bribes.

Demand-side bribery refers to those persons or organisations who are responsible for requesting or accepting bribes.

Gifts and hospitality:

Gifts and hospitality in business dealings can be actual or perceived bribes. 

If a gift or hospitality is genuinely given and received without any intention by the parties that it will influence the recipient to act improperly, or be a reward for acting improperly, then the gift or hospitality will not be a bribe.  However, if the intention of the giver or receiver is that the gift or hospitality will influence the receiver to act improperly, or be a reward for acting improperly, then it will be a bribe.

In business dealings, there is a risk that, even if givers and receivers of gifts or hospitality are not intending to act corruptly, a third party (such as the media, a prosecutor, or a judge) may perceive the gift or hospitality to be corrupt because they can see no other plausible reason for the gift or hospitality.   The likelihood of a gift or hospitality being perceived to be corrupt depends on a combination of factors, such as the value of the gift or hospitality and the circumstances in which it is given.

For further explanation, see Gifts and Hospitality.

Facilitation payments:

A facilitation payment is an illegal or unofficial payment made to a public official in order to secure or expedite services which the payer is legally entitled to receive without making such payment.  It is normally a relatively minor payment, and the services being paid for are, for example, the issuance of a visa, work permit, customs clearance or work approval, or the installation of an electricity, telephone, or water connection.  The person receiving the facilitation payment receives it improperly in a personal capacity.  If the payment demanded by the official is a published legitimate fee for such service, then it is not a facilitation payment.  In most countries, the demand for, payment of, and receipt of facilitation payments, however small, are treated as criminal offences.

Some jurisdictions treat a facilitation payment as a bribe, and others treat it as a separate type of offence.  A facilitation payment paid to an official is sometimes distinguished from a bribe paid to an official in that the facilitation payment is an illicit payment made to persuade the official to perform her/his duty properly, whereas a bribe is an illicit payment made to persuade the official to perform her/his duty improperly.  

For example, you are applying for an import permit which your organisation is legally entitled to receive.  However, the relevant government official has indicated that he will only issue the permit if you pay him some money.  This additional payment is not an official government fee – it is an unofficial personal payment demanded by the official so that he will perform his duties properly and issue the permit.   You make the payment because the inability to import would cause a far greater financial loss to your organisation than the value of the requested payment.  In this case, you, your organisation, and the official are likely to be liable for a criminal offence.

For further explanation, see Facilitation Payments.

How are bribes paid:

Sometimes the bribe may be given directly from the giver to the receiver.  But, in many cases, steps may be taken to conceal the bribe through what appears to be a valid transaction with a third party.  For example, an organisation may agree to pay a success fee to an agent if the organisation wins a contract.  This may appear to be a legitimate fee. However, the hidden arrangement may be that the agent will use part of the success fee to pay a bribe to a government official who improperly ensures that the contract is awarded to the organisation. The success fee is, therefore, being used as an indirect mechanism to pay a secret bribe.

Bribes may also be concealed in the contract prices of joint venture partners, sub-contractors or suppliers, and may be paid by those organisations.

Examples of bribery:

Bribery in relation to an infrastructure project can occur in numerous ways. For example:

  • A project developer, who wishes to build a factory in an area designated as an agricultural zone, offers a government official an expensive watch with the intention that it will encourage the official to grant planning permission for the factory.
  • A sales manager of Organisation A offers the procurement manager of Organisation B a three-day all expenses paid holiday in return for the procurement manager ensuring that Organisation B awards a contract to Organisation A rather than to the most suitable candidate.
  • The contractor’s site manager requests that a sub-contractor working on a construction project makes a cash payment to him in return for him approving inflated payment claims and defective work by the sub-contractor.

For further examples of how bribery may occur in the different phases of the project cycle, see How Corruption Occurs. 

Extortion

Extortion is where someone demands money or other benefit in return for not inflicting personal harm or damage.

Example:

  • A policeman who is manning a roadblock is carrying a gun and aggressively demands an illicit cash payment in order to let you through the roadblock.  You pay him, as you are afraid of personal harm. The policeman consequently lets you through.

For further examples of how extortion may occur in the different phases of the project cycle, see How Corruption Occurs.

Defence for party making the extorted payment:

In many countries, paying an extorted payment to a policeman or government official may be a criminal offence.  However, many countries’ laws do not criminalise such payment if the payer makes the payment only because she/he feared imminent personal injury or death to her/himself or to another person. 

So, in the above example of the police roadblock, it is reasonable for you to fear imminent personal injury or death, and therefore to make the payment to avoid such risk.  The policeman would be guilty of extortion, but, in countries where the safety exception is permitted, you are unlikely to be liable for an offence.

However, the situation would be different if the policeman stopped your car because you were driving dangerously and did not threaten you or demand an illegal payment, but you offered the policeman a personal payment so that you could avoid a fine.  In this case, there would be no extortion offence, but you are likely to be liable for bribery and the policeman is also likely to be liable for bribery if he accepts the payment. 

Fraud

Fraud is where a person deceives another person in order to gain some financial or other advantage.

Fraud can be committed by the making of a false representation.  This is where a person:

  • makes a false representation to another person knowing that the representation is, or might be, untrue or misleading; and
  • intends, by making that representation, to make a gain or to cause a loss.

A representation is any statement made to influence opinion or action.  The representation may be express or implied, and may be oral or written (e.g. a statement in a contract claim, letter, e-mail, invoice, meeting etc.). 

The gain or loss may be financial or non-financial, and may be for the benefit of the person making the representation or for another person.

Fraud can also be committed by failing to disclose information.  This is where person A:

  • fails to disclose to person B information which person A is under a duty to disclose, and
  • intends, by failing to disclose the information, to make a gain or to cause a loss.

In the context of an infrastructure project, a person will normally be under a duty to fully disclose all relevant information in relation to e.g. claims for payment, variations and extensions of time. 

Requisite knowledge:  To be liable for fraud, you will normally need to have known that your representation was false (i.e. deliberate act), or to have known that it might be false (i.e. reckless act).  You are unlikely to be liable if you make a false representation which you honestly believed to be true (i.e. innocent act), as long as you correct the representation as soon as you find out it was false. 

Examples: 

  • A concrete supplier knowingly supplies a client with concrete which is of a cheaper and inferior specification than is contractually required, but invoices the client for concrete of the contractually required specification. The invoice therefore contains a false representation that the concrete supplied was of the required specification.  The fraudulent gain is the difference between the amount wrongly charged for concrete of contract quality and the amount which should have been charged for the cheaper concrete which was supplied.
  • A contractor is contractually entitled to claim an extension of time and additional cost from the project owner in the case of a delay which is the project owner’s fault.  The contractor submits a claim for additional cost to the project owner based on delays allegedly caused by the project owner, but knowingly withholds evidence that the contractor was partially responsible for these delays.
  • An earth-works sub-contractor accidentally invoices a client for 30% more earth moved than was actually moved. The sub-contractor discovers the mistake but does not issue a corrected invoice and accepts payment based on the incorrect invoice. Although the sub-contractor did not deliberately issue a false invoice, it subsequently, by failing to correct the invoice, knowingly represented that the invoice was correct so as to make a fraudulent financial gain.
  • In order to obtain employment, an applicant for the post of contract manager states in a job application that she has previously worked as a contract manager when in fact she has never held such a position.
  • In making a claim from his employer for reimbursement for business travel by car, an employee exaggerates the distance travelled so as to receive a higher payment.

For further examples of how fraud may occur in the different phases of the project cycle, see How Corruption Occurs.

Cartels

A cartel is where two or more organisations secretly collude in relation to bidding for contracts or pricing of equipment, services or materials.  

The purpose of a cartel is to prevent genuine competition and so make an illicit profit by raising prices to a higher level than would be the case had there been genuine competition.  

These offences are sometimes known as collusion or anti-competition offences. 

A collaboration between organisations which is lawful and disclosed to the customer (e.g. a joint venture) would not normally be a cartel.

Examples: 

  • Bidding cartels:  Bidders for a contract secretly agree in advance on the bid prices they will submit and on which one of them will win the contract.  There is therefore no genuine competition for the contract and the intended winner as a result can submit a higher bid price.
  • Price fixing:  Suppliers (e.g. of concrete) secretly agree that, when they are competing against each other, they will not drop below an agreed price per unit.  There is therefore no genuine competition and their prices will be higher as a result.
  • Losers’ fee:  The bidders genuinely compete to win a contract.  However, they secretly agree in advance that they will each include in their bid price an agreed additional sum of money representing the total estimated bid costs of all the competing bidders.  Whichever bidder is awarded the contract will then divide this sum of money between all the unsuccessful bidders who will thereby recover their bid costs.
  • Cover pricing:   A bidder is too busy to undertake a project, but wants to stay long term on the customer’s approved bidder list. It therefore secretly obtains a competitor’s price in advance and puts in a price higher than the competitor so as to lose.

For examples of cartel activity, see How Corruption Occurs.

Abuse of power

Abuse of power is where a person in public office or a position of trust misuses her/his power so as to benefit herself/himself or someone else. 

It may be called “abuse of office” or “misconduct in public office”.  In some countries, this type of conduct is treated as a fraud offence.

A person is in a position of trust if they are responsible for making decisions on behalf of the public or an organisation (e.g. a finance manager, procurement manager, project manager, supervisor).

Examples:

  • A procurement official working for the public highways agency improperly ensures that the highways agency awards a contract to a construction company in which he has a secret ownership interest.
  • A public official in charge of running a project by-passes the normal employment procedures in order to appoint a family member or friend to a senior project management position (sometimes called “nepotism”).
  • A government minister hopes to benefit corruptly from a project by demanding bribes for the award of project contracts.  Consequently, he requires his staff to suppress a feasibility report which concludes that the project should not go ahead.

Embezzlement

Embezzlement is where a person misappropriates funds which she/he has a duty to safeguard. 

Embezzlement is a type of theft where you are stealing assets which you are meant to be looking after.   It should be distinguished from other types of theft which involve stealing assets which you are not looking after (e.g. breaking into a person’s house and stealing their valuables, or stealing someone else’s wallet).

Examples:

  • A finance manager diverts an organisation’s funds to her private bank account and makes false entries in the organisation’s accounts to conceal the diversion.
  • An accounts clerk sets up phantom employees on the organisation’s payroll and pays these employees’ salaries into his own bank account.
  • Two managers of a supplier conspire to arrange for payment for supplies to be made in cash and then keep some of the payments for themselves.

Money-laundering

Money-laundering is where a person deals with cash or assets knowing or suspecting that they, or the original source of funds, were obtained by criminal activity.  

The purpose of money-laundering is to conceal the criminal source of funds, or to move funds out of reach of the relevant prosecutors or courts.

Examples:

  • A government official receives cash as a bribe and pays it into an offshore bank account in the name of a relative.
  • A finance manager of an organisation embezzles money from his organisation.  He purchases a house in another country with the money.
  • A sub-contractor submits a fraudulent claim to a contractor for work which it did not carry out.  The contractor pays the amount of the fraudulent claim into the sub-contractor’s bank account with Bank A.  The sub-contractor then moves the payment to Bank B. 

Conflict of interest

A conflict of interest is where a person has a personal interest which conflicts with her/his employment or other duties.  

Having a conflict of interest is not a criminal offence in itself.  It can be quite common to have conflicts of interest where you work for your employer in the same sector in which you or your friends or family have business interests. 

However, unless the conflict is removed or dealt with appropriately, it may lead to a decision or action which is itself a criminal offence (such as a fraud or abuse of power).

Example:

You are a site supervisor responsible for procuring site supplies for a contractor. Your sister is the sales manager for a supplier which provides supplies to the contractor. You therefore have a potential conflict of interest because you may want to help your sister by ordering more supplies than necessary or by ignoring any deficiencies in quantity or quality in the supplies made.  However, you also have a duty to act in your employer’s interests and so should order only necessary supplies and should also ensure that they are of proper quality and quantity.  The conflict itself is not a criminal offence.  However, if the conflict leads you to act in favour of your sister and against the interests of your employer, then you will be in breach of your employment duties and may also be committing a criminal offence.

The relationship between different offences

One corrupt action may often result in more than one criminal offence being committed.  For example:

  • Bribery normally involves a degree of fraud.  A bribe paid to win a contract will normally be concealed by fraudulent documentation which makes the contract appear to have been won on a genuine arms-length basis.
  • Fraud does not necessarily involve bribery.  However, many acts of fraud may need an act of bribery in order to complete the fraud.  For example, a project owner may wish fraudulently to withhold payment from a contractor and may bribe the project certifier to certify falsely that costs for rectification of defects are payable by the contractor, so as to justify the withholding.
  • Collusion, embezzlement and abuse of power will normally involve fraud, as false documentation will be drawn up, or false statements made, so as to conceal the true nature of the corrupt act.
  • Moving the proceeds of a corrupt act through the banking system will normally constitute money laundering.

In addition, corruption offences may also constitute breaches of tax and accounting laws and stock market regulations.  For example:

  • A bribe wrongly shown in an organisation’s accounts as an agency commission for legitimate services is likely to constitute a false accounting entry which would be in breach of accounting laws and stock market regulations.
  • An organisation treating the cost of a bribe as a deductible expense in calculating the amount of tax due is likely to be in breach of tax law.

Prosecutors may find it easier to prosecute under accounting or tax laws than bribery laws, as the standard of proof may be lower, and proof may be obtained by the mere fact of the erroneous entry.

Therefore, a wide range of people may be caught in both the initial offence (such as bribery or submission of fraudulent claims), which may involve project and commercial staff, and in subsequent offences, which may involve accounting and legal staff.

Updated on 3rd April 2024

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