Table of Contents
What is a Kickback?
A kickback refers to illegal compensation provided in exchange for preferential treatment or any other undue services received. Kickbacks can occur across industries and comes in a variety of forms: money, gifts, credit, promotions, etc.
U.S. regulations treat kickbacks as a form of bribery. And for good reason. At its worst, a public official who receives kickbacks cannot be trusted to make decisions in the public’s interests. This can have grave consequences. We’re talking about shoddy public works projects, corners cut, and no taxpayer money lost due to anti-competitive procurement contracts.
In this article, the Zero Theft Movement will cover kickbacks and how damaging they can be to the American public and the U.S. economy. Read until the end to find out how you can join the only movement to eliminate the rigged economy.
The infamous Big Dig, one of the biggest public works projects in U.S. history, started in the early 90s and was supposed to finish in 1998, with a total price tag of $2.56 billion ($7.4 billion adjusted for inflation as of 2020). The project ended in 2007, costing $14.8 billion ($25 billion adjusted for inflation as of 2020). That’s more than five times the original estimate. Was this just one big waste of money? Find out what citizens have found out about the Big Dig.
Breaking Down Kickbacks
As mentioned in the previous section, people across industries can execute kickback schemes. The payment, as well, proves just as diverse. Nevertheless, they all share one fundamental feature: collusion.
Take the general example of a bookkeeper for a stationery store. Let’s say that the bookkeeper has negotiated a kickback deal with the store’s pencil supplier. They will approve the invoices for pencils, even when they know the bill is higher than it should be. The pencil supplier can compensate the bookkeeper with a part of the extra profits, free meals, concert tickets, or some other reward. The stationary store ultimately suffers for the pencil provider and bookkeeper to unethically benefit.
Warning Signs
In truth, kickback schemes can be among the most difficult white-collar crimes to recognize and investigate. Participants can obscure their behavior by laundering the money multiple times over. Nevertheless, vigilant observers can identify a kickback scheme if they notice some of the following red flags:
- No managerial oversight in the purchasing process
- No competitive bidding process to drive costs down
- Low bids providing similar quality of goods/services are ignored
- Marked-up prices for goods or services
- Recommending vendors with poor reputations and legal or regulatory issues
- Continued use of vendors that have shown to provide sub-optimal products or service
Kickbacks and bribery actually go unchecked in countries all around the globe. Unfortunately, those corrupt practices have become entrenched in the culture. Paying officials is just another fee that’s necessary to conduct business. The U.S., in order to prevent domestic companies from succumbing to bribery while doing business internationally, instituted the Foreign Corrupt Practices Act (FCPA). The legislation outlaws the bribing of foreign officials for all companies listed with the Securities and Exchange Commission (SEC), any company organized in the United States, or any citizen or resident.
Potential Examples of Kickbacks
Wall Street
Wall Street brokers commonly route their orders to a particular exchange for a kickback or ‘rebate,’ despite the legal requirement of ‘best execution.’ That means their clients don’t necessarily get the most advantageous deal they should legally be receiving.
A 2017 CNBC report states: “Exchanges have long paid traders for orders, something critics call kickbacks but what the industry calls rebates. As electronic trading proliferated in the last decade and the number of exchanges and trading sites blossomed, rebating became a strategy by exchanges to draw trading volume. But critics, including money managers, have complained that the practice hurts ordinary investors by creating the wrong incentives, namely, the broker or trader is motivated to pick the exchange that offers a rebate versus the one that would get the best price for a particular trade.”
In order to get the kickback or rebate, the broker might be subjecting their clients to slower execution speeds and higher transaction costs. Wall Street brokers might make only cents for each trade, but over time, those cents can quickly add up to thousands of dollars.
Beyond the debate, the SEC has investigated and charged Wall Street brokers for kickback schemes in the past. In 2009, for instance, the Agency issued a press release announcing it had “charged a pair of lawyers for tipping inside information in exchange for kickbacks as well as six Wall Street traders and a proprietary trading firm involved in a $20 million insider trading scheme…The SEC alleges that Arthur J. Cutillo, an attorney in the New York office of international law firm Ropes & Gray LLP, had access to confidential information about at least four major proposed corporate transactions in which his firm’s clients participated. Through his friend and fellow attorney Jason Goldfarb, Cutillo tipped this inside information to Zvi Goffer, a proprietary trader at New York-based firm Schottenfeld Group. Goffer promptly tipped four traders at three different broker-dealer firms and another professional trader Craig Drimal, who each then traded either for their own account or their firm’s proprietary accounts.”
Help your fellow citizens eradicate the rigged layer of the economy by authoring and voting on reports! Don’t believe you’re getting ripped off by crony capitalists and corrupt officials?
Government Contracting
Also, bid rigging schemes to rig government contracting can often involve some type of kickback. The government official overseeing a project obviously has significant say over who is awarded the contract. After negotiating a kickback deal with one of the companies/bidders, the official selects their partner in crime for the contract, even though it cannot necessarily perform the job the best and/or has not offered the most cost-efficient price. The company can then pay the official a portion of the profits (a.k.a. the kickback).
The colluders can even hide behind multiple layers of obscurity through the use of shell companies. Either the prime contractor or the public official can set up a number of fake business fronts that do not actually provide any real service or goods. The shell companies solely ‘clean’ the funds, completing the money laundering scheme.
A recent example of kickbacks in government contracting involved a former civilian employee of the U.S. Army’s Directorate of Public Works. The Department of Justice charged him for “his role in a kickbacks scheme to steer government contracts for work at Camp Arifjan, a U.S. Army base in Kuwait.”
The press release goes on to state: “According to court documents, Ephraim Garcia, 64, admitted that he conspired with Gandhiraj Sankaralingam, aka Gandhi Raj, the former general manager and co-owner of Kuwait-based contracting company Gulf Link Venture Co. W.L.L. (Gulf Link), to steer government contracts to Gulf Link. In his position with the U.S. Army, Garcia was involved in the solicitation, award, and management of certain government contracts related to facilities support at Camp Arifjan.”
Booting Kickbacks
Although regulators find it difficult to track kickback schemes, protections do exist to prevent these illegal profits. In 1987, Congress passed the Anti-Kickback Enforcement Act to create an effective prosecutorial tool that closed loopholes in past regulations.
Nevertheless, we must remain vigilant and keep ourselves protected. These kickback deals, especially those involving public officials, ultimately end up hurting us, the average Americans. The money we pay on our taxes could be going to contractors that will cut corners or produce poor quality work. If we allow these corrupt actors to boost their personal profits, we are the ones who suffer.
That’s where the Zero Theft Movement comes in.
The U.S. economy has potentially been rigged by crony corporations and individuals who seek to make as much money as they can, often at the expense of the average American. But it’s up to us to identify exactly where the economy is rigged and how much is being ripped off. In other words, we seek to uncover the truth about the U.S. economy in order to achieve justice.
We have created an independent voting platform where you and your fellow citizens work together to calculate the most accurate estimate for the monetary costs of corruption in the United States.
The public investigates potential problem areas, and everyone votes on whether (1) theft is or isn’t occurring in a specific area of the economy, and (2) how much is being stolen or possibly saved. Through direct democracy, we can collectively decide where the problem areas exist and start working on addressing them systematically.
Only through hard evidence can we prove where the rigged parts of the economy exist and force Congress to hold all the bad actors accountable.
Standard Disclaimer
The Zero Theft Movement does not have any interest in partisan politics/competition or attacking/defending one side. We seek to eradicate theft from the U.S economy. In other words, how the wealthy and powerful rig the system to steal money from us, the everyday citizen. We need to collectively fight against crony capitalism in order for us to all profit from an ethical economy.
Terms like ‘steal,’ ‘theft,’ and ‘crime’ will frequently appear throughout the article. Zero Theft will NOT adhere strictly to the legal definitions of these terms (since congress sells out). We have broadly and openly defined terms like ‘steal’ and ‘theft’ to refer to the rigged economy and other debated unethical acts that can cause citizens to lose out on money they deserve to keep.