Kickback Definition Law: Everything You Need to Know
A kickback definition in law refers to the misappropriation of funds that benefits a person with power or influence.3 min read updated on January 01, 2024
A kickback definition in law refers to the misappropriation of funds that benefits a person with power or influence. Typically, that person goes on to use their power or influence to make another person or organization even richer.
Kickbacks are often the result of a corrupt bidding scheme. As such, the person in charge may award a contract to a particular company, even though that company did not come in with the lowest bid. Now, that company will profit by being awarded the bid and carrying out the contract.
The official who erroneously awarded the contract will end up receiving part of the profits. That portion is otherwise known as a kickback. Kickbacks fall under the category of anti-competitive practices.
Organized crime has been known to use kickbacks. In a way, they are a form of bribery because those kickbacks are payment for favorable treatment. Kickbacks come in many shapes and sizes. They come as gifts, money, credit, or anything of value. This is a corrupt practice because it interferes with a person's ability to make unbiased decisions.
Federal law prohibits kickbacks that involve government officials or funds that come from the government. Kickbacks that are exchanged between a government official and a contractor will be prosecuted under the federal bribery statute.
Kickbacks that are exchanged between contractors who are working on a federal contract are prosecuted under the Anti-Kickback Enforcement Act of 1986. Kickbacks exchanged between employees or foreign government officials will be prosecuted under the Foreign Corrupt Practices Act of 1977. Many states have commercial bribery statutes in place that prohibit kickbacks.
Although kickbacks are punishable under federal and state law, they are not technically illegal. If the kickback does not violate state or federal laws and it is offered to clients in the industry, the kickback may not be considered illegal. In fact, it may even be tax deductible.
Section 162(a) of the Internal Revenue Code allows for ordinary expenses that a business incurs throughout a taxable year to be deductible. This includes kickbacks if they're not illegal and aren't paid to an official, a federal government employee, or an employee of a foreign government. Cases exist where the courts ruled against certain kickbacks because they were not considered usual or customary.
Kickbacks in the Healthcare Industry
In the early 1970s, the government began focusing on the healthcare industry. As the cost of healthcare continued to rise, increased efforts were made to deter fraud. In 1995, the Medicare Fraud Statute was implemented. This statute prevents kickback schemes whereby hospitals pay physicians for referrals and drug manufacturers pay physicians to prescribe their medications to patients.
Essentially, this statute makes it illegal for any member of the healthcare industry to receive kickbacks, bribes, or rebates to coerce the recipient to purchase or order any service that Medicaid or Medicare reimburses for.
Experts in the field of healthcare fraud believe the Medicare Fraud Statute is a model for other anti-kickback statutes. in every area of the healthcare industry, not just Medicaid and Medicare
Breaking Down Kickbacks
Kickbacks come in many forms, but they all feature some element of collusion. Here's an example:
- Someone who manages the books for a business or the government might approve an invoice for goods or services at an inflated price or pay for subpar products.
- The beneficiary of that arrangement would then pay the bookkeeper part of the difference, allowing both parties to benefit from the fraud.
Forensic investigators consider kickback schemes the most difficult white-collar crimes to investigate. That's because a kickback doesn't necessarily indicate quid pro quo harassment. Making a payment happens for many reasons. Some examples include simply to induce favor or a positive recommendation for the provider.
Kickbacks are often seen in procurement contracts. If a government employee responsible for managing the contractors on an infrastructure project receives a kickback for selecting one contractor over another, the most qualified contractor may not win the bid. An example of this would be a contractor reaching out to the procurement officer and offering him concert tickets. That would be perceived as a kickback.
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