Bribery is the giving of gifts in order to influence the conduct of the recipient. The resulting conduct of the recipient will then differ from the person’s normal actions to favor the interests of the person giving the gift. In economic terms, the outcome of this behavior is suboptimal, since the resources of the organization represented by the bribe recipient are being expended on goods or services that are either higher cost or lower quality than would otherwise have been provided by the market. Here are several examples of bribery:
A public official for a municipality directs all road construction services to ABC Construction, after accepting a $100,000 bribe from that firm. ABC earns back the amount of the bribe by overcharging the city by $500,000. The party being harmed is the citizens of the government entity, whose taxes are being misdirected.
The purchasing manager of a large international company awards a training contract to a local supplier who would not normally be considered to have sufficient training staff available to be awarded the purchase order. In exchange, the supplier arranges for a cousin of the purchasing manager to be given a job by another company. The party being harmed is the international company, which may end up receiving substandard training services. This type of bribery is quite difficult to spot, since the bribe being transferred is between third parties.
An auditor passes confidential information regarding his clients to a stockbroker, who uses the information to buy and sell the shares of the clients for a profit. In exchange, the auditor receives half of the profits from these transactions. The party being harmed is the investing public, since they do not have access to the insider information being divulged by the auditor, and so cannot anticipate when to buy and sell shares.
An international construction company is barred from bribing the officials of foreign governments. To get around this requirement, the company arranges to have one of its consulting contractors make payments instead, and then bill the company for the amounts paid, characterizing them as consulting fees for services provided. Thus, the bribery payments appear as consulting expenses in the books of the construction company.
Bribery is usually considered a criminal offense, but the severity of the penalty varies by jurisdiction. The solicitation of bribes is also considered a punishable offense in many jurisdictions. In a few jurisdictions, the punishment is so weak that the best course is for the employer to administer the punishment by firing the perpetrator.