A kickback is an illegal payment to compensate someone for certain services or for preferential treatment. Kickbacks can be made in the form of money, gifts, credit or anything else that has value. In some sense, kickbacks can be considered bribes, and paying or receiving a kickback interferes with an employee or public official’s ability to do unbiased work.

What Is a Kickback in Real Estate?

Kickbacks occur in many different types of situations, and they are considered to be a difficult white-collar crime to detect. Kickbacks can be used to bribe a bookkeeper to participate in money laundering, for instance, or to buy a positive recommendation for the kickback provider in the context of a job or political endorsement.

Kickbacks often occur in procurement contracts, also known as purchase contracts, which is a type of contract that establishes a legally binding relationship between buyers and sellers. For instance, in government contracts for items like office equipment, contractors who want that business might reach out to the decision-makers and offer some kind of reward for choosing them. This arrangement is considered an illegal kickback.

Most government corruption is the result of kickbacks, and kickbacks severely increase the costs of doing business worldwide.

Warning Signs of a Kickback

It’s not always easy to spot a kickback or detect when it’s happening, but these are a few warning signs to look out for:

• Lack of supervision during purchasing
• No competitive bidding between contractors
• Prices that are higher than average
• Vendors with frequent complaints of legal issues
• Using a vendor that has bad reviews
• Employees that are overly friendly with vendors
• Pressure from staff to select a certain vendor
• Vendors that continue to provide poor products and services
• Vendors that frequently miss delivery dates on products

Kickbacks In the Eyes of the Law

According to the U.S. Foreign Corrupt Practices Act, it is illegal for any company listed with the Securities and Exchange Commission (SEC), any company organized in the U.S., or any citizen or resident to bribe foreign or domestic officials.

Examples of Kickbacks

If someone owns a restaurant and is participating in money laundering, or funneling illegal money through the restaurant, they would need to inflate the cash profits. An example of a kickback in this scenario is if the restaurant owner pays the bookkeeper a bonus — perhaps an extra $1,000 — to doctor the books to make it look like the illegal money came from a legitimate source — i.e. the restaurant.

Another example of a kickback would be if someone were being considered for a job and they gave the hiring committee a reward in the form of gifts or money.

There are a number of reasons and methods for offering someone a kickback, but all of them are illegal and will be prosecuted under the law if detected.

Also keep an eye out for other types of scams common in real estate investing like wire fraud, ponzi schemes, and money laundering.