It occurs where one party makes threats against another party of adverse consequences unless demands, usually for payment, are met by the other party. The extortion may constitute, for example, refusal to provide customs clearance for equipment or materials, or refusal to make payments or issue certificates that are due. Sometimes the threats may involve threats of physical harm. If the party who is the victim of the extortion provides the payment or other benefit, it will normally become liable for the offence of bribery. However, the party making the extorted payment may have a defense to bribery if the threat was of imminent death or personal
It is sometimes referred to as ―deception‖. Fraud usually involves one person (or group of persons) deceiving another person in order to gain some financial or other advantage. In the context of an infrastructure project, fraud offences may include:
- Manipulation of pre-qualification or tender requirements so as to favour a particular bidder
- Exaggerating a person’s experience on a CV or job application
- Concealment of defects
- Dishonestly levying liquidated damages
- Dishonestly withholding payment
- Dishonestly exaggerating the quantum of a claim
- Fabricating or falsifying evidence to support claims (e.g. by falsifying time sheets or delivery records).
Parties may be liable for the offence of fraud where they deliberately undertake the fraudulent action with full knowledge of the circumstances. Alternatively, it is possible for a party to be liable for fraud if it was reckless as to the circumstances. For example, a company may be liable for fraud if it submits a claim for additional payment which it suspects may be inflated but fails to take reasonable steps to determine that the claim is accurate
Cartel activity is a criminal offence in most jurisdictions. It occurs where two or more organizations unlawfully collude in relation to the bidding for contracts or the pricing of equipment, services or materials. These offences are sometimes known as collusion,
competition or trust offences. The underlying principle of these offences is that organizations must be prevented from secretly colluding to raise prices to a higher level than would be the market price if there was genuine open competition. Collaboration between organizations which is lawful and disclosed to the customer (e.g. a joint venture) would not normally be a breach of cartel laws. In the context of an infrastructure project, cartels may include:
- Bidding cartels: The bidders agree in advance as to which of them will win the tender. There is therefore no genuine competition for the tender. The winner as a result can submit a higher price.
- Loser’s fee: The bidders genuinely compete to win a tender. However, the bidders all agree, without the knowledge or consent of the customer, to include in all of their tenders an additional amount. The winner shares this additional amount between all the losers to compensate them for their bidding costs.
- Price fixing: Suppliers (e.g. of concrete) agree that they will compete against each other, but will never drop below an agreed price per unit.
- Cover pricing: A contractor is too busy to undertake a project, but must bid to stay on the customer’s tender list. It obtains a competitor‘s price in advance and puts in a price higher than the competitor so as to lose.
Abuse of power
Abuse of power is a criminal offence in many jurisdictions. It occurs where a person in public office deliberately or recklessly acts in a way that is contrary to his duty and is in breach of his position of public trust. In the context of an infrastructure project, abuse of power may include a public official:
- secretly owning a contractor or supplier, and wrongly making a contract award or payment decision in favour of that contractor
or supplier; or wrongly directing an organization working on the project to award a contract to or pay that contractor or supplier
- favoring friends or relatives for appointments or contracts (nepotism or ―cronyism‖)
- victimizing or intimidating staff so that they make decisions which support the official‘s view.
The above abuses by the government official may either be as a result of a deliberate corrupt decision, or because the conflict of interest affects his impartial judgment.
Embezzlement is the term sometimes used to describe the wrongful appropriation of funds which you have a duty to safeguard. For example, a public official who diverts public funds to his private bank account, or an accounts clerk who sets up phantom employees on the company’s payroll and pays these employees’ salaries into his own bank account. It is a type of theft which normally involves an element of fraud, and should be distinguished from the type of theft which involves e.g. breaking into a person’s house and stealing some contents.
Money-laundering is a criminal offence in most jurisdictions. It occurs where a party moves cash or assets obtained by criminal activity from one location to another. For example, a company submits a fraudulent claim to a project owner for work which it did not carry out. The project owner pays the fraudulently obtained sum into the company‘s bank account with Bank A. If the company then moves the payment to Bank B, this may constitute the offence of money laundering. Money-laundering is often used to conceal the criminal source of funds.