Bribe: Meaning, Overview and Tax Treatment

What Is a Bribe?

A bribe is an illegal act involving the exchange of something of value, such as money, with the purpose of influencing the behavior of public officials.

How Bribes Work

Under Section 201 of Title 18 of the U.S. Code, bribery includes indirectly influencing any official act by corruptly giving, offering, or promising anything of value to a public official. Bribes are often made with money through offering, giving, receiving, or soliciting special favors to public officials such as judges or heads of regulatory agencies to elude convictions or unfavorable court rulings, or as an incentive for the payee to alter or overlook pertinent regulations that would otherwise restrict the payer.

Bribes and kickbacks, a particular form of bribery, are always illegal. Bribes that take the form of kickbacks to insurance or securities customers are known as rebating and can result in disciplinary actions by regulatory authorities.

Types and Scales of Bribery

Bribes occur in many forms, ranging from minor transactions between individuals to major deals between corporations or governments. Bribes can also be masked as tips, gifts, favors, donations, or other forms of legal exchanges. There is no universal definition or classification system for bribery, as some nations approve of and legalize certain transactions that are illegal elsewhere.

For example, in the United States, it is illegal to offer payment to a police officer to avoid a penalty for a violation. However, in some countries, bribery has become normalized or expected behavior, even if it's technically illegal. In another case, it is considered bribery in some nations for political campaigns to receive cash donations. In the United States, this act is not illegal, provided the donation is made within specific limits, and according to certain guidelines. Bribery can occur between individuals, firms, industries, and nations. 

Although bribes are most commonly associated with professional sports and politics, it is also a growing problem for other sectors, such as within the healthcare and pharmaceutical sectors. In the medical and pharmaceutical industries, some pharmaceutical corporations offer bribes to practitioners to choose their drugs over others, or to bypass certain regulatory standards.

Despite the differences in definitions and classifications, the concept of bribery is widely considered a growing global problem. According to the World Bank, corporations and individuals pay more than $1 trillion in bribes every year.

Tax Treatment of Bribes

The United States prohibits bribes as being recorded for tax purposes because they stifle the democratic process, encourage unethical behavior, and conflict with the principles of freedom and equality. Although most developed nations have practices similar to the United States, some developing and a few developed nations allow bribes to be tax deductible. 

To prevent bribery, the OECD Council established the Anti-Bribery Convention, which seeks to eliminate corruption in developing nations by introducing sanctions against bribery in certain international business transactions of companies based in member countries.