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7.1 Taking Advantage of the Advantages: Gifts, Bribes, and Kickbacks
- Define a conflict of interest.
- Show how gifts in the business world may create conflicts of interest.
- Delineate standard practices for dealing with gifts.
- Consider how receiving gifts connected with work may be managed ethically.
- Define bribes and kickbacks in relation to gifts.
- Show how the ethics of bribes and kickbacks can be managed inside the ethics of gifts.
Living the High Life
If you’re young, looking for work, and headed toward a big city (especially New York), then you could do a lot worse than landing a job as a media buyer for an advertising agency. According to an article in New York magazine, it’s working out well for twenty-four-year-old Chris Foreman, and it’s working out despite a salary so measly that he can’t afford his own place, a ticket to a movie, or even to add meat to his homemade spaghetti.Sarah Bernard, “Let Them Eat Crab Cakes,” New York, accessed May 19, 2011, http://nymag.com/nymetro/news/media/features/2472.
This is what makes the job click for Foreman: as a media buyer, he oversees where big companies like AT&T place their advertisements. And because those ads mean serious money—a full page in a glossy, top-flight magazine costs about five times what Foreman earns in a year—the magazines line up to throw the good life at him. Thanks to the generosity of Forbes magazine, for example, Foreman spends the occasional evening on the company’s vast Highlander yacht; he drinks alcohol almost as old as he is, munches exquisite hors d’oeuvres, and issues orders to white-suited waiters. While guests arrive and depart by helicopter, Foreman hobnobs with people the rest of us see only on movie screens. A scan of the Highlander guest book turns up not just celebrities but serious power too: Margaret Thatcher was a guest once.
A night on the Highlander is a good one, but it’s far from the only event lighting up Foreman’s glitzy life. A few of his other recent outings are listed in the article, with some estimated cash values attached: An all-expenses-paid ski weekend (worth almost $1,000, in Foreman’s estimation); tickets to see Serena Williams at the US Open ($75 each); invites to the Sports Illustrated Swimsuit Issue party, where he chatted with Heidi Klum and Rebecca Romijn-Stamos; prime seats for sold-out Bruce Springsteen concerts ($500 each); dinners at Cité, Sparks, Il Mulino, Maloney & Porcelli, and Monkey Bar, to name a few of his favorites ($100 a pop).
Foreman observes the irony of his life: “It’s kind of crazy, I had dinner at Nobu on Monday [the kind of restaurant few can afford, even if they’re able to get a reservation], but I don’t have enough money to buy socks.”Sarah Bernard, “Let Them Eat Crab Cakes,” New York, accessed May 19, 2011, http://nymag.com/nymetro/news/media/features/2472.
The Highlander’s spectacularly wealthy owner is Steve Forbes. If he invites former British prime minister Margaret Thatcher aboard for a holiday weekend, you can understand why: she’s not just an interesting person; she’s living history. Serena Williams would be an interesting guest, too, in her way. The same goes for Heidi Klum and Ms. Romijn-Stamos, in a different way. What they all have in common, though, is that you know exactly what they’ve got, and why a guy with a big bank account would treat them to an evening. But what, exactly, does Mr. Forbes expect to get in return for inviting media buyer Chris Foreman? The answer: “We media buyers are the gatekeepers—no one at AT&T actually purchases the ads. If at the end of a buying cycle, your budget has an extra $200,000, you’ll throw it back to the person who treated you best.”Sarah Bernard, “Let Them Eat Crab Cakes,” New York, accessed May 19, 2011, http://nymag.com/nymetro/news/media/features/2472.
The answer, in a word, is money.
What’s Wrong with Gifts and Entertainment?
The fundamental problem with the gifts Foreman received and the free entertainment he enjoyed is that they create a conflict of interestAn employee in a situation—especially as a result of being offered a gift—where his or her interest in personal welfare may corrupt his or her ability to serve the employer’s interest., a conflict between professional obligations and personal welfare. As a paid media buyer, it’s Foreman’s job and obligation to buy ads in the magazines that will do his clients the most good, that’ll deliver the biggest bang for the buck. But against that, as a single twenty-four-year-old guy in New York City, it’s in his personal interest to purchase ads in Forbes magazine since that probably gets him invited back to the Highlander with its free drinks, exquisite dinners, and, if he’s lucky, some face time with women he’s already seen quite a bit of in Sports Illustrated. This is a tough spot, and there are two broad ways it can play out:
- Foreman can do the parties at night, go home, sleep, wake up with a clear head, and buy the best ads for his client. Let’s say the advertising money he’s spending belongs to AT&T and they’re trying to attract new clients in the forty-five to fifty-five demographic of heavy cell phone users. He takes that target, checks to see what magazine those people like to read more than any other, and buys a full pager there. If the magazine happens to be Forbes, great, if not, then Forbes doesn’t get anything back for its party. In this case, Foreman knows he’s done right by AT&T and his employer. To the best of his ability, he guided advertising money to the spot where it’ll do the most good. There remains a potential problem here, however, which is the appearance of a conflict of interest. Even though Foreman didn’t let the parties affect his judgment, someone looking at the whole thing from outside might well suspect he did if it happens that Forbes gets the ad buy. This will be returned to later on in this chapter.
- The darker possibility is that Forbes isn’t the best media buy, but they get the ad anyway because Foreman wants to keep boarding the Highlander. In this case, Foreman is serving his own interest but failing his obligations to his employer and to his client.
In pure ethical terms, the problem with the second possibility, with selling out the client, can be reduced to an accusation of lying. When Foreman or any employee signs up for a job, shows up for work, and then accepts a paycheck, they’re promising to be an agentSomeone acting on behalf of an organization and its interests. for the organization, which is formally defined in commercial law as someone acting on behalf of the organization and its interests. In some situations it can be difficult to define exactly what those interests are, but in Foreman’s it’s not. He does well for his employer when he gives the clients the best advice possible about spending their advertising dollars. That’s his promise and he’s not fulfilling it.
Redoubling the argument, in the case of the typical media buyer, there’s probably also an explicit clause in the employment contract demanding that all media advice be objective and uncorrupted by personal interest. Even without that formal step, however, the shortest route to an ethical condemnation of buying ads because a night on the Highlander (or some other gift) has been received is to underline that the act turns the media purchaser into a liar. It makes him or her dishonest every time they come into work because they’re not providing the objective and impartial advice they promise.
In discussing conflicts of interests, it’s important to keep in mind that those who find themselves caught up in one haven’t necessarily been corrupted. Just because Foreman finds himself torn between giving impartial advice to his client and giving the advice that gets him good parties doesn’t mean his judgment is poisoned. That said, it’s extremely difficult to walk away from a conflict of interest unstained: any time serious gifts or rich entertainment gets injected into a business relationship, suspicious questions about professionalism are going to seep in too.
Finally, there are two broad ways of dealing with gifts, especially those creating conflicts of interest. They can be flatly refused, or rules can be formulated for accepting them responsibly.
Refusing Gifts and Entertainment
One way to avoid the gift and conflict of interest problem altogether for Chris Foreman or anyone in a similar situation is to simply refuse any gifts from business partners. Far more frequently than private businesses, government organizations take this route. The approach’s advantage, obviously, is that it wipes out the entire question of wrongdoing. The disadvantage, however, is that it dehumanizes work; it seems to forbid many simple and perfectly appropriate gestures of human interaction.
Here’s an example of what can happen when efforts to eradicate conflicting interests go to the extreme: it’s from a New York Times front-pager about the state governor:
Governor David A. Paterson violated state ethics laws when he secured free tickets to the opening game of the World Series from the Yankees last fall for himself and others, the New York State Commission on Public Integrity charged on Wednesday.Nicholas Confessore and Jeremy “Paterson’s Ethics Breach Is Turned Over to Prosecutors,” New York Times, March 3, 2010, accessed May 19, 2011, http://www.nytimes.com/2010/03/04/nyregion/04paterson.html?hp?hp.
So, the governor is in trouble because he got some tickets to watch his home team play in the baseball championship? That’s going to make Chris Foreman’s head swim. Without getting into the details of the Paterson case, accepting these tickets doesn’t seem like a huge transgression, especially for someone whose job pays well and is already packed with gala events of all kinds. It’s not as though, in other words, Peterson’s going to be blown away by the generosity or become dependent on it. In the case of Foreman who could barely afford to eat, it’s reasonable to suspect that he may come to rely on his occasional trip to the Highlander, but it just doesn’t seem likely that the governor’s judgment and ability to fulfill professional obligations are going to be distorted by the gift provided by the New York Yankees baseball club. More, as the state’s elected leader, a case could probably be made that the governor actually had a professional responsibility to show up and root for the home team (as long as the visitors aren’t the Mets). As a final note, since the now former governor is legally blind, the value of the gift seems limited since he couldn’t actually see the game he attended.
Despite this case’s apparent frivolity, the general practice of eliminating conflict of interest concerns by simply banning gifts can be justified. It can be because so many gifts, just by existing, create the appearance of a conflict of interestAn appearance of conflict exists when a reasonable person will conclude from the circumstances that the employee’s ability to perform his or her duties may be compromised by personal interest.. An appearance of conflict exists when a reasonable person looking at the situation from outside (and without personal knowledge of anyone involved) will conclude from the circumstances that the employee’s ability to perform his or her duties may be compromised by personal interest. This is different from an actual conflict because when there’s really conflict, the individual feels torn between professional obligations and personal welfare. Almost certainly, Foreman was tempted to help out Forbes because he really liked the parties. But the case of Governor Paterson presents only the appearance of a conflict of interest because we don’t know whether he even wanted the tickets to the Yankees game. Given the fact that he’s blind, he may well have preferred staying home that night. Still, for those of us who can’t know his true feelings, it does seem as though there might, potentially, be some incentive for Paterson to return the Yankee favor and provide them some special advantage. It’s almost certain that at some time in the future, the baseball club will have an issue up for debate by the state government (perhaps involving the construction of a stadium or maybe just a license to sell beer inside the one they currently have), and as soon as that happens, the appearance of conflict is there because maybe Paterson’s response will be colored by the tickets he got.
Conclusion. Refusing to accept any gifts from business associates is a reasonable way of dealing with the ethical dilemma of conflicting interests. By cutting the problem off at the roots—by eliminating not only conflicts but the appearance of them—we can go forward with confidence that a worker’s promise to represent the organization faithfully is uncorrupted by the strategic generosity of others.
What Other Remedies Are Available for Conflict of Interest Problems Stemming from Gifts?
Categorically refusing gifts may be recommendable in some cases, but in most economic situations a total ban isn’t realistic. People make business arrangements the same way they make friendships and romance and most other social things—that means invitations to the Highlander if you’re lucky, or just to a few Budweisers in the hotel bar. And if you turn everyone down every time, it’s probably going to dampen your professional relationships; you may even lose the chance to get things done because someone else will win the contract between drinks.
So where does the line get drawn for accepting gifts with ethical justification? Whether you happen to be a renowned politician in a large state or someone just out of school trying to make a go of it in the world, there are a number of midpoints between Governor Paterson’s obligation to refuse tickets to a game he couldn’t see anyway and Chris Foreman’s raucous partying on the Highlander. Three of the most common midpoints are
- organizational codes.
Transparency, as the word indicates, manages the acceptance of gifts by publicly recognizing their existence. The idea is that if Foreman is willing to openly acknowledge exactly what he’s getting from Forbes magazine, then we can trust that there’s nothing underhanded going on, no secret agreements or deals. Of course the gifts may still influence his judgment, but the fact that they’re public knowledge at least removes the sense that he’s trying to get away with something.
Recusal is abstaining from taking part in decisions contaminated by the appearance of a conflict of interest. Foreman could, for example, keep going to Highlander parties but not manage any media buying for the demographic that reads Forbes. It’s fairly easy to imagine a team of media buyers working together on this. Every time something comes up that might be right for Forbes, Foreman passes the decision on to Sam Smith or whoever and so removes himself from the conflict.
In the public sphere, especially politics and law, it’s common for judges and legislators to remove themselves from considering issues bearing directly on their welfare. A judge who owns stock in the Omnicom communications group may recuse herself from hearing a civil case brought against the company. Legislators deciding what the salary should be for legislators may ask for recommendations from an independent panel.
Organizational codes are one of the theoretically easiest but also one of the more practically difficult ways to handle gifts. The advantage of a code is that it can provide direct responses for employees trying to decide whether they can accept a gift. In Oregon, for example, legislators are prohibited from accepting gifts valued at more than fifty dollars. Assuming the code is reasonable—and in this case it was judged so by the state’s supreme court—legislators may assert that by implication accepting a gift valued under that amount is, in fact, ethical.Bill Graves, “Oregon Supreme Court Upholds $50 Gift Limit for Legislators, Public Officials,” OregonLive.com, December 31, 2009, accessed May 19, 2011, http://www.oregonlive.com/news/index.ssf/2009/12/oregon_supreme_court_upholds_5.html.
However, the problem with codes is that, like laws, they frequently leave gray areas. That’s especially true in a media buyer’s world where so much is spent on entertaining. In that kind of reality, it’s very difficult to put a specific price on everything. A night on the Highlander, obviously, is worth a lot to Foreman, but how does it appear in the accounting books of dollars and cents? Because it’s hard to know, monetary limits provide only vague ethical guidance for those in Foreman’s line of work.
The broader lesson is that gifts come in so many forms—and with values that can be so difficult to accurately measure—that it’s virtually impossible to write something encompassing all the specific possibilities. Many codes of conduct, therefore, end up sounding noble but are really just saying, “Figure it out for yourself.” Take a look at the last lines from the Code of Conduct from Omnicom, a massive group of companies including many leading advertising firms that purchase ads in Forbes:
We expect each employee to exercise good judgment and discretion in giving or accepting any gift. No set of specific rules can anticipate or capture every possible instance in which an ethical issue may arise. Instead, all of us must be guided by the overarching principle that we are committed to fair and honest conduct and use our judgment and common sense whenever confronted with an ethical issue.“Code of Conduct,” OmnicomGroup, last updated October 16, 2008, accessed May 19, 2011, http://www.omnicomgroup.com/corporategovernance/codeofconduct.
Questions to Ask before Accepting a Gift
In their book Moral Issues in Business, authors William Shaw and Vincent Barry formulate a list of questions that, when answered, can provide support and clarity for making decisions about whether a gift may be accepted. They’re not going to tell you what to do—there’s no magic guide—but they can help you see things more clearly. In modified form and with some additions and subtractions, here’s the list.William Shaw and Vincent Barry, Moral Issues in Business (Belmont, CA: Thomson Wadsworth, 2007), 398–99.
- Is there a conflict of interest, or the appearance of a conflict, that arises because of the gift? Not every gift raises conflict of interest concerns. Maybe a marketer at Forbes gets a late cancellation for a Highlander night and can’t find any targeted media buyer to fill the spot, so the invite gets handed off to a buyer specializing in purchasing ads for young teenagers. Why not? It’d just go to waste otherwise. And should that lucky media buyer say yes? It’s difficult to find an ethical reason not to since no conflict of interest concerns seem to arise.
- What’s the gift’s value? This can be an easy one. When Foreman was invited to a Springsteen concert he could just look at the tickets and see that he’d been offered something worth $500. On the other hand, getting the chance to chat up a Sports Illustrated swimsuit model on the Highlander is going to be harder to quantify. In those cases where a value can be set, the number allows a clean dividing line: anything above the a specified amount gets categorized as potentially influencing a decision and so causing a conflict of interest, while any gift worth less may be considered nominal, too small to threaten professionalism. What’s the magic number? That depends on who’s involved and the general context, but many organizations are currently setting it at $25, which is, not incidentally, the limit the IRS sets for business deductions for gifts to any single person during one year.
- Is the gift provided out of generosity or for a purpose? No one can peer into the soul of another, but something offered during the holiday season may be more acceptable than the same thing offered just before a major advertising buy is being made.
- What’s the gift’s purpose? Just because a gift isn’t an outpouring of generosity so much as an expression of self-interest doesn’t mean there’s a corrupting intent. For example, if Forbes magazine sends Foreman a free copy of each issue, that’s more like advertising for themselves than an attempt to buy the guy off. Almost all of us have had the same experience: we’ve received calendars or notepads in the mail from a local real estate agent or insurance seller. These aren’t attempts to buy us, just ways to present their services. On the other hand, it’s hard to see how tickets to a Springsteen concert given by a magazine can be anything but an attempt to induce the receiver to give a gift back by throwing some ad money the publication’s way.
- Is it a gift or entertainment? Traditionally, a distinction has been drawn between giving gifts and paying for entertainment. As a rule of thumb, the former is something you can take home and the latter is enjoyed on the spot. Presumably, entertainment raises fewer ethical concerns because it isn’t a payoff so much as a courtesy extended to a media buyer in exchange for hearing a pitch. If someone from Forbes wants to convince Foreman that her magazine is the best place for advertising dollars, then it doesn’t seem so bad, buying him a lunch or a few beers while he hears (endures) the pitch. After all, it’s her job to sell the magazine and it’s his to know the advantages all the magazines offer. This is just normal business. Gifts, on the other hand, seem much more like bribes because they don’t exist in the context of normal business conversations. Take the tickets to a Springsteen concert; they have nothing to do with business and can’t be justified as a courtesy extended within the boundaries of normal exchanges between magazines and ad buyers. Finally, with respect to the parties on the Highlander, those are technically entertainment since Foreman can’t take the yacht home afterward. It doesn’t sound, though, like a lot of business talk was going on.
- What are the circumstances? There’s a difference between Forbes magazine handing concert tickets to media buyers to mark the launching of a new column in the magazine and their constant, ongoing provisioning. As part of the launch campaign, it’s much easier for Foreman to accept the gift without feeling trapped by an obligation to throw business Forbes’ way since he can respond to the gesture simply by being aware that the new column is there and taking it into account when he makes future buying decisions.
- What power do I have to bestow favors in return for gifts? Foreman’s job title is assistant media buyer, meaning he probably doesn’t actually decide which magazine gets the business. He just gathers research data and makes a recommendation to the boss. Does this free him to enjoy the Highlander nights guilt free? Hard to be sure, but it definitely helps him fulfill his professional obligations: it’s just much easier to do the data mining and recommendation writing in the back office than it is to be the guy sitting out front telling Forbes magazine the answer’s “no,” even though the parties were great. If that’s the way things go, Foreman may be a coward for letting his boss deliver the bad news to Forbes, but that’s a personal ethical failure, not a business one.
- What’s the industry accepted practice? In New York state government, as the Paterson case shows, the accepted practice is no gifts, period. In the looser world of Manhattan media business, New York magazine sums things up: “Everybody in our industry is guilty of it. Many of those who travel for work take their boyfriends and call it a vacation.”Sarah Bernard, “Let Them Eat Crab Cakes,” New York, accessed May 19, 2011, http://nymag.com/nymetro/news/media/features/2472. Care should be taken here to avoid the conclusion that whatever everyone else is doing is OK. That’s not it at all. But it is true that if everyone’s guilty—if all the magazines are lavishing gifts on media buyers, and all the buyers are accepting—it’s going to be much easier for Foreman to satisfy his professional obligations. It’s going to be easier for him to tell Forbes “no” (assuming the demographic facts recommend that) when all the magazines are gifting about equally and everyone’s accepting than it would be if Forbes were the only magazine giving the gifts and he was the only one accepting.
- What’s the organization’s policy? As the Omnicom Code of Conduct illustrates, sometimes policy provides words but no guidance. As the New York government policy (which prohibits all gifts) shows, however, sometimes there is guidance. When true guidance is provided, an employee may fairly reason that following it is fulfilling professional obligations to the employer.
- What’s the law? Generally, laws on gift giving and receiving apply to public officials and those working with them (politicians, judges, lawyers, businesses doing work for the government). As is always the case, the legal right doesn’t in itself make ethical right. It can, however, provide the foundation for making an ethically recommendable decision, assuming other factors—many of which will come up through the set of questions just listed—have not been ignored.
Conclusion. Gifts cause a conflict of interest when they threaten to corrupt an employee’s judgment on business matters related to the interests of the person or organization providing the gift. Sometimes gifts are given with that intention, sometimes not. Regardless, and no matter what the law or corporate philosophy may be, it’s frequently the employee who ends up deciding whether a gift will be accepted. If it is, a responsibility follows to justify accepting it.
What’s the Difference among Gifts, Bribes, and Kickbacks?
One advantage of the developed framework for thinking ethically about gifts in the midst of advertising business relationships is that it provides a compact way to manage the ethics of bribes and kickbacks.
BribesSomething of value given to an individual to corrupt his or her professional judgment. are gifts—everything from straight cash to entertainment—given to media buyers with the direct purpose of corrupting their professional judgment by appealing to their personal welfare. When a representative from Forbes magazine gives Chris Forman tickets to the Springsteen show with the intention of spurring Foreman to consider buying ad space in Forbes, that’s a gift; it’s left to Foreman to decide whether he can accept it without betraying his obligation to serve his employer’s interests. When, on the other hand, the rep gives the same tickets with the intention of getting Forman to directly buy the space, that’s a bribe. A bribe, in other words, is an extreme conflict of interests where the individual’s personal interest completely overwhelms the professional responsibilities implied by his job. If Foreman accepts this kind of gift—one where he knows the intention and accepts that the objectivity of his judgment will be blinded—then he’s crossed into the zone of bribery. Receiving bribes, finally, seems unethical for the same reason that accepting gifts can be unethical: it’s betraying the promise to act as an agent for the organization.
KickbacksSomething of value given to an individual in return for having corrupted his or her professional judgment. resemble bribes except that instead of the gift or entertainment being given over first and then the ad space getting purchased, the ad space is purchased and then a portion of that revenue is sent back to the media buyer as cash or Springsteen tickets or whatever. Regardless of whether the media buyer gets his reward first and then buys the ad space, or buys the space and then gets rewarded, what’s happening on the ethical level doesn’t change. Personal interest is being exploited to corrupt professional judgment. That means accepting the reward becomes a form of lying since it’s a betrayal of the implicit promise made to do the job right when you sign the contract.
In the Real World, What’s the Difference among Gifts, Bribes, and Kickbacks?
In actual day-to-day business it can be extremely difficult to distinguish among gifts, bribes, and kickbacks because at bottom all of them spark conflicts of interest. All of them, consequently, are also going to incite at least remote suspicions of corruption. Of course it’s always easy to find examples at one extreme or the other. On the safe side, if a woman seeking your business pays for one cup of coffee for you once, it’s unlikely that you’ll give her proposal any special consideration, and it’s doubtful that she’d expect it. If she offers to make your car payments on the other hand, it’s pretty clear something’s going on. Usually, however, the lines are blurry and the reality more like the one Foreman lived through. The exact monetary value of what he received wasn’t certain. Did he get the invitations with the intention of having his judgment tainted or were they extended as a courtesy and in accordance with the industry’s common practice? Would he get more and better invitations if he sent Forbes magazine some extra dollars? While these questions don’t have certain answers, the ethics can be rendered in straightforward form. Agents of an organization have a duty to act in favor of the organization’s interests regardless of what happens after hours.
- Conflicts of interest arise when an individual’s professional judgment is challenged by an appeal to personal interest, as occurs when a prospective client offers a gift.
- Because suspicions of unethical practices arise almost immediately when a conflict of interest exists, even appearances of a conflict of interest present problems in business.
- Standard practices for dealing with gifts include outright refusal, acceptance of gifts with only nominal value, acceptance in accord with industry practices, and good sense within a clearly understood situation.
- In certain contexts, gifts of significant value may be accepted ethically, as long as they don’t corrupt professional judgment.
- Bribes and kickbacks can be managed ethically within the framework constructed for gifts. Both bribes and kickbacks function as gifts that do, in fact, corrupt an employee’s professional judgment.
- Why do gifts create conflicts of interest?
- What is the main advantage and disadvantage of dealing with gifts and conflicts of interest by prohibiting the acceptance of gifts?
- What questions could you ask yourself to help frame the question as to whether you can ethically accept a business-related gift?
- What’s the difference between a conflict of interest and the appearance of a conflict?
- What’s the difference between a gift and a bribe?
- What’s the difference between a bribe and a kickback?