What is corruption?

Corruption is generally defined as the abuse of entrusted power for private gain. This definition is widely used by international bodies and captures both public-sector and private-sector misconduct, including bribery, embezzlement, and abuse of influence.

From a compliance perspective, corruption is not limited to illegal payments. It also includes indirect benefits, favors, and arrangements that distort decision-making and create hidden financial crime risk, often overlapping with money laundering, sanctions exposure, and PEP risk.

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Why corruption matters for businesses and financial institutions

Corruption creates legal, financial, and reputational risk for organizations that interact with governments, state-linked entities, or politically exposed persons. Regulators consistently emphasize that corruption is a predicate offense for money laundering and a key driver of illicit financial flows.

For financial institutions, corruption risk often materializes through payments, account activity, or relationships that appear legitimate on the surface but are later linked to bribery or misappropriation. Failure to detect these risks can result in regulatory penalties, remediation obligations, and loss of trust.

How corruption is defined in law and regulation

International conventions and standards

At the international level, corruption is addressed through conventions such as the United Nations Convention against Corruption (UNCAC). UNCAC defines and criminalizes a range of corrupt practices, including bribery of public officials, embezzlement, trading in influence, and abuse of functions.

UNCAC also emphasizes prevention, international cooperation, and asset recovery, reinforcing the idea that corruption is not only a criminal justice issue but also a financial and governance risk.

National anti-corruption laws

Many jurisdictions have enacted domestic laws that target corruption with extraterritorial reach. Prominent examples include the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act 2010, both of which apply to companies and individuals beyond their home jurisdictions.

These laws significantly expand compliance obligations by holding companies accountable for bribery conducted by employees, agents, or intermediaries. As a result, corruption risk management has become a core part of global compliance programs.

Main types of corruption

Bribery

Bribery involves offering, giving, receiving, or soliciting something of value to influence an official act or business decision. It is the most commonly recognized form of corruption and can involve cash, gifts, travel, employment opportunities, or other benefits.

In compliance investigations, bribery often appears as inflated invoices, consulting fees with no clear services, or payments routed through third parties. These patterns frequently overlap with AML red flags and adverse media signals.

Embezzlement and misappropriation

Embezzlement occurs when a person entrusted with managing assets unlawfully diverts them for personal use. This form of corruption is common in public finance scandals and state-owned entities.

From a financial crime perspective, embezzled funds are often laundered through the financial system, making banks and payment providers critical gatekeepers.

Abuse of office and trading in influence

Abuse of office involves using official position to obtain undue advantages, while trading in influence refers to exploiting real or perceived access to decision-makers for private gain.

These forms of corruption are particularly challenging for compliance teams because they may not involve obvious payments. Instead, they rely on relationships, favors, and long-term benefit exchanges, which often surface through adverse media or law enforcement actions.

Nepotism and favoritism

Nepotism occurs when officials favor relatives or close associates in appointments, contracts, or benefits. While not always illegal on its own, nepotism can signal broader corruption risk and weak governance.

For compliance teams, nepotism increases PEP and close-associate risk, especially when linked to procurement decisions, licensing, or access to public resources.

State capture and systemic corruption

State capture refers to situations where private interests significantly influence a state’s decision-making processes for their own benefit. This represents an extreme form of corruption that undermines institutions and regulatory frameworks.

Systemic corruption creates elevated risk for all counterparties operating in the affected jurisdiction, increasing the importance of enhanced due diligence, sanctions screening, and adverse media monitoring.

How corruption is executed in practice

Corruption schemes often rely on layered and indirect mechanisms to avoid detection. Payments may be disguised as legitimate business expenses, routed through intermediaries, or embedded in complex transactions.

Common execution methods include sham consulting agreements, inflated procurement contracts, facilitation payments disguised as service fees, and the use of trusted associates to distance the official from the benefit. These methods create overlapping AML, sanctions, and fraud risk.

Major corruption cases and what they reveal

1MDB (Malaysia)

The 1Malaysia Development Berhad (1MDB) scandal is one of the largest corruption and kleptocracy cases in history. U.S. authorities allege that more than $4.5 billion was misappropriated from the state investment fund and laundered through the global financial system.

The case illustrates how corruption at the highest political levels can generate massive cross-border financial crime exposure. It also shows how adverse media and law enforcement actions can reveal PEP networks and trigger global enforcement.

Petrobras (Brazil)

Brazil’s Operation Car Wash (Lava Jato) uncovered widespread bribery and kickbacks involving the state-controlled oil company Petrobras, politicians, and major construction firms.

The scandal resulted in billions of dollars in fines and settlements and highlighted how corruption can become embedded in procurement and contracting processes.

Siemens bribery scandal

Siemens agreed to pay more than $1.6 billion in penalties in 2008 to resolve bribery charges across multiple jurisdictions. Investigations found systematic use of slush funds and intermediaries to bribe officials worldwide.

This case is often cited as a turning point that pushed multinational companies to strengthen anti-corruption compliance programs globally.

FIFA corruption case

Investigations into FIFA revealed extensive bribery and corruption involving senior officials and global sporting events. U.S. DOJ actions exposed how corruption can thrive in international organizations with weak governance.

For compliance teams, the case underscores that corruption risk is not limited to governments. International bodies and associations can also create exposure.

What compliance teams need to know about corruption risk

Corruption as a financial crime risk

Regulators treat corruption as a predicate offense for money laundering. This means suspicious transactions linked to bribery or embezzlement must be monitored, escalated, and reported under AML frameworks.

Corruption risk also intersects with sanctions and PEP screening, as corrupt officials may later become designated or subject to enforcement actions.

The role of PEPs and adverse media

PEPs are central to corruption risk management because of their access to public resources and decision-making power. Enhanced due diligence and ongoing monitoring are widely expected for PEP relationships.

Adverse media screening is a key discovery tool for identifying corruption allegations, investigations, or convictions that may not yet be reflected in official lists.

How companies can stay protected from corruption

Implement strong risk-based controls

Organizations should conduct corruption risk assessments that consider geography, sector, customer profile, and transaction activity. Controls should be proportionate to risk and integrated with AML and sanctions screening.

Strengthen screening and monitoring

Effective screening for sanctions, PEPs, and adverse media helps identify corruption risk early. Continuous monitoring is essential because corruption cases often develop over years.

Ensure governance, training, and accountability

Boards and senior management play a critical role in setting expectations around ethical conduct and compliance. Regular training helps staff recognize corruption red flags and escalate concerns appropriately.

Key takeaways

Corruption is a global risk that affects governments, markets, and private companies alike. It takes many forms, from bribery and embezzlement to systemic state capture, and often overlaps with money laundering, sanctions exposure, and PEP risk.

For compliance teams, the lesson from major corruption cases is clear: proactive screening, adverse media monitoring, and strong governance are essential to prevent involvement in corruption and to protect organizations from severe regulatory and reputational consequences.

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