Kickback (bribery)

As a kick-back refund of part of the amount paid a transaction between at least three parties by a party to another is called. Typically, the kick-back is the person who ultimately raise him, not disclosed. Synonyms are hidden commissions and - especially in Switzerland - retrocession. The concealment of the payment represents the case-law of the Bundesgerichtshof regularly a breach of contract, leading to civil law damages is similar to the legal situation in Austria and Switzerland.

Disambiguation

Sales organizations from financial services ( such as banks, brokers, agents, multi-level marketing ) obtained from product suppliers (eg mutual fund companies ) commissions on products sold. These commissions are paid by the merchants out of the fees of the investors. Also in the insurance industry are those commissions widespread.

In the area of ​​investment and portfolio commissions are ( in Switzerland Bestandesretrozession called ) paid for the investment amount each existing often. Where a customer, for example, a mutual fund and pays the investment company (KAG ) annual fee of 1% of the respective applied sums CISA enough of it, for example, 0.4 % as a portfolio commission to the intermediary (bank, investment advisors, etc.) on.

Kickbacks also exist in the credit card business in the insurance industry, the medical industry and the advertising industry.

Problem of kick-backs

The basic problem of hidden commissions is that they cause the agent in a conflict of interest. As a representative of clients, he alone should its interests to the providers represented - as the bank manager against fund companies. Receives the mediator of the providers payments that are his client the amount of unknown, there is a risk that he no longer primarily represents the interests. Economically it is a so-called Principle - Agent Problem. Disadvantages for the client (customer ) are most likely to be avoided by the fullest possible disclosure of the reimbursements, which was therefore called for by consumer advocates and courts. Politics, too, has repeatedly called for the disclosure of hidden commissions.

Kick-backs in the coalition agreement of 2009

The coalition agreement of the fall of 2009 contains in section 4.5. on Consumer Protection ( subsection investor protection ) the letter of intent to introduce a general duty to disclose rebates, quote: " We want to create a consistent financial services law so that consumers are better protected in the future from avoidable losses and false financial advice A reasonable investor protection against rogue product providers and incorrect advice. is in principle guaranteed regardless of present which product or distribution channel. liability for products and sales to be tightened. (...) The customer must be able to identify the essential components of an investment, all costs and commissions including refunds quickly. "

Kick-backs in the financial sector

Legal situation in Germany

In Germany, the Bundesgerichtshof by order of the XI. Civil Chamber decided on 19 December 2006 that the respective sales organization is obliged to inform the investors of these kick-backs. If this information is not sufficiently clear or not, so the investor is entitled to a claim for damages. In a reconnaissance fault of the investor can not just make ( as the Supreme Court in a judgment on asset management in 2000 ) to fund the purchase, but also all other securities transactions reversed. The Stuttgart Higher Regional Court in its judgment of 16 March 2011, - for the first time taken on questions of liability of the institutions and their criminal involvement in kickback payments position - as far as can be seen. Most recently, the Federal Court from March to August has reiterated its investor-friendly kick-back - case-law in three decisions 2011 .. Then now applies: Investors who bought for investment advice by a bank fund shares, thereby pay them undisclosed sales charge or other fee had and have suffered losses later, these losses can be replaced by the Consultative Bank. As far as known have before the Supreme Court decision of 2006, all banks kick-back commissions collected, without informing investors about it.

Legal situation in Switzerland

In Switzerland it is called kickbacks or retrocession short Retros. There, the legal situation is similar recently: If the customer has expressly agreed to such payments in the contract, a recovery is possible. The Federal Court has ruled on 30 October 2012, that stock commissions in principle belong to the buyer. Currently ( November 2013 ) there is still no full clarity, if not approved by the investor kick-backs for five or for ten years can be reclaimed. In addition, recent court decisions on asset management mandates focused. Whether investment advisory clients may require reimbursement, is the subject of ongoing research and debate. The tax treatment of amounts refunded by the banks of retrocession, the Tax Office Zurich published on February 12, 2013 opinion.

Legal situation in Austria

In Austria, there is an obligation of financial services, the investor potential conflicts of interest by kick-back payments disclosed. This applies for example in investment management agreements. The Supreme Court (OGH ) held in a realization that remuneration that gets the fund company for each shift in the management of its portfolio by the Custodian, an incentive for them performing as often as possible to purchase securities or to sell, even if these shifts are not in the best interest of the investor. The Supreme Court qualified the retrocession therefore as "endangering clients' interests " because it creates an incentive for the consultant, " to consider one's own interest in the broadest possible compensation of the bank". The Supreme Court said in a decision the investor, therefore, not only the information received from the bank or asset manager kick-backs, but also damages for the loss rate loss. However, If the bank or the investment adviser of the fact and amount of kick-backs previously disclosed to customers, so on the other hand, there is usually no reason to claims for damages. Kick-backs are also criminally significant in Austria under certain circumstances. According to § 153aVorlage: § / Maintenance / RIS search criminalizes the "gift acceptance by those in power " with up to one year in prison under sentence. These are the facts of infidelity.

The current kick-backs that pay a fund manager to the custodian bank, up to 50 % of its management fee for the fund, which in turn is often between 1 to 2.5 % of assets of the fund. JPMorgan JF Taiwan Fund pays for example, about an Austrian bank 0.75 % per annum based on the Fund Size, Top Vario Mix continuously 0.8 %; Refunds at this level are not to be underestimated sales motive for the bank. This is a source of worry because the kickbacks to be paid at the expense of the management fee of the issuer, which is meant to reward the manager for the optimal management of the Fund and will be billed to the Fund. Standing for less funds available, because a large portion of the management fee is paid as a portfolio commission to the intermediary, the funds in the trend is less well managed.

In addition, the bank still gets a large part or even the entire initial fee of typically 5 % as sales commission. Therefore, the bank receives a one-time sales commission and an ongoing so-called renewal commissions, another ( friendly ) name for retrocession or kick -back. Union Investment puts in their product information partially open sales commissions and kick-backs of their funds. When GenoEuroClassic mixed funds it says " From the sales charge [3 %] your bank receives depends on their sales status from the fund company once 90% to 100 % " and "From the management fee [ maximum 1.5 %] your bank receives depends on its distribution status in the fund company 25% to 35 %. " When Union Investment FairWorldFonds the kick -back is comparatively low, at 13.2 % of the management fee.

BGH decisions about kick-backs in closed-end funds

In the area of ​​closed-end funds (in particular media and real estate funds) were many legal questions to kick-backs long highly controversial. The dissent began with the question of what is ever to understand closed-end funds under kick-backs (only one-time reimbursements or recurring so-called internal commissions ) on the question of how far would have to go the disclosure duty to investors, to the question, who should take a duty to disclose.

While initially a duty to inform about internal commissions was only affirmed from the boundary of moral standards, led the Bundesgerichtshof ( BGH) with leading judgments (case III ZR 355/ 02 and III ZR 359/ 02) to mediate closed (real estate) funds in 2004 threshold of 15 percent of the investment amount a. From this value, the duty should be to inform about internal commissions.

By order of 20 January 2009 ( Case No. XI ZR 510/ 07) the Supreme Court stated with reference to a judgment from 2006 ( Case No. XI ZR 56/ 05 ) that a consultancy agreement in principle to an explanation of reimbursements in the mediation of an investment (kick - backs) undertake, regardless of their height. That case-law surprised especially the banks, one of which was argued in the following that this " new " mandatory in any case did not apply to " old cases " from before 2009.

By order of 29 June 2010 ( Case No. XI ZR 308/ 09 ) presented the Supreme Court, however, clear that this duty since the year 1990 there is: For credit institutions is based on two judgments of the Federal Court in 1989 and 1990 (judgment of February 28, 1989, Case No. XI ZR 70/88, judgment of 6 February 1990 Az XI ZR 184/88 ) a corresponding duty of disclosure have been identified.

After the Supreme Court had created clarity in this regard, a dispute erupted over the question of what actually among internal commissions and what is meant by Reimbursements ( kick-backs in the narrower sense) just for now. With three Supreme Court decisions from 2011 (all to Az XI ZR 191/10 ) this question has been answered unequivocally the superior court.

The Supreme Court defined in the first of the three decisions of 9 March 2011 internal commissions as "normal sales commissions, which are paid from a fund out of the assets. " About it "must be for a fund (...), under certain circumstances, be enlightened, because they have impact on the value of the acquired by the investor and therefore the extent of this can cause a false impression. "

Reimbursements other hand, are always subject to enlightenment. The Supreme Court defines it in the same decision as " regular sales commissions, which are in contrast to internal commissions not paid out of the assets, but from openly reported commissions such as sales charges and management fees, so that the investor indeed can be no misconception about the value of the investment whose return is not disclosed to the advisory bank, but instead takes place behind the back of the investor so that the investor the particular interest of the advisory bank to the recommendation precisely this system can not detect. " Is decisive for the duty to investigate, " that the investor can not recognize the particular interest of the advisory bank without this enlightenment to just recommend this facility ."

Even if fund prospectuses had been handed over on time, this should not be understood as a " proper education " if the investor in the brochure could not see whether and in what amount the bank would receive a commission. For this purpose, the testimony of a rich prospectus that "third party" can be switched on as a distributor, not from - especially if the amount of remuneration received by the Bank, remain unclear.

Next, the Supreme Court in its decision of 9 March 2011 clear that the principles outlined for unsolicited explanation of kick-backs relate only to banks and not independent consultants. Because usually talked Bank customers long- term relationships with their bank. You would take this different services and products claim that they paid well. Therefore, customers would not expect in advising on investments that the Bank receives commissions from third parties. In contrast, investors go according to Supreme Court assumed that independent consultants on a commission basis. This ambiguity in the distinction between banks and independent financial advisors is new.

The OLG Dusseldorf had in a decision in the summer of 2010 - still running, that a consultancy agreement also includes a free investment advisors (judgment of 8 July 2010 Case No. I-6 U 136/ 09) - not just a bank - would commit to its clients through elucidate the level of fees. Thus, the OLG Dusseldorf supported a judgment of the District Court (LG) Munich on 25 February 2010 ( Case No. I 22 O 1797/ 09). Such a duty of disclosure already follow from general principles of civil law that a consultancy agreement were particularly immanent and according to which each party is obliged to detect non-conforming conflicts of interest. These principles should apply not only to banks but also for other financial services. The decision of the Supreme Court of 9 March 2011 (Case No. XI ZR 191/10 ) has rejected this argument.

In two other decisions on the same case (Case No. XI ZR 191/10 ) the Supreme Court reaffirmed in 2011 its decision of 9 March 2011: On July 19, led the XI. Civil Division of the Supreme Court of that legal question of what is meant by enlightenment duty rebates, would be clearly answered due to the recent Senate legislation. Furthermore, the Supreme Court confirmed that the presumption enlightenment duty behavior applies to the investor at a lack of information about reimbursements, which leads to a burden of proof. The bank must therefore prove that the investor would have acquired the capital investment even with proper education.

Particularly clearly complements the BGH his remarks on the question of the negligence of the bank in case of omitted education about reimbursements. From the side of banks was led on a regular basis, they did not know before 2009 that had them about reimbursements. The Supreme Court 's response is that it has already made ​​it clear in the past that advisory banks in any case since 1990 could not rely on an inevitable error of law with regard to their duty to investigate. Could also from the distinction between internal commissions and reimbursements - as the Supreme Court - by the Bank no lack of fault are derived.

In addition, the Supreme Court clearly distinguishes from the principles of his kick -back decisions decisions to factored profits of the seller in a two -party relationship. On the question of profit margins it were a two-person relationship. In a three -party relationship as it exists at a drawback, however, the existing by the bestowal of conflict of interest is not obvious, according to Supreme Court, so that should be advised.

In its decision of 24 August 2011 ( also to Az XI ZR 191/10 ) the Supreme Court has reiterated that the failure to education about compensation had been the cause of the investment decision. Contrary must demonstrate and prove the bank. Furthermore, the BGH She reiterated that his decisions did not constitute a far-reaching change in the law on the duty to inform advisory banks in indoor or sales commissions, but that he thus applying only the already established principles.

Finally, the Supreme Court limited the Decision of August 24, 2011 again from internal commissions of reimbursements. As illustrated in the Senate resolution of 9 March 2011, internal commissions were not proven sales commissions, which are paid from a fund from the assets. To enlightenment paid reimbursements if it were, if " in the investment prospectuses, although several commissions are stated openly, does not specify that and in what amount the defendant as an advisory bank these commissions - partially refers ". By no means had been decided in the past that " in the investment prospectus openly disclosed internal commissions, ie investment amount in sales commission contained (...) in express no enlightenment duty reimbursements " were. The term " openly disclosed internal commission " is a contradiction in terms.

The assumption from past judgments of the Supreme Court is clear that enlightenment paid reimbursements already then not met, if the commissions in question are shown as such in the investment prospectus, according to Supreme Court unfounded. Explicitly, the Supreme Court found that the naming of sales charges and management fees as a source of refunds is not exhaustive, but only as an example to understand.

Kick-backs in transactions with scrap real estate

Sometimes properties are advertised in displays in which the acquirer can foreign finance the purchase price to 100 percent and with the settlement of purchase in addition a lump sum (Kick -back, often cash back ) get. This hardly serious offers are primarily aimed at buyers who are stuck in liquidity problems and are not really interested in a property.

Economically, the buyer acquires a - regularly significantly overpriced - property. This is fully financed by the Bank, which the buyer must use no equity. The buyer pays a portion of the purchase price as a broker fee to the intermediary. These, in turn, pays a portion of the buyer himself back. The business can only work in particular for the participating bank when with this financing, a substantial over selling price is realized. The usual formulation in this Zusammanhang "junk property " does not mean that the traded object must be in a bad state, but only that the price is well above the market value.

If the bank or the buyer does not particularly informed about these payments and thereby misled about the value of the property is criminal fraud by the agent.

Kick-backs in the medical industry

In the health care industry kick-back is defined as an unlawful payment of cooperation between service providers and contract physicians. Example: The physician shall pay its privately insured patients to an investigation, often an MRI scan. He recommends explicitly a particular radiologist who refunded a portion of his fee to the referrer. Such an allocation is paid profession legally prohibited, as it violates the principle of free choice of doctor and often against the efficiency principle. A similar approach is in the Eye Diagnostic Centre (ADC ) usual ( first founded in Munich in 2000, today more than 100 centers in Germany ). Here ophthalmologists be left in return for referrals to surgery for free or a symbolic honorarium modern examination equipment for individual health services ( IHS ). The efficient use of expensive diagnostic technology through the ADC does however as economically and ethically meaningful. Another variety of kick-backs in the medical sector is the part of community practice.

Kick-backs as a form of corruption

Not every kick-back is a form of corruption, and it anticipates that kick-backs to be the most important form of corruption. After the client and contractor have entered into an agreement, the contractor will be charged a price that is above the market price or above the price that would have been determined at a regular, corruption-free call.

The difference between excessive price and the market price gets the client fully or partially recovered, often in accounts at banks in certain zones. The kick -back is (ministers, presidents, governors ) associated with the great advantage that the embezzled amount is adjusted by the Contractor for civil servants.

Possible problems during the kick -back from the perspective of the participants ( incomplete):

In general it can be said that it is where kickbacks required exceptionally difficult to control longer-term projects successfully. The subsequently become necessary " margin payments " can turn an initially positive result of the project costing dramatically negative. Corruption leads to the fact that economically sensible projects are not realized. Not least for this reason, corruption is considered as one of the main obstacles to growth and development.

The chances of kick-backs from the perspective of the participants (in addition to their complete avoidance):