Commission or kickback? The line, and how to tell which side you are on

People in yachting often say "it's just commission", as though that settles it. It does not. A commission can be perfectly proper, and the very same payment can be a bribe. This piece explains the difference in plain terms.

The short version

A payment is a disclosed commission when the person whose money is being spent has been told about it, in advance, and has agreed. It is a kickback when that person has not.

Everything else follows from that. The wording on an invoice, the size of the payment, the question of who "really" pays for it, and whether the price went up are not the test.

Who are you acting for?

Start here. A charter broker acting for a charterer, a captain spending the APA, a manager buying for an owner: each is an agent, someone trusted to act in another person's interest. An agent owes that person a duty of loyalty. In plain terms:

• you must act in their interest, not your own;
• you must not take a secret profit from the position you hold;
• you must tell them about any interest of yours that could affect your advice.

A supplier who pays you in return for choosing them has put a second interest in the room. If your client does not know, they are being advised by someone who is also being paid by the other side.

Five questions that settle it

1. Does the person whose money it is know? Not "could they find out". Do they know.
2. Did they agree, in advance? Told after the fact is not agreement.
3. Is it written down? A contract term or a signed disclosure, with the amount or the basis for working it out.
4. Where does the money go? To the firm, on its books, or to a person, privately?
5. Would you do it if the client were watching? If the answer is no, you have your answer.

Side by side

	Disclosed commission	Kickback
The client knows	Yes, before the decision	No, or only after
The client agreed	Yes	No
In writing	In the contract or a signed disclosure	Verbal, or hidden, or labelled as something else
Paid to	The firm	A person, often privately
Effect on advice	The client can weigh it	The adviser's judgement is compromised
Typical wording	"Our commission, as set out in the contract"	"A thank-you", "a referral fee", "introducer fee"

Common wrapping, same problem

A kickback is still a kickback when it is:

• an invoice. Having an invoice for an undisclosed commission does not make it lawful. It makes a paper trail.
• a gift in kind. Cases of wine, trips, equipment or favours are benefits too. A garage full of "free" wine is the same as a bank transfer in the eyes of the law.
• paid to someone else. A payment to a spouse, a friend or a company the person controls is still a payment to them.
• small. There is usually no de minimis exception in the law for a hidden benefit.
• "normal in the industry". Common practice is not a defence. It is, if anything, the problem.

"But the price didn't go up"

This is the most common argument, and it is the one that matters least. In the countries whose laws we summarise, the offence is the secret benefit given or taken in breach of the person's duty. It does not depend on the client having been overcharged. If the supplier absorbs the cost, the client has still been advised by someone paid by the other side, and has still been denied the chance to decide for themselves.

(Where the client was overcharged, they may also have a civil claim for the loss. But the wrong is complete without it.)

What a lawful commission looks like in yachting

Yachting is full of proper, disclosed commissions. A broker's commission on a charter or a sale, set out in the contract, is the clearest example. The standard charter contracts anticipate it. The MYBA Internal Rules and Regulations (Article 4, in the version published on MYBA's site and marked as updated in 2005 and 2006) say: "Members should only receive one commission in a transaction. Receiving commissions from more than one party in a transaction, unless fully declared to all parties, is unacceptable." That is the right principle. See what the MYBA documents say, with sources and the limits of what we could verify.

What makes it lawful is that the client agreed to it before the decision was made.

What to do

• If you are the one spending the money: disclose every benefit offered, pass on every discount, and take nothing personally. See what crew and captains should do.
• If you are a broker: put your commission in the contract and declare any other. See what brokers should do.
• If you are a supplier: do not pay what the client does not know about. See what suppliers should do and the Vendor Promise.
• If you are an owner or guest: ask the questions in what owners should ask.
• If you are unsure which side of the line you are on: ask us, privately. We will help you think it through, and introduce a lawyer if you want one.

General information, not legal advice. The law varies by country: see the law pages.