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Definition: Tunneling

Tunneling is a malpractice adopted by certain individuals in business, who are significant employees or have a high stake, who for their own personal gain misuse company assets or funds in the long run.

Because of this, there is a financial loss or damage to the company, which indirectly hurts all the other stakeholders. This financial fraud benefits only those who are doing the malpractice.

Examples include activities such as sales of company assets, personal loan guarantees, extremely high salaries etc.

Tunneling is different from outright theft. This is because you can go for tunnelling practices even by all of the relevant legal procedures. This is majorly prevalent in emerging economies and also in moderately advanced economies where civil law is usually practiced. It is comparatively easy to commit fraud/ illegal activities under civil law and get away with it by the use of loopholes present in the system.

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