A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests (financial, emotional, or otherwise), one of which could possibly corrupt the motivation of the individual or organization.
The presence of a conflict of interest is independent of the occurrence of impropriety.
Therefore, a conflict of interest can be discovered and voluntarily defused before any corruption occurs. A widely used definition is:
"A conflict of interest is a set of circumstances that creates a risk that professional judgement or actions regarding a primary interest will be unduly influenced by a secondary interest."
Primary interest refers to the principal goals of the profession or activity, such as the protection of clients, the health of patients, the integrity of research, and the duties of public office.
Secondary interest includes not only financial gain but also such motives as the desire for professional advancement and the wish to do favours for family and friends,
but conflict of interest rules usually focus on financial relationships because they are relatively more objective, fungible, and quantifiable.
The secondary interests are not treated as wrong in themselves, but become objectionable when they are believed to have greater weight than the primary interests.
The conflict in a conflict of interest exists whether or not a particular individual is actually influenced by the secondary interest.
It exists if the circumstances are reasonably believed (on the basis of past experience and objective evidence) to create a risk that decisions may be unduly influenced by secondary interests.
Judicial disqualification, also referred to as recusal, refers to the act of abstaining from participation in an official action such as a court case/legal proceeding due to a conflict of interest of the presiding court official or administrative officer.
Applicable statutes or canons of ethics may provide standards for recusal in a given proceeding or matter.
Providing that the judge or presiding officer must be free from disabling conflicts of interest makes the fairness of the proceedings less likely to be questioned.
In the legal profession, the duty of loyalty owed to a client prohibits an attorney (or a law firm) from representing any other party with interests adverse to those of a current client.
The few exceptions to this rule require informed written consent from all affected clients, i.e., an "ethical wall".
In some circumstances, a conflict of interest can never be waived by a client. In perhaps the most common example encountered by the general public, the same firm should not represent both parties in a divorce or child custody matter.
Found conflict can lead to denial or disgorgement of legal fees, or in some cases (such as the failure to make mandatory disclosure), criminal proceedings.
In the United States, a law firm usually cannot represent a client if its interests conflict with those of another client, even if they have separate lawyers within the firm, unless (in some jurisdictions) the lawyer is segregated from the rest of the firm for the duration of the conflict.
Law firms often employ software in conjunction with their case management and accounting systems in order to meet their duties to monitor their conflict of interest exposure and to assist in obtaining waivers.
More generally, conflicts of interest can be defined as any situation in which an individual or corporation (either private or governmental) is in a position to exploit a professional or official capacity in some way for their personal or corporate benefit.
Depending upon the law or rules related to a particular organization, the existence of a conflict of interest may not, in and of itself, be evidence of wrongdoing. In fact, for many professionals, it is virtually impossible to avoid having conflicts of interest from time to time.
A conflict of interest can, however, become a legal matter, for example, when an individual tries (and/or succeeds in) influencing the outcome of a decision, for personal benefit.
A director or executive of a corporation will be subject to legal liability if a conflict of interest breaches his/her duty of loyalty.
There often is confusion over these two situations. Someone accused of a conflict of interest may deny that a conflict exists because he/she did not act improperly.
In fact, a conflict of interest can exist even if there are no improper acts as a result of it. (One way to understand this is to use the term "conflict of roles".
A person with two roles—an individual who owns stock and is also a government official, for example—may experience situations where those two roles conflict.
The conflict can be mitigated—see below—but it still exists. In and of itself, having two roles is not illegal, but the differing roles will certainly provide an incentive for improper acts in some circumstances.)
As an example, in the sphere of business and control, according to the Institute of Internal Auditors:
Conflict of interest is a situation in which an internal auditor, who is in a position of trust, has a competing professional or personal interest.
Such competing interests can make it difficult to fulfill his or her duties impartially. A conflict of interest exists even if no unethical or improper act results.
A conflict of interest can create an appearance of impropriety that can undermine confidence in the internal auditor, the internal audit activity, and the profession.
A conflict of interest could impair an individual's ability to perform his or her duties and responsibilities objectively
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