Embezzlement: Wikis

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Embezzlement is the act of dishonestly appropriating or secreting assets, usually financial in nature, by one or more individuals to whom such assets have been entrusted.[1]

Embezzlement is a kind of financial fraud. For instance, a clerk or cashier handling large sums of money can embezzle cash from his or her employer, a lawyer can embezzle funds from clients' trust accounts, a financial advisor can embezzle funds from investors, or a spouse can embezzle funds from his or her partner. Embezzlement may range from the very minor in nature, involving only small amounts, to the immense, involving large sums and sophisticated schemes.

More often than not, embezzlement is performed in a manner that is premeditated, systematic and/or methodical, with the explicit intent to conceal the activities from other individuals, usually because it is being done without their knowledge or consent. Often it involves the trusted person embezzling only a small proportion or fraction of the funds received, in an attempt to minimize the risk of detection. If successful, embezzlements can continue for years (or even decades) without detection. It is often only when the funds are needed, or called upon for use, that the victims realize the funds or savings are missing and that they have been duped by the embezzler.

Embezzlement is a statutory offense so the definition of the crime varies from statute to statute. Typical elements are (1) the fraudulent (2) conversion (3) of the property (4) of another (5) by a person who has lawful possession of the property.[2] Embezzlement is a crime against ownership; that is, the owner's right to control the disposition and use of the property.[3] The conversion element requires a substantial interference with the true owner's property rights (unlike larceny, where the slightest movement of the property when accompanied by the intent to deprive one of the possession of the property permanently is sufficient).[4]

The requirement that the conversion be fraudulent means simply that the defendant wilfully and without claim of right or mistake converted the property to his or her own use. The type of property that is the subject of embezzlement varies among jurisdictions.[5] Embezzlement statutes do not limit the scope of the crime to conversions of personal property. Statutes generally include conversion of tangible personal property, intangible personal property and choses in action. Real property is not typically included. The critical element is that the defendant must have been in lawful possession of the property at the time of the fraudulent conversion and not have mere custody of the property. If the defendant had lawful possession the crime is embezzlement. If the defendant merely had custody, the crime is larceny.[6] Determining whether a particular person had lawful possession or mere custody is sometimes extremely difficult.

Contents

Embezzlement versus larceny

Embezzlement differs from larceny in two ways. First, in embezzlement, an actual conversion must occur; second, the original taking must not be trespassory.[7] To say that the taking was not trespassory is to say that the person(s) performing the embezzlement had the right to possess, use, and/or access the assets in question, and that such person(s) subsequently secreted and converted the assets for an unintended and/or unsanctioned use. Conversion requires that the secretion interferes with the property, rather than just relocate it. As in larceny, the measure is not the gain to the embezzler, but the loss to the asset stakeholders. An example of conversion is when a person logs checks in a check register or transaction log as being used for one specific purpose and then explicitly uses the funds from the checking account for another and completely different purpose.

It is important to make clear that embezzlement is not always a form of theft or an act of stealing, since those definitions specifically deal with taking something that does not belong to the perpetrator(s). Instead, embezzlement is, more generically, an act of deceitfully secreting assets by one or more persons that have been entrusted with such assets. The person(s) entrusted with such assets may or may not have an ownership stake in such assets.

In the case where it is a form of theft, distinguishing between embezzlement and larceny can be tricky.[8] Making the distinction is particularly difficult when dealing with misappropriations of property by employees. To prove embezzlement, the state must show that the employee had possession of the goods "by virtue of her employment"; that is, that the employee had the authority to exercise substantial control over the goods. Typically, in determining whether the employee had sufficient control the courts will look at factors such as the job title, job description and the particular employment practices. For example, the manager of a shoe department at a store would likely have sufficient control over the shoes that if she converted the goods to her own use she would be guilty of embezzlement. On the other hand, if the same employee were to steal cosmetics from the cosmetic counter the crime would not be embezzlement but larceny. For a case that exemplifies the difficulty of distinguishing larceny and embezzlement see State v. Weaver, 359 N.C. 246; 607 S.E.2d 599 (2005).

North Carolina appellate courts have compounded this confusion by mis-interpretating a statute based on an act passed by Parliament in 1528. The North Carolina courts interpreted this statute as creating an offense called "larceny by employee"; an offense that was separate and distinct from common law larceny.[9][10] However, as Perkins notes, the purpose of the statute was not to create a new offense but was merely to confirm that the acts described in the statute met the elements of common law larceny.[11]

Methods of embezzlement

Embezzlement sometimes involves falsification of records in order to conceal the activity. Embezzlers commonly secrete relatively small amounts repeatedly, in a systematic and/or methodical manner, over a long period of time, although some embezzlers commonly secrete one large sum at once. Some very successful embezzlement schemes have continued for many years before being detected due to the skill of the embezzler in concealing the nature of the transactions or their skill in gaining the trust and confidence of investors or clients, who are then reluctant to "test" the embezzler's trustworthiness by forcing a withdrawal of funds.

Embezzling should not be confused with skimming which is under-reporting income and pocket the difference. For example, in 2005, several managers of the service provider Aramark were found to be under-reporting profits from a string of vending machine locations in the eastern United States. While the amount stolen from each machine was relatively small, the total amount taken from many machines over a length of time was very large. A smart technique employed by many small time embezzlers can be covered by falsifying the records. (Example, by removing a small amount of money and falsifying the record the register would be technically correct, while the manager would remove the profit and leave the float in, this method would effectively make the register short for the next user and throw the blame onto them)

Another method is to create a false vendor account, and to supply false bills to the company being embezzled so that the checks that are cut appear completely legitimate. Yet another method is to create phantom employees, who are then paid with payroll checks.

The latter two methods should be uncovered by routine audits, but often aren't if the audit is not sufficiently in-depth, because the paperwork appears to be in order. The first method is easier to detect if all transactions are by cheque or other instrument, but if many transactions are in cash, it is much more difficult to identify. Employers have developed a number of strategies to deal with this problem. In fact, cash registers were invented just for this reason.

Some of the most complex (and potentially most lucrative) forms of embezzlement involve Ponzi-like financial schemes where high returns to early investors are paid out of funds received from later investors duped into believing they are themselves receiving entry into a high return investment scheme. The Madoff investment scandal is an example of this kind of high level embezzlement scheme, where is it alleged $65 billion was siphoned off from gullible investors and financial institutions.

Tax consequences

Proceeds of embezzlement must be included in gross income unless the embezzler repays the money in the same taxable year.[12] Congress has ruled that lawful as well as unlawful gains are includable in gross income[13] and that it is inconsequential that an embezzler may lack title to the sums he appropriates.”[14] When the embezzler returns the victim’s funds either directly or indirectly (i.e. restitution) then the embezzler may have a reduction in taxable income.[15]

However, if a corporate embezzler can show four things,[16] then they need not include the embezzled funds in income:

"Where a taxpayer withdraws funds from a corporation

  1. which he fully intends to repay
  2. which he expects with reasonable certainty he will be able to repay
  3. where he believes that his withdrawals will be approved by the corporation
  4. where he makes a prompt assignment of assets sufficient to secure the amount owed, he does not realize income on the withdrawals under the James test."[17]

Safeguards against embezzlement

Internal controls such as separation of duties are common defenses against embezzlement. For example, at a movie theater, the task of accepting money and admitting customers into the theater is typically broken up into two jobs. One employee sells the ticket, and another employee takes the ticket and lets the customer into the theater. Because a ticket cannot be printed without entering the sale into the computer, and the customer cannot enter the theater without a ticket, both of these employees would have to collude in order for embezzlement to go undetected. This significantly reduces the chance of theft, because of the added difficulty in arranging such a conspiracy and the likely need to split the proceeds between the two employees, which reduces the payoff for each.

Another obvious method to deter embezzlement is to regularly and unexpectedly move funds from one advisor or entrusted person to another when the funds are supposed to be available for withdrawal or use, to ensure that the full amount of the funds is available and no fraction of the savings has been embezzled by the person to whom the funds or savings have been entrusted.

See also

References

  1. ^ Definition of "embezzlement" from Legal Explanations
  2. ^ Singer and Lafond, Criminal Law, 4th ed. (Aspen 2007) 261
  3. ^ Singer & LaFond, Criminal Law (Aspen 1987) at 213.
  4. ^ Id.
  5. ^ Id. at 214.
  6. ^ Id. at 261
  7. ^ Singer & LaFond, Criminal Law (Aspen 1997) at 213.
  8. ^ In their book Criminal Law, Singer and LaFond provide an excellent analytical method for making these distinctions.Singer & LaFond, Criminal Law (Aspen 1997) at 221.
  9. ^ N.C. Gen. Stat. § 14-74 provides in part: If any servant or other employee, to whom any money, goods or other chattels, . . . by his master shall be delivered safely to be kept to the use of his master, shall withdraw himself from his master and go away with such money, goods or other chattels, . . . with intent to steal the same and defraud his master thereof, contrary to the trust and confidence in him reposed by his said master; or if any servant, being in the service of his master, without the assent of his master, shall embezzle such money, goods or other chattels, . . . or otherwise convert the same to his own use, with like purpose to steal them, or to defraud his master thereof, the servant so offending shall be guilty of a felony . . .
  10. ^ For cases interpreting the statute, See State v. Canipe, 64 N.C. App. 102, 103, 306 S.E.2d 548, 549 (1983); State v. Brown, 56 N.C. App. 228, 229, 287 S.E.2d 421, 423 (1982).
  11. ^ Perkins, Criminal Law 2d ed. (1986) at 286.
  12. ^ James v. United States, 366 U.S. 213 (1961).
  13. ^ Id. at 218, also see Income Tax Act of 1913.
  14. ^ Id. at 216.
  15. ^ Id. at 220
  16. ^ Gilbert v. C.I.R, 552 F.2d 478 (1977).
  17. ^ Id. at 481.
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1911 encyclopedia

Up to date as of January 14, 2010

From LoveToKnow 1911

'EMBEZZLEMENT (A.-Fr.' embesilement, from beseler or besillier, to destroy), in English law, a peculiar form of theft, which is distinguished from the ordinary crime in two points: (1) It is committed by a person who is in the position of clerk or servant to the owner of the property stolen; and (2) the property when stolen is in the possession of such clerk or servant. The definition of embezzlement as a special form of theft arose out of the difficulties caused by the legal doctrine that to constitute larceny the property must be taken out of the possession of the owner. Servants and others were thus able to steal with impunity goods entrusted to them by their masters. A statute of Henry VIII. (1529) was passed to meet this case; and it enacted that it should be felony in servants to convert to their own use caskets, jewels, money, goods or chattels delivered to them by their masters. "This act," says Sir J. F. Stephen (General View of the Criminal Law of England), " assisted by certain subtleties according to which the possession of the servant was taken under particular circumstances to be the possession of the master, so that the servant by converting the goods to his own use took them out of his own possession qua servant (which was his master's possession) and put them into his own possession qua thief (which was a felony), was considered sufficient for practical purposes for more than 200 years." In 1799 a clerk who had converted to his own use a cheque paid across the counter to him by a customer of his master was held to be not guilty of felony; and in the same year an act was passed, which, meeting the difficulty in such cases, enacted that if any clerk or servant, or any person employed as clerk or servant, should, by virtue of such employment, receive or take into his possession any money, bonds, bills, &c., for or in the name or on account of his employers, and should fraudulently embezzle the same, every such offender should be deemed to have stolen the same. The same definition is substantially repeated in a Consolidation Act passed in 1827. Numberless difficulties of interpretation arose under these acts, e.g. as to the meaning of "clerk or servant," as to the difference between theft and embezzlement, &c.

The law now in force, or the Larceny Act 1861, defines the offence thus (section 68): - "Whosoever, being a clerk or servant, or being employed for the purpose or in the capacity of a clerk or servant, shall fraudulently embezzle any chattel, money or valuable security which shall be delivered to or received or taken into possession by him for or in the name or on the account of his master or employer, or any part thereof, shall be deemed to have feloniously stolen the same from his master or employer, although such chattel, money or security was not received into the possession of such master or employer otherwise than by the actual possession of his clerk, servant or other person so employed, and being convicted thereof shall be liable, at the discretion of the court, to be kept in penal servitude for any time not exceeding fourteen years, and not less than three years," or imprisonment with or without hard labour for not more than two years. To constitute the offence thus described three things must concur: - (i) The offender must be a clerk or servant; (2) he must receive into his possession some chattel on behalf of his master; and (3) he must fraudulently embezzle the same. A clerk or servant has been defined to be a person bound either by an express contract of service or by conduct implying such a contract to obey the orders and submit to the control of his master in the transaction of the business which it is his duty as such clerk or servant to transact. (Stephen's Digest of the Criminal Law, Art. 309.) The Larceny Act 1901, amending sections 75 and 76 of the Larceny Act 1861, also describes similar offences on the part of persons, not being clerks or servants, to which the name embezzlement is not uncommonly applied. The act makes the offence of fraudulently misappropriating property entrusted to a person by another, or received by him on behalf of another a misdemeanour punishable by penal servitude for a term not exceeding seven years, or to imprisonment, with or without hard labour, for a term not exceeding two years. So also trustees fraudulently disposing of trust property, and directors of companies fraudulently appropriating the company's property or keeping fraudulent accounts, or wilfully destroying books or publishing fraudulent statements, are misdemeanants punishable in the same way.

In the United States the law of embezzlement is founded mainly on the English statute passed in 1799, but the statutes of most states are so framed that larceny includes embezzlement. The latter is sometimes denominated statutory larceny. The punishment varies in the different states, otherwise there is little substantive difference in the laws of the two countries.

Statutes have been passed in some states providing that one indicted for larceny may be convicted of embezzlement. But it is doubtful whether such statutes are valid where the constitution of the state provides that the accused must be informed of the nature and cause of the accusation against him. (See also LARCENY.)


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Bible wiki

Up to date as of January 23, 2010

From BibleWiki


The fraudulent conversion to one's own use of goods or money entrusted to one's care and control. The offense differs from theft in that in the latter the possession itself is unlawful.

The Mosaic law provides a penalty for embezzlement in a very restricted case. Lev 5:20-26 (A. V. vi. 2-7) deals with several forms of dishonesty; e.g., where a man denies to his neighbor goods or money entrusted to him, or something robbed or wrongfully withheld, or goods lost by his neighbor and found by him, and where he has, moreover, taken an oath to his false denial. He is then required to make restoration in full, to add one-fifth in value to the principal, and to bring, moreover, a ram without blemish as a guilt-offering to the priest, who thereupon shall make atonement, and the sin shall be forgiven.

The Mishnah treats this subject in Shebu. viii. It lays down these principles: (1) That where the voluntary or hired keeper, hirer, or borrower swears to an untrue statement as to the loss of the article, but is not liable on other grounds, he can not be punished in this way for the false oath. (2) That where he swears to a mode of loss which would exonerate him, but he has consumed the deposit (e.g., eaten an ox), and this is established by witnesses, he is liable for the single value; but if he confesses, he pays the principal, with one-fifth in addition, and brings his guilt-offering. It is supposed that he confesses willingly, although it costs him more, in order to gain the promised forgiveness of his sin. (3) When the voluntary keeper swears to a cause of loss which would excuse him, and witnesses show that he stole the thing himself, he pays double as a thief; but if he confesses, he pays only the principal, with one-fifth in addition, and makes the guilt-offering. It must here be remarked that when the voluntary keeper seeks to excuse himself on the ground that the deposit has been stolen from him, and he is shown to have kept it for himself, he is treated as the thief, and is held to double payment, under Ex 22:6. This is a case in which embezzlement is punished like theft. (4) When he swears to a cause of loss which would excuse him, and the loss arose from a cause which makes him liable, he pays the principal and one-fifth in addition, and makes the guilt-offering. (5) If he denies outright the loan or deposit under oath, he pays in like manner, though the loss may have arisen from a justifying cause. The matter is finally condensed in this form: He who changes (in his oath) from liability to liability, from excuse to excuse, or from excuse to liability, is free; but he who changes from liability to excuse is punishable. See Bailments, for the modes of loss which excuse a bailee of one or the other kind, and for what losses he is liable.

This entry includes text from the Jewish Encyclopedia, 1906.

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