embezzle

[Middle English embesilen, from Anglo-Norman enbesiler : Old French en-, intensive pref.; see en-¹ + Old French besillier, to ravage.]

For more information on embezzlement, visit Britannica.com.

A form of white-collar crime where a person misappropriates the assets entrusted to him or her. In this type of fraud the assets are attained lawfully and the embezzler has the right to possess them, but the assets are then used for unintended purposes. Embezzlement is a breach of the fiduciary responsibilities placed upon a person.

Investopedia Says:
The nature of embezzlement can be both small and large. Embezzling funds can be as minor as a store clerk pocketing a few bucks from a cash register; however, on a grander scale, embezzlement also occurs when the executives of large companies falsely expense millions of dollars, transferring the funds into personal accounts. Depending on the scale of the crime, embezzlement may be punishable by large fines and time in jail.

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Fraudulent appropriation, for one's own use, of property lawfully in one's possession; type of larceny. Embezzlement is often associated with bank employees, public officials, or officers of organizations, who may in the course of their lawful activities come into possession of property, such as money, actually owned by others.

Definition: steal money, often from employer
Antonyms: compensate, give, pay, reimburse, return

The fraudulent conversion of another's property by a person who is in a position of trust, such as an agent or employee.

Embezzlement is distinguished from swindling in that swindling involves wrongfully obtaining property by a false pretense, such as a lie or trick, at the time the property is transferred, which induces the victim to transfer to the wrongdoer title to the property.

Nature

There was no crime of embezzlement under the common law. It is a statutory crime that evolved from larceny. Whereas larceny requires a felonious trespassory taking of property at the outset, embezzlement is a wrongful appropriation subsequent to an originally lawful taking. Embezzlement is, therefore, a modification of larceny designed to cover certain fraudulent acts that do not come within its scope. Although they are mutually exclusive crimes, they do overlap slightly under statutes in some states.

Embezzlement was created by the English legislature, which designated specific persons who might be liable for the offense. These were essentially persons entrusted with another's property, such as agents, attorneys, bankers, and corporate officers.

The English definition of the offense is followed in the United States today. Statutes do not usually list the persons who might be liable but, instead, generally describe the offender as a person entrusted with, or in possession of, another's property.

Property

The type of property that must be converted is governed by statute. Generally, property is defined as including money, goods, chattels, or anything of value. Intangible personal property; commercial paper, such as checks, promissory notes, bonds, or stocks; and written documents, such as deeds or contracts, may also be the subject of embezzlement.

Under some statutes, property consists of anything that can be the subject of larceny. In other states, however, the property requirement for embezzlement is broader. For example, the statute might punish the conversion of both real and personal property.

In some states, the embezzlement of public property or public funds is a separate offense. The offense is characterized by the manner in which the money is received. A court clerk who receives bail money is a recipient of public money and the person can be liable if such money is wrongfully converted by him or her.

The property subject to embezzlement must have some value, even though value is not an element of the offense. Although a check without a required endorsement does not have value, the fact that the endorsement can be forged gives it sufficient value to make it a subject of embezzlement.

Elements

Statutes governing the offense vary widely throughout the states. To determine exactly what elements comprise the offense, it is necessary to examine the particular statute applicable.

Elements common to embezzlement are (1) the property must belong to a person other than the accused, such as an employer or principal; (2) the property must be converted subsequent to the defendant's original and lawful possession of it; (3) the defendant must be in a position of trust, so that the property is held by him or her pursuant to some fiduciary duty; and (4) the defendant must have an intent to defraud the owner at the time of the conversion.

Ownership

The principal or employer must be the owner of the property embezzled by an agent or employee at the time the offense is committed. Under many statutes, the ownership requirement is expressed as the property of another. It is sufficient if any person, other than the defendant, owns the property and it does not matter who has title to it or that it is owned by more than one person.

Jurisdictions differ on the question of whether a person can embezzle funds belonging to a spouse. In states that retain the spousal privilege, a person can be prevented from testifying to a crime against a spouse and, therefore, spousal embezzlement will not be prosecuted.

Unless a statute provides otherwise, co-owners of property, such as joint tenants or tenants in common, cannot be guilty of the offense with respect to the property that is jointly owned. A co-owner who wrongfully transfers jointly owned property converts his or her own property as opposed to that of another and, therefore, there is no conversion. If a person has any interest in property held jointly with another, the person cannot be convicted of the offense relating to that property. For example, a co-owner of an automobile cannot be guilty of embezzling it if both owners have an equal right to possession. A number of states, however, have statutes punishing embezzlement by co-owners, such as partners who wrongfully convey partnership assets.

In most states, an agent authorized to collect money for his or her principal and to keep a certain amount as commission is guilty of embezzlement if he or she wrongfully transfers the entire sum collected.

Possession or Custody of Property

Possession is the essential element for distinguishing between embezzlement and larceny. While larceny requires that the thief take the property out of the victim's possession, the person must lawfully possess the property at the time that it is converted for embezzlement.

It is not necessary for the defendant to have physical or exclusive possession. It is sufficient if the person has constructive possession — a form of possession that is not actual but that gives the holder power to exercise control over the property either directly or through another person. Alternatively, mere custody is insufficient for embezzlement. If a master puts a servant in charge of property for purposes of guarding or caring for it, the master is considered to have constructive possession of such property while the servant has mere custody. A servant who wrongfully converts property over which he or she has custody may be guilty of larceny, but not embezzlement.

The fact that an accused person lawfully receives property at different times will not negate an embezzlement charge provided all other elements of the offense are met.

Trust Relationship

Since the offense is aimed at punishing persons who convert property for their own use when possession is lawfully acquired, prosecution is limited to instances where the parties are in a fiduciary, or trust, relationship.

Generally, a debtor and a creditor, or an agent and a broker, do not have a fiduciary relationship sufficient for the offense. There must be some further indication that one person has a duty to care for and exert some control over the other's property. The most common type of trust relationships are those existing among corporate officers, partners, and employers and their employees.

Conversion of Property

Conversion is an act that interferes with an owner's right of possession to his or her property.

For purposes of embezzlement, conversion involves an unauthorized assumption of the right of ownership over another's property. It may, for example, occur when a person is entrusted with property for one purpose and uses it for another purpose without the consent of the owner. Generally, any type of conversion that occurs after a person obtains lawful possession of property is sufficient.

Although a failure to return property is evidence of conversion, it does not necessarily constitute embezzlement — absent proof of criminal intent. On the other hand, if a statute imposes an absolute duty to return property, the failure to do so is embezzlement provided all other elements are met.

In certain circumstances, a demand is required before a person can claim that his or her property has been converted. Usually, no demand is required if it would be futile, such as when an accused has fled the jurisdiction with the property. If, however, there is no definite time specified for the return of the property, a demand might be necessary. The demand is merely a request that the wrongdoer return the property. The request does not have to be formal, and there is no requirement that the word demand be used.

When an agent is given authority to sell property, and thereafter converts the proceeds of the sale, he or she is guilty of embezzlement of the proceeds, as distinguished from the property sold. A person with authority to cash a check but who converts the cash is, likewise, guilty of embezzlement of the cash and not of the check. The person, might, however, be guilty of embezzling the check if at the time of cashing it, the person has a fraudulent intent to convert it.

Intent

In a majority of jurisdictions, a fraudulent intent to deprive the owner of his or her property is necessary for embezzlement. It is characterized as an intent to willfully and corruptly use or misapply another's property for purposes other than those for which the property is held. The defendant's motive is not relevant to the intent element.

Although it is not essential that the intent exist at the time possession is first taken, it must be formed at the time the property is converted. The offense is not committed if there is an intent to return the specific property taken within a reasonable period of time. If, however, there is a fraudulent intent at the time the property is converted, a subsequently formed intent to return the property will not excuse the crime. An offer to restore the property will not bar a prosecution for embezzlement. Some courts have held, however, that an offer of restoration can be considered on the question of intent.

A person who believes that the property to be transferred is his or hers is considered to act pursuant to a claim of right. The possibility that the belief is mistaken, or unreasonable, is not important. If one has a good faith belief that one has a right to withhold property or devote it to one's own use, the conversion cannot be fraudulent, and there is no embezzlement.

The validity of a claim of right is a question of fact determined from circumstantial evidence. It is not sufficient if the person merely states he or she acted honestly. If circumstances evince that there was a willful and knowingly wrongful taking, a claim of right defense will not succeed.

Persons Liable

One or more persons may be guilty of embezzlement. If there is a conspiracy to embezzle, parties to the agreement are liable as principals. A person who aids and abets in the conversion can also be guilty of the offense.

Punishment

Since the offense is defined differently in several jurisdictions, the punishment for embezzlement can vary. Generally, the penalty is a fine, imprisonment, or both.

Some states distinguish between grand embezzlement and petit embezzlement on the basis of the value of the property stolen. The former involves property of a greater value and is punishable as a felony, while the latter involves property of a lesser value and is punishable as a misdemeanor.

See: joint tenancy; tenancy in common.

The stealing of money entrusted to one's care: “The treasurer of the company embezzled a million dollars.”

"Embezzler" redirects here. For the 1914 film, see The Embezzler.

Criminal law

Part of the common law series

Elements

Actus reus · Mens rea Causation · Concurrence

Scope of Criminal Liability

Complicity · Corporate · Vicarious

Inchoate offenses

Attempt · Conspiracy · Solicitation

Crimes against persons

Assault · Battery False imprisonment · Kidnapping Mayhem · Sexual assault Homicide Crimes Murder · Felony murder Manslaughter Negligent homicide Vehicular homicide

Crimes against property

Arson · Blackmail · Burglary Embezzlement · Extortion False pretenses · Larceny Receiving stolen property Robbery · Theft

Crimes against justice

Compounding · Misprision Obstruction · Perjury Malfeasance in office Perverting the course of justice

Defenses to Liability

Defense of: (Self · Others · Property) Consent · Diminished capacity Duress · Entrapment · Ignorance Infancy · Insanity · Intoxication Justification · Mistake (Fact · Law) Necessity · Provocation

Other common law areas

Contracts · Evidence · Property Torts · Wills, trusts and estates

Portals

Criminal justice · Law

v • d • e

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 1 Embezzlement versus larceny 2 Methods of embezzlement 3 Tax consequences 4 Safeguards against embezzlement 5 See also 6 References

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

Look up embezzlement in Wiktionary, the free dictionary.

• FBI
• Fractional-reserve banking
• Fraud
• Fraud deterrence
• IRS
• Madoff investment scandal
• Sponsorship scandal
• White Collar Crime

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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Common misspelling(s) of embezzled

• embezelled

Dansk (Danish)
v. tr. - tilegne sig, begå underslæb

Nederlands (Dutch)
verduisteren, achteroverdrukken

Français (French)
v. tr. - détourner, escroquer (des fonds)

Deutsch (German)
v. - unterschlagen, veruntreuen

Ελληνική (Greek)
v. - καταχρώμαι, υπεξαιρώ

Italiano (Italian)
appropriarsi indebitamente

Português (Portuguese)
v. - fraudar

Русский (Russian)
незаконно присваивать, растрачивать

Español (Spanish)
v. tr. - malversar, desfalcar, escamotear

Svenska (Swedish)
v. - försnilla

中文（简体）(Chinese (Simplified))
盗用, 挪用

中文（繁體）(Chinese (Traditional))
v. tr. - 盜用, 挪用

한국어 (Korean)
v. tr. - 횡령하다

日本語 (Japanese)
v. - 使い込む, 横領する

العربيه (Arabic)
‏(فعل) يختلس‏

עברית (Hebrew)
v. tr. - ‮מעל‬

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