Embezzlement

{{short description|Theft of assets from one person or entity by another to whom the assets were entrusted}}
{{redirect2|Embezzler|Peculate|the American progressive metal band|Peculate (band)|other uses|The Embezzler (disambiguation){{!}}The Embezzler}}
{{use British English Oxford spelling|date= September 2017}}
{{tone|date=May 2023}}
{{wikt | embezzlement}}
{{wikt | peculation}}
{{Criminal law}}
'''Embezzlement''' is a term commonly used for a type of financial [[crime]], usually involving theft of money from a business or employer. It often involves a trusted individual taking advantage of their position to steal funds or assets, most commonly over a period of time.

== Versus larceny ==

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 perpetrators. Instead, embezzlement is, more generically, an act of deceitfully secreting assets by one or more persons that have been ''entrusted'' with such assets. The persons entrusted with such assets may or may not have an ownership stake in such assets.

Embezzlement differs from [[larceny]] in three ways. First, in embezzlement, an actual ''[[conversion (law)|conversion]]'' must occur; second, the original taking must not be [[trespass]]ory,<ref>Singer & LaFond, ''Criminal Law'' (Aspen 1997), p. 213.</ref> and third, in penalties. To say that the taking was not trespassory is to say that the persons performing the embezzlement had the right to possess, use or access the assets in question, and that such persons subsequently secreted and converted the assets for an unintended or unsanctioned use. ''Conversion'' requires that the secretion interfere 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.<ref name=":0">{{Cite web|date=2015-02-19|title=1005. Embezzlement|url=https://www.justice.gov/archives/jm/criminal-resource-manual-1005-embezzlement|access-date=2021-08-31|location=United States|publisher=Department of Justice|language=en}}</ref>

When embezzlement occurs as a form of theft, distinguishing between embezzlement and larceny can be tricky.<ref>In their book ''Criminal Law'', Singer and LaFond provide an excellent analytical method for making these distinctions. Singer & LaFond, ''Criminal Law'' (Aspen 1997), p. 221.</ref> Making the distinction is particularly difficult when dealing with [[misappropriation]]s of property by employees. To prove embezzlement, the state must show that the employee had possession of the goods "by virtue of his or her employment"; that is, that the employee had formally delegated 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 operational practices of the firm or organization. For example, the manager of a shoe department at a [[department store]] would likely have sufficient control over the store's inventory (as head of the shoe department) of shoes; that if they converted the goods to their own use they would be guilty of embezzlement. On the other hand, if the same employee were to steal cosmetics from the cosmetics department of the store, 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).<ref name=":0" />

North Carolina appellate courts have compounded this confusion by misinterpreting a statute based on an act passed by parliament in 1528. The [[courts of North Carolina|North Carolina courts]] interpreted this statute as creating an offence called "larceny by employee"; an offence that was separate and distinct from common law larceny.<ref>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&nbsp;..."</ref><ref>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).</ref> However, as Perkins notes, the purpose of the statute was not to create a new offence but was merely to confirm that the acts described in the statute met the elements of common law larceny.<ref>Perkins, ''Criminal Law'' (2nd ed.) (1986), p. 286.</ref>

The statute served the purpose of the then North Carolina colony as an [[indentured servitude|indentured servant]] and slave-based [[political economy]]. It ensured that an indentured servant (or anyone bound to service of labour to a master, e.g., a slave) would owe to their master their labour; and, if they left their indentured service or bound labour unlawfully, the labour they produced, either for themselves (i.e., self-employed), or for anyone else, would be the converted goods that they unlawfully took, from the rightful owner, their master.{{Citation needed|date=September 2021}}

Crucially (and this can be seen as the purpose of the statute), any subsequent employer of such an indentured servant or slave, who was in fact bound to service of labour to a pre-existing master, would be chargeable with [[misprision of felony|misprision of a felony]] (if it was proved they knew that the employee was still indentured to a master, or owned as a slave); and chargeable as an accessory after the fact, in the felony, with the servant or slave; in helping them, by employing them, in unlawfully taking that which was lawfully bound (through the master–servant relationship) in exclusive right, to the master of the indentured servant or slave.

==Methods==
{{unreferenced|section|date=July 2022}}
Embezzlement sometimes involves falsification of records in order to conceal the activity. Embezzlers commonly secrete relatively small amounts repeatedly, in a systematic or methodical manner, over a long period of time, although some embezzlers 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 (fraud)|skimming]], which is under-reporting [[income]] and pocketing 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.{{Citation needed|date=March 2024}}  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 technique employed by many small-time embezzlers can be covered by falsifying the records. (For example, by removing a small amount of money and falsifying the record the register would be consistent, 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 supply false [[Bill (payment)|bill]]s 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 are not if the audit is not sufficiently in-depth, because the paperwork appears to be in order. A publicly traded company must change auditors and audit companies every five years. 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 register]]s were invented just for this reason.

Some of the most complex (and potentially most lucrative) forms of embezzlement involve [[Ponzi scheme|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 it is alleged that $65&nbsp;billion was siphoned off from gullible investors and financial institutions.

==Prevention==
[[Internal control]]s such as [[separation of duties]] are common defences against embezzlement. For example, at a movie theatre (cinema), the task of accepting money and admitting customers into the theatre is typically broken up into two jobs. One employee sells the ticket, and another employee takes the ticket and lets the customer into the theatre. Because a ticket cannot be printed without entering the sale into the computer (or, in earlier times, without using up a serial-numbered printed ticket), and the customer cannot enter the theatre 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.<ref name=":1">{{Cite web|title=Embezzlement|url=https://www.law.cornell.edu/wex/embezzlement|access-date=2021-08-31|website=LII / Legal Information Institute|language=en}}</ref>

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.<ref name=":1" />

==Worldwide==
In 2020, 37% of employee fraud happened because of a lack of internal controls or lack of independent checks and audits, 18% by overriding internal controls, 18% from lack of management review, 10% from a poor tone set by top managers, and 17% from other causes.<ref name="acfe20">{{Cite web |date=2020-04-01 |title=ACFE Report to the Nations – 2020 Global Fraud Study |page=36 |url=http://www.acfe.com/report-to-the-nations/2020/ |access-date=2020-11-26 |publisher=ACFE}}</ref>

===England and Wales===
Offences of embezzlement were formerly created by sections 18 and 19 of the [[Larceny Act 1916]].<ref>{{cite journal |title=Larceny Act 1916 |url=http://www.legislation.gov.uk/ukpga/1916/50/enacted|journal=Legislation.gov.uk |date = 31 October 1916}}</ref>

The former offences of embezzlement are replaced by the new offence of theft, contrary to section 1 of the [[Theft Act 1968]].<ref>Griew, Edward (1986). ''The Theft Acts 1968 and 1978'' (5th ed.). Sweet and Maxwell. Paragraph 2-01 at page 12.</ref>

===United States===

In the United States, embezzlement is a [[Statutory law|statutory offence]] that, depending on the circumstances, may be a crime under state law, federal law, or both, with the definition of the crime of embezzlement varying according to the statutes of the jurisdiction in which charges are filed. Typical elements of the crime of embezzlement are the fraudulent [[criminal conversion|conversion]] of the [[property]] of another person by the person who has lawful possession of the property.<ref>{{cite book |last1=Singer |first1=Richard G. |last2=La Fond |first2=John Q. |title=Criminal Law |date=2001 |publisher=Wolters Kluwer |isbn=978-0735562431 |page=261 |edition=4}}</ref>

{{ordered list|list_style_type=lower-roman
| '''Fraudulence''': The requirement that the conversion be fraudulent requires that the embezzler willfully, and without claim of right or mistake, converted the entrusted property to their own use.
| '''Criminal conversion''': Embezzlement is a crime against ownership, that is, voiding the right of the owner to control the disposition and use of the property entrusted to the embezzler.<ref name="Singer 1987 p. 213">Singer & LaFond, ''Criminal Law'' (Aspen 1987) p. 213.</ref> The element of criminal conversion requires substantial interference with the property rights of the owner (unlike [[larceny]], wherein the slightest movement of the property, when accompanied by the intent to permanently deprive the owner of possession of the property is sufficient cause).<ref name="Singer 1987 p. 213">Singer & LaFond, ''Criminal Law'' (Aspen 1987) p. 213.</ref>
| '''Property''': 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.
| '''Of another''': A person cannot embezzle their own property.
| '''Lawful possession''': The critical element is that the embezzler must have been in lawful possession of the property at the time of the fraudulent conversion, and not merely have custody of the property. If the thief had lawful possession of the property, the crime is embezzlement; if the thief merely had custody, the crime at common law is [[larceny]].<ref>Singer & LaFond, Criminal Law (Aspen 1987) p. 261.</ref>}}

In 2005–2009 the United States had 18,000 to 22,000<ref name="em-us"/> arrests for embezzlement per year, and 13,500 arrests in 2019.<ref name="oijdp">{{Cite web |title=Arrests by offense, age, and gender |url=https://www.ojjdp.gov/ojstatbb/crime/ucr.asp?table_in=1 |access-date=2020-11-26 |website=www.ojjdp.gov}}</ref> A 2009 journal article reported estimates that three quarters of medical professionals would suffer from embezzlement at least once in their career.<ref name="mpm">{{Cite journal |last1=Mathis |first1=Deborah R. |last2=Lewis |first2=Michael S.  |date=November 2009 |title=Employee Embezzlement: A Growing Problem |url=https://www.proquest.com/openview/c222d0397b84ca09e99bf00077cc25af/1?pq-origsite=gscholar&cbl=32264 |journal=Journal of Medical Practice Management: MPM |language=en |volume=25 |issue=3 |pages=146–148 |pmid=20073167 |via=ProQuest}}</ref>

In 2018 the average embezzlement stole $360,000.<ref name="hiscox">{{Cite web |last=Wakefield Research |date=2018-11-26 |title=2018 Hiscox Embezzlement Study |url=https://www.hiscox.com/documents/2018-Hiscox-Embezzlement-Study.pdf |url-status=live |archive-url=https://web.archive.org/web/20190417184326/https://www.hiscox.com/documents/2018-Hiscox-Embezzlement-Study.pdf |archive-date=2019-04-17 |access-date=2020-11-26 |website=Hiscox Insurance}}</ref> The estimated losses in 2005–2009 (including the many with no arrest) were $400 billion per year.<ref name="em-us">{{Cite web |last=National White Collar Crime Center |date=November 2010 |title=Embezzlement in the Great Recession – National White Collar Crime ... |url=https://www.yumpu.com/en/document/read/36708576/embezzlement-in-the-great-recession-national-white-collar-crime- |access-date=2020-11-26 |website=yumpu.com |language=en}}</ref> In 2018 companies brought charges in 45% of cases.<ref name="hiscox"/>

85% of incidents involved an embezzler who was a manager or higher. The average incident involved three embezzlers, and 79% of incidents involved more than one embezzler. 70% of cases went undetected for over a year, and 31% lasted over three years. The average embezzler had worked at the company for eight years. 39% of financial professionals who experienced embezzlements had experienced a prior incident of it. After the embezzlement, only 26% of companies added security and audit requirements, 27% increased spending on audits, and 29% reviewed their anti-fraud controls frequently. However 97% of companies which had experienced embezzlement were "confident the anti-fraud controls in place&nbsp;... would prevent future embezzlement".<ref name="hiscox"/>

==See also==
{{Div col|colwidth=20em}}
* [[Bank Secrecy Act]]
* [[Charles Ponzi]]
* [[Confiscation]]
* [[Currency transaction report]]
* [[Customer Identification Program]]
* [[Defalcation]]
* [[Gold laundering]]
* [[Graft (politics)]]
* [[Hawala]]
* [[Offshore banking]]
* [[Politically exposed person]]
* [[Round-tripping (finance)]]
* [[Shell (corporation)]]
* [[Terrorist financing]]
* [[White-collar crime]]
* [[World Bank residual model]]{{div col end}}

==References==
{{reflist}}

{{Corruption}}
{{Types of crime}}
{{History of English criminal law}}

{{authority control}}

[[Category:Embezzlement| ]]
[[Category:Commercial crimes]]
[[Category:Crimes]]
[[Category:Fraud]]
[[Category:Property crimes]]
[[Category:Theft]]