The Basics of Federal Embezzlement
Embezzlement is a serious federal, white-collar crime in the United States. Individuals charged with federal embezzlement can face either misdemeanor or felony charges, and people serve years in federal prison if convicted.
Generally, embezzlement applies to any misappropriation or theft of anything of value that is within the control and trust of an individual or entity. In the context of federal embezzlement, the funds, property, or assets misappropriated must rightfully belong to the federal government. This means the federal government must be the victim of the embezzlement actions; otherwise, there is no federal case.
Examples of Federal Embezzlement
What actions can lead to charges for federal embezzlement? There are several instances and common examples of federal embezzlement. These include:
- An accounting firm is hired to perform an audit of federal funds and skims several thousand dollars from the official audit to pocket this “missing” cash or other property.
- A federal employee doesn’t report fees, or fines assessed pursuant to a federal contract and instead deposits this money, rightfully belonging to the federal government, into a private bank account.
- A banker acting as trustee for a federal account receives an unauthorized deposit of federal funds and doesn’t report receipt of these funds or take action to correctly distribute or return the funds.
What Does Federal Law Say About Embezzlement?
In the U.S. federal statutes, criminal actions involving embezzlement fall under the statutes on theft. While these theft statutes are broad enough to encompass actions of embezzlement and other types of theft, they are also narrow in one very important way.
The theft statutes in Sections 641 through 670 of the U.S. Code apply only to theft from the federal government. The only time the federal embezzlement statute is applied to privately owned funds is when such funds were paid or provided pursuant to a contract with the federal government. This narrow application is in stark contrast to state statutes on theft and embezzlement, which are used to prosecute embezzlement from a business, individual, charity, or other entity.
The Structure of the Federal Statutes
The federal theft and embezzlement statute breakdown accusations of embezzlement in two ways, either by:
- The type of property or money stolen; or
- The identity of the individual that commits the offense.
In total, there are 30 different statutes that cover separate instances or types of embezzlement and other thefts. These statutes cover everything from custodians misusing public funds to the theft of livestock. Of these 30 statutes, several are commonly used to prosecute embezzlement of public or government funds.
- Public money, property, or records: Section 641 is broadly applied to any person, whether a federal employee or otherwise, who embezzled anything of value from the federal government, including any federal agency or a private entity, when such property or funds were pursuant to a contract with the U.S. government.
- Accounting generally for public money: Section 643 is applicable to embezzlement of public funds by an employee or agent of the U.S. government and includes underreporting or pilfering of salary, contract payments, or other accounts.
- Bank receipt of unauthorized deposit of public money: Under Section 644, it is a criminal offense when a banker knowingly receives and keeps an unauthorized deposit of public funds or other assets.
- Court officers generally: In Section 645, clerks, receives, trustees and other individuals involved in the criminal justice process and procedure of the federal government can be prosecuted for keeping funds that are paid to the individual in his or her official capacity with the courts.
Detection and Investigation of Federal Embezzlement
Perhaps more than any other white-collar crime, detection, and investigation of federal embezzlement relies on reporting by private companies and individuals.
It is difficult, not to mention unlikely, for the federal government to uncover instances of embezzlement where corporations, limited liability companies, charities, or other entities are the victim. The entity notices misleading documentation, conflicting payments, or other abnormalities and chases those oddities through an internal investigation.
An individual can also be a victim of embezzlement. When an individual is victimized by the trustee or bailee of funds or property, reporting is actually more frequent. Most individuals file a report with the Federal Trade Commission through the FTC’s Consumer Information System. While this system is generally designed to account for incidents of consumer fraud, phishing scams, and identity theft, the FTC receives a number of accusations of embezzlement through this system each year.
The National White Collar Crime Center is another institution, although unrelated to the federal government, that is dedicated to preventing and detecting instances of financial fraud and white-collar crime. This includes prevention of federal embezzlement where either an entity or individual is the victim of embezzlement. The organization is also responsible for implementing best practices and government tools to investigate embezzlement.
Low Rate of Reporting Embezzlement Offenses
Due to the reliance on businesses and other entities to detect and report instances of embezzlement, many schemes go unprosecuted by the federal government, even when there are repercussions through the entity.
The low percentage of reporting is due to:
- Reluctance to Disclose: A company doesn’t want to disclose lax or insufficient security measures to detect fraud and embezzlement;
- Failure to Detect: The entity doesn’t detect or act on instances of embezzlement for months or years after the embezzlement takes place;
- Internal Investigations: A business feels it sufficiently handled the embezzlement through internal procedures or processes; or
- Preventative Measures: The entity believes it implemented new measures that will prevent embezzlement against its business in the future and doesn’t report.
In contrast, the federal government is in a better position to directly detect embezzlement against federal agencies and departments.
Who Investigates Criminal Embezzlement?
The primary federal agency handling investigation of embezzlement is the Federal Bureau of Investigations (FBI). Of course, the FBI’s original and continued focus is on federal crimes involving terrorism, but the intelligence capabilities of the agency and multiple offices make it an ideal reporting partner for companies, individuals, and entities that are victims of embezzlement.
The Department of Justice is responsible for the enforcement of all federal laws, including prosecution of federal criminal cases. Typically, the DOJ isn’t the agency responsible for an initial investigation, but rather handles due diligence, discovery, and building a case once an investigation has revealed enough evidence for probable cause.
Why is probable cause an important legal standard for the DOJ’s involvement for a federal embezzlement case? This is the amount of evidence needed to win an indictment by a federal grand jury – and an indictment is necessary for an arrest warrant.
When the Prosecutor Has a Case Against You
From investigation to conviction is a lengthy process for a federal prosecutor to walk. The good news is this also allows a federal defense lawyer adequate time to compile a strategy, evidence, and case in your defense. If you are facing investigation for embezzlement, the best time to contact a lawyer for your defense is now. But no matter where you are in the federal justice system, a lawyer is an asset.
- Impaneling a grand jury: a federal criminal case truly commences when an investigative agency, typically an FBI field office, has enough evidence or embezzlement to contact the attorney general’s office for the applicable federal district. Once the evidence is reviewed, a federal prosecutor in that office will impanel a grand jury to indict the defendant on charges of embezzlement.
- Indictment for a federal crime: In order to secure an indictment from the grand jury, the prosecutor needs enough evidence to establish probable cause of a crime. This standard is much lower than what is needed for a criminal conviction. Probable cause only allows the prosecutor to obtain a warrant for arrest, not win a case.
- Arraignment on the charges: After the indictment and arrest of the defendant, the prosecutor must provide sufficient due process by formally filing the criminal charges against the defendant. This is done in open court during an initial hearing called arraignment. This is usually the defendant’s first appearance in court.
- Pleading and pretrial release: At the arraignment, the defendant must enter a plea of guilty or not guilty. You should already have the advice of a federal defense lawyer as to what plea is best in your case. If the plea entered is not guilty, then the prosecutor must make an argument for pretrial detention. In opposition, the defendant makes an argument for pretrial release, meaning the defendant can await trial outside federal prison.
- Discovery and pretrial motions: Between the hearing on pretrial release and a criminal trial is a lengthy period of collecting information and building a defense. This timeframe is crucial to what occurs during a criminal trial, but not only due to the evidence collected. Strategic and purposeful pretrial motions can substantially weaken the prosecutor’s case on day one of the criminal trials for embezzlement.
You Need a Defense to Federal Embezzlement Charges
All white-collar crimes carry a hefty criminal punishment. You could serve a long federal prison sentence for a single instance of embezzlement or face life-changing consequences for perpetrating an extensive scheme. The severity of the ramifications for embezzlement, including those prescribed by federal statute and related consequences, make it absolutely necessary to fight federal embezzlement charges.
What Is the Criminal Punishment for Embezzlement Charges?
The potential prison sentence and criminal fine applicable to charges of embezzlement are dependent on the facts of your case. The type of money or property stolen, where it was stolen from, and how it was stolen can all play a part in criminal punishment. Most importantly, the federal statutes applicable to embezzlement specify certain minimum terms of incarceration for an embezzlement conviction.
- Public money, property, or records & accounting for public money: Embezzlement of money or property less than $1,000 the maximum sentence is one year in federal prison and a criminal fine of $100,000. Embezzlement of money or property over $1,000 could lead to 10 years in federal prison and a criminal fine of $250,000 or the amount embezzled, whichever is greater.
- Bank receipt of an unauthorized deposit of public money: Embezzlement of money or property less than $1,000 the maximum sentence is one year in federal prison and a criminal fine of $100,000. Embezzlement of money or property over $1,000 could lead to 10 years in federal prison and a criminal fine of $250,000 or the amount embezzled, whichever is greater.
- Court officers generally: Embezzlement of money or property less than $1,000 the maximum sentence is one year in federal prison and a criminal fine of $100,000. Embezzlement of money or property over $1,000 could lead to 10 years in federal prison and a criminal fine of $250,000 or the amount embezzled, whichever is greater.
- Embezzlement by bank employees: Embezzlement of money or property less than $1,000 the maximum sentence is one year in federal prison and a criminal fine of $100,000. Embezzlement of money or property over $1,000 could lead to 30 years in federal prison and a criminal fine of $1,000,000 or the amount embezzled, whichever is greater.
- Theft by a bank examiner: Embezzlement of money or property less than $1,000 the maximum sentence is one year in federal prison and a criminal fine of $100,000. Embezzlement of money or property over $1,000 could lead to 5 years in federal prison and a criminal fine of $250,000 or the amount embezzled, whichever is greater.
As well, a judge has leeway to impose both a federal prison sentence and a criminal fine as an appropriate sentence for conviction of federal embezzlement.
Criminal Charges Against an Entity for Embezzlement
It is possible that federal embezzlement wasn’t carried by any one employee, but rather a corporate entity. In this instance, the federal government can charge the entity with a criminal offense. What punishment is imposed on a corporation or company for embezzlement? A criminal fine.
The amount of the criminal fine imposed will either be equal to the maximum amounts stated above or twice the amount gained by the defendant or lost by the victim of embezzlement. Whichever sum is greater can be imposed on a corporation found guilty of embezzlement.
Other Repercussions of Federal Embezzlement Charges
A huge concern for anyone investigated for federal embezzlement is retaining employment. As most embezzlement occurs in the employment setting, it is very likely that the charges against you directly impact your job. Even accusations that you wrongly appropriate funds from an employer could lead to dismissal from your job.
Directly related to your employment and job are concerns over the reputational harm caused by embezzlement charges. Future employers, coworkers, members of the community, and even friends are likely to associate accusations of embezzlement with the character traits of dishonesty and deceit. This can lead to a loss of future employment opportunities and isolation from the community.
Stopping the reputational harm that often accompanies embezzlement charges is predicated on your swift response to any accusations of embezzlement.
Recent Examples of Federal Embezzlement Charges
Embezzlement is a white-collar crime with a long history in the United States. Even before there was an explicit statute punishing this offense, there were examples of embezzlement prosecuted under broader theft statutes. But both the perpetration and investigation for federal embezzlement has changed significantly with today’s technology.
These recent cases exemplify both the new avenues to commit embezzlement and how old tricks are still tried in modern-day embezzlement schemes.
- Case #1: A former executive of the Sacramento Kings is on indefinite leave from his current organization, the Miami Heat, after charges of embezzlement were alleged against the executive. However, the California resident is facing bigger problems than the loss of his executive position. He is charged with embezzling $13.4 million from the two of the basketball team’s sponsors.
Allegedly, the funds swindled from the sponsors were used to purchase the executive’s beachfront properties. The investigation into the executive began through a very common means of fraud and embezzlement detection – he was reported to federal investigators by the Kings’ organization (his employer) after the team noticed suspicious transactions.
- Case #2: A cabinet secretary from West Virginia was charged with embezzlement based on accusations the politician embezzled over $178,000 from the Teays Valley Fire Department. The embezzlement scheme supposedly took place over two years and implicated the cabinet secretary’s wife. The potential sentence if convicted is 15 years in federal prison and criminal fines in excess of $500,000.
The investigation into this potential embezzlement was carried out through collaboration by Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation Division, the Office of Inspector General for the U.S. Department of Homeland Security, and the West Virginia Commission on Special Investigations.
- Case #3: A marketing director was charged with five counts of embezzlement after a scheme to take nearly $1.5 million from the company was uncovered. As with many criminal charges for embezzlement, the executive was first investigated by his employer, Microsoft, and then reported to federal authorities. The executive used a series of transactions and fraudulent companies to embezzle the money from Microsoft, claiming the funds were going towards payment of a mysterious invoice.
What to Do If Accused of Federal Embezzlement?
Your defense to accusations of federal embezzlement should begin immediately. Whether your notice of these accusations comes in the form of a federal investigation, internal audit, or warrant for your arrest by a federal agent, you need to take several steps to ensure your defense strategy and approach are effective.
- Hire a Federal Embezzlement Lawyer: Before you answer questions posed by a federal investigator or comply with a federal investigation, you need to secure representation. This can be done confidentially and without causing immediate repercussions when you hire an experienced federal embezzlement defense lawyer.
- Cease Practices Appearing as Embezzlement: Any actions you perform as a federal employee, federal contractor, or in the handling of federal funds should be undertaken with a focus on following exact procedure and requirements. If actions could even give the appearance of embezzlement, change your practice or cease these actions.
- Document Your Actions and Output: Collect any existing documents and create documentation for future actions that will delineate your exact procedure and process for handling federal funds or other property. Maintain this documentation in a confidential manner, unless otherwise instructed by a lawyer.
Talking with an Embezzlement Attorney
Don’t waste your opportunity for a strong defense to federal embezzlement charges. The time to contact a lawyer is early in the criminal process, and when possible, before criminal charges are even filed in your case. An experienced embezzlement lawyer can guide you through all aspects of a federal investigation, grand jury, and trial.