Source: http://wiki.mises.org/wiki/Embezzlement
Timestamp: 2019-04-21 03:21:09+00:00

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This article uses content from the Wikipedia article on Embezzlement (edition) under the terms of the CC-by-SA 3.0 license.
Embezzlement is the act of dishonestly appropriating or secreting assets by one or more individuals to whom such assets have been entrusted.
Embezzlement is a kind of financial fraud. For instance, a clerk or cashier handling large sums of money could embezzle cash from his or her employer, a lawyer could embezzle funds from clients' trust accounts, a financial advisor could embezzle funds from investors, or a spouse could 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.
Fraudulent: 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.
Conversion: Embezzlement is a crime against ownership; that is, the owner's right to control the disposition and use of the property. 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).
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 his own property.
Lawful Possession: 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. Determining whether a particular person had lawful possession or mere custody is sometimes extremely difficult.
The Austrian School is unique in that it is the only School of economics where its prominent members consider fractional reserve banking to be a form of legalized embezzlement. It is therefore an important aspect in understanding Austrian criticisms of the practice of modern banking and modern finance more generally.
Prominent Austrian economist Murray Rothbard and more recently Austrian economists such as Jorg Guido Hulsmann and Jesus Huerta de Soto have condemned fractional reserve banking as a form of misappropriation or recursive embezzlement. Rothbard strongly opposed central banking and fractional reserve banking under a fiat money system, labeling it as "legalized counterfeiting" or a form of institutionalized embezzlement and therefore inherently fraudulent. He characterized the government-enforced prohibition on citizens using commodity currencies as legal tender a compulsory Ponzi scheme, a Ponzi scheme from which no citizen could escape.
Embezzlement differs from larceny in two ways. First, in embezzlement, an actual conversion must occur; second, the original taking must not be trespassory. 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. 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 misinterpreting 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. 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.
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. Very often sophisticated financial embezzlers can escape dedection by openly allowing withdrawal for some clients whilst convincing the bulk of clients that their funds still remain in their accounts. It is only when a large pool of clients seek withdrawal of their funds at the same time does the embezzlement become obvious to all.
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.
As noted above, some Austrian thinkers such as Murray Rothbard consider the whole central-bank dominated banking system to be a worldwide Ponzi scheme of gigantic proportions - the biggest Ponzi scheme in the history of humanity.
Proceeds of embezzlement must be included in gross income unless the embezzler repays the money in the same taxable year. Congress has ruled that lawful as well as unlawful gains are includable in gross income and that it is inconsequential that an embezzler may lack title to the sums he appropriates.” 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.
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."
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.
Many clients concerned about the integrity of a financial intermediary will require their funds to be kept in "allocated accounts". For example, at the London bullion market investors can retain their precious metals in allocated or unallocated accounts. Allocated accounts must have clients' gold (or other precious metals) physically stored on behalf of that individual client. A financial institution permitting this gold to be leased, sold or used by its traders would be guilty of embezzlement. Unallocated accounts simply record the clients' assets as a liability on the books of the financial institution and do not need to be backed by the physical metal. This theoretically allows the financial institution to legally issue multiple claims on its unallocated gold reserves.
↑ Singer & LaFond, Criminal Law (Aspen 1987) at 213.
↑ Singer & LaFond, Criminal Law (Aspen 1997) at 213.
↑ 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.
↑ 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 . . .
↑ 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).
↑ Perkins, Criminal Law 2d ed. (1986) at 286.
↑ James v. United States, 366 U.S. 213 (1961).
↑ James v. United States, 366 U.S. at 218 (1961). also see Income Tax Act of 1913.
↑ James v. United States, 366 U.S. at 216 (1961).
↑ Gilbert v. C.I.R, 552 F.2d 478 (1977).
↑ Gilbert v. C.I.R, 552 F.2d at 481 (1977).
This page was last edited on 8 December 2010, at 23:21.

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