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Embezzlement Explained

Author: Niall Hearty  9 November 2023
5 min read

What is embezzlement?

Embezzlement is a white-collar crime that can be described as a form of financial fraud where the accused is in a position of trust. It is when a person uses money or assets that were obtained lawfully for a purpose that was not originally intended - for their own gain.

Embezzlement involves a person who is entrusted with the assets then doing something with them without telling anybody. For example, a company may entrust a member of staff with some funds but that person may then use them in an attempt to make more money (or other assets) without telling the company.

Embezzlement may often arise when a person manages the finances of a company or acts as a financial guardian for another.

For an activity to be classed as embezzlement, three factors must be present:

  • The person accused must have been entrusted with assets or money that belonged to another person or company.
  • There must be an intent to take ownership of the assets.
  • The accused person must have used the assets – or have intended to – for their own benefit.

The offence can be committed when someone takes the money for themselves, diverts it to another person or fails to account for the money when an explanation is required.

What are the common types of embezzlement?

Embezzlement occurs in various ways as there are many different types of it. Certain types of embezzlement are more common in certain business sectors or in particular circumstances.

Here we outline some of the most common forms of embezzlement.

  • Payroll Embezzlement: This involves a company or employee using the payroll system to commit illegal acts. An example would be claiming wages for an employee who either has left the company or never actually existed.
  • Falsifying Overtime Records: This is where the amount of time a person has worked is not actually tracked but is submitted, giving that person the opportunity to request payment for hours that they did not work.
  • Ponzi Schemes: Such schemes are often used by financial advisors who will promise people a high return on their investment but then keep their money instead of investing it. The biggest and most famous example of a Ponzi scheme was that run by United States financier Bernie Madoff, which involved more than $64 billion.
  • Charity Embezzlement: This form of embezzlement is committed by charity volunteers, employees or managers. It can involve a person keeping a charity’s money or using other people’s financial information, such as credit card details, to buy items for themselves.
  • Cheque Kiting: Kiting is where a person makes deposits into and withdrawals from a series of banks, taking advantage of the time it takes for a cheque to be registered with a bank.
  • Syphoning: This is where someone who has direct access to money that is paid to their employer - such as a shop assistant or a waiter - takes payment from a customer but does not record this and keeps the money for themselves.
  • Lapping: Lapping involves a company employee changing a company account to disguise the fact that money has been stolen from it. This is different from syphoning as money is taken from a customer account to hide the theft, whereas syphoning involves no transaction ever being recorded.

Is embezzlement different from fraud or theft?

Embezzlement is a type of asset misappropriation fraud or property theft. In the UK, it usually involves an offence under the Theft Act 1968 or the Fraud Act 2006, which can result in serious penalties.

While it is a form of theft, embezzlement differs from most theft as it involves the stealing of assets from someone who had entrusted them to the person who then commits the crime. For it to be embezzlement, there has to be a relationship and sense of trust between the two parties.

What is the difference between embezzlement and money laundering?

Embezzlement involves a person who is entrusted with assets then doing something with them for their own benefit, without telling anybody.

As an example, a waiter at a restaurant may take payment from a customer in cash and keep that money for themselves without registering the sale and putting it in the cash register. Or, if the customer pays for a meal using their credit card, the waiter may then keep those credit card details and use them later to buy items for himself.

Money laundering, however, is the way that the proceeds of crime are disguised so that they cannot be recognised as having been obtained through criminal activity. This “cleaning’’ - or laundering - of the money can be done by someone with their own proceeds of crime or by someone who is doing it with somebody else’s criminal proceeds.

What are the likely penalties/legal consequences for embezzlement?

Different countries have different penalties for embezzlement, depending on the laws that they have in effect. But courts will often treat embezzlement as a more serious offence than theft because the accused has been entrusted with money or assets and has then abused that trust for their personal gain. This can be reflected in the embezzlement sentence that is then imposed.

In the UK, embezzlement is a common law offence. This means that it is a crime under English criminal law that has been developed by the law courts over the years without any specific Act being passed to make it an offence. If a person is charged with embezzlement, the maximum prison sentence which can be imposed is 12 months. A fine of up to £10,000 can be imposed, as can community-based sentences.

But as embezzlement can involve an individual (or a number of people) committing one or more offences under the Theft Act 1968 or the Fraud Act 2006, the penalties can be severe.

When imposing a sentence, the court will take into account factors such as the amount of money or property stolen by the embezzler and the effect this had on those whose assets were taken.

The person found guilty of embezzlement may be ordered to pay back the embezzled funds (or pay the value of any embezzled assets) as well as fines that can be much higher than the value of the money or assets that were taken.

What has to be proven to convict someone of embezzlement?

Proving embezzlement requires a number of factors to be established:

  • The accused had a fiduciary duty to the person whose assets they are said to have embezzled. Having a fiduciary duty means that there is a legal responsibility to act only in the best interests of the other person.
  • The accused person was able to acquire those assets through this fiduciary duty.
  • When in possession of those assets, the accused did something with them that he did not have permission or the authority to do.
  • The action the person is accused of was dishonest and intentional.

How can I defend myself against a false accusation of embezzlement?

A person facing one or more embezzlement charges can rely on a number of defences.

These include:

  • They never held any money or property for the other person – the possession of the goods that is alleged never happened.
  • The accused was gifted or otherwise given the items by the other person.
  • No money or property was disposed of by the accused.
  • Any actions that the accused carried out were either not intended or were carried out in good faith.
  • The money or property was taken by another person.

How Rahman Ravelli can help

Any accusation of embezzlement has to be responded to swiftly and in the most appropriate way. This involves seeking immediate legal advice from those with the relevant expertise.

As an award-winning law firm in the field of financial crime, Rahman Ravelli has the in-depth knowledge and experience to manage embezzlement cases, no matter how large or complex. We assess each and every aspect of an allegation to determine the strategy that will secure the best possible outcome.

Niall Hearty C 07998

Niall Hearty

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niall.hearty@rahmanravelli.co.uk
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Niall has a wealth of corporate crime expertise and an ability to coordinate global bribery and corruption cases. His achievements in such investigations have made him a logical choice for corporate clients.

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