Embezzlement often proves difficult to prosecute

In “The Haverstock Hill Murder,” a Victorian-era mystery by George R. Sims, the narrator goes to the racetrack and observes “a well-known publisher… in earnest conversation with a beautifully dressed, gray-haired sportsman.” In other words, with a confidence man.

The publisher unwisely gives the con man 5 pounds to bet on a sure thing. The narrator subsequently speaks to the publisher, breaking the news that “he was the victim of a ‘tale-pitcher,’ and that he would never see his fiver again.”

Along comes a police inspector, who hears the story and immediately asks the publisher if he is willing to press charges. “The publisher shook his head. He didn’t want to send his authors mad with delight at the idea that somebody had eventually succeeded in getting a fiver the best of him.”

Sims, a journalist and humorist as well as author of murder mysteries, knew something about trying to get money out of publishers. But his little joke also identified a perennial difficulty in the prosecution of so-called white-collar crime: Victims often care more about preserving their reputations than in seeing the perpetrators punished.

The reluctance to prosecute is particularly pronounced with the sneaky crime of embezzlement. Embezzlement differs from straight-up larceny in that the victim initially entrusts the money or other property to the embezzler. The embezzler lawfully takes initial possession of the goods, but then wrongfully keeps them. A cashier who accepts a 20 from a customer and pockets it instead of putting it in the till is an embezzler. A customer who reaches over the counter and grabs a 20 from the till is a thief. But the store’s loss is the same either way.

Typically, the embezzler is a trusted employee, often in bookkeeping, accounts receivable or management, spending five days a week in the company of his or her victims, smiling and chatting and playing the role of a reliable co-worker. Because embezzlement involves a betrayal of trust in addition to theft, it has always seemed to me a worse crime than ordinary stealing, and most victims find it much more upsetting. And yet the law has traditionally treated embezzlement with leniency, on the curious ground that it “is purely a statutory crime and did not exist at common law,” as our Court of Appeals has written. That’s not even true: Blackstone, the great compiler of the common law, wrote in the 1700s that if a servant has “the care and oversight of the goods, as the butler of plate, the shepherd of sheep, and the like, the embezzling of them is felony at common law.”

But even if it were true that embezzlement was unknown to the common law, the same could be said of most criminal offenses on our books, including second-degree murder and daytime burglary. The real reason for the lenient legal treatment of embezzlers, I’m convinced, is that they are, pretty much by definition, people who inspire trust. Their crime is “white-collar,” identified by social class. Judges, used to contact with skeevy street criminals, find it easy to sympathize with well-spoken, well-groomed embezzlers. For judges, embezzlers are “us,” not “them.”

Hiscox Ltd., a business insurer, recently issued a report analyzing 425 federal embezzlement prosecutions. Almost half the victim companies had fewer than 25 employees. The report says: “Though it may seem counterintuitive, smaller organizations with tight-knit workforces are particularly vulnerable precisely because employees are trusted and empowered.” In those 425 cases, the median loss was $294,354. The average loss was much higher, because one-fifth of all cases involved more than a million dollars.

Those are eye-opening – and potentially company-killing – numbers. But they also reveal something about the nature of cases that find their way into criminal court. Smaller embezzlements are much more likely to be swept under the rug. Company executives, like that Victorian publisher, often prefer not to publicize their lack of good cash-management practices. The acute embarrassment of being played for a fool is frequently salved by the proceeds from a surety bond or other form of insurance. So the victim, like the publisher, lets it slide. As a result, the embezzler’s subsequent background check won’t reveal a criminal conviction, leaving him or her free to repeat the profitable parasitic process at the next place of employment.

The 2016 Hiscox Embezzlement Study, freely available online, contains sensible advice for avoiding embezzlement, but most business owners know the basics already: Divide responsibilities, build in oversight, conduct regular reviews. And, I’m sorry to say, don’t trust too much.

Joel Jacobsen is an author and has recently retired from a 29-year legal career. If there are topics you would like to see covered in future columns, please write him at legal.column.tips@gmail.com.

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