Many people find it difficult to distinguish between embezzlement and fraud. They both involve dishonest personal gain and fall within the ambit of white collar crime but the differences are significant and important. And both will lead to criminal prosecution.
There are five, key differences between the two white collar crimes offences.
- Fraud involves an act or acts of dishonesty that is done for personal gain. But a person can be guilty of fraud without embezzlement, such as when a person falsely claims to be professionally qualified in order to secure a job.
- Embezzlement is a sub-set of fraud involving theft through fraudulent activity involving a business. In embezzlement cases, the offender has a lawful right to possession of the property but steals or appropriates it through fraudulent activity, such as a business manager in a position of trust who has access to the business bank account and transfers money illegally to his or her own account. A bank teller transferring funds is a common example.
- Fraud does not always involve embezzlement. A fraud can occur outside of a business. So in the previously outlined situation involving a manager with access to a bank account, a fraud may occur without the perpetrator being in a such a position. He or she may seek to obtain financial information by deception, through false pretenses or by making false statements via an email scam or some other type of theft where there is no actual embezzlement.
- Generally fraud offences will secure a lesser criminal penalty than embezzlement crimes. Fraud cases are often a criminal case, but they are also frequently heard in a civil court involving different types of theft or deception. In many states they will be a misdemeanor offence, whereas an embezzlement will often be both a misdemeanor and a felony charge.
Types of Fraud Offences
The sort of theft by fraud offences that are common will involve the following sort of financial crimes –
- Identity theft
- Breach of fiduciary duty
- Public service misconduct
- Felony and misdemeanor theft
- credit card fraud
Fraud offences run the gamut from minor to the most major financial fraud, as outlined below. The range of cases is huge and we often read, for instance, of mail fraud charges which relate to the commission of fraud offences through physical or electronic mail and is a serious offence under the penal code.
People can be charged separately with fraud and embezzlement offences. Those in control of assets are held to a high standard of trust.
Types of Embezzlement Offences
The crime of embezzlement involves charges that occur in businesses include the following –
- fake invoicing and overcharging customers
- Overtime fraud
- Falsifying invoices and documents for gain
- Stealing customer data or sensitive information for personal use
- Using forged checks
- Improper use of expense accounts
- Using specific information for your own business
- Insurance scams
Insurance company scams and fraud are very common and are one of the most common form of theft, in fact the Coalition Against Insurance Fraud reports that Insurance fraud is involved in the theft of at least $80 billion dollars a year in the United States and that such fraud occurs in about 10 per cent of property-casualty insurance losses.
Ponzi Scheme and Other Fraud Offences
The sort of ponzi scheme fraud that was perpetuated by Bernie Madoff is one of the higher profile forms of financial fraud that often makes the media.
Other ‘profile’ frauds include wire fraud, tax evasion, insider trading and major breach of trust situations that will lead to criminal charges and frequently a lengthy prison sentence for the perpetuators of such crimes.
The high profile cases in recent years have included the Enron scandal in 2001, followed the year later by Worldcom and Tyco, and more recently Elizabeth Holmes who founded Theranos and was found guilty of 3 counts of fraud and one of conspiracy to commit fraud in early 2022.
Recently, Ranesh ‘Sunny’ Balwani, the former COO of Theranos, was found guilty of defrauding investors.
These major fraud and embezzlement trials garner significant headlines globally and involve major law firms and trials, ranging from cases like Theranos to the Vatican.
These major fraud and embezzlement cases still involve the same ingredients as those lesser charges, particularly in the case of embezzlement, and will frequently involve the use of forged documents or in the dealing with property that the offender does not own.
Often the penalties for fraud or embezzlement will include not just prison time and fines, but also asset forfeiture and the giving up of financial gains that have accrued through the dishonesty.
Whilst the types of cases differ and range from those involving a confidential relationship, misuse of sensitive information, stolen property and other elements, it can range from the smallest business or professional misfeasance to those involving major financial institutions.
No-one in a position of trust or in a position where they have control over a valuable asset is exempt from the long arm of the law where illegal means are used to use assets or funds that do not belong to them.
The fraud vs embezzlement distinctions are often lost in the midst of major trials, but mostly they involve lower level offending that combine civil and/or criminal sanctions. For many, however, the distinction is often lost in the ‘heat’ of the accusations that are being defended.
Nevertheless, they remain important.