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The Federal crime of Money Laundering is traditionally understood to be the practice of filtering “dirty” money, or ill-gotten gains, through a series of transactions until the funds are “clean,” or appear to be proceeds from legal activities. The United States Criminal Code takes a broader stance towards money laundering, and criminalizes knowingly engaging in a broad array of financial transactions that involve money either derived from or meant to promote various illegal activities, or that involve certain elements of deception. While money laundering charges are often perceived as related with drug crimes, they are more frequently related with business-related crimes. For example, money laundering charges may be associated with illegal funds obtained through business fraud, mortgage fraud/real estate fraud schemes or other white collar crimes.
The Charles Johnson Law Firm represents individuals and institutions in matters such as:
- Hiding money
- Failing to file require cash transaction reports
- Making multiple cash withdrawals or deposits slightly below the $10,000 reporting threshold
- Evading taxes by underreporting income
- Alleged Patriot Act violations
- Illegal wire transfers
- Financial transactions involving proceeds of unlawful activity
- Other illegal transactions
- Federal criminal appeals involving money laundering
Such activities are often viewed by federal prosecutors as indicators of money laundering. Houston Money Laundering Lawyer Charles Johnson will provide a vigorous defense of clients who have drawn scrutiny from the federal government for their financial transactions. If the government is able to make the case that your financial transactions were an effort to “launder” money received from criminal activities such as drug trafficking or weapons trafficking, you will face forfeiture of your assets. Houston Lawyer Charles Johnson is available to speak with you directly about your case, anytime night or day, at (713) 222-7577 if you have been charged with or are being investigated for Money Laundering.
Overview of Money Laundering in Texas
Although money laundering can be a complex process, it usually involves three distinct steps that can occur simultaneously or sequentially. These steps are referred to as (1) Placement, (2) Layering, and (3) Integration.
- Placement is the initial process of getting illegal funds into “the system,” or placing unlawful proceeds into legitimate financial institutions. A common technique used for placement is structuring, or “smurfing,” which involves dividing the funds into multiple deposits of cash that are below reporting thresholds and then depositing the funds at one or more institutions, using one or more individuals to make the deposits. Placement may also be accomplished by purchasing money orders or travelers checks at one institution and depositing them into accounts at other institutions.
- Layering is the process of converting funds after they have entered the legitimate system. This step involves a series of complex financial transactions that move the funds in order to distance them from their illegal source. For example, dirty money may be converted to clean money through the purchase and sale of stocks, bonds, art, or jewelry. It may also be wired as payment for non-existent goods, disbursement to a non-existent borrower, or simply a transfer to another account.
- Integration is the process in which the illegal funds re-enter the legitimate economy and become virtually indistinguishable from legal funds. The newly cleaned funds, often commingled with legitimate funds, are then ready for use, be it in investing in real estate, purchasing luxury items, or financing business ventures.
Common elements that drive the efforts of money launderers throughout this three step process include “the need to conceal the origin and true ownership of the proceeds, the need to maintain control of the proceeds, and the need to change the form of the proceeds in order to shrink the huge volumes of cash generated by the initial criminal activity.” It is important, when reviewing literature on money laundering, to be aware that a conviction for the crime of money laundering may not necessarily reflect activity that would traditionally be understood to constitute money laundering. For example, someone who buys legitimate goods online commits money laundering, under the federal statute, if the supplier is outside of the country and the supplies are intended to facilitate one of several crimes — even if the product is itself legal and is being used in a legal way. (For example, purchasing napkins in such a way would be money laundering, if they were to be used by an illegal casino.)
Identifying and verifying money laundering is a difficult task, partly because of the complexities of the multi-transactional process but also because of the legal, political, and economic barriers that interfere with and often completely prevent investigation or enforcement of U.S. law outside of U.S. borders. Some of these barriers are reduced through the use of “memoranda of understanding” (MOUs), or mutual agreements — between agencies or officials of different nations — to exchange information and cooperate in criminal investigations. However, not all nations enter into these or other cooperative agreements. Examples of these instances include Nauru, Myanmar, and Nigeria.
Costs and Statistics
There is no clear picture of the actual amount of money laundered globally. Estimates based on reported crimes will tend to underestimate the figure, and estimates based on the size of the underground economy will tend to overestimate the actual amount. Synthesizing a variety of sources, the International Monetary Fund cites figure of between ¾ of a percent to 2 percent of the world’s gross domestic product, when using the reported crime method and 5 to 85 percent of a nation’s economy (depending on the nation) when using the underground economy method. These two figures can be found in other sources, roughly combined to give a range of 2-5 percent of the world’s GDP. In 1996, the 2-5 percent formula yielded between 590 billion and 1.5 trillion dollars. This figure is relatively often quoted as being the range of the magnitude of the money laundering problem (sometimes “rounded up” to 600 billion)- such as by the FBI. The U.S. Department of the Treasury has also been quoted as estimating that “$600 billion represents a conservative estimate of the amount of money laundered each year.” Using 2005’s world GDP of 59.6 trillion, the 2-5% approach would give one a figure of between 1.2 and 3 trillion dollars. Of course, the research that provided the main support for the 2-5% figure is itself a decade old, and money laundering has become an issue commanding much greater legislative, regulative, and law enforcement attention in the wake of September 11th. In fiscal year 2001, federal law enforcement agencies in the U.S. seized more than $300 million in criminal assets that were attributable to money laundering. In 2001, U.S. district courts completed 1,420 money laundering cases and convicted 1,243 individuals, or more than 87 percent of the defendants prosecuted. Some of these cases involved more than $100 million in laundered funds, and one-fifth of the cases involved more than $1 million. Of the Money Laundering Control Act charges made in 2001, 63 percent involved fraud, bank embezzlement, transporting stolen property, and counterfeiting, and 16 percent involved drug trafficking. Almost half (44 percent) of the money laundering cases referred to U.S. Attorneys in 2001 occurred in the six geographic areas designated by the U.S. Departments of Justice and the Treasury as areas of high risk for financial crimes and money laundering activity (High Intensity Financial Crime Areas or HIFCAs). These areas are (with the year designated a HIFCA)
- New York and Northern New Jersey – (2000)
- Los Angeles – (2000)
- San Juan, Puerto Rico – (2000)
- The southwest Texas and Arizona/Mexico border – (2000)
- The northern district of Illinois (Chicago) – (2001)
- The northern district of California (San Francisco) – (2001)
- Southern Florida (Miami) – (2003)
High Profile Examples/Case Studies
In 2006, Charles E. Edwards was sentenced to 13 years in prison and was ordered to pay $320,397,837 in restitution following his September conviction on charges of wire fraud, money laundering, and conspiracy to commit money laundering. The evidence showed that from 1996 through September 2000, Edwards, the founder of ETS Payphones, Inc. (ETS), raised capital to grow his coin-operated payphone business by using a network of independent insurance agents to sell payphones to investors throughout the United States for $5,000 to $7,000 per phone. Edwards convinced investors to buy payphones and lease them back to ETS for what Edwards claimed would be a guaranteed profit of approximately 14 percent per year. The scheme defrauded approximately 12,000 nationwide investors out of more than $400 million. Edwards siphoned off approximately $21 million of the fraud proceeds for himself and his wife. In addition, the evidence showed that Edwards engaged in a series of unusual and convoluted financial transactions, which served no legitimate business purpose and were intended solely to conceal and disguise the source, location, ownership, nature, and control of the proceeds involved in those transactions.In 2006, Edmundo P. Rubi was sentenced to 70 months in prison for conspiracy to commit mail fraud and money laundering. Rubi previously pled guilty to the charge that he conspired to conduct a scheme to defraud investors out of more than $12 million using his companies, Knights Express, Ltd. and Djmler Enterprises, Inc. Rubi was also ordered to pay restitution in the amount of $12,483,000. According to the plea agreement, beginning in 1999 and continuing up to October 31, 2001, Rubi formed and operated Knights Express Ltd. and Djmler Enterprises, Inc. for the purpose of soliciting investments from members of the public. In connection with his guilty plea, Rubi admitted that he made fraudulent representations that investor funds would be used to purchase and resell Federal Reserve notes in an international trading program. In actuality, no such international trading program existed. Millions of dollars of investor funds were used instead to pay the periodic returns that investors received and to make unsecured investments. Rubi also intentionally concealed from investors the fact that millions of dollars of investor funds were converted for his own personal use and benefit.The Drug Enforcement Agency (DEA) and U.S. Attorney’s Office in New York completed in 2002 a “long-term investigation targeting the money laundering and narcotics activities of the Khalil Kharfan Organization operating in Colombia, Puerto Rico, Florida, and the New York Tri-State area.” Initial statements by the agencies indicated that more than $100 million in narcotics proceeds were laundered in the scheme. The organization used members to open fictitious businesses, which they used for the deposit and transfer of money between countries. Approximately $1 million has been recovered.In 2002, a California jury convicted two principals in a Costa Rican tax evasion-money laundering ring. Wayne Anderson, 62, and Richard Marks, 58, were arrested in one of the largest undercover stings in IRS history. The two men were charged with conspiracy to launder $470,000, mostly through offshore trusts that concealed millions of dollars for U.S. taxpayers who wanted to evade U.S. taxes. The case resulted in seven federal convictions. “A Nashville, Tennessee man was sentenced to 20 years in jail for his three-year role in a large-scale cocaine distribution and money laundering organization in the Nashville area. The individual pled guilty to conspiracy to commit money laundering and conspiracy to distribute cocaine. The defendant used several vehicles with sophisticated hidden compartments to transport the cocaine and the proceeds to pay for it back and forth between Chicago and Nashville.” “On June 21, 2002 a federal jury in North Carolina convicted Mohamad Hammoud and his brother Chawki, Lebanese immigrants, for providing material support to the terrorist group Hezbollah through racketeering, conspiracy, and conspiracy to commit money laundering by funneling profits from a cigarette smuggling operation. In March 2002, several of the Hammoud’s co-defendants pled guilty in North Carolina federal court to racketeering, conspiracy, and conspiracy to commit money laundering for funneling profits from their cigarette smuggling operation to purchase military equipment for the Hezbollah terrorists. The case began when the West Virginia State Police seized a significant quantity of contraband cigarettes. The Federal indictment alleged that millions of dollars worth of cigarettes were smuggled out of North Carolina to resell in States, including Michigan, where higher State taxes greatly increase the sales price.”
The Response/Current Efforts
Legislation and Regulation The U. S. has imposed a number of legislative and regulatory standards to deter money laundering. The most significant of these are the following:
- The Bank Secrecy Act (BSA), signed into law in October 1970, implemented a reporting system for large financial transactions (over $10,000) to monitor and deter the flow of criminally obtained proceeds. (Codified 31 U.S.C. §§ 5311-5330)
- The Money Laundering Control Act of 1986 amended the BSA and specifically made money laundering – spending, saving, transporting, or transmitting proceeds of criminal activity – a federal felony. (Codified 18 U.S.C. §§ 1956 and 1957)
- The Anti-Drug Abuse Act of 1988 increased the penalties and sanctions for money laundering crimes and amended the money laundering provisions of 18 U.S.C. § 1956 to include financial transactions with the intent to violate § 7201 (attempted tax evasion) or § 7206 (false tax return) of the Internal Revenue Code of 1986 (26 U.S.C.). (Pub. L. 100-690)
- The Racketeer Influenced and Corrupt Organizations (RICO) Act identified violations of money laundering statues as “predicate offenses” that constitute racketeering activity and provided for both civil and criminal actions against violators. (Codified 18 U.S.C. §§ 1961-1968)
- The Money Laundering and Financial Crimes Strategy Act of 1998 required that the Secretary of the Treasury coordinate and implement a national strategy to address money laundering. (Pub. L. 105-310)
- The USA PATRIOT Act of 2001 established new rules and responsibilities affecting financial institutions and commercial businesses to prevent, detect, and prosecute terrorism and international money laundering. For example, the Act required banks to actively monitor customer transactions, expanded the ability of public and private institutions to share information, and increased civil and criminal penalties for money laundering. (Pub. L. 107-56)
Current Efforts To Reduce Money Laundering In 2005, the Drug Enforcement Agency (DEA) completed Operation Mallorca, an investigation into the use of the Columbian Black Market Peso Exchange to launder drug money. Operation Mallorca resulted in the arrest of 36 individuals and the seizure of 7.2 million dollars, 947 kilograms of cocaine, 7 kilograms of heroin, and 21,650 pounds of marijuana. In 2005, the multinational Organized Crime Drug Enforcement Task Force completed Operation Cyber Chase, an investigation that targeted illegal Internet pharmacies. These pharmacies used more than 200 websites to sell controlled substances internationally and to launder the proceeds. Just one of the organizations involved used this system of web-based distribution to move approximately 2.5 million dosage units of Schedule II-V pharmaceuticals (including Vicodin, amphetamines, and anabolic steroids) permonth. “Operation Wire Cutter,” a two and a half year joint effort of U.S. and Colombian law enforcement, uncovered a massive money laundering operation for several Colombian narcotics cartels that channeled money through New York, Miami, Chicago, Los Angeles, San Juan, and Puerto Rico using the Black Market Peso Exchange. The efforts resulted in 37 arrests – 29 in the U.S. and eight in Colombia – as well as the seizure of more than $8 million, 400 kilos of cocaine, 100 kilos of marijuana, 6.5 kilos of heroin, nine firearms, and six vehicles. Since the attacks of September 11, 2001, efforts to reduce money laundering – throughout the world – have increased significantly, with particular attention paid to associations with terrorist activities. Effective September 24, 2001, for example, President Bush issued Executive Order 13224, “blocking property and prohibiting transactions with persons who commit, threaten to commit, or support terrorism.” Initially, 27 individuals and organizations were identified as Specially Designated Global Terrorist (SDGT) entities under Executive Order 13224. By June 6, 2003, 282 individuals and organizations had been identified as SDGTs, and over $137 million in associated assets had been frozen worldwide. In July 2002, the second National Money Laundering Strategy issued by the U.S. Department of the Treasury pointedly addressed the issue of money laundering as “integral to the war on terrorism.” Specifically, the strategy (1) presented “government’s first plan to attack financing networks of terrorist entities” and (2) focused on “the use of charities and other non-governmental organizations to raise, collect, and distribute funds to terrorist groups.”
Penalties for Money Laundering Charges in Texas
Money laundering refers to the process of concealing financial transactions. Various laundering techniques can be employed by individuals, groups, officials and corporations. The goal of a money laundering operation is usually to hide either the source or the destination of money in connection with a criminal act.
Money laundering is a white collar crime that will be investigated by many different sources including: local, state and federal investigators that may also include the Department of Justice, the State Department, the Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS) and the Drug Enforcement Agency (DEA). A person can be charged with money laundering if suspected of receiving, concealing, possessing, transferring, transporting or having any interest in the proceeds of criminal activity. In fact a money laundering charge can be filed against a person that has almost anything at all to do with the proceeds of a criminal act. In Texas, money laundering charges have varied penalties depending on the amounts involved:
- Value from $3000 to $19,999 = third degree felony (2-10 years in prison plus a hefty fine if convicted)
- Value from $20,000 to $99,999 = second degree felony (2-20 years in prison plus a hefty fine if convicted)
- Value from $100,000 and up = first degree felony (5 to life years in prison plus a hefty fine if convicted)
There are several different types of money laundering charges you can face. Some are more serious than others and could result in severe punishments and steep fines. In fact, if you are convicted of money laundering, you could be forced to pay a fine up to twice the amount of the total dollar amount of funds involved in the illegal activity.
It is important that you contact Houston White Collar Crimes Lawyer Charles Johnson as soon as you are aware of charges against you or a loved one. If you are confronted with federal charges, you will want an experienced attorney who is familiar with federal court procedure as it is quite different from the state court process. Attorney Charles Johnson is well-versed in both federal and state law and court procedure. No matter what your money laundering charges or other white collar crime charges entail, you can trust that he will prepare a solid defense on your behalf.
Defenses for Money Laundering Charges in Texas
- Absence of intent to commit a crime — Most crimes require intent to commit the crime. In terms of money laundering, people who are accountants, bankers, or others who deal with large amounts of money are often charged with money laundering without even knowing they committed a crime. If you can prove you were unaware the money obtained was illegal, then there is no way you can have intent to commit money laundering.
- Duress — Duress occurs when a person truly believes there will be some danger or harm if they do not participate in the crime. In money laundering, criminals often force accountants or bankers to launder illegally obtained money or else be subjected to harm. If this is the case, you will have a good duress defense (as the banker or accountant).
- Insufficient evidence — A criminal charge can be dismissed if there is insufficient evidence to prosecute. In money laundering, an intention to prevent illegally obtained funds from being traced to its origin is required for a conviction. A conviction also requires proving the money laundered came from a specific illegal activity. If one of these two things is missing, then there is a possibility this defense will work.
The main defense to Money Laundering is the defendant’s lack of knowledge that the funds were from an unlawful activity. Attorney Charles Johnson may be able to establish that you did not intend to promote unlawful activity or that the transaction was not designed to conceal the unlawful activity. This is usually a valid defense when a person is merely an employee of a business, or a non-involved partner who is basically “duped” into managing a business whose proceeds are the result of an illegal activity. This defense can be supported with evidence from the company’s financial statements or accounting records showing material misrepresentation or omissions, committed by someone else other than the defendant. Many times one devious business partner will ask another partner to “sign off” on certain loan documents or tax returns without telling the defendant that the information contained therein is false misleading. Just because a defendant has signed off on paperwork that might be designed to cover up the source of money or funds does not mean the defendant actually knew about the source of the funds. It is important to interview all of the parties involved to ascertain the defendant’s good character and honesty and lack of control over this area of the company’s finances, and to emphasize the partner’s bad character. Another defense is tracing the funds involved in the transactions and proving that these specific funds did not fund, nor were the proceeds of, any unlawful activity. The defenses for Money Laundering are quite complex (as are all white collar cases) and involve many hours of records research by attorneys and expert witnesses. It is often beneficial to utilize a “forensic accountant” to also go through the documents in order to defend against the Government’s allegations.
Additionally, because the Charles Johnson Law Firm fights conviction from all angles, they will assert a wide range of defenses and challenges to constitutional violations that apply in all criminal cases. The possibilities are numerous and diverse. One of those is the “denial of right to Counsel”. This occurs when a suspect is in custody and requests to speak to their attorney, but is denied and questioning continues. Other defenses may include challenging the validity of any search warrant, or whether there were any “forensic flaws” during the investigation of your case. Depending on what else you have been charged with, this could include exposing flawed procedures regarding fingerprints analysis; computer analysis/cloning hard drive procedures; GPS tracking monitors; forensic financial accounting reviews; etc.. Lastly, one of the most common defense tactics is exposing sloppy or misleading police reports which include everything from misstatements, false statements, flawed photo line-ups and inaccurate crime scene reconstruction. It is important to hire a skilled Money Laundering lawyer to defend you who has knowledge of all the possible defenses to assert in your case. While related charges can further complicate a money laundering defense or other type of case, it is important to remember that just because you have been accused, doesn’t mean you are guilty. Contact Houston White Collar Crimes Lawyer Charles Johnson immediately for your free phone consultation. Attorney Johnson will take your call 24/7 365 days/year at (713) 222-7577 to discuss your case. Put his knowledge to work for you.
Hire the Best Houston Money Laundering Lawyer: Houston White Collar Crimes Lawyer Charles Johnson
At the Charles Johnson Law Firm, our attorneys possess the necessary skills and knowledge to successfully defend individuals facing federal money laundering charges. Unless you retain counsel who will aggressively investigate the matter on your behalf, you may have a poor chance of avoiding a lengthy prison term among other severe consequences. Money laundering is a serious offense with potential long-term consequences including jail time.When your future is at stake, contact the Leading Houston Criminal Lawyer at the Charles Johnson Law Firm. You can reach Attorney Johnson directly anytime night or day at (713) 222-7577.
Download “Facing a Money Laundering Investigation? Hire the Leading Houston White Collar Crimes Lawyer” in PDF Format
News Stories Related to Money Laundering Arrests in Houston:
U.S. agents make Mexican drug, money laundering arrests in Texas
Two indictments in the case charge the gang's Laredo chapter with heroin, cocaine and methamphetamine trafficking, as well as money laundering ... were not identified by authorities. "These arrests today should send a clear message to the ...
Reuters - Jun 21 2013
Houston defense lawyer arrested, charged with money laundering, fraud
Abraham Moses Fisch, 52, a criminal defense attorney in Houston, was arrested this morning on charges of conspiracy, obstruction of justice, money laundering and conspiracy to commit money laundering, federal prosecutors said. Fisch and his wife ...
Houston Chronicle - Oct 27 2011
Ohio mother, son arrested on US 59 for money laundering
A mother and son from Springfield, Ohio, are in the Liberty County jail on charges of Money Laundering after the pair was arrested at 11 a.m. Thursday, Nov. 7, on US 59 by the Liberty County Sheriff’s Office’s Criminal Interdiction Unit. Perla Veronica ...
Your Houston News - Nov 08 2013
Mother, son arrested, accused of money laundering
HOUSTON – Liberty County deputies arrested a mother and her son Thursday and charged them both with money laundering. It happened at about 11 a.m. when the Liberty County sheriff’s deputies stopped a 2006 Chevrolet Cobalt near Highway 59 for several ...
KHOU - Nov 09 2013
Houston money laundering ring accused of moving $27 million
Federal authorities arrested at least three people as part of a $27 million scheme known as the "Black Market Peso Exchange," which provided professional money-laundering services to drug traffickers through Houston banks. Specifically, the culprits are ...
Houston Chronicle - Aug 18 2012
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, Money Laundering
, money laundering charges
, mortgage fraud
, The Charles Johnson Law Firm
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Embezzlement or Misappropriation of Funds Can Be a Serious Crime in Texas Federal Courts. Embezzlement is considered a white collar crime in the state of Texas and is almost always charged as a felony. Punishment can be severe depending on what was done and how the funds were misappropriated. The criminal could face fines in the million of dollars and many months in prison. If you’re being charged with Embezzlement, you will need an experienced criminal defense lawyer on your side. Contact Houston Embezzlement Lawyer Charles Johnson to speak with an experienced legal professional about what you can do to protect your name and reputation. Attorney Johnson will travel to any state court in the State of Texas and to any Federal Court in the United States of America to fight for your freedom. Contact him directly around the clock, 7 days/week at (713) 222-7577.
The Federal Bureau of Investigation (FBI) defines embezzlement as the “misappropriation or misapplication of money or property entrusted to one’s care, custody, or control.” What distinguishes embezzlement from other types of theft is the violation of financial trust between the owner of the money or property and the offender.
Theft by employees is one of the most prevalent and costly problems faced by today’s business, either private or public. It includes, but is not limited to, “the removal of products, supplies, materials, funds, data, information, or intellectual property.” The estimated annual costs of all forms of embezzlement are up to $400 billion.
The ways that an employee can steal from an organization depend on a number of factors, including that type of money or properties that have been entrusted to the individual, and the access to company funds that the individual might be allowed because of their position. For example, a department store cashier might steal from a cash register, fail to ring up purchases, or take merchandise from storage rooms or receiving areas. Other employees with more access within the company might cheat on expense accounts, or misappropriate funds through billing, inventory, or payroll schemes.
While some research has found that theft by employees is typically a solitary event, the influence of co-workers on theft behavior has been shown to have an enormous impact on such deviant behavior. A strong argument is also made for the effects of informal sanctions; those that did not comply with the theft culture were often ostracized and pressured to leave the job.
The “typical” embezzlement scheme occurs at companies with fewer than 100 employees. The average amount stolen is $120,000 versus just $10,000 for Fortune 500 companies. Small businesses, defined as employers with less than three bookkeepers, are 100 times more likely to experience employee fraud than larger companies. The crime is often carried out over a number of years and has forced many small companies into bankruptcy.
Common Embezzlement Schemes
Bogus loan schemes include cases in which fraudulent loans are created or authorized by the perpetrator from which funds are taken for their own benefit.
Credit card/account fraud cases involve the fraudulent or unauthorized creation and/or use of company credit card or credit accounts.
Forged/unauthorized checks cases are those in which company checks are forged or issued without authorization for the benefit of the perpetrator.
Fraudulent reimbursement schemes include expense report fraud and other cases in which a bogus submission for reimbursement is made by the perpetrator.
Inventory/equipment theft schemes include employee theft of inventory and supplies, and the unauthorized use of equipment.
Payroll shenanigans cases include all forms of manipulation of the payroll systems in order for the perpetrator to draw additional income.
Theft from tax or benefit accounts include cases in which the perpetrator manipulates company accounts meant to pay corporate taxes or employee benefits to siphon these funds off for themselves.
Theft/conversion of cash receipts cases involve the simple taking of cash or checks meant for company receipts and pocketing or converting them for one’s own benefit.
Unauthorized electronic funds transfers cases apply to anyone who uses or attempts or conspires to use any counterfeit, fictitious, altered, forged, lost, stolen or fraudulently obtained debt instrument to obtain anything of value.
Vendor fraud schemes include those where either a bogus vendor is created by the perpetrator to misappropriate monies or a real vendor colludes with the perpetrator to siphon funds from the company.
Clearly the most common form of embezzlement, by nearly a two-to-one margin, is the forgery or unauthorized use of company checks for one’s own benefit. Almost 40 percent of all major embezzlement cases are principally the result of this type of scheme. The next three most common forms of embezzlement are theft/conversion of cash receipts (20.5%), unauthorized electronic transfers of funds (13.4%) and payroll shenanigans (8.7%).
Examples of Embezzlement Schemes
- The bookkeeper pays him/herself – The bookkeeper simply takes a business check, makes it payable to him/herself and signs it.
- Duplicate payments to phony accounts – The bookkeeper pays an invoice with multiple checks over time and creates a phony bank account to deposit the second check. By the way, it is very easy to open a phony account.
- Check alteration – The bookkeeper either alters checks paid to you by customers, or creates a phony bank account to deposit checks.
- Double billing – The bookkeeper re-bills customer twice for the same work and deposits check in a phony account. It is surprising how often businesses will pay twice for the same invoice.
- Duplicate checks – The bookkeeper orders a duplicate set of checks mimicking your account and then proceeds to write duplicate checks to vendors – only the duplicate checks are deposited into the phony account. The business owner may be too busy to notice this deception.
- Credit card transactions – An employee makes a credit card sale, then issues a credit for that item back on to their own credit card.
- Petty cash expenditures – A business does not closely review the petty cash expenditures, unknowingly creating an opportunity for theft.
FBI – Financial Crimes
The Federal Bureau of Investigation (FBI) investigates matters relating to fraud, theft, or embezzlement occurring within or against the national and international financial community. These crimes are characterized by deceit, concealment, or violation of trust, and are not dependent upon the application or threat of physical force or violence. Such acts are committed by individuals and organizations to obtain personal or business advantage.
Theft, Embezzlement or Misapplication by Bank Officers or Employees
Title 18, Chapter 31 of the U.S. Code contains sections that deal with the various forms of embezzlement and their penalties. For example, Section 656 covers theft, embezzlement, or misapplication by a bank officer or employee.
Motivating Factors for Embezzlement
While a large number of crimes can be attributed to opportunity or the economic need of the offender, loss incurred through the actions of employees can also be a response to poor working conditions, dissatisfaction with management or compensation, or pressure from co-workers. The following are some of the primary motivating factors for Embezzlement:
- Entitlement belief
- Financial need
- Lavish lifestyle
- Gambling issue
- Shopping addiction
- Substance abuse
- Support a personal business
- Support significant other
In the overwhelming number of cases, excessive greed or the desire to live a relatively more lavish lifestyle appears to be the key motivating factor for major embezzlers – not to alleviate personal financial problems, as some might expect. Gambling continues to be a factor for many embezzlers. In some cases, the gambling problem was also part of an overall extravagant lifestyle.
The underlying question remains, however, why do these embezzlers steal so much over such a long period of time from employers who trusted them so implicitly? The classic fraud triangle theory holds that there generally must be three basic elements to exist for fraud to occur: opportunity, incentive/pressure and attitude/rationalization. For embezzlement, the opportunity factor is present in organizations in which business controls are weak and specific individuals, principally those with fiduciary duties, can exploit those weaknesses. For fraud in general, the incentive/pressure factor is often suggested to be financial woes. However, for embezzlers, other factors exist, such as a substance abuse problem, a gambling problem, a perceived need to support a loved one and, a desire to live an extravagant lifestyle or a desire to support a personal or family-owned business.
Rationalization is the most elusive segment of the fraud triangle. Researchers have suggested that one or more of the following attitudes or beliefs exist for embezzlers to engage in illicit activities:
- They believe they are entitled to the money;
- They believe they must save a family member or loved one who is perceived to be in dire circumstances;
- They believe they are in a desperate financial situation and all could be lost;
- They believe that no external or other help exists;
- They believe they are only “borrowing” the money;
- They do not understand the consequences of their actions; and,
- They do not believe or understand that what they are doing is wrong.
Costs and Statistics
While many think of the workplace as insulated from the questionable behavior found elsewhere in society, the statistics can be quite alarming. It is estimated that losses due to employee theft can range from $20 to $90 billion annually to upwards of $240 billion a year when accounting for losses due to intellectual property theft. This makes theft by employees two to three times more costly than all of the nation’s Type I index crimes combined, and accounts for approximately 30 to 50 percent of all business failures. In addition, it is estimated that as many as three-quarters of all employees steal from their employers at least once and some employees may engage in theft behavior as a regular part of their lives on the job.
Employee theft does not occur in a vacuum, but is often found in conjunction with high rates of other workplace deviant behavior. The financial impacts of such behavior, when coupled with the indirect costs of higher levels of stress, increased absenteeism, higher turnover, raised insurance premiums, an increased number of lawsuits, and lower morale, make workplace deviance a problem for businesses of all sizes that can reach an annual price tag hovering in the billions of dollars.
How has the widespread infusion of technology into the workplace impacted issues of embezzlement and employee theft? One result has been the dramatic increase in costs associated with a given offense. Not only can technology facilitate larger transactions that are illegal in nature, but when coupled with poor controls it can be manipulated to make detection much more difficult. Furthermore, the types of theft in the workplace appear to be changing. In addition to cash, materials, and merchandise, employees are increasingly finding value in company-owned software and intellectual property. In 2004, it is estimated that Fortune 1,000 companies sustained losses of more than $59 billion from theft of proprietary information, with insiders to the organization being seen as a higher than average threat.18 Borrowing software from work for personal use accounts for some of the $33 billion lost to software piracy worldwide.
The Response/Current Efforts
Traditionally, organizations did not want the public stigma of being known as an “easy target” or a company that harbored embezzlers and other types of dishonest employees. Most matters were handled internally, if they were handled at all. Some organizations viewed theft as a cost of doing business. In recent years, companies have stepped forward and begun to address the reality that they have dishonest employees who are causing significant economic losses. Studies have shown that there has been an increase in the use of deterrence and apprehension strategies and an increase in the severity of sanctions brought against someone accused of theft. In 1997, retail companies alone spent over $5 billion to combat inventory losses, with theft by employees seen as accounting for the largest share of those losses. These expenditures in formal social control can be seen in both investments in security technology and loss prevention personnel. Additionally, over 40 percent of employees caught stealing is referred for prosecution and 20 percent is required to make some form of restitution.28 So while the problem of employee theft still exists within organizations, some employers have taken important steps towards acknowledging and combating the problem.
Penalties for Embezzlement
Under Texas law, Embezzlement falls under the law criminalizing theft. Embezzlement is essentially financial theft by an employee. It can be considered white collar crime in some instances but it does not have to be only a white collar offense. It occurs when the defendant is entrusted with his or her employer’s money or goods and then steals those money or goods.
In a criminal case involving employee embezzlement, the state must show beyond reasonable doubt that the employee had possession of the assets by “virtue of his/her employment”. If their position did not provide them with control of the missing assets, they would not be able to be charged with this type of crime. There are many situations where it can be a difficult task to determine if the offense can be classified as embezzlement or larceny.
Texas offers a wide variety of penalties for the crime of Embezzlement. The factor that determines the severity of the punishment if convicted on a charge of Embezzlement is the amount or value of the goods, services or cash stolen. For the smallest amounts ($50 and under), the charge will be a “Class C” misdemeanor carrying a penalty of a simple fine of up $500. The most serious charge will be for stealing $200,000 or more in goods, services or cash. This is considered a first degree felony and can be punishable by five to ninety-nine years in prison and/or a fine of up to $10,000.
White collar crimes may be charged as misdemeanors or as felonies. The charges depend on the type of crime, the severity of the crime, and the amount of money that is involved in the crime, among other things In general, the more severe a crime the more harsh the potential punishment if convicted. While white collar crimes don’t involve physical violence, they can still be serious. Houston White Collar Crimes Attorney Charles Johnson will help guide you through the legal process and will advocate for your rights every step of the way. If you are in jail, Attorney Johnson will assist in getting your bail reduced if possible so you can be released on bond until your trial date.
Defenses to Embezzlement Charges
When you are responsible for handling corporate finances and assets, errors may occur. A bookkeeping mistake or oversight could lead to an investigation. The minute you are notified of any potential allegations of embezzlement is the time to retain experienced legal counsel.
Embezzlement is a crime, so all the defenses available for other crimes can be used. Common defenses include:
Insufficient evidence – A criminal charge or case can be dismissed if there is insufficient evidence to prosecute. This defense will not work as long as a jury can find you guilty without a reasonable doubt. However, 40% of federal embezzlement cases are dropped because of insufficient evidence, so it can be worth pursuing.
Duress – Duress occurs when a person is situated where he/she truly believes they will be in some danger or harm if they do not participate in the crime. Common duress defenses in embezzlement cases that generally do not work include embezzling money to satisfy an addiction (drugs, alcohol, gambling) or to prevent family hardship. A duress defense will more likely work in cases where you would lose your job unless you participated in an embezzlement scheme.
Entrapment – Entrapment occurs when the government compels an innocent person to commit a crime they would have otherwise not committed. Stings are generally exempt. However, setting up “bait” to get you to commit embezzlement can be entrapment. When bringing an entrapment defense, the prosecution will usually contend you were inclined to commit the offense anyway.
Absence of intent to commit a crime – Most crimes require an intention to commit the crime. Embezzlement requires that you intended to take money or property from others. Without the required intent, the embezzlement charge may be dismissed. For example, maybe you thought you were the true owner of the money or property that you are accused of embezzling.
Insanity – Insanity is always a possible defense, but it is a “tough sell”in any court for any crime. This defense allows you to claim you were either insane at the time of the offense or during trial. The success rate of an insanity defense is low and it would most likely be ineffective in embezzlement cases.
Incapacity – This is different from insanity. In embezzlement cases, this defense may work only if you can show you were somehow mentally incapacitated at the time of committing the embezzlement. An example would be if you were under heavy medication and didn’t realize you deposited company money into your own account.
Intoxication – Voluntary intoxication is almost never a defense to a crime. If you drink voluntarily, you should realize the risks of doing so. This defense rarely comes up in embezzlement case.
Embezzlement charges can be quite complex. In many cases there may be many items that must be reviewed in order to determine the best defense. Some crimes may be a result of miscommunication or deception. It is important to get your story out. There are many ways that a defense attorney will be able to help you protect your rights. The goal of your attorney is to not only help you defend against the charges but to also help you guard your professional reputation. A conviction on these types of charges can be detrimental to your career so it is important to defend the charges as vigorously as possible. Houston Criminal Lawyer Charles Johnson will review all aspects of your case in depth to provide a complete defense of the charges.
If you have been charged with Embezzlement, you are probably facing stress at your home and workplace. Houston Lawyer Charles Johnson can help relieve that stress by ensuring that you are protected by the best Texas embezzlement lawyer available. If you want the best in knowledgeable legal representation & a criminal law firm that will treat your case with consideration and concern, please contact us 24/7 at (713) 222-7577 for a FREE confidential consultation. Your initial consultation can be done over the phone, and will be free and completely confidential. During this consultation you will be informed about the law, your rights and your legal options, with a reliable idea of how much an effective embezzlement defense may cost. Rest assured that The Charles Johnson Law Firm will zealously defend you against any type of White Collar Crime accusation.
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News Stories Related to Embezzlement in Houston:
Former Democratic Texas Treasurer Convicted Of Embezzlement
SAN ANTONIO (CBS Houston/AP) — An ex- Democratic leader in South Texas has been convicted of embezzling about $200,000 in party funds. The penalty phase begins Tuesday afternoon in San Antonio for 56-year-old Dwayne Adams. A jury on Monday convicted ...
houston.cbslocal.com - Nov 09 2011
Ex-Houston banker gets 3 years for embezzlement
HOUSTON -- A former Houston banker has been sentenced to three years in prison for stealing $340,000 from accounts he opened using the names of family and friends. A federal judge in Houston on Wednesday sentenced 39-year-old Shawn Nelson. The former ...
Abc Local Web - Dec 05 2013
Former Houston CU Lending VP Faces May Embezzlement Trial
Shawn Lee Nelson, former vice president of lending for the $519 million Members Choice Credit Union in Houston, faces a jury trial in Texas Federal Court in May over allegations that he embezzled more than $340,000 from three member accounts. According to ...
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