Depositaries Failing to Safeguard Deposits

Depositaries Failing to Safeguard Deposits - 18 U.S.C. § 650

Federal law imposes severe penalties for crimes of embezzlement, especially when it comes to embezzlement of government or public funds.

However, the law also places a massive responsibility on depositories, such as banks, credit unions, and other financial institutions, who are responsible for these funds—so much so that if a depository shows negligence in safeguarding the funds deposited with them, the law considers it to be a form of embezzlement under Title 18 United States Code 650.

Depositaries Failing to Safeguard Deposits - 18 U.S.C. § 650

Financial institutions are responsible for safeguarding the funds deposited with them.

18 U.S.C. 650 says, “If the Treasurer of the United States or any public depositary fails to keep safely all money deposited by any disbursing officer or disbursing agent, as well as all money deposited by any receiver, collector, or other person having money of the United States, he is guilty of embezzlement and shall be fined under this title or in a sum equal to the amount of money so embezzled, whichever is greater, or imprisoned not more than ten years, or both; but if the amount embezzled does not exceed $1,000, he shall be fined under this title or imprisoned not more than one year, or both.”

Related 18 U.S.C. 641 embezzlement is knowingly converting for your use or the use of another, or without authority, sells or disposes of any record, voucher, money, or anything of value of the United States or any agency, or any property made or being made under contract.

If you're an officer of such a depository and are charged with this crime, you could face as much as ten years in prison.

What Is a Depository?

In the eyes of the law, a depository is an institution responsible for safeguarding and managing money. This could encompass a wide range of entities, from public depositaries such as banks, credit unions, and other financial institutions—all the way up to the Treasurer of the United States, who is responsible for all government money.

These organizations are responsible for protecting all funds deposited by disbursing officers, agents, receivers, collectors, individuals who hold money in trust for another entity, and other public members.

This fiduciary responsibility extends to ensuring accurate accounting, stringent security measures, and diligent financial management to prevent loss, misappropriation, or misuse of these funds.

Therefore, being classified as a depository carries significant weight, entailing more than merely storing funds. It signifies the obligation to act in the best interest of the depositors, adhering to the highest standards of financial integrity and accountability.

18 U.S. Code 650 - Explained

Under 18 U.S.C. 650, the failure of any public depository (up to and including the Treasurer of the United States) to safeguard deposits made with them is tantamount to embezzlement.

In other words, in the eyes of the law, it's treated the same as if they stole the money for themselves. This includes negligence or malfeasance in the management and oversight of such deposits.

This law's importance lies in preserving the integrity and security of public finances, which is foundational to government operations and public trust.

What Factors Must Be Proven for a Conviction?

To establish a violation of this statute, federal prosecutors must prove the following elements beyond a reasonable doubt:

Position of Responsibility: The accused must have responsibility, control, or trust over public funds. This typically includes employees or officers of financial institutions entrusted with public deposits.
Failure to Safeguard Deposits: There must be evidence of failure in safeguarding the deposits. This failure isn't relegated to overt actions such as theft or mismanagement. Negligence or inadequate measures in protecting the funds also constitute a violation.
Public Money: The funds in question must be public money—that is, deposits made by members of the public, as well as funds from federal, state, or local governments.
Intent: While specific intent to defraud isn't required, there must be evidence of negligence or disregard for the standard duties in handling these funds.

What Are Some Examples?

EXAMPLE 1: Jerry is an officer at an FDIC-insured bank. He is responsible for safeguarding all money deposited by customers.

However, instead of diligently managing these funds, Jerry engages in risky investment strategies without the knowledge or consent of the depositors, resulting in significant losses. Jerry could be charged under 18 U.S.C. 650.

EXAMPLE 2: Terri is the branch manager for a credit union. A security analyst has exposed several security vulnerabilities in their system, but Terri fails to take adequate measures in a reasonable amount of time.

A cyber-attack compromises their systems, leading to substantial financial losses for many members. As the chief decision maker for the credit union, Terri can be charged under 18 U.S.C. 650.

What Are the Related Federal Laws?

18 U.S. Code Chapter 31, embezzlement and theft, has several federal laws that are related to section 650, depositaries failing to safeguard deposits, including the following:

18 U.S.C. 641 - Public money, property, or records,
18 U.S.C. 642 - Tools and materials for counterfeiting purposes,
18 U.S.C. 643 - Accounting generally for public money,
18 U.S.C. 644 - Banker receiving unauthorized deposit of public money,
18 U.S.C. 645 - Court officers generally,
18 U.S.C. 646 - Court officers depositing registry money,
18 U.S.C. 647 - Receiving a loan from a court officer,
18 U.S.C. 648 - Custodians generally misuse public funds,
18 U.S.C. 649 - Custodians failing to deposit money; persons affected,
18 U.S.C. 651 - Disbursing officer falsely certifying full payment,
18 U.S.C. 652 - Disbursing officer paying lesser in lieu of lawful amount,
18 U.S.C. 653 - Disbursing officer misusing public funds,
18 U.S.C. 654 - Officer or employee of the United States converting property of another,
18 U.S.C. 655 - Theft by bank examiner,
18 U.S.C. 656 - Theft, embezzlement, or misapplication by a bank officer or employee,
18 U.S.C. 657 - Lending, credit, and insurance institutions,
18 U.S.C. 658 - Property mortgaged or pledged to farm credit agencies,
18 U.S.C. 659 - Interstate or foreign shipments by carrier; State prosecutions,
18 U.S.C. 660 - Carrier's funds derived from commerce; State prosecutions,
18 U.S.C. 661 - Within special maritime and territorial jurisdiction,
18 U.S.C. 662 - Receiving stolen property within the special maritime and territorial jurisdiction,
18 U.S.C. 663 - Solicitation or use of gifts,
18 U.S.C. 664 - Theft or embezzlement from an employee benefit plan,
18 U.S.C. 665 - Theft or embezzlement from employment and training funds; improper inducement; obstruction of investigations,
18 U.S.C. 666 - Theft or bribery with programs receiving Federal funds,
18 U.S.C. 667 - Theft of livestock,
18 U.S.C. 668 - Theft of major artwork,
18 U.S.C. 669 - Theft or embezzlement in connection with healthcare,
18 U.S.C. 670 - Theft of medical products.

What Are the Penalties If Convicted?

A violation of 18 U.S.C. 650 is a serious offense under federal law. If you're charged with this crime and convicted, the penalty depends on how much you either embezzled or failed to protect.

For amounts under $1,000, you could face the following:

Fines of up to $100,000 and
Up to one year in prison.

If the value exceeds $1,000, you could face the following:

Up to 10 years in federal prison and
Fines up to the amount lost, or $250,000, whichever is greater.

What are the Possible Defenses?

Despite the seriousness of this crime, an experienced federal criminal defense attorney can employ specific defense strategies to help you combat the charges. The specific defense will depend on the case's particulars, but possible defenses include the following:

Lack of Negligence or Malfeasance: Demonstrating that you exercised due diligence and appropriate care in managing the funds can be a strong defense. This might involve showing adherence to industry standards and protocols or that the loss did not result from your negligence.
Absence of Control over Funds: This can be a viable defense if you did not have direct control or responsibility for the funds. It shifts the focus to those who had actual authority over the deposits.
Coercion or Duress: If you were forced or coerced into the situation leading to the failure to safeguard funds under threat of injury or death, this could form the basis of a defense.

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