Embezzlement from Bank – 18 U.S.C. § 656 Sentencing Guidelines

Thanks for visiting Spodek Law Group, a second-generation firm managed by Todd Spodek with over 40 years of combined experience. Section 656 makes it federal crime for bank officers, directors, employees, or agents to embezzle, abstract, purloin, or willfully misapply bank funds. Maximum sentence: 30 years imprisonment and $1 million fine. Congress treats bank embezzlement more harshly than ordinary theft because banks hold depositors’ money and operate within federally insured systems. When bank insiders steal, they threaten the financial system’s integrity and taxpayers ultimately absorb losses through FDIC insurance.

The statute applies to federally insured banks, credit unions, and financial institutions. Practically speaking, that means every significant financial institution in America falls under Section 656. State bank robbery laws still exist but federal jurisdiction dominates because federal prosecutors have resources, expertise, and sentencing leverage state systems can’t match.

What Section 656 Actually Criminalizes

Four distinct acts violate the statute: embezzling, abstracting, purloining, or willfully misapplying bank funds. These terms overlap but prosecutors charge all four to cover every possible theory of the case.

Embezzlement means fraudulent appropriation of property by someone in lawful possession. Bank tellers who pocket cash deposits, loan officers who divert payments to personal accounts, executives who transfer bank funds to shell companies they control. The insider has legitimate access to funds but converts them to unauthorized personal use.

Abstracting and purloining are theft by any other names. Taking money without authorization, removing funds from accounts, withdrawing cash under false pretenses. If embezzlement suggests insider betrayal, abstracting and purloining capture outright stealing regardless of whether the thief was in lawful possession initially.

Willful misapplication is the interesting one. This criminalizes using bank funds for unauthorized purposes even when the insider doesn’t personally profit. A bank president who makes risky loans to friends knowing they can’t repay, an officer who invests depositor funds in speculative ventures outside the bank’s investment authority, anyone who diverts bank money to uses not authorized by bank policy or regulation. The misapplication must be willful—intentional violations of known duties, not mere negligence or business judgment errors.

Why “Willful Misapplication” Matters

Most embezzlement prosecutions are straightforward: someone stole money. Willful misapplication prosecutions blur the line between criminal conduct and bad business decisions. Bank executives make lending decisions daily. Some loans default. When do bad loans become criminal misapplication?

Courts hold that misapplication requires intent to injure or defraud the bank, or knowledge that the application of funds violates law or regulation. Good faith business judgment that turns out badly isn’t criminal. But conscious disregard of lending regulations, knowingly making loans to straw borrowers, or deliberately violating underwriting standards to benefit favored customers can be prosecuted as willful misapplication even if the executive didn’t personally pocket money.

This creates enormous prosecutorial discretion. After financial crises when banks fail, prosecutors review lending decisions made years earlier. Loans that seemed reasonable when made look reckless in hindsight. Prosecutors characterize aggressive but legal business decisions as willful misapplication, arguing executives knew or should have known the risks. Defense must prove business judgment was reasonable when made, not just show the judgment turned out poorly.

Sentencing: Base Offense Level Plus Loss Amount

Guidelines Section 2B1.1 governs, calculating offense levels from loss amounts. Small embezzlements under $6,500 yield level 6. As amounts increase, offense levels climb rapidly: $95,000 to $150,000 hits level 12; $550,000 to $1.5 million reaches level 18; over $9.5 million lands at level 24 or higher.

At level 18 with no criminal history, you’re facing 27-33 months. At level 24, it’s 51-63 months. Large-scale embezzlements exceeding $25 million reach offense levels 28-30, yielding 7-10 year sentences even for first offenders.

Position-of-trust enhancement adds 2 levels when defendants were officers, directors, or employees with authority over funds they embezzled. This enhancement applies in virtually every Section 656 case—you can’t embezzle from a bank unless you had access, and having access means you held a position of trust. So add 2 levels to every calculation.

Sophisticated means enhancement adds another 2 levels when embezzlement involved complex schemes, multiple transactions, or efforts to conceal through false accounting. Again, this applies frequently because embezzlers who steal substantial amounts must hide their conduct through accounting tricks, false entries, or elaborate cover-ups.

With both enhancements, a $500,000 embezzlement jumps from base level 18 to level 22—41 to 51 months instead of 27-33 months. The enhancements aren’t theoretical; they apply in most cases and dramatically increase sentences.

The Federal Interest in Bank Embezzlement

Why does bank embezzlement warrant federal prosecution with 30-year maximums when ordinary embezzlement is state crime with far lower penalties? Three rationales, one convincing.

First, banks operate in interstate commerce. Funds embezzled from Bank of America’s Manhattan branch came from depositors nationwide, transactions crossed state lines constantly, and the theft affected interstate banking systems. This jurisdictional hook is technically sufficient but doesn’t explain why federal prosecution is necessary rather than merely permissible.

Second, FDIC insurance means taxpayers ultimately cover losses when banks fail due to insider theft. Federal prosecution protects federal insurance funds. This argument works better but overstates taxpayer exposure—FDIC rarely pays out for embezzlement losses because banks absorb them through reserves and insurance.

Third, and most honestly: federal prosecutors want bank embezzlement cases. These are high-profile, generate favorable media coverage, involve sympathetic victims (depositors, shareholders, communities), and result in substantial sentences demonstrating that prosecutors punish white-collar crime seriously. Federal prosecution serves institutional interests of U.S. Attorneys’ offices seeking to build reputations for aggressive financial crime enforcement.

Defenses When Prosecutors Overreach

Challenging loss amounts. The government calculates loss as total funds embezzled, but actual loss should account for funds recovered, amounts covered by insurance, and any restitution defendants made before prosecution. If a bank president embezzled $2 million but returned $1.5 million when confronted, the loss for sentencing purposes should be $500,000, not $2 million. That difference is 6-8 offense levels—years of imprisonment.

Prosecutors resist this approach, arguing intended loss controls when greater than actual loss. They claim defendants would have stolen everything if they hadn’t been caught, so intended loss is the full embezzled amount regardless of recovery. Defense must show defendants stopped voluntarily, made restitution before detection, or that recovery reduced actual harm below embezzled amounts.

Attacking willful misapplication charges. When prosecutors charge misapplication rather than outright theft, they must prove willfulness—that defendants knew their conduct violated law, regulation, or bank policy. Business judgment that was reasonable when made doesn’t become criminal because loans defaulted. Present evidence that lending decisions complied with applicable standards when made, that regulators approved similar practices, that no fraud or personal benefit occurred.

Expert testimony from banking professionals explaining that challenged conduct fell within industry norms helps. When former regulators or banking experts testify that loans met underwriting standards or that alleged misapplications were common practices, prosecutors’ criminal characterizations lose credibility.

The Insider Trading Connection

Section 656 prosecutions often run parallel to SEC enforcement actions. Bank executives who misapply funds while their banks are failing sometimes trade on inside information about the impending collapse. Prosecutors charge both Section 656 embezzlement and securities fraud, alleging the executive looted the bank while betting against it in the stock market.

These dual prosecutions create sentencing complications. Losses from embezzlement and securities fraud shouldn’t be double-counted, but prosecutors argue separate schemes justify separate loss calculations. Defense must show overlap to prevent duplicative punishment.

When Small-Scale Embezzlement Gets Prosecuted Federally

A bank teller steals $15,000 over six months by pocketing customer deposits. Is this really worth federal prosecution? The teller faces felony conviction, 12-18 months imprisonment, permanent unemployability in banking, and restitution that will take decades to repay on minimum wage jobs—the only work available to convicted felons.

State prosecutors could handle this as simple embezzlement. Federal prosecution seems like using a sledgehammer on a thumbtack. But U.S. Attorneys’ offices prosecute these cases constantly because they’re easy wins—defendants usually confess immediately, evidence is overwhelming, and guilty pleas come within weeks of indictment.

Low-level bank employees who embezzle need to understand: federal prosecutors will charge you, federal judges will sentence you under guidelines that don’t account for personal circumstances, and your life will be effectively over after conviction. Banks don’t forgive; they prosecute. Financial industry blacklists ensure no second chances. Federal prosecutors don’t show mercy to desperate tellers who stole to pay medical bills or feed families.

That harsh reality means defense must focus on avoiding conviction entirely. Pretrial diversion, deferred prosecution, or negotiating restitution agreements that result in administrative rather than criminal resolution. Once federal charges are filed, your employment in banking is over regardless of case outcome.

Restitution Bankrupts Defendants

Courts must order full restitution covering all losses. For large embezzlements, restitution exceeds defendants’ lifetime earning capacity. A $5 million embezzlement requires $5 million restitution even if defendant will never earn that much. Restitution follows defendants for life through wage garnishment, asset seizure, and tax refund interception.

Bankruptcy doesn’t discharge criminal restitution. Federal judgment liens attach to all property defendants acquire. Inheritance, lottery winnings, future earnings—everything gets seized to satisfy restitution. Defendants die still owing hundreds of thousands or millions in restitution that will never be paid.

This lifetime financial destruction happens even when defendants served prison sentences. The embezzler who serves 5 years comes out unemployable, owing millions, facing wage garnishment for any job they find. Poverty becomes permanent.

If you’re facing Section 656 charges, contact Spodek Law Group immediately. Bank embezzlement prosecutions develop quickly once banks detect theft—internal investigations identify suspects within days, criminal referrals follow within weeks, and federal charges get filed before defendants can organize defenses. We handle federal banking fraud cases involving allegations from thousands to millions of dollars. Early representation allows us to potentially negotiate civil resolution before criminal charges are filed, challenge loss calculations that drive draconian sentences, and present mitigation showing our clients aren’t the career criminals prosecutors portray. We’re available 24/7.