Olms interpretative Manual

EMBEZZLEMENTANDOTHERCRIMINALCONVERSIONS

580.001LMRDA, SECTION501(c)

Anypersonwho embezzles,steals, orunlawfullyandwillfully abstractsorconverts tohisown use, or the use of another, any of the moneys, funds, securities, property, or other assets of alabor organization of which he is an officer, or by which he is employed, directly or indirectly,shallbe fined notmore than $10,000or imprisoned for notmore than fiveyears, or both.

*580.002STATUTEOFLIMITATIONSFOR EMBEZZLEMENTCASES

Pursuant to 18 USC 3282, the statute of limitations for embezzlement cases under section501(c)of the LMRDA is five years.

(Revised:Dec. 2016)

580.100UNAUTHORIZEDUSEOF FUNDS

Defendantfiledmotionforjudgment ofacquittalafterjury hadreturnedverdictofguiltyonembezzlement charge brought under section 501(c)of LMRDA.

Indenyingdefendant’smotion thecourtruledthat thephrasein section501(c)“tohis ownuse” does not require the Government to show that the appropriation of union funds was for thepersonaladvantage of thedefendant, but meanssimply “not tothe use ofthe entruster.”

The court further ruled that the conversion consisted of the use of union funds for politicalpurposes with knowledge that such use was unauthorized and with the intent to deprive the unionof its use of the funds. The fact that this was accomplished in an indirect manner does not militateagainst the crime because it was the intent of Congress to hold officers of labor organizationsstrictlyto their responsibilities as fiduciariesofthe funds entrusted tothem.

UnitedStatesv. Harrelson,223 F.Supp. 869,54 LRRM 2456(E.D. Mich. 1963).SeealsoUnited
Statesv. Santiago, 528F.2d1130, 1135 (2d Cir.1976).

(TechnicalRevisions:Dec. 2016)

580.150UNLAWFULCONVERSIONOFUNIONPROPERTY

The United States Court of Appeals for the Second Circuit upheld the conviction of threeunion officials for violation of section 501(c) of the LMRDA through the unlawful conversion ofunion property when for a fee they falsified information on union application forms to obtain highpriority job classifications for unqualified members.United Statesv. Robinson, 512 F.2d 491, 88LRRM 3433 (2d Cir. 1975), cert. denied sub nom., Villegasv. United States, 423 U.S. 853 (1975).The court held that the argument that there was no violation of section 501(c) because the formshadnointrinsic valuewasnot persuasive.Thecourt foundthatthestatutedoesnot requirethattheconverted property be of any particular value, and in fact when the forms were filled in with falseinformation their value to members who were not qualified for the higher job classification wasgreat enough for them to pay $500 to $850 for them.The fact that no union funds were depleteddid not remove the action of the officials from the reach of the statute because one of the aims ofsection 501(c) was to preclude the unjust enrichment of union officials which occurred in thisinstance.The court also found that the allocation of jobs by priority is a principal benefit of unionmembership and to the extent that this process was thwarted by the action of the officials inobtaining high priority job classifications for unqualified members, the union and its bona fidemembers suffered a loss.The court quoted with approval a definition of the unlawful and willfulconversion of union property from United Statesv. Silverman, 430 F.2d 106, 127 (2d Cir. 1970),cert. denied, 402 U.S. 953 (1971) —“It is easy to understand how a union employee does thiswhen he ‘unlawfully and willfully’ uses union fund in a manner that works to the personal benefitof himself or the payee and does not benefit the union whether or not the union went through theform of authorization; the ‘union’ presumably would have objected if it had been able to speakfreely.”Robinson,512F.2d at 495, quoting, Silverman, 430 F.2dat 127.

(Revised:Dec. 2016)

580.200USEOF UNIONCREDITCARDFORPERSONALPURCHASES

Thedefendant, thesecretary-treasurer ofa localunion, wasfound guiltybya juryinthe

U.S. District Court on an indictment charging him with embezzlement and conversion of unionmoney and of making false entries on the union’s books in respect thereto in violation of sections501 and209 of LMRDA.

Evidencewaspresentedinthe DistrictCourtthat thedefendant usedcreditcardsissuedtothe union by major oil companies for the purchase of gasoline, supplies and equipment for hisboat.Thesepurchases,whichamounted to about twothousand dollars,werebilled to the union

andpaid byunion checks drawnon itsbank account. Thesechecks were signedby thedefendantwhoapproved the payment of all union bills andsigned the checks.

On appeal, the defendant raised the question of whether his use of union funds constitutedembezzlementorconversion.Hecontendedthatalthoughthewordsinthestatute,“embezzles…orconverts to his own use,” are in the disjunctive, they are synonymous; that the union’s checkingaccountwasintangible property notcapable of embezzlement orconversion.

Inaffirming thedecisionoftheDistrictCourt,theCourtofAppealsanswersthedefendant’scontention as follows:

“We are unable to follow this reasoning. We think the crime of conversion has even widerapplicationthanembezzlement.Congressrecognizedthattherewasadifferencebetween
embezzlementandconversionbyincludingbothinthestatute.Theunion’sbankaccountwouldcertainly come within scope of the broad language of the statute, ‘moneys, funds, securities,property,orother assetsof a labor organization.”

“Thelanguageinthestatute,‘embezzles,steals,orunlawfullyandwillfullyabstractsorconvertstohisownuse,’ wouldseemto coveralmostevery kindofa taking,whetherby larceny,theft,

embezzlementorconversion.”

“In 501(a) of the Act Congress indicated rather clearly its policy with respect to the fiduciaryresponsibility of officers, agents and representatives of labor organizations, and it would appearthattechnicalcommonlawdistinctions ofvarioustypesofcrimeswere notintendedtoberigidlyapplied.”

UnitedStatesv.Harmon, 339 F.2d354, 58 LRRM2033 (6thCir.1964), cert.denied,380 U.S.
944, 58 LRRM 2591 (1965).

(Revised:Dec. 2016)

580.250UNAUTHORIZEDAUTOMOBILELEASESFORPERSONAL USE

The United States Court of Appeals for the Second Circuit upheld the convictions of twounionofficersfor violatingsection501(c) ofthe LMRDAwhenthe officers,withoutauthorizationfrom the union and for personal reasons, used union funds to pay for long-term automobile leasesfor themselves and their friends and for gas and oil expenditures. United Statesv. Ferrara, 451F.2d91 (2d Cir. 1971),cert. denied,405 U.S. 1032 (1972).

(TechnicalRevisions:Dec. 2016)

580.300TRUST FUNDS

It is the opinion of the Department of Justice that funds of a trust, established inaccordance with section 302(c)(5) of the Taft-Hartley Act, are not funds or property of a labororganization, and the embezzlement or conversion of trust funds, therefore, does not constitute aviolationofsection 501of the Reporting and Disclosure Act.

580.400PUBLICACCOUNTANT

A public accountant who worked at a local union office one day a month, who performedthe usual duties of an outside auditor (such as checking the receipt books to verify proper entry intheday bookof all moneyreceived,verifyingthat checks issuedwere recorded inthe cash

disbursements journal, reconciling bank statements, etc.) and who in addition prepared checks,SocialSecurityReports, FormW-2’s, FormsLM-1 andLM-2andassistedin theelection ofthelocal’sofficers, wasemployed bythe localwithin the meaningofsection501(c).

Personsemployedbyalabororganization,withinthemeaningofsection501(c)oftheAct,includenotonly salariedemployees butanypersonwhose servicesareengaged orhiredasanindependent contractor to perform a particular job or contract for that labor organization. In viewof the duties performed by the public accountant in question, he is deemed to be employed by thelocal duringtheentire periodhe performedthese dutiesandis therefore subjecttotheprovisionsofsection 501(c).

*580.405ATTORNEY

An attorney who was retained as counsel for a labor organization was found guilty ofviolatingsection501(c)oftheLMRDAby chargingandreceivingpaymentsforserviceswhichhehad not rendered. On appeal he argued that (1) section 501(c) is applicable only to officers andemployees of a union and not to “independent contractors” such as an attorney on retainer, and (2)section501(c)islimitedtoembezzlementby “insiders”withinherentaccesstounion funds.

The Court of Appeals held that the attorney was employed by the union within themeaningofsection501(c)oftheLMRDA.Thatsectionspecificallyprovidesforthecriminal

liability of “any person” who is employed by a union. Its scope is not confined to the common-lawsenseof“employee”as aservantor asalariedperson workingunderdirectsupervision.

The Court also ruled that section 501(c) is not limited to the common-law crime ofembezzlement, which involves a misappropriation by one entrusted with funds, but includes otherformsoftheft,stealing andconverting.Its reachistherefore notlimitedtoinsiders suchasofficersand employees. Consequently, the fact that the attorney did not have direct access to union fundsbut had to have his bills approved by the union was irrelevant. United Statesv. Capanegro, 576F.2d973, 99 LRRM2232 (2d Cir. 1978), cert. denied,439U.S. 928, 99LRRM 2955 (1978).

(TechnicalRevisions:Dec. 2016)

580.500IMPROPERPERSONALEXPENSES:UNRELATEDTOUNIONBUSINESS

A union officer was convicted of embezzling and abstracting union money in violation ofsection 501(c) the LMRDA. The officer had submitted vouchers and had been paid by the unionfor personal expenses unrelated to union business.The personal expenses unrelated to unionbusiness included living expenses during certain winter months in Miami Beach, telephone billsforpersonal calls, and personal expenses chargedon acredit card.

Onappealthecourtrejectedthedefendant’sassertionthattheevidence didnotshowwillful

intent.Thecourt statedthat: “Directproofthatacts aredone unlawfullyandwillfullyisnotalwaysnecessary for such may often be inferred from the very fact that the acts constituting the crimehave been committed.” In this case there was “enough evidence from which the jury could havefound beyond a reasonable doubt that the items were personal non-business expenses and in noway incurred in furtherance of the union’s business. Therefore, the jury could reasonably haveinferred, in turn, that appellant intended to receive and knew he was receiving union funds forpurelypersonal expenses.”

The court also held that the defendant was not absolved from guilt by the mere fact thatsubsequently“hisexpenseswere...authorizedandadoptedbytheunion”afterhehadsubmitted

the vouchers and been paid. The court said: “When one sends the union a voucher known to be animproperone, and thenreceives payment ofthevoucher, thecrimeis completed.”


UnitedStatesv. Dibrizzi,393 F.2d 642,68 LRRM 2377(2dCir. 1968).

(TechnicalRevisions:Dec. 2016)

580.600CONSPIRACYTOEMBEZZLE–PERSONSNOTOFFICERSOREMPLOYEES

Although only a person who is a union officer or is employed, directly or indirectly, by theunion can violate section 501(c), a person who is neither a union officer nor employed by theunion but who engages in a conspiracy to violate section 501(c) with at least one other person whois a union officer or employed by the union can be charged with conspiracy under 18 U.S.C. 371,which statesin part:

“If two or more persons conspire either to commit any offense against the United States, or todefraud the United States, or any agency thereof in any manner or for any purpose, and one ormore of such persons do any act to effect the object of the conspiracy, each shall be fined not morethan$10,000 or imprisonednot more thanfive years, or both.”

It has been established that the phrase “any offense against the United States” in 18 U.S.C. 371means a violation of any Federal statute, including a violation of section 501(c) of the LMRDA.See United Statesv. Smith, 200 F.Supp. 227 (D. Tenn. 1961), United Statesv. Hipsch, 34 F.Supp.270 (D. Mo. 1950); United Statesv. Hiroku Komai, 286 F. 450 (S.D. Cal. 1923). It has also beenestablished in numerous cases that as long as one participant in a conspiracy has the capacity tocommit an offense, any other participants may be prosecuted for the conspiracy.Brownv. UnitedStates, 204 F. 2d 247 (6th Cir. 1953); Curtisv. United States, 67 F. 2d 943 (10th Cir. 1933);UnitedStatesv. Lester,363 F.2d 68 (6th Cir. 1966).

(TechnicalRevisions:Dec. 2016)

*580.710INTENTELEMENT

Thefederalcourts ofappealshave dividedoverthe definitionof[t]he essentialelementsofa section 501(c) crime.The position of the D.C., First, Second, Fourth and Fifth Circuits is thatthe prosecution must prove that the use or expenditure of money or property by the defendant(s)was "unauthorized" by the union.SeeUnited Statesv. DeFries, 129 F.3d 1293, 156 LRRM 2999(D.C. Cir.1997); United Statesv. Walsh, 928 F.2d 7, 12, 136 LRRM 2913 (1st Cir. 1991); UnitedStatesv. Hamilton, 2001 WL 51035, at *1-2 (2d Cir. Jan. 2, 2001); United States v. Stockton, 788F.2d210, 216-18,122 LRRM 2408(4th Cir.),cert. denied, 479U.S. 840(1986); United Statesv.

Hammond, 201 F.3d 346, 349, 163 LRRM 2349 (5th Cir. 1999).The Second Circuit furtherrequires that the prosecution prove that the defendant(s), acting with the intent to deprive theunion of its property, lacked a good faith belief that the use of money or property was for thebenefitof the union. SeeUnited Statesv. Butler,954 F.2d114, 118-19 (2d Cir. 1992).By
contrast, the Third, Seventh, Eighth and Ninth Circuits apply a “totality of the circumstances”standard, in which whether the union authorized the defendant(s) use of money or property andwhetherdefendant(s) hada good faithbelief thattheiractionbenefited theunion areonlyfactorstobeconsideredindeterminingwhetherthedefendant(s)hadthe“fraudulent intent”requiredto
prove a Section 501(c) crime.See, e.g., United Statesv. Oliva, 46 F.3d 320, 148 LRRM 2388 (3dCir.1995); United Statesv. Floyd, 882 F.2d235, 239-41, 132 LRRM2175 (7th Cir.1989); United
Statesv.Welch, 728F.2d 1113,1119-20,115 LRRM3127 (8thCir.1984); United Statesv.
Thordarson,646 F.2d 1323, 1334, 107 LRRM 2505(9th Cir.1981),cert.denied, 454U.S. 1055
(1981).

(Revised:Dec. 2016 andTechnical Revisions: Jan. 2021)