Saturday, May 14, 2011

Fourth Circuit Speaks Again on Conscious Avoidance / Willful Blindness (5/12/11)

In United States v. Poole, 640 F.3d 114 (4th Cir. 2011), the court addressed the concept of "willful blindness," also called by similar names, such as conscious avoidance, deliberate ignorance, etc. For prior blogs on the concept, see here. I start with basic concept of willfulness.

Conviction of most tax crimes, including the Section 7206(1) aiding and assisting involved in Poole, requires that the Government prove that the defendant acted willfully. Willfulness in this context is the “voluntary, intentional violation of a known legal duty.” United States v. Pomponio, 429 U.S. 10, 13 (1976).  (This statement of willfulness is sometimes referred to as Cheek willfulness because the Supreme Court reiterated the standard in Cheek v. United States, 498 U.S. 192 (1991).  In Bryan v. United States, 524 U.S. 184 (1998), the Court said that this meaning of willfulness requires that the "Government prove that the defendant acted with knowledge that his conduct was unlawful” (quoting Ratzlaf v. United States, 510 U.S. 135, 137 (1994)). (Bryan also held "In certain cases involving willful violations of the tax laws, we have concluded that the jury must find that the defendant was aware of the specific provision of the tax code that he was charged with violating" (citing Cheek), but that formulation was probably overexuberance for the concept of willfulness; I'll just stick here with intentional violation of a known legal duty as the test.)

In all events, specific intent to violate a known legal duty is required. Ignorance is an excuse / defense.

Conceptually, if a defendant does not have a specific intent to commit a tax crime does it matter that he deliberately chose not to know whether or not his conduct was a crime? If the crime is defined to require that he know his conduct is criminal, how does the state of ignorance however acquired meet that standard?

I have previously ranted about this issue before in my blog Third Circuit Decision in Staudtmauer - Willful Blindness (Conscious Avoidance) (9/10/10) discussing United States v. Stadtmauer, 620 F.3d 238 (3rd Cir. 2010). So I avoid further ranting and move to the decision in Poole. The Court had the following to say (I have bold faced the text that I think is questionable) (some case citations omitted):

Generally, in criminal prosecutions, the government elects to establish a defendant's guilty knowledge by either of two different means. The government may show that a defendant actually was aware of a particular fact or circumstance, or that the defendant knew of a high probability that a fact or circumstance existed and deliberately sought to avoid confirming that suspicion.

Under this second method of proof, in a criminal tax prosecution, evidence establishing a defendant's "willful blindness" constitutes proof of his subjective state of mind, thereby satisfying the scienter requirement of knowledge. United States v. Stadmauer, 620 F.3d 238, 235 (3d Cir. 2010). Thus, in a criminal tax prosecution, when the evidence supports an inference that a defendant was subjectively aware of a high probability of the existence of a tax liability, and purposefully avoided learning the facts pointing to such liability, the trier of fact may find that the defendant exhibited "willful blindness" satisfying the scienter requirement of knowledge.

The rationale supporting the principle of "willful blindness" is that intentional ignorance and actual knowledge are equally culpable under the law. See Stadmauer, 620 F.2d at 255. Intentional ignorance reflects a state of mind that extends beyond any form of mere negligence, or even recklessness. United States v. Guay, 108 F.3d 545, 551 (4th Cir. 1997) ("This circuit approves willful blindness instructions when the jury is not permitted to infer guilty knowledge from a mere showing of careless disregard or mistake.").
I am still concerned that, where Congress has defined the crime to require intentional violation of a known legal duty, even intentional ignorance is a substitute for that specific intent to violate a known legal duty. It seems to me that the better explication of conscious avoidance is that the jury may infer intentional violation of a known legal duty -- actual intent -- from affirmative acts (high probability and objectively ambiguous acts) that might be just a smokescreen for that actual intent. Again, given the statute, I don't think that ignorance, however achieved and at whatever level, is the equivalent of intentional violation of a known legal duty. Of course, if courts such as the Poole court interpret willfulness to include "intentional ignorance" as opposed to specific intent, then intentional ignorance is criminalized. But, if that is so, I suggest that the Supreme Court revise the formulation of the definition of willfulness to mean the "intentional violation of a known legal duty or the intentional ignorance of the legal duty." That just doesn't sound as catchy or correct.



  1. Jack,

    I often say "the law does not have to make one to understand but he/she must make him/herself to understand the law".

    Some law is easy to understand and some law is really hard (tax code, for example).

    If everyone can make a claim that "I do not understand the code -- I did not intentionaly violate the law" -- in many cases this is true -- our law is too complicated which is good for lawyers.

    I saw many news release from DOJ Tax divsion using "U.S citiens" instead of "U.S. Person that include U.S. citizens and other residents" when they talk about reporting global income obligation. In my view, it could be easily misinterpreted as "non US citizen" are not required ---

    It is really hard to read someone's mind --- the GOV can accuse taxpayers with "criminal willful blindness", would the GOV is also responsible for "willfully mislead" -- in these news release ?

    PS. read the last part of my name link

  2. tj,

    I am confused as to yor reference to "the last part of my name link." What do you refer to?

    Jack Townsend

  3. It says "
    U.S. citizens who have an interest in, or signature or other authority over, a financial account in a foreign country with assets in excess of $10,000 are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return. Additionally, United States citizens much file a Report of Foreign Bank and Financial Accounts, or F-Bar, with the United States Treasury, disclosing any financial account in a foreign country with assets in excess of $10,000 for which they have a financial interest in or signature authority, or other authority over."

  4. Jack,

    It is hard to read someone's mind on if it is "simple ignorance or intentional ignorance", this very much depends on the accused's level of education, life experience.

    For example, it may be simple ignorance for an immigrant who never report offshore bank income because he does not have the same benefit as citizen resident in terms of child credit/education credit while he has to pay the exact same tax as citizen resident.

    Also when he reads the last part of this article from DOJ
    It certainly reenforces his belief that only US citizen resident should report offshore bank income.

    The same argument would be much weaker for a citizen resident who also failed to report offshore bank income.

  5. tj,

    Your point on the DOJ's press release failing to articulate the rule that the offshore bank reporting regime (income reported and tax paid, as well as Schedule B question and the FBAR obligation) extends beyond citizens. DOJ should be more careful about how it expresses these obligations.



  6. Jack, Thanks!

    Here is another one from DOJ

    This is a case against a well-known Chinese American eccnomist.

    I can list many of these kind articles from DOJ. Logically, US citizen is a "true subset" of US person, the former can never substitute the later even if it is not a "if and only if".

    Not as lawyers do, a lot smiple minded persons do not read tax code, sometimes, they read news release, they hear other people say... and they just take that

    Even on f1040, it uses attache Schedule B "if appliicable". I read it is is optional, and often skip f1040ab -- which also leads missing FBAR. IRS never came back correct me for missing f1040ab.

    I guess most folks use software to file return, that may be a different story. Filing on paper return can often lead to missing a lot form.

    If Gov can accuse simple ignorant taxpayers with "intentional ignorance", would the accused be able to accuse Gov for intentional misleading (although it might be just a simple careless)?

  7. Jack

    At the outset let me confess that I am a novice as far as these complex legal issues are involved. I want to have your take on this situation : A foreign immigrant ( not a green card holder or acquired citizenship ) working in US for last 8-9 years on work permit and filing his own taxes using the commercial software package. Was not aware of the fact that foreign interest income ( accrued on his savings and remittances to his native home country ) has to be reported. Can it be considered as a case of willful blindness i.e ( can the prosecutor argue that the person did not make any attempt to learn the proper reporting requirement for so many years ) ? I know there can be facts which are more nuanced and can influence the conclusion , but in the most simplistic terms this is the gist. ( As a side note the person is completely tax compliant in his native country which does not tax his income on foreign earnings.) Also in that person's defense , he acquired this belief that taxes are paid on that income which is sourced from that particular country , when he was working in another foreign country before coming to US and was only taxed on his income derived from that country ( like HK , Singapore ). Do you think that this person can be criminally prosecuted for tax evasion or other related tax crime ?

  8. Jack

    I will be also interested in hearing your opinion on the matter of "willful blindness" with regards to situation posted above by somebody on the forum.

  9. Anonymous,

    Regarding the comment at 1:17pm. I don't know which comment you are referring to. If you could advise by date and time, I will try my best to respond.

    Jack Townsend

  10. Jack

    I am referring to your take on the situation outlined in the post by one reader on june 28,2011 at 11.33 AM. I will be very interested in knowing your views regarding the situation outlined in that post.

  11. Jack

    I had put a post on June 28 at 11.33 AM and would like to hear your take on the situation described in that post.


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