False Statements Crime Element of "Knowingly and Willfully" Requires Proving Knowledge that Making False Statement Is Illegal (6/26/14)

Since we have been spending so much time on the term "willfully," a chameleon of a word varying with context, I wanted to offer this development in the interpretation of the false statement statute, 18 USC 1001(a), which also has a "knowingly and willfully" requirement for the crime of making false statements to a Government agent.  This charge is often used in tax related contexts.

The DOJ is reported to have abandoned its prior interpretation that a false statement a prosecution and conviction could be made with proof only that the defendant knew the statement was false.  Rather,  the DOJ has indicated in some briefings that this the DOJ now interprets the provision in position Section 1001(a) to require that the defendant know that making the false statement was illegal.  See Tony Mauro, U.S. gives up a widely decried charging theory (American Lawyer 5/12/14), here.  This interpretation seems to bring this statute and related statutes in line with the tax crimes definition of willfulness and the FBAR crimes and civil penalty definition of willfulness.

In pertinent part, the article states that DOJ has now clarified that:

that to make the case that a defendant acted "willfully," the government must prove that he or she knew the statement was unlawful — not just that it was false. That requires a state-of-mind element that can be hard to nail down. Defendants often claim they were unaware that lying to the government was illegal, especially in casual conversations or when not under oath.

Further,

In making such an important shift in the interpretation of a law invoked hundreds of times a year, the department did not shout it from the rooftops. Solicitor General Donald Verrilli Jr. sprinkled mentions of the change into several largely unnoticed briefs filed in March in routine cases before the Supreme Court. Only one reference appears to be available online, on pages 11 and 12 of the government's brief opposing certiorari in Natale v. United States, in which a surgeon was convicted of making false statements in a matter that involved a health care benefits program. 

What's more, none of the cases in which Verrilli confessed error actually involved Section 1001, instead arising under Section 1035, a health care fraud provision that mimics the ­"knowingly and willfully" language of the false-­statements law. 

The Justice Department's change of mind is slowly being felt. On April 21, the Supreme Court sent two cases back to lower courts "for further consideration in light of the confession of error by the solicitor general." The court's orders will likely set in motion a lengthy reassessment of false-statement precedents in most circuit courts.

Hat tip to Lawrence S. Goldman, DOJ Narrows Basis for Section 1001 Prosecutions (White Collar Crime Prof Blog 6/19/14), here.

The DOJ CTM, here, now does not reflect this change in interpretation.  It provides:

24.08 WILLFULNESS 

 To establish a Section 1001 violation, the government must prove that the
defendant acted knowingly and willfully. E.g., United States v. Hildebrandt, 961 F.2d
116, 118 (8th Cir. 1992). As used in Section 1001, the term "willful" simply means that
the defendant did the forbidden act (e.g., made a false, fictitious, or fraudulent statement)
deliberately and with knowledge. Id. at 118 (citing United States v. Carrier, 654 F.2d
559, 561 (9th Cir. 1981)). The Second Circuit has recognized that “whether a defendant
has ‘knowingly and willfully . . . ma[de] any materially false, fictitious or fraudulent
statements or representations’ under § 1001 is governed by the same legal standards as
whether a defendant ‘willfully subscribes as true any material matter which he does not
believe to be true’ in violation of the perjury statute, 18 U.S.C. §1621.” United States v.
Triumph Capital Group, Inc., 237 Fed.Appx. 625, 627-28 (2d Cir. 2007) (citing United
States v. Mandanici, 729 F.2d 914, 921 (2d Cir. 1984); Bronston v. United States, 409
U.S. 352, 359-62 (1973)); United States v. Stewart, 433 F.3d 273, 319 (2d Cir. 2006). 

Presumably, the DOJ CTM will be changed to reflect the new interpretation.

For further background on the issue, I offer the following cut and paste from my Federal Tax Crimes Book (footnotes omitted) (I do not indent the quote):

c. Knowingly and Willfully.

The false statement must be made knowingly and willfully.  As I noted earlier in the text, willfully is a word of many nuances.  Certainly, in a tax crimes context, willfully means at a minimum knowing that the conduct is illegal.  So, the question is which nuance applies to § 1001?  Does the speaker commit the crime by making a knowingly false statement to a federal agent or must the speaker also know that making a knowingly false statement to a federal agent is a crime?  The CTM says cryptically on this issue: “As used in Section 1001, the term "willful" simply means that the defendant did the forbidden act (e.g., made a false, fictitious, or fraudulent statement) deliberately and with knowledge.”  With knowledge of what – the falsity or the falsity and its criminality?  I think the CTM fairly read intends the former rather than the latter.

In a recent case [United States v. Moore, 612 F.3d 698 (D.C. Cir. 2010)], Judge Kavanaugh in a concurring opinion focused on this issue although siding with the majority because the defendant had not properly raised the issue at trial.  The facts, highly summarized, are that, incident to a drug investigation, the USPS intercepted a drug package addressed to “Karen White” and then, after substituting white powder for the drug, had a USPS employee deliver it to the address.  At the address, the USPS employee delivered the package to the defendant, a male, upon his representation that he was Karen White's boyfriend and upon his signing the receipt with a false name.  The defendant was thereafter first charged with drug crimes and the jury hung.  He was tried a second time for the same charges but with a false statement charge added for his conduct in accepting the package.  In the second trial, the jury hung again on the drug charges but convicted on the false statement charge.  On appeal, Moore urged that the falsity was not “materially false” (another element in § 1001).  The panel unanimously handily rejected that argument.  Speaking to the substantive issue of whether "knowingly and willfully" requires knowledge of criminality, Judge Kavanagh echoed the concerns of Judge Kozinski of the Ninth Circuit in dealing with the somewhat amorphous crime of the defraud conspiracy (the Klein conspiracy in tax context).  That is not surprising because, as Judge Kavanaugh cites,  Judge Kozinski has addressed this concern in the context of 18 USC § 1001.  I quote:

Proper application of statutory mens rea requirements and background mens rea principles can mitigate the risk of abuse and unfair lack of notice in prosecutions under § 1001 and other regulatory statutes. In § 1001 cases, that means proof that the defendant knew that making the false statement would be a crime. To be sure, “ignorance of law is no defense” is a hoary maxim. But it does not automatically apply to today's phalanx of federal regulatory crimes. See WAYNE R. LAFAVE, CRIMINAL LAW § 5.6, at 298-311 (5th ed.2010). For some regulatory offenses -- particularly statutes like § 1001 that proscribe only “willful” conduct -- the Supreme Court has recognized an ignorance-of-law or mistake-of-law defense, or has required affirmative proof of the defendant's knowledge that his or her conduct was unlawful. See Bryan v. United States, 524 U.S. 184 (1998); Ratzlaf v. United States, 510 U.S. 135, 141-49 (1994); Cheek v. United States, 498 U.S. 192, 199-201 (1991); Lambert v. California, 355 U.S. 225, 229-30 (1957);  cf. Liparota v. United States, 471 U.S. 419 (1985); Dan M. Kahan, Ignorance of Law Is an Excuse -- But Only for the Virtuous, 96 MICH. L. REV. 127, 150 (1997) (noting that “courts permit mistake of law as a defense [] selectively across malum prohibitum crimes”).  For criminal statutes prohibiting "willful" violators, those cases together require proof that the defendant was aware that the conduct was unlawful. 

In Bryan, the Supreme Court summarized the rule quite clearly: “[I]n order to establish a willful violation of a statute, the Government must prove that the defendant acted with knowledge that his conduct was unlawful.” 524 U.S. at 191-92 (internal quotation marks omitted). Since Bryan, the Court has reiterated this formulation on several occasions. See also Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 57 n.9 (2007) (“we have consistently held that a defendant cannot harbor such criminal intent unless he acted  with knowledge that his conduct was unlawful”) (internal quotation marks omitted); Dixon v. United States, 548 U.S. 1, 5, 126 S. Ct. 2437, 165 L. Ed. 2d 299 (2006) (the term “willfully” “requires a defendant to have acted with knowledge that his conduct was unlawful”) (internal quotation marks omitted).*
  n* To say that the Government must prove the defendant knew the conduct was a crime is not necessarily to say that the Government must prove the defendant knew the specific code provision proscribing the conduct, except with respect to certain highly technical statutes. See Bryan, 524 U.S. at 194; cf. Ratzlaf, 510 U.S. at 141 (anti-structuring statute); Cheek, 498 U.S. at 200 (tax statute). 

It is true that our Court many years ago seemed to assume (in addressing a mens rea issue under a different statute) that proving the defendant's knowledge of the law may not be required in § 1001 cases. See United States v. Hsia, 176 F.3d 517, 522 n.3 (D.C. Cir. 1999). In so doing, Hsia referenced a 1994 Third Circuit opinion that pre-dated the Supreme Court's clarifying decisions in Bryan and later cases. That assumption may not endure in light of those subsequent Supreme Court precedents. In a future case, we therefore may need to consider the appropriate mens rea requirements and defenses for § 1001 prosecutions under those Supreme Court decisions. 

Here, however, there is no legal obstacle to our affirming Moore's § 1001 conviction: Moore did not contend that the term "willfully" in § 1001 requires proof of the defendant's knowledge of the law, and he did not challenge the jury instructions on that basis. But in a case where the issue is raised, the Supreme Court's precedents arguably require district courts in § 1001 cases to give a willfulness instruction that requires proof that the defendant knew his conduct was a crime. To be sure, in many false statements cases the Government will be able to easily prove that the defendant knew his conduct was unlawful. But in some cases, it will not be able to do so -- and those of course are precisely the cases where it would seem inappropriate and contrary to § 1001's statutory text to impose criminal punishment.

Notice that Judge Kavanaugh repeats in the footnote the notion that Bryan requires proof that the defendant knew of the specific Code provision he or she intended to violate.  Readers might review again, the discussion of this issue on page 11, above.  Setting that aside, it is clear that Cheek requires the element that the defendant knew the conduct was illegal and intended to do the illegal act.  That is the point to which Judge Kavanaugh focuses his fire.

In response to this genre of criticism, DOJ is reported to have adopted the requirement that “knowingly and willfully” in this statute and related statutes requires both that the defendant knows the statement is false and knows that it is illegal to make a false statement to a Government agent.

Finally, as to the knowingly and willfully element, the CTM says that “several courts” permit the element to be met by proof of “willful blindness” or “conscious avoidance.”