Willful Blindness / Conscious Avoidance and Crimes Requiring Intent to Violate a Known Legal Duty (7/21/14)

Readers are aware of the willful blindness concept.  (Willful blindness goes by various labels, such as willful ignorance, conscious avoidance, etc.)  For most tax crimes and the FBAR crimes, willfulness -- defined as specific intent to violate a known legal duty -- is required.  Ignorance is an excuse.  In the context of tax crimes requiring willfulness, the willful blindness construct says that, if a trier of fact is otherwise unable to find the requisite specific intent for willfulness, the trier may consider the fact that the defendant deliberately acted in a way to be – or appear to be – ignorant of the facts or the law applicable to the facts and treat that real or feigned ignorance as either (i) the equivalent of the specific intent required or (ii) an inference of the specific intent which, with the other evidence, will permit the trier to find the required specific intent beyond a reasonable doubt.  (As I note below, I think the second of these is the only legally permissible application of the concept; willful blindness is not the equivalent of specific intent.)  In either event, if permitted, it can lead to a conviction of a crime requiring specific intent where the evidence might otherwise be insufficient for the trier to find the requisite specific intent.  In the FBAR civil penalty context, the willful blindness concept can permit the application of the FBAR willful civil penalty.

I have discussed before how uncertain the application of the willful blindness concept is.  The uncertainty has presented itself again in the certification for Streamlined relief -- offshore with a 0% penalty and domestic with a 5% penalty.  In each case, the U.S. person must certify that he or she was not willful in failing to report income or failing to file FBARs.   The certification is:

My failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. I understand that non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

I will demonstrate in the remainder of this blog that this definition of nonwillfulness is incomplete unless it is meant to state a special definition of nonwillfulness for the program (which I doubt).

Let's start with a discussion of the conceptual problem with the concept.  If the concept means that, as to a crime or penalty requiring specific intent, anything less than specific intent can be willful, then it expands the scope of the criminal statute or civil penalty by judicial interpretation.  For this reason, if willful blindness is to be in the landscape for tax crimes or FBAR crimes and penalties, the better interpretation for its application is the second alternative noted above – it merely permits an inference of specific intent which, with the other evidence, will permit the trier to find the required specific intent to the required level -- beyond a reasonable doubt in criminal cases and either preponderance or clear and convincing in a civil case.  E.g., United States v. Stadtmauer, 629 F.3d 238 (3d Cir. 2010) (approving jury instruction that "A finding beyond a reasonable doubt of a conscious purpose by the defendant to avoid knowledge that the tax returns at issue were false or fraudulent as to a material matter would permit an inference that he had such knowledge.") In other words, a finding of willful blindness is not a substitute for statutorily required specific intent.  As the DOJ CTM 8.08[4], here, warns prosecutors regarding conscious avoidance (same as willful blindness)

Although Global-Tech Appliances [Global Tech Appliances, Inc. v. SEB, ___ U.S. ___, 131 S. Ct. 2060 (2011), here] has seemingly approved the use of the conscious avoidance [willful blindness] instructions, it is important to note that circuit courts have approved their use only under proper circumstances. Indeed, at least one court has said that the use of such an instruction is “rarely appropriate.” 

Accordingly, prosecutors should take care to ensure that a conscious avoidance instruction is given only when the facts warrant its use and that the court complies with the relevant rules of the circuit when giving such an instruction. A conscious avoidance instruction is appropriate only when the defendant purposely contrives to avoid learning all the facts, as when a drug courier avoids looking in a secret compartment he sees in the trunk of a car, because the courier knows full well that he is likely to find drugs there. 

Furthermore, in a tax case, the language of any conscious avoidance instruction must not conflict with the government’s obligation to prove the voluntary, intentional violation of a known legal duty. See § 8.08. Care must be taken to ensure that the conscious avoidance instruction applies only to the element of "knowledge," and does not extend to the government's obligation to prove a "voluntary, intentional violation." When a deliberate ignorance or conscious avoidance instruction is given, the jury should also be given a separate Good Faith instruction, which expressly directs the jury not to convict for negligence or mistake.

As indicated, the willful blindness concept is conveyed to the jury – the trier of fact in most criminal trials – by a willful blindness instruction.  Here is the form of willful blindness instruction – using the term deliberate ignorance – that DOJ Tax offers its prosecutors (although readers should be aware that a number of Circuits provide pattern jury instructions, including variations of a willful blindness instruction):

GOVERNMENT PROPOSED JURY INST. NO. 26.7201-19

Knowledge of Falsehood

(Deliberate Ignorance)

The government may prove that Defendant __________ acted “knowingly” by proving, beyond a reasonable doubt, that this defendant deliberately closed [his] [her] eyes to what would otherwise have been obvious to [him] [her]. No one can avoid responsibility for a crime by deliberately ignoring what is obvious. In order to infer knowledge, you must find that two things have been established:
First, that the defendant was aware of a high probability of [the fact in question].
Second, that the defendant consciously and deliberately took actions to avoid learning about the existence of that fact.
It is entirely up to you as to whether you find any deliberate ignorance or deliberate closing of the eyes and any inferences to be drawn from any such evidence.You may not conclude that the defendant had knowledge, however, from proof of a mistake, negligence, or carelessness. You may not conclude that defendant had knowledge if the defendant did not actually believe in the existence of that fact. There must be an awareness of a high probability of the existence of the fact and a deliberate effort to remain ignorant of the fact.

The foregoing is from the current version of the CTM, here. Note that there is no mention here of gross negligence.  However, tellingly, the earlier version of the CTM (the 2008 CTM version, with this instruction no longer on the web) provided.

Knowledge of Falsehood

(Deliberate Ignorance) 

The element of knowledge may be satisfied by inferences drawn from proof that a defendant deliberately closed his eyes to what would otherwise have been obvious to him.
A finding beyond a reasonable doubt of a conscious purpose to avoid enlightenment would permit an inference of knowledge. Stated another way, a defendant's knowledge of a fact may be inferred from willful blindness to the existence of the fact.
It is entirely up to you as to whether you find any deliberate closing of the eyes and the inferences to be drawn from any such evidence. Although knowledge may be inferred from the defendant's behavior, you must still find that he had actual knowledge. However, a showing of mistake, negligence, carelessness, recklessness, or even gross negligence is not sufficient to support a finding of either willfulness or knowledge.

Now, focus on DOJ Tax's definition of willfulness which I have bold-faced.  It seems to track the one in the nonwillful certification -- EXCEPT that the nonwillful certification does not alert taxpayers that gross negligence is not willfulness.  Willful ignorance still requires conduct that is willful or deliberate -- the conduct being the ignorance, and willful and deliberate is not the same as gross negligence.  (If I were the suspicious type, I would believe that DOJ Tax changed the instruction to obscure that which was plain in the prior instruction.)  I think that is a correct interpretation of the law.

Helpful in this regard is the following from the Supreme Court's Global Tech decision:

   While the Courts of Appeals articulate the doctrine of willful blindness in slightly different ways, all appear to agree on two basic requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact. We think these requirements give willful blindness an appropriately limited scope that surpasses recklessness and negligence. Under this formulation, a willfully blind defendant is one who takes deliberate actions to avoid confirming a high probability of wrongdoing and who can almost be said to have actually known the critical facts. See G. Williams, Criminal Law § 57, p. 159 (2d ed. 1961) (“A court can properly find wilful blindness only where it can almost be said that the defendant actually knew”). By contrast, a reckless defendant is one who merely knows of a substantial and unjustified risk of such wrongdoing, see ALI, Model Penal Code § 2.02(2)(c) (1985), and a negligent defendant is one who should have known of a similar risk but, in fact, did not, see § 2.02(2)(d).

Certainly, recklessness is a concept similar to gross negligence and is not willful blindness which requires, not reckless, not negligent, even grossly negligent, but deliberate conduct at least to avoid -- or appear to avoid -- knowledge.

And, unless the IRS intended a special, more restrictive application of the term willfulness for the certification, it should not have omitted gross negligence.  Which would mean that gross negligence and related concepts such as recklessness is not willfulness.  With this background, readers can understand how limited the concept is and should be.  As noted by DOJ, Circuits approving the use of the concept are very careful to restrict its use.  See United States v. Threadgill, 172 F.3d 357, 368 (5th Cir. 1999), cert. denied, 528 U.S. 871 (1999); see also United States v. Kaplan, 490 F.3d 110, 127-128 (2d Cir. 2007) (giving the Second Circuit’s iteration of the predicates for the instruction); and United States v. Anthony, 545 F.3d 60, 64-66 (1st Cir. 2008) (giving the First Circuit’s iteration of the predicates for the instruction).  And, to evidence the seriousness of restricting the use, the Second Circuit has not only reiterated its holding, but held that “a conscious avoidance charge must communicate two points: (1) that a jury may infer knowledge of the existence of a particular fact if the defendant is aware of a high probability of its existence, (2) unless the defendant actually believes that it does not exist.”  To reinforce its insistence on these charges, the Second Circuit recently said (United States v. Kaiser, 609 F.3d 556, 566 (2d Cir. 2010)):

Indeed, we have repeatedly emphasized that the prosecutor should request that the “high probability” and “actual belief” language be incorporated into every conscious avoidance charge. We ordered that the opinion [so holding] be circulated to all Assistant United States Attorneys engaged in criminal prosecutions in the Circuit.

For similar cautions on the use of the conscious avoidance standard, see  see United States v. Skilling, 554 F.3d 529, 548-49 (5th Cir. 2009), vacated on other grounds, ___ U.S. ___, 130 S. Ct. 2896 (2010).

So, if a taxpayer reasonable believes that his conduct is gross negligence (or recklessness) -- but not willful blindness -- at worst, can he certify nonwillfulness?  I would think so -- at least until the IRS says that it adopts a special definition of nonwillfulness.  Now, you may ask, what is the difference between gross negligence (or recklessness) and willful blindness that proves specific intent?  I don't know that there is a litmus test, but clearly gross negligence (and recklessness) is not the same as specific intent or willful ignorance.  Stated another way, as noted above, willful blindness is not a proxy for specific intent; it just may be considered with all the evidence in finding specific intent.  Therefore, conduct showing only gross negligence (or recklessness) but not specific intent nor deliberate avoidance of specific intent will not establish willfulness or permit willfulness to be inferred.  There has to be some specific intent, even if it is just the specific intent to avoid the specific intent.

Based on the foregoing, if I had a client faced with a court willing to give a willful blindness instruction, I would ask that the instruction include something like the following (expanding on the instruction above):

You may not conclude that the defendant had knowledge, however, from proof of a mistake, carelessness, negligence, gross negligence or recklessness.