A Willful Blindness and Corporate Liability Tax Crime Overview

A Willful Blindness and Corporate Liability Tax Crime Overview

Willful Blindness and Corporate Liability

Defendants in tax crime cases can be very sophisticated, such as when structuring and bank account smurfing is involved. Oftentimes, when it comes to tax crimes, it is very difficult for the US government to prove that there was actual knowledge and intent to commit the crime. This is even more complex in matters involving corporate liability — as was recently seen in the Trump organization case. Trying to prosecute members of a corporation, when it is the corporation itself that is being criminally investigated is very difficult. In order to circumvent this hurdle, the Government can rely on a lower standard of willfulness for certain tax crimes — which is referred to as willful blindness or deliberate ignorance. With willful blindness, the Defendant is deliberately avoiding certain knowledge that may implicate them. The reason behind the deliberate ignorance is so that if the Defendant is pressed in a criminal proceeding, they can take the position that they simply did not have the requisite knowledge or intent. Let’s take a look at the basics of willful blindness, deliberate ignorance, and tax crimes.

Tax Crime Willful Blindness Example

Here is one of the most common examples you will find on the concept of willful blindness in tax crimes:

      • Scott is hanging around downtown Los Angeles with a few of his buddies when he is approached by someone who offers Scott and his group $1,000,000 to drive a car up the coast to San Jose. 

      • Scott and his friends could really use $1,000,000, and while he is of course suspect as to what might be lingering in the trunk — Scott does not ask any questions.

      • Scott and his friends load up on coffee, jump in the ride and cruise up to San Jose.

      • About halfway up the coast, they get pulled over for speeding.

      • The officer is somewhat suspect and Scott agrees to let them check the car. The search uncovers more than 200 lbs of uncut cocaine in the vehicle’s trunk.

Defendant Did Know What Was in the Trunk & Willful Blindness

So, is the fact that Scott and his friends had no knowledge of what was actually in the trunk sufficient to prove that they had no intent to commit a crime — because for all they know it could have been party supplies and confetti in the trunk?

No, of course not.

This type of deliberate ignorance is referred to as willful blindness, and it is not a (good) defense.

Justice Department Criminal Manual Section 8.08[4]

For reference, the Criminal Tax Manual is a great resource to assist people with understanding how a criminal case moves its way from inception through completion.

Subsection 8.08 provides information about willful blindness and is reproduced in part, below:

8.08[4] Conscious Avoidance/Willful Blindness:

      • Most courts have ruled that if there is evidence that the defendant deliberately avoided acquiring knowledge of a fact or the law, the jury may infer that the defendant actually knew of the fact or the law and was merely trying to avoid giving the appearance (and incurring the consequences) of knowledge. See, e.g., United States v. Poole, 640 F.3d 114, 122 (4th Cir. 2011); United States v. Williams, 612 F.3d 500, 506-07 (6th Cir. 2010); United States v. Heredia, 483 F.3d 913, 922-23 (9th Cir. 2007); United States v. Withers, 100 F.3d 1142, 1145 (4th Cir. 1996); United States v. Abbas, 74 F.3d 506, 513 (4th Cir. 1996); United States v. Wisenbaker, 14 F.3d 1022, 1027 (5th Cir. 1994); United States v. Krowen, 809 F.2d 144, 148 (1st Cir. 1987); United States v. Jewell, 532 F.2d 697, 698-99 (9th Cir. 1976) (en banc); see also United States v. Ramsey, 785 F.2d 184, 189 (7th Cir. 1986) (mail and wire fraud); but see United States v. Alston-Graves, 435 F.3d 331, 338 (D.C. Cir. 2006) (no evidence of deliberate ignorance on the part of the defendant, but error in giving instruction harmless; collecting cases addressing willful blindness instructions).

      • In such a case, the use of a conscious avoidance instruction may be appropriate. The Fourth Circuit noted that the government in criminal prosecution elects to establish a defendant’s guilty knowledge by one of two different means. United States v. Poole, 640 F.3d 114, 121 (4th Cir. 2011).
      • The government may show that “the defendant 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.” Id. Under the second method, evidence establishing a defendant’s “willful blindness” constitutes proof of his subjective state of mind, thus satisfying the scienter requirement of knowledge.” Id. citing United States v. Stadtmauer, 620 F.3d 238, 245 (3d Cir. 2010) and United States v. Bussy, supra.
      • Even if the defendant successfully avoided actual knowledge of the fact, “[t]he required knowledge is established if the accused is aware of a high probability of the existence of the fact in question unless he actually believes it does not exist.” United States v. Fingado, 934 F.2d 1163, 1166 (10th Cir. 1991). Accord United States v. Miller 588 F.3d 897, 906 (5th Cir. 2009) (“The evidence demonstrates that [the defendant] was subjectively aware of a high probability of existence of illegal conduct.”). The government is not required to present direct evidence of conscious avoidance to justify a willful blindness instruction. Stadtmauer, 620 F.3d at 259.
      • The rational supporting the principle of willful blindness is that intentional ignorance and actual knowledge are equally culpable under the law. Poole, 640 F.3d at 122; Stadtmauer, at 255; Jewell, 532 F.2d at 700. In Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011), the Supreme Court issued an opinion in a civil patent infringement case that may have broad implications regarding the knowledge requirement in criminal cases. The Court interpreted 35 U.S.C. § 271(b) which provides, “Whoever actively induces infringement of a patent shall be liable as an infringer.” Although observing that the statute was subject to conflicting interpretations, the Court held that induced infringement under Section 271(b) requires knowledge that the induced acts constitute patent infringement.
      • The Court next addressed whether this knowledge could be supported by a finding under the doctrine of willful blindness. The Court noted that: The doctrine of willful blindness is well established in criminal law. Many criminal statutes require proof that a defendant acted knowingly or willfully, and courts applying the doctrine of willful blindness hold that defendants cannot escape the reach of these statutes by deliberately shielding themselves from clear evidence of critical facts that are strongly suggested by the circumstances. The traditional rationale for this doctrine is that defendants who behave in this manner are just as culpable as those who have actual knowledge. Id. at 2068-69.

Deliberate Ignorance & Willful Blindness

In conclusion, it is important for defendants in tax matters to take note that deliberate ignorance is not a defense to actual knowledge. In other words, if a defendant specifically shies away from certain knowledge that would otherwise provide them information that their actions are criminal, then intentionally avoiding knowledge of the incriminating information is not sufficient to defend against the crime.

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