Regulatory: Avoiding willful blindness allegations

Not knowing is not always a defense in white-collar criminal investigations

During the Watergate hearings, Senator Howard H. Baker Jr. famously asked, "What did the President know, and when did he know it?" In white-collar criminal investigations, prosecutors are increasingly asking corporate executives not only what they knew and when, but also whether they purposely acted to avoid knowledge of possible wrongdoing.

Such “willful blindness” (sometimes referred to as “deliberate indifference” or “contrived ignorance”) is a term used in situations where an individual deliberately avoids knowledge of facts that would expose him to civil or criminal liability. The question in a willful blindness case is not “What did you know?” but “What could you have known?” Intent and knowledge are often the critical element that the government must prove in a white-collar criminal case, and under well-established case authority, willful blindness is deemed the equivalent of actual knowledge.

A classic example of willful blindness involved a banker charged with laundering drug money who asserted she never knew the money she was processing had been procured illegally, despite obvious indications to the contrary, such as large sums of cash delivered to her in garbage bags. Although the facts in white-collar cases may be more subtle, the willful blindness argument can be equally potent. Targets in these investigations are often highly-educated, intelligent, experienced professionals, and a prosecutor, and later a jury, may conclude that such an accomplished defendant should have known better and could have investigated her suspicions more thoroughly. A willful blindness theory provides a path of less resistance to conviction in cases where a prosecutor may have only weak evidence or no evidence at all of actual knowledge on the part of a white-collar defendant.

The very broad reach of the willful blindness doctrine is illustrated in conspiracy cases, where knowledge of the illegal purpose of the conspiracy is a critical element of the offense. In conspiracy cases, the government may prove a defendant’s knowledge by establishing—through direct or circumstantial evidence—that he either had actual knowledge of the conspiracy’s illegal goal or was “aware of a high probability” of that goal.

Intuitively, one might think it logically impossible for a defendant to intend to join a conspiracy she does not know exists, particularly because the hallmark of a conspiracy is a “meeting of the minds.” Unfortunately, courts have concluded that prosecutors can show a defendant knowingly entered into a conspiracy where she was merely willfully blind to the conspiracy’s existence and purpose. Further, actual knowledge and willful blindness are not mutually exclusive; if the prosecutor presents sufficient evidence to support both, a jury can be charged on alternative theories of actual knowledge and willful blindness, giving the prosecutor two bites of the apple.

In willful blindness cases, white-collar prosecutors often point to “red flags” which they claim should have alerted the defendant to criminal activity. A failure to ask the right questions in the face of these clues can indicate deliberate avoidance of knowledge to a prosecutor, court or jury. The problem is that, in actual corporate life, the so-called “red flags” indicating wrongdoing are far more subtle than a bag of cash, and an investigating prosecutor has the additional benefit of reviewing all such “red flags” cumulatively with 20/20 hindsight.

Regardless of the nature of the “red flag” itself, evidence that a defendant investigated suspicious activity is powerful evidence that he did not close his eyes to knowledge of the illegal actions of others. Thus, it is very important to remind corporate personnel that, when faced with possible “red flags,” they should act to protect the interests of their company and themselves by asking probing questions at the time the suspicious activity is brought to their attention. It is also very important that they carefully document their actions and, if the responses they receive continue to raise questions, that they contact corporate counsel without delay. Where appropriate, counsel may wish to take measures to verify any unsatisfactory responses or dig deeper by collecting and analyzing documents and conducting further interviews. An internal investigation may be in order.

In any case, a complete and accurate written record of the questions asked, the responses received and steps taken to tie up any loose ends will go a long way to avoiding the charge that a company and/or individuals could have or should have done more to investigate “red flags” or allegations of wrongdoing. Any due diligence performed in the course of business will help a prosecutor—and a jury—understand that a company took steps to discover the truth, whatever that truth may turn out to be.

Contributing Author

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Tracy E. Schloss

Tracy E. Schloss is an associate in Drinker Biddle & Reath's Commercial Litigation Practice Group, where her practice focuses primarily on white collar...

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Contributing Author

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Ronald A. Sarachan

Ronald A. Sarachan is a partner in Drinker Biddle & Reath's Commercial Litigation Practice Group and co-chair of the White Collar/Internal Investigations Team. He focuses...

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