In a decision that may have important ramifications in many criminal anti-corruption and export controls/sanctions cases, the Seventh Circuit held that the District Court improperly instructed the jury on willful blindness when there was no evidence that the defendant had taken any steps to actually avoid knowledge of the specific criminal activity. The Court specifically rejected the government’s argument that it was entitled to the instruction because the defendant engaged in "psychological avoidance." Instead, the Court concluded that there simply was no evidence that the defendant here acted unnaturally in failing to make further inquiry. Thus, the government was not entitled to a "willful blindness" instruction. See United States v. Macias, No. 13-2166 (7th Cir. May 26, 2015).
The government charged Macias with participating in a massive drug conspiracy for his role in transporting proceeds of the conspiracy from the U.S. back to Mexico. Macias had earlier been convicted of participating in a conspiracy to smuggle humans across the border. After he moved back to Mexico, he set up a legitimate bus business transporting people from Mexico to the U.S. A cartel member (unclear whether Macias knew this) approached him and asked him to move money from the U.S. to Mexico. He assumed (and was told) that the money was proceeds from human smuggling.
The government put in expert evidence from a federal agent that the sums of money that Macias handled far exceeded what a human smuggling ring would generate. Based on that evidence the government requested, and received, the willful blindness instruction. That instruction followed the Seventh Circuit Pattern Jury Instruction:
You may find that the defendant acted knowingly if you find beyond a reasonable doubt that he had a strong suspicion that the money transported in this case was the proceeds of narcotics trafficking and that he deliberately avoided the truth. You may not find that the defendant acted knowingly if he was merely mistaken or careless in not discovering the truth, or if he failed to make an effort to discover the truth.
The Court noted the tension between the two italicized phrases. The government said that the first phrase permitted conviction here. The Court analyzed that phrase and held that there was no evidence that Macias took "some active measure to avoid confirming" a suspicion. As to "psychological avoidance" (or "being ‘in denial’" or "refusing to face the facts"), the Court again found no evidence that Macias took active steps to avoid having his suspicions confirmed. In the end, the Court held that a willful blindness instruction "should not be given unless there is evidence that the defendant engaged in behavior that could reasonably be interpreted as having been intended to shield him from confirmation of his suspicion that he was involved in criminal activity." The Court gave as examples two hypotheticals: one where the defendant, when offered to be told the source of the funds, said he did not want to know, and the other where the defendant changed his commuting route to avoid going by a house where he feared he would see the criminal activity taking place.
Given that many prosecutions in anti-corruption and export controls/sanctions cases involve government allegations that an individual or company ignored "red flags" and therefore was "willfully blind," this holding could potentially have far-ranging impact. It sets a new, higher standard for the amount and kind of evidence that the government must submit before being entitled to a willful blindness instructions. The "red flag" establishes only the high probability of a fact, the knowledge of which would lead to criminal liability. Beyond that, "active avoidance" of that fact must be shown, either by declining proffered information or by changing procedures that might have revealed the fact. Under this opinion, failure to conduct more due diligence, or simple sloth by the defendant in investigating the situation, should not be enough to support a criminal conviction.
At least in the criminal arena, the government should be wary of prosecuting an individual or company based on its view of the quality of the due diligence conducted in certain situations. Unless the government has proof of an individual taking active steps to avoid learning the truth, it may fail to get a willful blindness instruction.
Notwithstanding this opinion, companies should ensure that they implement appropriate compliance programs to avoid any anti-corruption or export controls/sanctions issues. Appropriate due diligence is a key component of those programs. Notwithstanding the decision in Macias, companies should not ignore red flags because regulatory agencies, particularly those that regulate exports, can be expected to impose higher penalties in such cases.