It is, perhaps, not helpful to make detailed reference to legislation or case law in a column that sets out to provide a primer on money laundering related topics. And so, on this occasion, we have avoided the complexities of law in favour of a more general approach.

Wilful Blindness is, in fact, one of the common features of anti-money laundering schemes in most common law and many codified legal systems. It forms a plank of any money laundering prevention system that depends on the making of reports where there is any element of discretion.

Those systems having an element of discretion are those where a person must make a report based on suspicion as distinct from the existence of any particular fact. The effect of making a reporting system based on suspicion creates a “grey area” where a person has to make a decision whether to be suspicious. And the fact that some people will be suspicious of something where someone else will not opens the way for the argument “I thought about it, and decided that there was no cause for suspicion.”
Wilful Blindness, as a concept, is designed to take account of the person chooses not to ask relevant questions and therefore claims not to be suspicious.

The concept of Wilful Blindness is more than 100 years old and began in cases in English Law. It has been adopted in the British Privy Council (the highest Court of Appeal for the Commonwealth) and therefore is binding across the Commonwealth. Jurisdictions which have adopted Privy Council decisions, and then left the Commonwealth have had subsequent local decisions that bring the principal into local case law. In some countries, for example, Australia, the principle is enshrined in Statute. The principles have been followed in a number of American states and so, even if the principal does not work in Federal Law (and WMLR is of the opinion that it does) it undeniably works in those states where there is, for example, District Court authority.

At its simplest, the concept of Wilful Blindness says that no person may claim not to have known or suspected a fact merely because that person made a deliberate attempt to avoid asking questions which, if answers had been obtained, would have given reason to know or suspect that fact.

So, where there is a requirement to report all transactions exceeding a certain financial value, there is no discretion. In these circumstances, the principle of Wilful Blindness has no application. There are no questions to ask, therefore there can be no questions not asked. This is subject to only one caveat: such systems do often require that transactions be aggregated in order to decide on the value. If there is a duty to question transactions to decide if there are reasons to aggregate, then there is a possibility of that question not being asked.

The importance of this to financial services organisations is that any reporting system with discretion carries a risk of prosecution where the law requires the making of suspicious reports. If a report is not made, and a Court finds that there were suspicious circumstances and that a report should have been made, the penalties can be severe. For the individual, similarly, penalties can be severe. In the UK, for example, failure to make a report of suspicion of laundering the proceeds of drugs trafficking or terrorism can be as much as five years’ imprisonment.

There arises the question as to why a person would, in the face of the possibility of criminal prosecution and internal disciplinary proceedings, be wilfully blind. Of course, there is the simplest of reasons – some people simply cannot be bothered to fill in the forms. Apathy is a major obstacle to suspicion based reporting systems because many staff will say “if I fill in this form, it will create more work.”

Of course, some people will be afraid of the consequences if it becomes known that they made a particular report. That might be consequences from the criminals or even from colleagues who might not have made a report in similar circumstances and who are now regarded with suspicion as to their own judgement.

The final reason people might not make a report when they should do so is because of some sort of relationship with the person about whom a report should be made. The relationship may be of a wide range of types: bribery, blackmail or bed. Money launderers like to have some sort of hold over people in organisations that can assist them. They will pay for assistance, make threats of all manner of physical or other harm or befriend or seduce someone who is in a position to turn a blind eye.

And that phrase “turns a blind eye” encapsulates the entire Wilful Blindness issue. If a person willingly turns a blind eye and as a result does not make a report that should be made, that person, and the organisation for which he works, risks severe sanctions under the criminal law and, in many jurisdictions, from Regulators, too.