should family member's immigration law offenses be disclosed

[KarmaPolice]

Hello,

my fianceé and I are preparing to apply for a fianceé visa. A family member of hers is an illegal alien in the EU. She had been refused a Schengen (90 day visitor's) visa two years ago, and among the reasons given was this family member's situation (primary reasons were her holding neither job nor property in her home country).

Now in the fiancee visa application there is a questions asking about past rejected visas or entries. Apart from the exact reason wording (("your intention to leave the territory of the Member States before the expiry of the visa could not be ascertained”) not fitting into the text box, should we disclose the status of her family member, and if so where in the application and how? Should we attach and translate the rejection letter?

Your help is appreciated

[Casa]

You're not required to do so.

[KarmaPolice]

thanks. We just don't want to give the impression that we are trying to hide anything.

(edit:)
We are worried that if they find out it might make the ECO biased against us. Is this concern justified? What would the best way to counter it?