The Second Circuit yesterday became the first court of appeals to address a criminal appeal regarding the government’s investigation into the manipulation of the London Interbank Offered Rate (“LIBOR”). Its decision in United States v. Allen reversed the convictions of two former Rabobank employees accused of using their roles in the bank’s LIBOR submission process to rig the global interest benchmark, and not only reversed the convictions but dismissed the operative grand jury indictment. The court concluded that the government had improperly used the defendants’ compelled testimony against them, holding that the Fifth Amendment’s prohibition on the use of compelled testimony applies even when the testimony was compelled by a foreign sovereign. The decision may well have a significant impact on the increasing number of extra-territorial investigations conducted by the United States Department of Justice (“DOJ”), in which it partners with foreign agencies to investigate and prosecute cross-border activity.
The pair – Anthony Allen and Anthony Conti – were initially investigated by the United Kingdom’s Financial Conduct Authority (“FCA”). During the investigation Allen, Conti, and other Rabobank employees were interviewed by the FCA; Allen’s and Conti’s interviews were compelled by threat of imprisonment, though they were granted direct use immunity. The FCA later brought an enforcement action against one of their co-workers, Paul Robson, disclosing relevant evidence against him, including Allen’s and Conti’s compelled testimony. During this exchange, Robson “reviewed the materials over the course of two or three successive or nearly successive days,” admitting to having underlined, annotated, and circled certain passages of both Allen’s and Conti’s testimony. But, in short order, the FCA then dropped the case and the DOJ stepped in.
A grand jury returned indictments against Allen and Conti in 2014, charging both with one count of conspiracy to commit wire fraud and bank fraud, and several counts of wire fraud. Robson was the “sole source of certain material information” for the indictment, including the source of testimony provided by FBI agent to the grand jury that Allen and Conti had participated in rigging LIBOR.
Before trial, the defendants moved under Kastigar v. United States, 406 U.S. 441 (1972), to dismiss the indictment or suppress Robson’s testimony. The Supreme Court’s decision in Kastigar held that the government may compel testimony from witnesses, in spite of their invoking the Fifth Amendment privilege against self-incrimination, where it confers immunity from use of that testimony and evidence derived therefrom in a subsequent criminal case. The upshot is that the government must show in cases where such testimony is at issue that its proof rests on evidence other than the compelled statements and the fruits thereof. The district court in this case resolved that it would instead address any Kastigar concerns – i.e., issues regarding the use of compelled testimony under Fifth Amendment’s Self-Incrimination Clause – at trial.
The pair were convicted. After a post-trial Kastigar hearing, the district court held that Robson’s reading, marking up, and annotating the compelled testimony, and the fact that material parts of the FBI agent’s grand jury hearsay testimony had been derived solely from Robson, were not enough to taint the evidence Robson provided because the government had shown an independent source for such evidence, “to wit, [Robson’s] personal experience.”
The Second Circuit disagreed. It held first that the Fifth Amendment’s prohibition on government use of compelled testimony in American criminal proceedings applies, even when a foreign sovereign is the actor that compelled the testimony, noting that Amendment protects against the use and derivative use of compelled testimony against an accused in such a proceeding.
Second, it held that when the government attempts to use a witness like Robson, who has been “substantially exposed” to a defendant’s compelled testimony, it is the government’s burden under Kastigar to show, “at a minimum, that the witness’s review of the compelled testimony did not shape, alter, or affect the evidence used by the government. “
It third held that a witness’s bare, generalized incantations that reviewing those materials did not taint his or her testimony (as was the case here via leading questions of Robson at the Kastigar hearing, which produced “nothing more than bare, self-serving denials from Robson”) are insufficient to meet this burden of proof.
And it lastly it had “no trouble concluding” that introducing testimony provided by Robson – a “key cooperator and prominent witness” before the trial and grand jury (via a hearsay presentation) – was not harmless error beyond a reasonable doubt. Robson’s had been the only testimony refuting Allen’s and Conti’s “central argument” that they had not actually engaged in rigging the LIBOR benchmark. This finding – as to testimony both at trial and before the grand jury – resulted in the dismissal of the indictments against Allen and Conti.
The Court rejected the government’s counterarguments, including that prohibiting the use in United States Courts of testimony compelled by a foreign authority “could seriously hamper the prosecution of criminal conduct that crosses international borders,” by among other things, inadvertently or negligently obstructing federal prosecutions.” The court noted that this risk “already exists within our own constitutional structure,” and that the “practical outcome of our holding today is that the risk of error in coordination falls on the U.S. Government (should it seek to prosecute foreign individuals), rather than on the subjects and targets of cross-border investigations.”