On July 19, 2017, the United States Court of Appeals for the Second Circuit issued a decision that could impact prosecutions of corporate employees that result from multi-jurisdictional investigations, such as those involving allegations of international antitrust cartels and violations of the Foreign Corrupt Practices Act and its foreign ilk. In United States v. Allen, No. 16-898-cr, the Court dismissed the indictment and reversed the wire fraud and conspiracy to commit wire and bank fraud convictions of two employees of a bank located in London for manipulating the LIBOR rate.
The U.K. Financial Conduct Authority ("FCA") had interviewed the defendants and their co-worker Robson, each of whom gave lawfully compelled testimony in exchange for "direct use" but not "derivative use" immunity. However, "[u]nder American constitutional law, if a witness is compelled to testify, the witness must be granted use and derivative use immunity. See Kastigar v. United States, 406 U.S. 441 (1972)." Slip at 6, n.3.
The FCA initiated an enforcement action against Robson, and disclosed to him the evidence against him including the compelled testimony of the defendants. Robson closely reviewed that testimony, annotating it and taking several pages of handwritten notes. The FCA dropped its case against Robson, but the U.S. Department of Justice ("DOJ") took it up. Robson pleaded guilty and cooperated with the DOJ in developing its case against the defendants. He was the sole source of certain information supplied to the grand jury that indicted the defendants, and provided significant testimony to the jury that convicted the defendants.
The Court concluded that:
First, the Fifth Amendment's prohibition on the use of compelled testimony in American criminal proceedings applies even when a foreign sovereign has compelled the testimony.
Second, when the government makes use of a witness who had substantial exposure to a defendant's compelled testimony, it is required under Kastigar v. United States, 406 U.S. 441 (1972), to prove, at a minimum, that the witness's review of the compelled testimony did not shape, alter, or affect the evidence used by the government.
Third, a bare, generalized denial of taint from a witness who has materially altered his or her testimony after being substantially exposed to a defendant's compelled testimony is insufficient as a matter of law to sustain the prosecution's burden of proof.
Fourth, in this prosecution, Defendants' compelled testimony was "used" against them, and this impermissible use before the petit and grand juries was not harmless beyond a reasonable doubt.
Slip at 2-3. The Court rejected the Government’s argument that because the process used by the U.K. to secure the testimony was legal, the testimony was not given involuntarily. Instead, the Second Circuit held that the Self-Incrimination Clause "flatly prohibits the use of compelled testimony and is not based on any matter of misconduct or illegality on the part of the agency applying the compulsion,” “even when the testimony was compelled by a foreign government in full accordance with its own law." (Slip at 38).
Allen potentially creates significant hurdles for U.S. prosecutors participating in cross-border investigations. In fact, the Government argued that this holding would hamper U.S. prosecutions of crimes committed in multiple jurisdictions, either inadvertently (or intentionally by hostile governments). The Court responded that the Government could take steps to mitigate such an effect and noted the Government’s own touting of its increasing cooperation with foreign governments and the extent that prosecuting authorities already are sharing investigatory information, as had occurred in this case.
This decision must be considered in defending any criminal investigation that involves multiple potential prosecuting authorities. It potentially creates an incentive to cut deals with more lenient jurisdictions before dealing with a U.S.-based investigation.