On July 19, 2017, the United States Court of Appeals for the Second Circuit overturned the convictions of Anthony Allen and Anthony Conti, former traders at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (“Rabobank”) who played roles in Rabobank’s London Interbank Offered Rate (“LIBOR”) submission process. United States v. Allen, et al., No. 16-939. The Second Circuit held that each defendant’s Fifth Amendment right against self-incrimination had been violated because the indictments and convictions were obtained in part based on their own testimony, which had been obtained involuntarily (though lawfully) when they were compelled to testify in a separate investigation conducted by the financial regulator in the United Kingdom. Id. at 80. Even though the government did not use Allen’s and Conti’s compelled testimony directly against them, either in the grand jury testimony or at trial, one of the government’s key witnesses had seen their compelled testimony; and the Second Circuit concluded that the government could not demonstrate, under Kastigar v. United States, 406 U.S. 441 (1972), that his testimony was not tainted or that the use of his testimony was harmless. The Second Circuit’s decision in Allen will create numerous and wide-ranging potential pitfalls for U.S. prosecutors, who increasingly find themselves investigating potential crimes across borders and in conjunction with foreign criminal and regulatory authorities, many of whom allow for compulsory witness statements.
In 2013 the United Kingdom’s Financial Conduct Authority (“FCA”) and the United States Department of Justice (“DOJ”) were conducting parallel investigations into the LIBOR manipulation at Rabobank and other institutions. Under U.K. law, the FCA has the power to compel testimony, and witnesses that refuse to comply are subject to imprisonment. Accordingly, as part of its investigation, the FCA obtained compelled sworn testimony from Allen, Conti, and several of their former co-workers, including another Rabobank trader named Paul Robson. During his compelled testimony, Robson denied any wrongdoing at Rabobank. Later, the FCA initiated an enforcement action against Robson and provided to him transcripts of the compelled testimony of Allen and Conti. At the direction of his lawyer, Robson spent a few days reviewing and annotating the statements from Allen and Conti. Soon thereafter, the FCA decided to stay its regulatory proceeding against Robson in favor of a criminal action by the DOJ. In April 2014, a grand jury in the United States returned an indictment against Robson, in July 2014 Robson provided a proffer to the DOJ, and in August 2014 he signed a cooperation agreement with the DOJ and pleaded guilty. In October 2014, additional indictments were returned by the grand jury, this time against Allen (19 counts) and Conti (9 counts). While Robson did not testify before the grand jury that indicted Allen and Conti, he provided information that led to other evidence that was presented to the grand jury, and he was the exclusive source of certain key testimony from an FBI agent. A year later, in October 2015, Robson testified against Allen and Conti at trial, and, in November 2015, a jury delivered a guilty verdict against both defendants on all counts.
After the trial had completed, the District Court acted on the defendants’ previously made motions to dismiss the indictments on the grounds that they were the product of compelled testimony, in accordance with the United States Supreme Court decision in Kastigar v. United States, 406 U.S. 441 (1972). After a two-day hearing, the District Court denied the defendants’ motion, finding that Robson’s review of Allen and Conti’s compelled testimony did not taint the evidence he later provided to the grand jury or at trial, reasoning that the government had shown an independent source for this evidence; namely, Robson’s “personal experience and observations.” The defendants appealed, and the Second Circuit reversed the convictions and dismissed the indictment.
First and foremost, the Second Circuit made clear that the Fifth Amendment right against self-incrimination is a personal trial right and, accordingly, it does not matter where the testimony at issue was compelled, even where compelled lawfully by a foreign government. The court discussed the personal nature of the Fifth Amendment right (one that applies during trials in U.S. criminal cases) and contrasted it with the prophylactic purposes underlying the Fourth Amendment exclusionary rule and Miranda warnings, where the Supreme Court has determined that conduct by foreign governments would not result in violations.
After finding that the Fifth Amendment right against self-incrimination applied to statements compelled lawfully by foreign governments, the Second Circuit analyzed the parties’ arguments under Kastigar, which had upheld the constitutionality of compelling testimony only if direct and derivative immunity is provided to the witness. Kastigar took a broad view of derivative immunity, finding that it prevented the use of evidence derived directly or indirectly from the compelled testimony, thus prohibiting prosecutors from using compelled testimony or the product of such testimony at trial in any respect. 406 U.S. at 453. To maintain this protection, Kastigar instructed that the government bears “the heavy burden of proving that all of the evidence it proposes to use was derived from legitimate independent sources,” and this burden is “not limited to a negation of taint; rather it imposes on the prosecution the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony.” Id. at 460-62.
The Second Circuit noted that the most effective way for the government to meet its heavy burden under Kastigar when dealing with a witness who is later exposed to compelled testimony is to have memorialized the witness’s testimony prior to that witness’s exposure to compelled testimony to show a lack of impact from the compelled testimony. Here, the record showed precisely the opposite. While Robson did testify to the FCA prior to his exposure to Allen’s and Conti’s compelled testimony, that early testimony was meaningfully different from Robson’s subsequent testimony. And although Robson denied that reviewing the defendants’ testimonies affected his own, the Second Circuit found his denial to be “bare” and “self-serving,” and an insufficient basis for the government to meet its burden.
Finally, the Second Circuit had “no trouble concluding that this error was not harmless beyond a reasonable doubt” at trial, due to the material and compelling nature of the evidence that Robson, alone, provided. Using similar reasoning, the Second Circuit was unable to conclude beyond a reasonable doubt that the grand jury would have indicted Allen and Conti without the “essential” evidence supplied by Robson, and thus dismissed the indictments.
The Second Circuit’s opinion provides a thoughtful and comprehensive review of the Kastigar doctrine, and offers a cautionary tale for the government in conducting future cross-border investigations. The Court went out of its way to note that the government had sought to act in good faith in minimizing the taint from the testimony that had been compelled from Allen and Conti; but the government could not unring the bell. Once the FCA had compelled testimony from Allen and Conti and then showed that testimony to Robson, the government could not prove that Robson’s testimony was derived from sources wholly independent of the compelled testimony. As the government continues to coordinate with more and more jurisdictions that permit compelled testimony, it will need to carefully consider how to ensure that any cases it decides to bring remain wholly independent of such testimony.
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