BREAKING NEWS: Second Circuit Overturns Rabobank LIBOR Convictions

July 19, 2017

In the 2000s, Anthony Allen and Anthony Conti, United Kingdom citizens, were employees in the London office of Cooperatieve Centrale Raiffeisen‐Boerenleenbank B.A. ("Rabobank") where they were involved with the bank's London Interbank Offered Rate ("LIBOR") submission process. In 2013, a number of United Kingdom and United States of America investigations were underway concerning alleged improprieties in the LIBOR market, most notably allegations of rigging the benchmark. 

The UK's Financial Conduct Authority ("FCA") interviewed both Allen and Conti as part of a wider investigation. In accordance with UK law, Allen and Conti were "compelled" to testify. In consideration of such testimony, the two witnesses were given "direct use" immunity, which still permits the government to make derivative use of any statements against the witness -- essentially allowing the harvesting of information derived from any statements but not the direct statement itself. Notably, under UK law Allen's or Conti's refusal to testify before the FCA could have resulted in their imprisonment. 

As is often the case with such high-profile investigations, the FCA brought an enforcement action against Paul Robson, a co-worker of Allen's and Conti's; and the case was built, in part, upon the compelled testimony of the two witnesses. In accordance with UK procedural law, the testimonies were disclosed to Robson, who made note of what was said (not surprisingly). After exposing Allen and Conti's tesimonties to Robson, the FCA then declined to pursue its case against Robson -- and we can only imagine the thoughts of getting-even that were flowing around in his brain!

Exit FCA. Enter the United States Department of Justice, which filed charges against Robson, who pleaded guilty but . . . and that "but" made all the difference. Robson became a cooperator who gave apparently invaluable assistance to DOJ in developing its case. Not surprisingly, the only source of information pertaining to certain aspects of Allen's and Conti's involvement in the DOJ criminal case came from Robson. Not that anyone would blame him. Revenge is, after all, a dish best served cold. In fact, Robson was called by DOJ as a witness during its trial against Allen and Conti. 

Now,let's look back upon the track on which this DOJ prosecution train ran. The FCA, a United Kingdom, regulator, forced Allen and Conti to give testimony about their Rabobank affairs. The only fillip that was given by FCA was that it granted a somewhat limited "direct" immunity to the witnesses for their testimony. The FCA then provides the details of the compelled testimonies to Robson, who is charged but not pursued and then charged by DOJ and then flipped into a cooperator against Allen and Conti. After a jury trial in the Southern District of New York, Allen was sentenced to two years imprisonment and Conti to one year and one day imprisonment. Not surprisingly, Allen and Conti appealed to the United States Court of Appeal for the Second Circuit ("2Cir").

Second Circuit Appeal

United States of America, Appellee, v. Anthony Allen and Anthony, Conti, Defendants/Appellants (Opinion, United States Court of Appeals for the Second Circuit, 16-898-CR and 16-939-CR / July 19, 2017). Opinion by Judge Cabranes with Pooler,J. and Lynch, J.

As set forth in the Syllabus to the 2Cir Opinion:

This case -- the first criminal appeal related to the London Interbank Offered Rate ("LIBOR") to reach this (or any) Court of Appeals -- presents the question, among others, whether testimony given by an individual involuntarily under the legal compulsion of a foreign power may be used against that individual in a criminal case in an American court. As employees in the London office of Cooperatieve Centrale Raiffeisen‐Boerenleenbank B.A. in the 2000s, defendants‐appellants Anthony Allen and Anthony Conti ("Defendants") played roles in that bank's LIBOR submission process during the now‐well‐documented heyday of the rate's manipulation. Defendants, each a resident and citizen of the United Kingdom, and both of whom had earlier given compelled testimony in that country, were tried and convicted in the United States before the United States District Court for the Southern District of New York (Jed S. Rakoff, Judge) for wire fraud and conspiracy to commit wire fraud and bank fraud.   

While this appeal raises a number of substantial issues, we address only the Fifth Amendment issue, and conclude as follows.   

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.   

Accordingly, we REVERSE the judgments of conviction and hereby DISMISS the indictment.  

The Kastigar Problem

How does DOJ use the testimony of Robson, who has seen the "compelled" testimony of Allen and Conti? In the United States, the Fifth Amendment would not permit the incrimination of any witnesses who declined to testify based upon a fear of incrimination. Allen and Conti were forced by the FCA, under threat of imprisonment, to testify. As set forth in the 2Cir Opinion:

[D]efendants contend that the Government violated their Fifth Amendment rights when it used-in the form of tainted evidence from Robson-their own compelled testimony against them. Specifically, they argue that the District Court applied the wrong legal standard in assessing whether the evidence provided by Robson was tainted by his review of their compelled testimony. They also assert that, properly assessed, the Government cannot meet its burden of showing that Robson's evidence was not tainted, and that the prosecution's use of tainted evidence from Robson was not harmless beyond a reasonable doubt.

Page 32 of the 2Cir Opinion

In explaining the principles set forh in Kastigar, 2Cir offers this narrative (Ed. Footnotes omitted0:

In its holding, the Kastigar Court emphasized the breadth of use and derivative use protection. Such protection bars "use of compelled testimony, as well as evidence derived directly and indirectly therefrom." And it "prohibits the prosecutorial authorities from using the compelled testimony in any respect, . . . therefore insur[ing] that the testimony cannot lead to the infliction of criminal penalties on the witness." As the Kastigar Court observed, "[t]his total prohibition on use provides a comprehensive safeguard, barring the use of compelled testimony as an investigatory lead, and also barring the use of any evidence obtained by focusing investigation on a witness as a result of his compelled disclosures." Because this "very substantial protection[] [is] commensurate with that resulting from invoking the privilege itself," it "leaves the witness and the prosecutorial authorities in substantially the same position as if the witness had claimed the Fifth Amendment privilege."   

Kastigar also established a doctrine to enforce this protection. When a witness has been compelled to testify relating to matters for which he is later prosecuted, the government bears "the heavy burden of proving that all of the evidence it proposes to use wasa derived from legitimate independent sources." 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."

Pages 57 - 58 of the 2Cir Opinion 

Clearly, DOJ was aware of its Kastigar issue and took steps to ensure compliance with the doctine [Ed. Footnotes omitted]:

The FCA's interviews were compulsory; they were conducted under a grant of direct (but not derivative) use immunity, and a witness's failure to testify under such terms could result in imprisonment. In order to avoid potential problems under Kastigar, the DOJ took care to conduct their interviews wholly independently of the FCA's interviews and their fruits. Specifically, the FCA agreed to procedures to maintain a "wall" between its investigation and the DOJ's investigation, including a "day one/day two" interview procedure in which the DOJ interviewed witnesses prior to the FCA. In accordance with that protocol, the FCA interviewed Robson (on January 17, 2013), Conti (on January 25, 2013), and Allen (on June 20 and 21, 2013), among others. Robson, in his compelled testimony to the FCA, denied any improper conduct at Rabobank.  

In November 2013, the FCA initiated an enforcement action against Robson and, following its normal procedure, disclosed to Robson the relevant evidence against him, including the compelled testimony of Allen and Conti. Robson's attorney instructed him to review the materials sent by the FCA in preparation for a meeting between Robson and his attorney. Robson "reviewed the materials over the course of two to three successive or nearly successive days sometime in or about November and/or December of 2013." During this review, Robson underlined, annotated, and circled certain passages of both Allen's and Conti's compelled testimony. Robson also took roughly five pages of handwritten notes. Before Robson had the chance to discuss this material with his attorney, however, the FCA stayed its regulatory proceeding in favor of a criminal prosecution of Robson by the DOJ. On instruction from his lawyer Robson placed the FCA materials in a box, put them in his attic, and did not review them further.

On April 28, 2014, a grand jury in the United States District Court for the Southern District of New York returned an indictment charging Robson (Rabobank's JPY submitter) and two JPY derivatives traders, Paul Thompson and Tetsuya Motomura, with, inter alia, wire fraud. The Government had not requested that the grand jury indict Conti or Allen. 

In mid‐July 2014, the DOJ first interviewed Robson at a so‐ called proffer session. On August 5, 2014, Robson signed a cooperation agreement and shortly thereafter pleaded guilty. At Robson's plea hearing, the prosecutor informed the District Court that "there is . . . a chance that we would seek a superseding indictment in light of information that has come to light from our two cooperators" and that there was "a distinct possibility" the new indictment would "involve[ ] other individuals."  

So it did. On October 16, 2014, the grand jury returned a superseding indictment charging two new individuals-Allen and Conti-with one count of conspiracy to commit wire fraud and bank fraud as well as several counts of wire fraud. It is not disputed that the Government's presentation of evidence to the grand jury that indicted Defendants relied on evidence that Robson had provided. While Robson did not himself testify, the new information he gave was relayed to the grand jury through FBI Special Agent Jeffrey Weeks, who did testify. And Weeks's testimony to the grand jury on certain matters derived exclusively from Robson. In particular, Robson was the only source for Weeks's testimony that Allen "instructed, specifically instructed, LIBOR submitters in London to consider the positions and the requests of Rabobank traders and adjust their submissions for LIBOR and various currencies based on the means of those traders,"56 and that "Mr. Robson said that sitting near Mr. Conti he was aware that Mr. Conti set U.S. dollar LIBOR rates in which he considered his own positions as appropriate reason or justification for setting the rates."

Page 25 - 29 of the 2Cir Opinion

In weighing the competing issues, 2Cir honed in on the core Fifth Amendment issue [Ed. Footnotes omitted]:

The freedom from self‐incrimination guaranteed by the Fifth Amendment is a personal trial right of the accused in any American "criminal case." To that end, "a violation of the Fifth Amendment's right against self‐incrimination occurs only when a compelled statement is offered at trial against the defendant." Whatever may occur prior to trial, the right not to testify against oneself at trial is "absolute."Even a negative comment by a judge or prosecutor on a defendant's silence violates that defendant's constitutional right. 

Page 35 - 36 of the 2Cir Opinion

In ringing the death knell for DOJ's case, 2Cir offers this unequivocal holding:

In short, compelled testimony cannot be used to secure a conviction in an American court. This is so even when the testimony was compelled by a foreign government in full accordance with its own law.

Page 38 of the 2Cir Opinion

In knitting its Fifth Amendment concerns with the proscriptions of Kastigar and relating both of those issues to the facts at hand, the 2Cir Opinion explains that [Ed. Footnotes omitted]:

In the present case, Robson did testify to the FCA regarding Rabobank's submission and alleged manipulation of LIBOR rates, as well as the roles of Allen and Conti, prior to Robson's exposure to Defendants' compelled testimony. But what Robson's "canned" testimony preserved is toxic to the Government's case; it omits or contradicts in material parts the testimony Robson later provided indirectly to the grand jury and directly to the petit jury. At the Kastigar hearing held by the District Court, Robson agreed that "the testimony that [he] gave to the [FCA] and the testimony that [he] gave before the jury in this trial were very different."139 For instance, Robson testified to the jury about an altercation between Stewart and Damon Robbins, an alternate submitter for USD LIBOR, on Rabobank's London desk. But Robson did not testify about this to the FCA, and the Kastigar hearing raised questions about whether he had even seen the incident at all or merely read about it in the compelled testimony.140 Far from rebutting the presumption that Robson's trial testimony was tainted, his pre‐exposure testimony actually evidences such taint through its material differences with Robson's post‐ exposure trial testimony. 

As Robson's FCA testimony hurts rather than helps its cause, the Government appears to contend on appeal that it satisfied its burden solely through Robson's "'persuasive[ ]'" testimony at the Kastigar hearing.We conclude, however, that Robson's testimony at the hearing falls far short of satisfying the demands of Kastigar. As explained below, the Government adduced, at bottom, nothing more than bare, self‐serving denials from Robson to meet its heavy burden. We hold that such conclusory denials are insufficient as a matter of law to sustain the prosecution's burden of proof under Kastigar in the face of materially inconsistent pre‐exposure testimony.

Pages 62 -63 of the 2Cir Opinion

In rendering its Opinion, the 2Cir notably declines to remand the matter to the District Court.  Deeming the facts beyond redemption, the Court concludes that "remand for a further factual hearing on the question of taint would be futile." As set forth in the "Conclusion" to the 2Cir Opinion:

(1) 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. To be clear, we do not purport to prescribe what the U.K. authorities (or any foreign authority) may do in their witness interviews or their criminal trials. We merely hold that the Self‐Incrimination Clause prohibits the use and derivative use of compelled testimony in an American criminal case against the defendant who provided that testimony.   

(2) When the government uses a witness who has been substantially exposed 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.   

(3) Where, as here, the witness's account of events before exposure was significantly different, and less incriminating, than the testimony ultimately used against the defendants, the witness's bare, generalized denial of taint-here, the witness's conclusory responses to the Government's leading questions during the Kastigar hearing-is insufficient as a matter of law to sustain the prosecution's burden of proof. 

(4) In this prosecution, Defendants' compelled testimony was "used" against them through evidence provided by a tainted witness, a key cooperator and prominent witness both at trial and (via a hearsay presentation) before the grand jury. This tainted testimony was significant both at trial and in the grand jury, because it provided the only first‐hand eyewitness account that refuted the Defendants' central argument for acquittal, and was therefore not harmless beyond a reasonable doubt. . .


READ FULL TEXT OPINION http://brokeandbroker.com/PDF/Allen2Cir.pdf