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On July 19, 2017, the Second Circuit vacated the convictions and dismissed the indictments of two individuals accused of playing a role in the manipulation of the London Interbank Offered Rate (LIBOR). United States v. Allen, No. 16-898-cr, Slip Op. at 3 (2d Cir. July 19, 2017). The ruling was based on the Fifth Amendment to the US Constitution, which provides that [n]o person... shall be compelled in any criminal case to be a witness against himself. US Const. amend. V. The Second Circuits decision clarifies that this protection against self-incrimination is an absolute trial right that applies to all criminal defendants in US courts (including non-citizens) and to all compelled testimony (including testimony given during a foreign governments investigation). United States v. Allen, No. 16-898-cr, Slip Op. at 55. The courts clarification of the Fifth Amendments scope has important implications for US antitrust enforcers prosecuting international cartels and for individuals ensnared in cross-border criminal investigations alike.

The charges against the defendants in United States v. Allen stemmed from government investigations by the United States, the United Kingdom and others, concerning allegations that several banks had manipulated the LIBOR, a benchmark interest rate for short-term inter-bank loans that is also used as a reference rate for a variety of globally traded financial instruments. The defendants were initially investigated by the United Kingdoms Financial Conduct Authority (FCA) and made self-incriminating statements during compulsory interviews with FCA officials. The FCA provided transcripts of defendants compelled testimony to a third individual under investigation, Paul Robson, who reviewed the transcripts in detail. For reasons unknown, the FCA then dropped the charges against Robson, and his case was picked up by the United States Department of Justice (DOJ). Robson pleaded guilty and then cooperated with the DOJ by providing information about the defendants that led to their indictment and by testifying against them at trial.

On appeal, the Second Circuit threw out both defendants convictions and dismissed their indictments, holding that the Fifth Amendments prohibition on the use of compelled testimony in American criminal proceedings applies even when a foreign sovereign has compelled the testimony. Slip Op. at 80. The Fifth Amendments protection against self-incrimination is an absolute trial right that applies in any American criminal proceeding, and so the defendants status as non-citizens did not alter the courts analysis. Id. at 37-38. In short, the court explained, 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. Id. at 38.

Cross-border government investigations into price-fixing and other matters of international scope are becoming increasingly common, and United States v. Allen serves as an important reminder that many jurisdictions outside the United States do not have the procedural safeguards in place that the United States Constitution demands. A foreign investigation that does not satisfy these safeguards may produce evidence that does not hold up in court. Where criminal proceedings have a foreign origin, discovery should be taken to reveal potential evidentiary shortcomings, such as witnesses who are tainted by exposure to compelled testimony. Consideration should also be given to the effect of such shortcomings, if any, in potential follow-on civil suits, where standards can be less demanding.

2017 McDermott Will & Emery

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Second Circuit Clarifies Fifth Amendment Law, with Implications for US Prosecution of International Cartels - The National Law Review

On July 19, 2017, the U.S. Court of Appeals for the Second Circuit overturned the convictions of two former London-based traders for conspiracy and wire fraud in connection with the manipulation of the interest rate benchmark known as LIBOR. The Second Circuit ruled that the use of compelled testimony in a U.S. criminal proceeding even when a foreign government has compelled the testimony constitutes a violation of the Fifth Amendment. This decision has potentially significant consequences for U.S. criminal cases that involve related investigations or prosecutions in foreign countries.

Facts and Procedural History

According to the charges, the two defendants were cash traders at the Dutch bank Rabobank and were directly involved in the bank's submissions for the London Interbank Offered Rate (LIBOR), a reference interest rate for the interbank borrowing market. In 2013, the U.K.'s Financial Conduct Authority (FCA) compelled the two defendants to testify about their involvement in the LIBOR submissions. Both individuals were given direct use immunity meaning their statements could not be used directly against them but not derivative use immunity meaning their statements could be used to derive other evidence that could be used against them in exchange for their testimony. Under U.K. law, they faced imprisonment if they refused to testify under such circumstances, whereas in the U.S., the government can only compel testimony by providing the witness with both direct and derivative use immunity.

Shortly thereafter, the U.S. Department of Justice began its own criminal prosecution. In October 2014, a grand jury returned an indictment charging the defendants with wire fraud and conspiracy. The defendants' compelled U.K testimony was utilized against them at trial, and both were convicted on all counts.

Second Circuit's Decision

The defendants appealed, arguing that the government "violated their Fifth Amendment rights when it usedtheir own compelled testimony against them." The Second Circuit agreed and held that "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."

The Second Circuit adopted the defendants' position that, to be admissible in a criminal case, a witness's statements including those made to foreign law enforcement must have been made voluntarily. The court emphasized that this requirement stems directly from the text of the Constitution; voluntariness is assessed under both the Self-Incrimination Clause of the Fifth Amendment and the Due Process Clause of the Fourteenth Amendment.

Furthermore, the Second Circuit rejected the government's argument that foreign governments are analogous to private employers, which may question employees under threat of termination without running afoul of the Fifth Amendment. The court also rebuffed the government's assertion that the Fifth Amendment applies only if the same sovereign is both compelling and using the testimony against the defendant, also known as the "same sovereign" rule.

In addition to rejecting the government's arguments, the Second Circuit focused on the consequences of the government's position, namely that a defendant's compelled testimony might be introduced directly against the defendant in a criminal prosecution, in effect an end-run around the defendant's Fifth Amendment rights. The court hypothesized that the government's argument could lead to a situation in which the government proffers, "Your honor, we offer Government Exhibit 1, the defendant's compelled testimony." Notably, the government did not dispute this potential result.

The Second Circuit also rejected the government's concern that ruling for the defendants would allow foreign powers to inadvertently or negligently interfere with U.S. criminal prosecutions, noting that that "the risk of error in coordination falls on the U.S. governmentrather than on subjects and targets of cross-border investigations."

Ultimately, the Second Circuit reversed both convictions, holding, inter alia, that the use of compelled testimony was not harmless error.

Impacts/Conclusion

This decision reinforces Fifth Amendment protections against the use of compelled testimony. Moreover, the Second Circuit now joins the Fourth, Fifth, Ninth, and Tenth Circuits in holding that "inculpatory statements obtained overseas by foreign officials must have been made voluntarily" in order to be admissible in U.S. courts.

Barring an appeal, DOJ will have to proceed with caution in its cross-border prosecutions where overseas testimony has been compelled by foreign governments. Mere compliance with the foreign sovereign's laws may not be sufficient to guarantee the admissibility of the evidence in U.S. criminal proceedings. Across the table, defense attorneys should continue to analyze the circumstances of foreign testimony, and in doing so, pay particular attention to any evidence of compulsion that might limit further use of that testimony against their clients.

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Convictions Overturned: Fifth Amendment Prohibits Use of Testimony Compelled by Foreign Governments - Lexology (registration)

The Second Circuit held in United States v. Allen, an appeal arising from the first U.S. prosecution in connection with the LIBOR manipulation scandal, that it violates a defendants Fifth Amendment privilege against self-incrimination to present an investigating grand or a trial jury with testimony that the defendant was compelled to give to foreign officials, regardless of whether the compelled testimony was presented directly or through another witness.

On July 19, the U.S. Court of Appeals for the Second Circuit vacated the conviction of two former London-based bankers, Anthony Allen and Anthony Conti, who were convicted in October 2015 on multiple counts of bank and wire fraud in connection with a scheme to manipulate the London Interbank Offered Rate (LIBOR). See United States v. Allen, Crim. No. 16-939 (2d Cir. July 19, 2017). Witnesses for the U.S. Department of Justice (DOJ) before both the grand and trial juries had been exposed to inculpatory testimony that the defendants were compelled to give against themselves by the UK government pursuant to UK law, and the Court of Appeals held that using that compelled testimony violated the defendants Fifth Amendment right against self-incrimination. The Second Circuit further held that the DOJ failed to carry its heavy burden under the U.S. Supreme Courts decision in United States v. Kastigar, 406 U.S. 441 (1972), to show that the testimony introduced before the grand and trial juries did not derive from the defendants compelled testimony. Because the prosecution failed to carry its Kastigar burden, and using the compelled testimony was not harmless error, the Second Circuit reversed the convictions and dismissed the indictments.

Alleged LIBOR Manipulation

Allen and Conti worked at Coperatieve Centrale RaiffeisenBoerenleenbank B.A. (Rabobank), a Dutch bank. During the 2000s, Rabobank was one of 16 banks that submitted its borrowing rates for U.S. dollars and Japanese yen on a daily basis to the British Bankers Association (BBA), the entity that calculated the LIBOR. The LIBOR is a series of daily benchmark rates at which banks can borrow funds in various currencies for various time periods. For each currency for which it calculated the LIBOR, the BBA accepted rates the banks submitted, discarded certain high and low submissions, and averaged the remaining submissions. Many financial transactions, including interest rate swaps, are tied to the LIBOR on a particular date, and those transactions are either profitable or not depending on the LIBOR in the relevant currency for the relevant time period on the relevant date, called the fixing date.

Allen and Conti each had, at various times and with varying frequency, responsibility for Rabobanks rate submissions to the BBA. Neither Rabobank nor the UK government had any policies concerning the submission of rates used to derive the LIBOR. Like a number of other banks that submitted their borrowing rates to the BBA, Rabobank was a party to a large number of LIBOR-tied transactions.

The prosecutions evidence at trial, which the Court of Appeals reviewed in detail, showed that the defendants received requests from Rabobank traders who had taken LIBOR-tied positions in transactions that would either make or lose money for the bank depending on the LIBOR. The Court of Appeals wrote, The Governments theory of the case was that these trader requests were dictated by the traders (and thus Rabobanks) interest in having LIBOR be higher or lower on particular dates based on the transactions that the trader had entered or positions they held.

The defendants conceded that it was inappropriate to base Rabobanks LIBOR submissions on rates that would benefit Rabobank, rather than on market-based evidence of the range of reasonable rates that fairly represented the rate at which Rabobank could borrow in dollars or yen for various intervals on that day. The defendants position at trial was that, although they received requests from traders for higher or lower submissions to the BBA, they did not honor those requests.

Financial Conduct Authoritys Investigation and Aborted Prosecution

The UKs Financial Conduct Authority (FCA) worked in parallel with officials from the DOJ to investigate allegations of LIBOR manipulation and to interview individuals, including the defendants, in 2013. It was undisputed in the proceedings before the Court of Appeals that defendants Allen and Conti were compelled, on pain of imprisonment, to testify before the FCA. The FCA offered the defendants direct use immunity for their compelled testimony, but not derivative use immunity, according to the court. In other words, the FCA could not use the defendants statements against them at trial (i.e., no direct use), but could introduce evidence against them that it obtained based on their compelled statements (i.e., derivative use).

In contrast, when the DOJ seeks to compel a witness to testify over the witnesss invocation of his or her Fifth Amendment privilege against self-incrimination, the immunity order that is entered confers both direct and derivative use immunity. To avoid having the DOJs LIBOR investigation tainted by compelled testimony, the DOJ and the FCA interrogated witnesses on different days, with the DOJ interviewing first.

The FCA and the DOJ also investigated a Rabobank employee with rate submission responsibilities, Paul Robson, whom the FCA later charged with criminal conduct for his role in manipulating the LIBOR. As part of its pre-trial process in the UK, the FCA disclosed to Robson the compelled testimony that Allen and Conti had given. The Second Circuit stated that Robson closely reviewed that testimony, annotating it and taking several pages of notes. The FCA later abandoned its prosecution of Robson, and the DOJ picked up where the FCA left off.

In April 2014, a grand jury in the Southern District of New York indicted Robson and two other individuals but not Allen and Conti charging them with wire fraud, among other things. Robson proffered, signed a cooperation agreement, and pled guilty in summer 2014. Although Robson did not testify before the grand jury, information he provided to the DOJ was presented to the grand jury through an FBI agent. The grand jury subsequently indicted Allen and Conti, charging them with wire and bank fraud charges.

Allen and Conti waived extradition and filed a motion under Kastigar to suppress Robsons testimony at trial. The trial court deferred the Kastigar hearing until after trial. Robson testified at trial, and the jury convicted the defendants on all charges.

At the post-trial Kastigar hearing, Robson explained that he had been exposed to the defendants compelled testimony before the FCA. The trial court found, however, that Robsons statement that he had independent knowledge of the facts he presented at trial (and that had been presented to the grand jury through an FBI agent) was an independent source within the meaning of Kastigar.

Court of Appeals Holds Fifth Amendment Self-Incrimination Privilege Applies to Foreign-Compelled Testimony

The Court of Appeals held that the Fifth Amendments privilege against self-incrimination requires that a defendants statement to a foreign government official be voluntary before it can be admitted in a U.S. trial. The Second Circuit emphasized repeatedly that the self-incrimination privilege is a personal trial right that is absolute. As a result, in the courts opinion, the self-incrimination privilege applies to bar the admission in U.S. trials of a defendants compelled statements to a foreign government official even when, as in this case, the foreign government official acted pursuant to the foreign nations legal process in obtaining those statements. In short, if a sovereign power compelled the defendant to testify under the cruel trilemma of self-accusation, perjury or contempt, the statement cannot be used in a U.S. court to indict the defendant or obtain a conviction. The Court of Appeals was unwilling to countenance the DOJs position in the case, which would remove all impediment to introducing the defendants foreign compelled testimony, as in, the court wrote, Your honor, we offer Government Exhibit 1, the defendants compelled testimony.

The Second Circuit considered misplaced the U.S. governments concern that a foreign government might attempt to sabotage U.S. prosecutions by compelling and then broadcasting a defendants testimony to potential witnesses. The court quoted a speech by former Assistant Attorney General for the Criminal Division Leslie Caldwell, who spoke of the DOJs efforts to coordinate with its counterparts abroad in investigating and prosecuting crime. The court noted that the DOJ was aware of its burden to avoid using compelled testimony as reflected by the interview scheduling system used in this case. The court also left open the possibility that there may be a different result if the foreign power appeared to be attempting to undermine a U.S. prosecution, noting that it would call into question whether the testimony obtained was really involuntary.

Having defined the defendants Fifth Amendment rights, the court concluded that the government violated their privilege against self-incrimination by introducing Robsons testimony at trial and to the grand jury through an FBI agent. Relying on Kastigar, the court explained that the privilege against self-incrimination applies not only to the testimony itself but to evidence derived from that testimony. The court noted that, when a defendant has been compelled to testify and is later prosecuted, the trial court will convene a hearing, a so-called Kastigar hearing, at which the prosecution must carry the heavy, albeit not insurmountable, burden that the evidence it will introduce was derived from legitimate independent sources. Typically, the prosecution meets this burden with canned testimony, that is, testimony the witness gave before he or she was tainted by exposure to the compelled testimony.

At the Kastigar hearing before the trial court in the Allen case, the exact opposite happened: Robson admitted that his testimony to the FCA was very different from the testimony he gave in the United States after reviewing the testimony of Allen and Conti. The Second Circuit held that the Kastigar hearing actually proved Robson had been tainted by the defendants compelled testimony to the FCA. The court concluded that the presentation of the tainted evidence to the grand and trial juries was not harmless, and it both vacated the conviction and dismissed the indictment against the defendants.

Implications

The Second Circuit explained that cross-border prosecutions are on the rise and observed that the DOJ is detailing its prosecutors to foreign investigators, including INTERPOL and the FCA. The court understood that, in the governments view, witness testimony is often the key to unraveling international financial crime. Although the court would not presume to know exactly what this brave new world of international criminal enforcement will entail, it was certain that these developments abroad need not affect the fairness of our trials at home.

Indeed, earlier this year, the DOJs Antitrust Division issued a Division Update, explaining that international cooperation on investigations of cartels was a top a priority and it was exploring bi-, tri- and multilateral agreements to foster greater international cooperation. Additionally, at a recent speech in Brazil, Acting Principal Deputy Assistant Attorney General for the Criminal Division, Trevor N. McFadden stated that cooperation with our foreign partners has become a hallmark of our work and observed that reciprocity in information sharing is a vital tool in the modern prosecutors toolbox.

Indeed, recent settlements and investigations show that the DOJ is actively coordinating its efforts with the FCA and other foreign investigators. For example, earlier this year, State Street Corporation announced that it had reached a settlement with the DOJ concerning allegations it overcharged certain clients, an allegation first disclosed to the FCA in 2011. Also, in April, it was reported that the DOJ and the FCA are collaborating in an investigation into whether individuals at Barclays Bank engaged in civil or criminal misconduct in attempting to unmask a whistleblower. And the U.S. Attorneys Office for the Southern District of New York, the office that prosecuted Allen and Conti, announced late last year that it had charged several individuals with wire and securities fraud, identify theft and computer hacking following an investigation conducted in concert with Lahav 433, the cyber unit of the Israeli National Police, which, like the FCA, can legally compel witness testimony.

This international cooperation also is occurring among government regulators with civil remedies at their disposal. For example, when the SEC announced the filing of a Foreign Corrupt Practices Act complaint against executives at investment firm Och-Ziff Capital Management Group in January 2017, the SEC thanked the FCA and financial regulators in Guernsey, Jersey, Malta, Cyprus, Gibraltar and Switzerland for assisting in the investigation that led to the complaint.

Given the increase in cross-border investigations involving cooperation between U.S. and foreign law enforcement and regulatory authorities, practitioners representing defendants who have been interrogated abroad should investigate the possibility that compelled testimony was disseminated to witnesses the DOJ put before the grand jury or will call at trial. While the fact pattern in Allen is somewhat unique, there is a significant tactical advantage to identifying whether any witnesses were exposed to the compelled testimony and forcing the prosecution to carry its heavy burden under Kastigar of showing its evidence is untainted.

Read more:
Fifth Amendment Prohibits Use of Compelled Foreign Testimony in ... - Lexology (registration)

This article first appeared on the Just Security site.

On Monday night, the leaders of the Senate Judiciary Committee issued a subpoena to compel Paul Manafort, the former chairman of the Trump presidential campaign, to testify at a public hearing on Wednesday.

The subpoena came as a surprise because just days earlier, Manafort and Donald Trump Jr. had reached a deal with the panel where they would provide records and be interviewed privately (versus in open session) in order to avoid being subponeaed at that time.

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Paul Manafort, former Trump's campaign manager, at the Mayflower Hotel April 27, 2016 in Washington, DC. Chip Somodevilla/Getty

According to the statement from Senate Judiciary Committee Chairman Chuck Grassley and Ranking Member Dianne Feinstein, negotiations with Manafort broke down over who in Congress would be able to access his transcribed interview:

Mr. Manafort, through his attorney, said that he would be willing to provide only a single transcribed interview to Congress, which would not be available to the Judiciary Committee members or staff. While the Judiciary Committee was willing to cooperate on equal terms with any other committee to accommodate Mr. Manaforts request, ultimately that was not possible.

To better understand this latest development, I turned to Andy Wright, Just Security s in-house expert on congressional investigations, to help explain it.

Manafort made demands that the committee, and likely the broader Congress, could not accept.

The committee wanted to get a transcribed interview of Manafort and Trump, Jr. before any subsequent public hearing. Sen. Grassley, as committee chair, had threatened to issue subpoenas for a public hearing, and used that leverage to obtain agreements to voluntarily appear for transcribed interviews.

However, unlike a hearing under subpoena compulsion, someone who voluntarily appears can seek to extract some procedural concessions from the investigating committee. For example, witnesses might seek commitments on the duration, format, legal representation, and transcript access (so the witness can review for error).

Once negotiations broke down, the committee reverted to its compulsory subpoena power.

First, Manafort wanted to do only one transcribed interview before all of Congress.

From his perspective, one interview minimizes the risk that differences in his answers, whether semantic or material, would be used as a perjury trap.

However, its a terrible deal for Congress. A single shot would mean that other committees, including the Senate Intelligence Committee, the House Intelligence Committee, and the House Oversight Committee would all have to rely on the Senate Judiciarys single transcript.

More important, they would have had to rely on Senate Judiciarys questions. Other committees have different jurisdictions, different interests, and different memberships that may want to take questioning in other directions. Also, it might risk losing the opportunity to get Manafort on the record about facts we learn later.

It appears from the statement that the Senate Judiciary Committee was open to trying to play the pool reporter role for the other committees. I cant imagine any other committee would agree without being able to participate in the questions, and Senate Judiciary has no authority to extinguish other committees interests, especially in the House.

Perhaps Senate leadership could engage in deconfliction, but the House has its own prerogatives and constitutional role.

Second, Manafort sought to get an agreement that Grassley and Feinstein would restrict committee staff and member access to the interview transcript. That was a bridge too far. The transcript would then be of little utility to the investigators. Im not convinced that the committees or Senates rules would allow restrictions on Member access to non-classified materials, especially other committee members.

Confining Manaforts interview transcript within one committee would significantly hamper Congresss investigations.

Committees have different jurisdictions, interests, and agendas. For example, the Senate Intelligence Committee has interests in counterintelligence and Russian election interference. They have access to intelligence products that the Senate Judiciary Members do not.

Naturally, Senate Intelligence will have different questions for Manafort than Senate Judiciary. And those questions are critical to the overall inquiry.

Adding to the confusion, Manafort met with the Senate Intelligence Committee on Tuesday.

It is not unusual for witnesses to make requests that their transcripts, or certain topics covered, be kept confidential by a congressional committee. However, Congress almost never agrees. The problem here isnt that Manafort made the request, but that his legal team believed it was gettable.

Under both House and Senate rules, congressional subpoenas can command two things: production of documents and appearance to testify at a formal hearing or deposition. The rules do not permit compelled transcribed interviews.

That is why Congress uses its subpoena power threat, which raises the specter of public shaming, to extract agreements to sit for nonpublic transcribed interviews. That was the process here, but it apparently went off the rails.

Those negotiations would be separate, although Im sure his legal team is acutely monitoring these developments. We still dont know the terms of Trump, Jr.s interview.

If they dont strike a last-minute bargain, Manafort will need to appear at the hearing ready to testify on Wednesday. If he does not show, the Committee could find him in contempt.

I would not be surprised if Manafort pleads the Fifth at this point. However, given his meeting with the Senate Intelligence Committee, Manafort may have waived the Fifth at this point.

If he does show and testify, I anticipate he will get extremely rough treatment by members of both parties.

Kate Brannen is the deputy managing editor of Just Security and a nonresident senior fellow at the Brent Scowcroft Center on International Security at the Atlantic Council.

Andy Wright is a professor at Savannah Law School and former Associate Counsel to the President in the White House Counsels Office.

Continue reading here:
Will Manafort claim the Fifth Amendment? Where does this leave Donald Jr.? - Newsweek

The Second Circuit held in United States v. Allen, an appeal arising from the first U.S. prosecution in connection with the LIBOR manipulation scandal, that it violates a defendants Fifth Amendment privilege against self-incrimination to present an investigating grand or a trial jury with testimony that the defendant was compelled to give to foreign officials, regardless of whether the compelled testimony was presented directly or through another witness.

On July 19, the U.S. Court of Appeals for the Second Circuit vacated the conviction of two former London-based bankers, Anthony Allen and Anthony Conti, who were convicted in October 2015 on multiple counts of bank and wire fraud in connection with a scheme to manipulate the London Interbank Offered Rate (LIBOR). See United States v. Allen, Crim. No. 16-939 (2d Cir. July 19, 2017). Witnesses for the U.S. Department of Justice (DOJ) before both the grand and trial juries had been exposed to inculpatory testimony that the defendants were compelled to give against themselves by the UK government pursuant to UK law, and the Court of Appeals held that using that compelled testimony violated the defendants Fifth Amendment right against self-incrimination. The Second Circuit further held that the DOJ failed to carry its heavy burden under the U.S. Supreme Courts decision in United States v. Kastigar, 406 U.S. 441 (1972), to show that the testimony introduced before the grand and trial juries did not derive from the defendants compelled testimony. Because the prosecution failed to carry its Kastigar burden, and using the compelled testimony was not harmless error, the Second Circuit reversed the convictions and dismissed the indictments.

Alleged LIBOR Manipulation

Allen and Conti worked at Coperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank), a Dutch bank. During the 2000s, Rabobank was one of 16 banks that submitted its borrowing rates for U.S. dollars and Japanese yen on a daily basis to the British Bankers Association (BBA), the entity that calculated the LIBOR. The LIBOR is a series of daily benchmark rates at which banks can borrow funds in various currencies for various time periods. For each currency for which it calculated the LIBOR, the BBA accepted rates the banks submitted, discarded certain high and low submissions, and averaged the remaining submissions. Many financial transactions, including interest rate swaps, are tied to the LIBOR on a particular date, and those transactions are either profitable or not depending on the LIBOR in the relevant currency for the relevant time period on the relevant date, called the fixing date.

Allen and Conti each had, at various times and with varying frequency, responsibility for Rabobanks rate submissions to the BBA. Neither Rabobank nor the UK government had any policies concerning the submission of rates used to derive the LIBOR. Like a number of other banks that submitted their borrowing rates to the BBA, Rabobank was a party to a large number of LIBOR-tied transactions.

The prosecutions evidence at trial, which the Court of Appeals reviewed in detail, showed that the defendants received requests from Rabobank traders who had taken LIBOR-tied positions in transactions that would either make or lose money for the bank depending on the LIBOR. The Court of Appeals wrote, The Governments theory of the case was that these trader requests were dictated by the traders (and thus Rabobanks) interest in having LIBOR be higher or lower on particular dates based on the transactions that the trader had entered or positions they held.

The defendants conceded that it was inappropriate to base Rabobanks LIBOR submissions on rates that would benefit Rabobank, rather than on market-based evidence of the range of reasonable rates that fairly represented the rate at which Rabobank could borrow in dollars or yen for various intervals on that day. The defendants position at trial was that, although they received requests from traders for higher or lower submissions to the BBA, they did not honor those requests.

Financial Conduct Authoritys Investigation and Aborted Prosecution

The UKs Financial Conduct Authority (FCA) worked in parallel with officials from the DOJ to investigate allegations of LIBOR manipulation and to interview individuals, including the defendants, in 2013. It was undisputed in the proceedings before the Court of Appeals that defendants Allen and Conti were compelled, on pain of imprisonment, to testify before the FCA. The FCA offered the defendants direct use immunity for their compelled testimony, but not derivative use immunity, according to the court. In other words, the FCA could not use the defendants statements against them at trial (i.e., no direct use), but could introduce evidence against them that it obtained based on their compelled statements (i.e., derivative use).

In contrast, when the DOJ seeks to compel a witness to testify over the witnesss invocation of his or her Fifth Amendment privilege against self-incrimination, the immunity order that is entered confers both direct and derivative use immunity. To avoid having the DOJs LIBOR investigation tainted by compelled testimony, the DOJ and the FCA interrogated witnesses on different days, with the DOJ interviewing first.

The FCA and the DOJ also investigated a Rabobank employee with rate submission responsibilities, Paul Robson, whom the FCA later charged with criminal conduct for his role in manipulating the LIBOR. As part of its pre-trial process in the UK, the FCA disclosed to Robson the compelled testimony that Allen and Conti had given. The Second Circuit stated that Robson closely reviewed that testimony, annotating it and taking several pages of notes. The FCA later abandoned its prosecution of Robson, and the DOJ picked up where the FCA left off.

In April 2014, a grand jury in the Southern District of New York indicted Robson and two other individuals but not Allen and Conti charging them with wire fraud, among other things. Robson proffered, signed a cooperation agreement, and pled guilty in summer 2014. Although Robson did not testify before the grand jury, information he provided to the DOJ was presented to the grand jury through an FBI agent. The grand jury subsequently indicted Allen and Conti, charging them with wire and bank fraud charges.

Allen and Conti waived extradition and filed a motion under Kastigar to suppress Robsons testimony at trial. The trial court deferred the Kastigar hearing until after trial. Robson testified at trial, and the jury convicted the defendants on all charges.

At the post-trial Kastigar hearing, Robson explained that he had been exposed to the defendants compelled testimony before the FCA. The trial court found, however, that Robsons statement that he had independent knowledge of the facts he presented at trial (and that had been presented to the grand jury through an FBI agent) was an independent source within the meaning of Kastigar.

Court of Appeals Holds Fifth Amendment Self-Incrimination Privilege Applies to Foreign-Compelled Testimony

The Court of Appeals held that the Fifth Amendments privilege against self-incrimination requires that a defendants statement to a foreign government official be voluntary before it can be admitted in a U.S. trial. The Second Circuit emphasized repeatedly that the self-incrimination privilege is a personal trial right that is absolute. As a result, in the courts opinion, the self-incrimination privilege applies to bar the admission in U.S. trials of a defendants compelled statements to a foreign government official even when, as in this case, the foreign government official acted pursuant to the foreign nations legal process in obtaining those statements. In short, if a sovereign power compelled the defendant to testify under the cruel trilemma of self-accusation, perjury or contempt, the statement cannot be used in a U.S. court to indict the defendant or obtain a conviction. The Court of Appeals was unwilling to countenance the DOJs position in the case, which would remove all impediment to introducing the defendants foreign compelled testimony, as in, the court wrote, Your honor, we offer Government Exhibit 1, the defendants compelled testimony.

The Second Circuit considered misplaced the U.S. governments concern that a foreign government might attempt to sabotage U.S. prosecutions by compelling and then broadcasting a defendants testimony to potential witnesses. The court quoted a speech by former Assistant Attorney General for the Criminal Division Leslie Caldwell, who spoke of the DOJs efforts to coordinate with its counterparts abroad in investigating and prosecuting crime. The court noted that the DOJ was aware of its burden to avoid using compelled testimony as reflected by the interview scheduling system used in this case. The court also left open the possibility that there may be a different result if the foreign power appeared to be attempting to undermine a U.S. prosecution, noting that it would call into question whether the testimony obtained was really involuntary.

Having defined the defendants Fifth Amendment rights, the court concluded that the government violated their privilege against self-incrimination by introducing Robsons testimony at trial and to the grand jury through an FBI agent. Relying on Kastigar, the court explained that the privilege against self-incrimination applies not only to the testimony itself but to evidence derived from that testimony. The court noted that, when a defendant has been compelled to testify and is later prosecuted, the trial court will convene a hearing, a so-called Kastigar hearing, at which the prosecution must carry the heavy, albeit not insurmountable, burden that the evidence it will introduce was derived from legitimate independent sources. Typically, the prosecution meets this burden with canned testimony, that is, testimony the witness gave before he or she was tainted by exposure to the compelled testimony.

At the Kastigar hearing before the trial court in the Allen case, the exact opposite happened: Robson admitted that his testimony to the FCA was very different from the testimony he gave in the United States after reviewing the testimony of Allen and Conti. The Second Circuit held that the Kastigar hearing actually proved Robson had been tainted by the defendants compelled testimony to the FCA. The court concluded that the presentation of the tainted evidence to the grand and trial juries was not harmless, and it both vacated the conviction and dismissed the indictment against the defendants.

Implications

The Second Circuit explained that cross-border prosecutions are on the rise and observed that the DOJ is detailing its prosecutors to foreign investigators, including INTERPOL and the FCA. The court understood that, in the governments view, witness testimony is often the key to unraveling international financial crime. Although the court would not presume to know exactly what this brave new world of international criminal enforcement will entail, it was certain that these developments abroad need not affect the fairness of our trials at home.

Indeed, earlier this year, the DOJs Antitrust Division issued a Division Update, explaining that international cooperation on investigations of cartels was a top a priority and it was exploring bi-, tri- and multilateral agreements to foster greater international cooperation. Additionally, at a recent speech in Brazil, Acting Principal Deputy Assistant Attorney General for the Criminal Division, Trevor N. McFadden stated that cooperation with our foreign partners has become a hallmark of our work and observed that reciprocity in information sharing is a vital tool in the modern prosecutors toolbox.

Indeed, recent settlements and investigations show that the DOJ is actively coordinating its efforts with the FCA and other foreign investigators. For example, earlier this year, State Street Corporation announced that it had reached a settlement with the DOJ concerning allegations it overcharged certain clients, an allegation first disclosed to the FCA in 2011. Also, in April, it was reported that the DOJ and the FCA are collaborating in an investigation into whether individuals at Barclays Bank engaged in civil or criminal misconduct in attempting to unmask a whistleblower. And the U.S. Attorneys Office for the Southern District of New York, the office that prosecuted Allen and Conti, announced late last year that it had charged several individuals with wire and securities fraud, identify theft and computer hacking following an investigation conducted in concert with Lahav 433, the cyber unit of the Israeli National Police, which, like the FCA, can legally compel witness testimony.

This international cooperation also is occurring among government regulators with civil remedies at their disposal. For example, when the SEC announced the filing of a Foreign Corrupt Practices Act complaint against executives at investment firm Och-Ziff Capital Management Group in January 2017, the SEC thanked the FCA and financial regulators in Guernsey, Jersey, Malta, Cyprus, Gibraltar and Switzerland for assisting in the investigation that led to the complaint.

Given the increase in cross-border investigations involving cooperation between U.S. and foreign law enforcement and regulatory authorities, practitioners representing defendants who have been interrogated abroad should investigate the possibility that compelled testimony was disseminated to witnesses the DOJ put before the grand jury or will call at trial. While the fact pattern in Allen is somewhat unique, there is a significant tactical advantage to identifying whether any witnesses were exposed to the compelled testimony and forcing the prosecution to carry its heavy burden under Kastigar of showing its evidence is untainted.

Excerpt from:
Fifth Amendment Prohibits Use of Compelled Foreign Testimony in US Criminal Trials - JD Supra (press release)