Court deals setback to prosecutors in cross-border cases

A recent federal appeals court ruling creates new hurdles for U.S. prosecutors conducting cross-border investigations, including those regarding of the Foreign Corrupt Practices Act. At the same time, it affords individuals involved in cross-border cases another avenue to explore in challenging potential prosecutions.

In the case, United States v. Allen, the U.S. Court of Appeals for the 2nd Circuit upheld the Fifth Amendment’s prohibition on the use of compelled testimony in U.S. criminal proceedings, even when a foreign government lawfully compels the testimony. The decision reinforces what several other circuit courts have already affirmed, which is that a statement must be voluntary, rather than compelled, if it is to be admissible in a U.S. criminal trial.

Although the Allen decision is not earth shattering—the Department of Justice has been aware of this legal land mine for years and usually takes good-faith measures to ensure the use of compelled testimony does not taint their investigations—it comes at a time when international cooperation in cross-border investigations is now the norm.

“The main effect of this decision is that U.S. prosecutors are going to be forced even more than they’ve been in the past to coordinate their investigative efforts with foreign prosecutors,” says Matt Mazur, a partner at law firm Dechert. They’re going to have to coordinate closer and at an earlier stage what witnesses to interview, how they’re going to be interviewed, who should be present, and what’s going to be done with those statements afterward, he says.

For the targets of cross-border cases, such as employees ensnared in FCPA investigations, the broader implications of Allen are relevant given that an effective defense demands a keen understanding of how U.S. enforcement agencies and their foreign counterparts interface with one another during the investigation and discovery stages of a case.

Case details

The underlying dispute dates to 2013, when U.K. and U.S. enforcement authorities launched a widespread investigation into the alleged manipulation of the London Interbank Offered Rate (LIBOR), a global interest rate benchmark. Banks routinely submit data used to calculate a currency’s LIBOR rate.

“I don’t think many people thought of the idea that your client could voluntarily agree to enter into an immunity deal in the U.K. and obtain this collateral protection in the United States.”
Mark Srere, Partner, Bryan Cave

As part of that investigation, the U.K.’s Financial Conduct Authority (FCA) compelled (under threat of imprisonment) testimony from former Rabobank employees Anthony Allen, Anthony Conti, and Paul Robson. Taking care not to taint its investigation with compelled testimony, the Department of Justice conducted its interviews wholly independent of the FCA and generally sought in “good faith” to adhere to Fifth Amendment principles by conducting witness interviews on different days than the FCA.

Following the investigation, the FCA brought an enforcement action against Robson and, as part of normal pre-trial process in the United Kingdom, provided Robson with the relevant evidence against him, including the compelled testimony of Allen and Conti. Shortly after, the FCA stayed its regulatory proceedings, in favor of a criminal prosecution against Robson by the Justice Department’s Fraud Section.

In 2014, a grand jury indicted Robson, and he subsequently pled guilty to wire fraud and agreed to provide the government assistance in its prosecutions of Allen and Conti, who also were later indicted by a grand jury with conspiracy to commit wire fraud and bank fraud.

Following trial, the district court held a hearing to assess whether Robson’s testimony was tainted by the compelled testimony of Allen and Conti. Even though it was discovered that Robson’s testimony was inconsistent with what he had told the FCA prior to reviewing the testimony of Allen and Conti, the district court still held that the Department of Justice had sufficiently showed that Robson’s testimony came from “personal experience and observations.”

Allen and Conti appealed to the 2nd Circuit Court of Appeals, which reversed the district court’s finding. The central question, as summarized by the court, is “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.”

The court found that, no, “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.”

In addition, the court held that when the government uses a witness who has been “substantially exposed” to a defendant’s compelled testimony, prosecutors bear the burden of proving that the witness’s review of the compelled testimony did not shape, alter, or affect the evidence used by the government.

UNITED STATES V. ALLEN

Below is an excerpt from the 2nd Circuit Court of Appeals in the case United States v. Allen.
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 Coöperatieve 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 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 “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.
Source: United States v. Allen

In Allen, the court said the government did not satisfy this burden: “A bare, generalized denial of taint” from a witness who materially altered his 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,” the opinion stated.

The court further found that Robson’s testimony was fundamental to securing the indictments and convictions and was, thus, not harmless. Thus, in the first LIBOR-related criminal appeal to reach a court of appeals, the 2nd Circuit Court of Appeals reversed the convictions and dismissed the indictments.

Broader lessons

Individuals involved in cross-border investigations, including FCPA cases, would be wise to keep in mind the following defense tactics supported by the Allen decision:

Seek legal counsel. It’s important to seek the help of counsel who is knowledgeable about the interactions between U.S. regulators and foreign authorities, Mazur says. “If there is going to be more coordination on the prosecution side, you certainly want to have defense counsel who is sophisticated in cross-broader investigations,” he says.

Be mindful of compelled testimony. Defense counsel representing individual employees involved in cross-border investigations should investigate whether compelled testimony was provided to witnesses that the Justice Department either put before a grand jury or will call at trial, says Michael Schwartz, a partner at law firm Pepper Hamilton.

Although the fact pattern in Allen is unique, Schwartz adds, there is a “significant tactical advantage” to identifying whether any witnesses were exposed to the compelled testimony and forcing the prosecution to prove its evidence is untainted.

Being mindful of compelled testimony may even be a new avenue of defense for some. “I don’t think many people thought of the idea that your client could voluntarily agree to enter into an immunity deal in the U.K. and obtain this collateral protection in the United States,” says Mark Srere, a partner at law firm Bryan Cave.

For U.K. employees, specifically, the ruling means that those compelled to provide witness accounts to the U.K. Serious Fraud Office or the FCA can now do so with a degree of comfort that their compelled accounts will not be used against them by enforcement authorities in the United States.

Weigh the interests of the investigating jurisdictions. As a defense strategy, individuals involved in a cross-border investigation may want to be more thoughtful about which potential prosecuting authority to deal with. “The United States is probably low down on the list, because they’re usually the most vigorous enforcer with the strongest penalties,” Srere says.

If prosecutors offer formal immunity in exchange for testimony or an interview in one jurisdiction—such as the United Kingdom—Allen precludes the use of that material in a U.S. prosecution, even though the potential criminal exposure is far greater in the United States. That said, it may be in an individual’s best interest to undergo a compelled interview in one jurisdiction, rather than a voluntary interview where statements may be subject to more limited restrictions on use binding on all interested jurisdictions.

Be knowledgeable about various criminal procedures and investigative approaches. Different countries use different forms of compulsion. Unlike the United States, for example, the United Kingdom can compel witnesses to speak by threat of imprisonment, whereas other foreign governments might use the threat of physical harm or torture.

It’s important to understand what compulsory techniques foreign governments involved in a cross-border investigations use and how that could potentially violate an individual’s Fifth Amendment rights, says Jason Linder, a partner at law firm Irell & Manella.

Linder, who was a prosecutor at the Department of Justice when the Rabobank investigation began, says he does not believe, contrary to what others have argued, that Allen will have much, if any, chilling effect on cross-border investigations, which are already rigorous and widespread. “I think it’s a speedbump,” he says.

If anything, the U.S. government and its foreign partners may have to decide early on, prior to conducting interviews under their respective jurisdictions and while armed only with incomplete information, which individuals will be charged and where, Linder says.

Despite being a setback for U.S. prosecutors, the decision in Allen is certainly a win for individual defendants. As more employees become the focus of cross-border FCPA investigations, Allen brings to light potential complications in a cross-border investigation and a new avenue to explore in challenging potential prosecutions.