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Fifth Amendment Prohibits Use of Compelled Foreign Testimony in U.S. Criminal Trials

CLIENT ALERT 7/25/2017

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 defendant’s 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). SeeUnited 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 Court’s 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 Coöperatieve 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 Rabobank’s 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 prosecution’s 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 Government’s theory of the case was that these trader requests were dictated by the traders’ (and thus Rabobank’s) 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 Rabobank’s 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 Authority’s Investigation and Aborted Prosecution

The UK’s 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 witness’s 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 DOJ’s 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 Robson’s 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 Robson’s 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 Amendment’s privilege against self-incrimination requires that a defendant’s 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 court’s opinion, the self-incrimination privilege applies to bar the admission in U.S. trials of a defendant’s compelled statements to a foreign government official even when, as in this case, the foreign government official acted pursuant to the foreign nation’s 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 DOJ’s position in the case, which would remove all impediment to introducing the defendant’s foreign compelled testimony, “as in,” the court wrote, “‘Your honor, we offer Government Exhibit 1, the defendant’s compelled testimony.’”

The Second Circuit considered misplaced the U.S. government’s concern that a foreign government might attempt to sabotage U.S. prosecutions by compelling and then broadcasting a defendant’s testimony to potential witnesses. The court quoted a speech by former Assistant Attorney General for the Criminal Division Leslie Caldwell, who spoke of the DOJ’s 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 Robson’s 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.


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 government’s 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 DOJ’s 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 prosecutor’s 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. Attorney’s 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.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

Compliments of Pepper Hamilton LLP, a member of the EACC NY