In a decision likely to cause global reverberations in the realm of cross-border enforcement, the US Court of Appeals for the Second Circuit has vacated the convictions and indictment in the first US criminal appeal related to the manipulation of the London Interbank Offered Rate (LIBOR). In
United States v. Allen, No. 16-898-cr (L) (2d Cir. July 19, 2017), the Second Circuit prohibited the derivative use of testimony lawfully compelled by UK authorities and set a high hurdle for introducing evidence in US criminal trials.
The international implications of this decision are significant. The Second Circuit’s decision in Allen will make it more difficult for US enforcement agencies to gather usable evidence in the cross-border context, and places the risk of using compelled testimony squarely on those agencies. To alleviate that risk, US authorities are likely to seek heightened cooperation with their foreign counterparts. In the long-term, increased collaboration among enforcement authorities could contribute to a more general shift toward the adoption of a US-style approach to enforcement actions.
The defendants in Allen were two former Rabobank employees who were investigated by US and UK authorities for their role in manipulating LIBOR rates. Following the standard—and lawful—procedures of the Financial Conduct Authority (FCA), the defendants were compelled to answer questions under threat of proceedings for contempt of court. Also pursuant to standard procedures, a third Rabobank employee, Paul Robson, was later permitted to review those statements, during which time he carefully annotated and took notes on them. Robson later became a key cooperator for the US and was the sole source for certain evidence against the defendants during the grand jury and the criminal trial. The Second Circuit ultimately held that the use of Robson’s testimony, which had been tainted by the compelled statements of the defendants, was prohibited by the Fifth Amendment.
The decision does not purport to bind the UK, or any other government, to uphold the US Constitution. Rather, Allen makes clear that a Fifth Amendment violation occurs at the time the statement is used against the defendant, not the time when the statement is compelled in the first place. Accordingly, it makes no difference to the analysis that a foreign government compelled the testimony, nor does it matter whether that compulsion was lawful in the foreign jurisdiction. The key question is whether a defendant’s compelled statements were used against him in a criminal case.
Allen goes one step further than merely prohibiting the use of the compelled statements themselves. Relying on the US Supreme Court’s framework in Kastigar v. United States, 406 U.S. 441 (1972), Allen prohibits the derivative use of such statements unless the US government can affirmatively establish that all evidence came from sources untainted by the compelled testimony. Although acknowledging that this rule places a heavy burden on US enforcement authorities, the Second Circuit described the burden as “not insurmountable.”
Ultimately, Allen requires US enforcement authorities to take extraordinary care in a cross-border context to ensure that no evidence has been derived from or otherwise tainted by compelled testimony, even where it has been lawfully compelled in the relevant foreign jurisdiction.
The decision in Allen is largely consistent with the approach adopted within the UK in relation to the use of compelled testimony. Enforcement bodies such as Her Majesty’s Revenue and Customs, the Serious Fraud Office, and the FCA have far-reaching statutory powers enabling them to compel individuals to answer questions pursuant to an investigation.1 These powers are safeguarded by statutory provisions which restrict statements made under compulsion being used as evidence against the maker in criminal proceedings.2 The basis behind these statutory safeguards, much like the protection offered by the Fifth Amendment, is the privilege against self-incrimination in criminal proceedings.3
In light of the trend towards larger cross-border investigations, Allen offers important reassurance to those subject to investigation in the UK that statements made under compulsion will not be used against them in US criminal proceedings.
The potential impact of Allen is far-ranging. Initially, it sets a difficult standard for US authorities to meet in building a case that relies on cross-border evidence, and provides additional defenses for the targets of those investigations. In Allen, notwithstanding the US government’s careful organization of the initial investigation to avoid potential problems, the spectre of compelled testimony hovered over the case and ultimately led to the convictions being vacated.
To avoid such issues in the future, US enforcement agencies will likely seek to increase and improve cooperation with their foreign counterparts—something that was explicitly encouraged by the Second Circuit in Allen. For example, US authorities may begin coordinating with foreign enforcement officers at an earlier stage of an investigation to provide counsel regarding issues that may jeopardize US enforcement. US authorities may also seek to install officers within foreign enforcement agencies, as is the case with the anti-corruption prosecutor that the Department of Justice has detailed to work at the FCA.
Further to these initial issues, there is the possibility that Allen, and decisions like it, will cause authorities in the UK to consider shifting their techniques toward a US approach to investigations and enforcement actions. For example, UK authorities may seek to avoid compelling investigatory targets to make statements, or showing any such statements to other potential witnesses. Following Allen, US authorities may also exert pressure on their foreign counterparts to steer clear of any such practices that would be unacceptable in US courts.
Overall, the decision in Allen highlights the importance, to prosecutors and defense counsel alike, of being aware of the legal landscape in all relevant jurisdictions. An understanding of how the laws of those jurisdictions will interact in a cross-border context can help to avoid potential pitfalls and provide additional avenues of defense.
1 s 2(2) Criminal Justice Act 1987 (CJA) and ss 171–173 Financial Services and Markets Act 2000 (FSMA) and s 62 Serious Organised Crime and Police Act 2005 (SOCPA).
2 s2(8) and 2(8AA) CJA, s174 FSMA and s65 SOCPA.
3 These safeguards, broadly speaking, are subject to two exceptions. First, where criminal proceedings are brought with respect to false or misleading statements made during the course of a compelled interview. Second, where the interviewee, who later becomes a defendant, advances a different version of events in subsequent criminal proceedings and evidence relating to the relevant statement is adduced or a question is asked by or on behalf of the interviewee.
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