US Court of Appeals Overturns LIBOR Convictions Based on Derivative Use of Compelled Testimony Lawfully Obtained in UK

by Dechert LLP

Dechert LLP

In a decision with significant implications for cross-border criminal and regulatory investigations in both the UK and U.S., a panel of the U.S. Court of Appeals for the Second Circuit recently overturned two convictions for manipulating LIBOR based on the improper use of compelled testimony given to the UK Financial Conduct Authority (“FCA”) and used in the U.S. Department of Justice’s (“DOJ”) enforcement proceedings.

In United States v. Allen,1 the Court held that the Fifth Amendment’s prohibition on the use of compelled testimony in U.S. criminal proceedings applies even when a foreign enforcement agency, in this case the FCA, lawfully compelled the testimony. Consistent with the Fifth Amendment, a witness who is compelled to testify must be granted both (a) direct use immunity (i.e. the promise that the Government will not directly use an individual’s own testimony against him) and; (b) derivative use immunity (i.e. the promise that the Government will not use any information directly or indirectly derived from his compelled testimony to prosecute him, such as investigative leads developed from the compelled testimony). Therefore, where the Government calls a witness in a U.S. criminal trial who has been “substantially exposed to a defendant’s compelled testimony,” it has a burden to show that the review of that compelled testimony “did not shape, alter, or affect” the witness’s testimony. In Allen, the Government could not meet that burden with respect to a U.S. cooperating witness who had previously reviewed the defendants’ testimony in the UK before providing testimony in a U.S. trial.2

The impact of this ruling on UK clients means that UK individuals who are compelled to provide witness accounts to the Serious Fraud Office (“SFO”) 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 U.S. This ruling is likely to bring about closer and earlier liaison between U.S. and UK authorities in all types of cross-border investigations, with U.S. enforcement agencies seeking a greater role in foreign investigations, that may include being engaged from the outset in cases involving a U.S. element, and directing and providing guidance to their foreign counterparts on issues that could impact U.S. enforcement.

The Allen Case

The U.S. DOJ and the UK FCA investigated Anthony Allen and Anthony Conti (the “Defendants”), both UK nationals and former employees of Rabobank in London, in connection with the manipulation of dollar and yen LIBOR rates. In 2013, the FCA lawfully compelled the Defendants to answer questions in accordance with UK law and provided them with “direct use” but not “derivative use” immunity in respect of their statements. The FCA decided to take enforcement action against Paul Robson, a former colleague of the Defendants, and pursuant to the FCA’s standard disclosure procedure, allowed Robson to review and keep copies of the Defendants’ compelled testimony. The FCA subsequently stayed its regulatory proceedings at the request of the SFO in favor of a criminal prosecution of Robson by the DOJ. In April 2014, Robson was indicted and subsequently pleaded guilty in the U.S. and began to cooperate with the DOJ’s investigation. Robson's cooperation led to the indictment of the Defendants in the U.S., and he then testified at their trial. The Defendants were convicted of conspiracy to commit wire fraud and bank fraud.

Following the trial, the District Court held a Kastigar hearing3 to assess the taint from Robson’s review of the Defendants’ compelled testimony. Robson admitted that he had read, marked-up and taken notes from their compelled testimony, and the FBI agent who testified at the grand jury to secure the indictments of the Defendants relied solely on Robson for some of the information presented to the grand jury. In its ruling, the District Court assumed that the Fifth Amendment barred the use of testimony lawfully compelled by a foreign sovereign but found that the Government had met its burden under Kastigar to show that there was no taint from the compelled testimony.

On appeal, the Second Circuit held that the Fifth Amendment’s bar against compelled self-incrimination applies to statements compelled by non-U.S. enforcement authorities.4 The Court noted that a constitutional violation of the Fifth Amendment occurs only at trial and the right against self-incrimination is a trial right, so the lawfulness of the compulsion to testify in the UK is irrelevant to the determination of whether the use of that testimony in the U.S. courtroom is constitutional.

The Court then held that the Government’s burden under Kastigar is 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,5 and that the Government failed to meet that burden where the cooperating witness merely made self-serving and conclusory statements that his testimony was not tainted.6 The Second Circuit concluded that the Government had used the compelled testimony of the Defendants against them at trial and that the error was not harmless, and therefore their convictions could not stand.

Key Takeaways

  1. In the event that a foreign regulator requests a UK agency to conduct an interview on its behalf, the potential interviewee should seek legal advice to determine if it is in their best interests to attend voluntarily or to be compelled.
  2. Individuals facing a compelled request from a UK enforcement agency to answer questions, such as a section 2 notice from the SFO,7 where the SFO has the power to compel persons to answer questions at both investigation and pre-investigation (in overseas bribery and corruption cases) stage and failure to respond to a notice or providing misleading information is a criminal offense (similar to powers afforded to the FCA),8 should assess the likelihood of the future involvement of any foreign government agency.
  3. The decision in Allen means that U.S. government agencies interested in the case of an individual in the UK are likely to seek strategic agreement with their UK counterparts with respect to investigative actions from a significant earlier stage than before. Their failure to do so may compromise the U.S. proceedings. It is essential that individuals at risk of U.S. involvement obtain expert U.S. and UK legal advice to ensure the best likelihood of securing all available legal protections in respect of any account given.

Effective defense in multi-jurisdictional investigations requires a keen appreciation of the interaction of U.S., UK and other foreign laws when interfacing with investigators and at any subsequent hearings or trials.


1) United States v. Allen, Nos. 16-898, 16-939 (2d Circuit, decided July 19, 2017).

2) Id. at 80.

3) A Kastigar hearing is held to assess whether the Government has made direct use or derivative use of compelled testimony. Kastigar v U.S., 406 U.S. 441 (1972).

4) Allen, Nos. 16-898, 16-939 at 33–39.

5) Id. at 80.

6) Id. at 55–71.

7) Sections 2 and 2A, Criminal Justice Act 1987.

8) Sections 171 to 173, Financial Services and Markets Act 2000.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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