United States: Second Circuit's Ruling In United States v. Allen Strikes Blow To Cross-Border Enforcement Efforts

The Second Circuit's recent decision in United States v. Allen has created a potentially serious obstacle to the United States' cross-border enforcement efforts. The court ruled that the Fifth Amendment prohibits the Department of Justice (DOJ) from introducing evidence at trial in the United States derived from testimony lawfully compelled by foreign criminal authorities. Placing the risk of using such testimony squarely on US authorities, the decision will likely hamper recent efforts to step up international cooperation in cross-border investigations and enforcement actions.

United States v. Allen involved a challenge by two former Rabobank employees, Anthony Allen and Anthony Conti, of their convictions related to the alleged manipulation of the London Interbank Offered Rate (LIBOR). LIBOR rates are benchmark interest rates intended to reflect the daily borrowing rates on interbank loans. A group of banks, including Rabobank, routinely submit data that is used to calculate a currency's LIBOR rate. DOJ charged Allen and Conti with submitting fraudulent data, alleging that they manipulated their submissions to align with Rabobank's traders' interests in having LIBOR be higher or lower in order to better situate their trades.

The investigation commenced when DOJ and the UK Financial Conduct Authority (FCA) began interviewing Rabobank employees in 2013. Aware of the potential problems of sharing compelled testimony from the beginning of the investigation, DOJ took care to conduct its interviews wholly independent of the FCA. In accordance with that procedure, the FCA conducted interviews of Allen, Conti and a third former Rabobank employee, Paul Robson, all of whom were compelled to answer questions under the threat of imprisonment.

The FCA subsequently filed an enforcement action against Robson and disclosed to him the relevant evidence against him, including the compelled testimony of Allen and Conti. Robson reviewed their testimony—annotating and taking notes on certain passages. The FCA then stayed its regulatory proceeding while DOJ initiated a criminal prosecution against him. Robson ultimately pled guilty to wire fraud and entered into a cooperation agreement with DOJ, agreeing to provide assistance in its prosecutions of Allen and Conti.

Allen and Conti were ultimately indicted for conspiracy to commit wire and bank fraud, as well as wire fraud, and DOJ relied on Robson's testimony both before the grand jury and at trial. Prior to trial, the defendants moved to dismiss the indictment or, alternatively, to suppress Robson's testimony on the grounds that parts of his testimony were based on their compelled testimony before the FCA. The trial court decided to address the motion post-trial. While the trial court agreed that Robson had reviewed Allen's and Conti's testimony, it denied their motions, holding that his review did not taint the evidence he later provided because DOJ had sufficiently showed an independent source for the evidence—Robson's "personal experience and observations."

On appeal, the Second Circuit vacated the convictions and dismissed the indictments. The court acknowledged that the Fifth Amendment's Self-Incrimination Clause prohibits the use of compelled testimony in an American court, and reasoned that this prohibition applies even when a foreign government compels the testimony pursuant to its own laws. Notably, the court rejected DOJ's argument that barring the use of such testimony "could seriously hamper the prosecution of criminal conduct that crosses international borders." While recognizing that "so-called cross-border prosecutions have become more common," and that DOJ has gone so far as to embed US prosecutors in foreign law enforcement agencies, the Second Circuit nevertheless ruled that the risk of error in such coordination must fall on the US authorities, rather than on the "subjects and targets" of the investigations.

Applying this principle, the Second Circuit held that DOJ's reliance on Robson's testimony was impermissible. US law prohibits law enforcement authorities from using compelled testimony or any evidence derived from such testimony. Despite DOJ's efforts to conduct interviews independently, the court found that Robson's testimony was tainted by his review of Allen's and Conti's compelled testimony—evidenced by the fact that there were material differences between Robson's testimony to the FCA and that which was provided to the grand jury and later at trial. The court further found that Robson's testimony was fundamental to securing the indictments and convictions and was thus not harmless error.

The Second Circuit's decision in United States v. Allen will likely have a significant impact on cross-border investigations by making it more difficult for US law enforcement authorities to use evidence collected by their foreign counterparts. The decision will have a particular impact on investigations involving violations of the Foreign Corrupt Practices Act, where cross-border cooperation with foreign criminal authorities has been common. For instance, US authorities have had significant success cooperating with Brazilian and Swiss law enforcement authorities in their recent combined US$3.5 billion FCPA settlement with two Brazil-based corporations, Odebrecht and Braskem. Going forward, US law enforcement authorities must take care to ensure that any evidence from foreign authorities is not otherwise tainted by compelled testimony. In order to accomplish this objective, US law enforcement authorities may attempt to get involved earlier, rather than let foreign authorities, such as the FCA, conduct the investigations.

Nevertheless, Allen provides defendants and defense counsel another avenue to explore in challenging potential prosecutions based on conduct subject to investigation by multiple law enforcement entities. The ruling in Allen is not limited to simply compelled testimony. It also extends to the fruits of all the illicit testimony. Types of evidence other than testimony—such as the identities of potential witnesses, the location of documents or other leads—might all be impermissibly obtained by US authorities, and therefore could all be subject to challenge. Allen's potentially widespread application indicates that the case provides an invaluable new tool for defense counsel representing clients that could be subject to cross-border prosecutions.

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