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26 Jul 2017

US LIBOR case deals a blow to cross-border assistance and clarifies the use of compelled evidence

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A US Appeals court has reversed the convictions of two ex-Rabobank employees in connection with their alleged roles in the manipulation of LIBOR. The decision of the United States Court of Appeals for the Second Circuit in Manhattan found that the former traders' constitutional rights had been violated where a cooperating witness's testimony at trial had been tainted as a result of having access to the pair's compelled interviews given to the FCA. The Court also dismissed the operative grand jury indictment (from 2014) meaning that the individuals will face no further charge or prosecution in the US in relation to US dollar or Japanese yen LIBOR.

The background to the case

The appellants, Anthony Allen and Anthony Conti, had previously provided evidence to the FCA during the course of an interview in relation to a connected investigation on a compelled basis (where individuals are required to provide evidence or risk committing a criminal offence). The FCA subsequently dropped its case only for the US Department of Justice to commence a criminal investigation into the pair shortly thereafter.

Allen and Conti were charged with one count of conspiracy to commit wire fraud and bank fraud, and several counts of wire fraud. They stood trial and were convicted in 2015 notwithstanding a pre-trial application to dismiss the indictment or supress key testimony provided by Paul Robson, a former colleague, who had already pleaded guilty to a criminal conspiracy charge and was described as a "key cooperator and prominent witness". Robson had previously been shown Allen and Conti's compelled testimony created in the course of the FCA's investigation and the pair sought to challenge the credibility of Robson's evidence on the basis that the government could not show that its proof rested on evidence other than the compelled statements.

A post-trial hearing to determine the credibility of Robson's evidence against the pair took place, but the conviction was upheld on the grounds that the government was able to point to an independent source for the evidence other than the defendants' compelled testimony. Allen and Conti were sentenced to two years and one year imprisonment respectively although they remained on bail pending the appeal process.

The Appeal

The appellate court disagreed and stated that the US government had improperly relied on the defendants' compelled testimony (which cannot typically be used to mount a criminal case against the interviewee) in breach of their Fifth Amendment right against self-incrimination; it also found that compelled testimony cannot be used to secure a conviction in an American court even when the testimony was compelled by a foreign government in full accordance with its own law.

The court also held that in instances where a witness has already been "substantially exposed" to a defendant's compelled testimony, it is the government's burden to show "at a minimum, that the witness's review of the compelled testimony did not shape, alter or affect the evidence used by the government". Robson submitted that his review of the material did not taint his evidence, but such denials were not regarded as sufficient in this case.

Effect of the decision

The decision will be regarded as a blow for the Department of Justice, especially as the direction of travel in recent times has been one of ever-increasing international cooperation in respect of overseas assistance in global fraud investigations; in 2016/2017 the FCA received 998 requests for assistance from a range of regulatory and law enforcement agencies, a 17% increase on 2012/2013 figures. That said, this case can be limited to its specific facts as the convictions were overturned as a result of the existence of compelled testimony - it is important to note that in the US government's investigation into foreign exchange, no such testimony was created by the FCA or any other regulator so as to avoid the precise issues encountered in the case of Allen and Conti.

This was the first American criminal case to arise from investigations into the manipulation of LIBOR and the decision will no doubt cause prosecuting authorities to re-think the precise nature of assistance sought by overseas bodies. But the decision must be placed within the wider context of other attempted prosecutions linked to the manipulation of LIBOR, especially in the UK in the last two years where:

(i) eight former traders have been acquitted of criminal charges;

(ii) the sentence of an ex-Barclays trader has been reduced on appeal; and

(iii) Tom Hayes has won the right for his case to be reviewed by the UK's Criminal Case Review Commission which will examine if a miscarriage of justice took place.

The issues encountered in the case of Allen and Conti may be regarded as case-specific, but the wider trend of prosecuting authorities failing to secure sound convictions cannot be ignored.

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