Libor Traders’ Appeal Win Could Chill U.S. Cross-Border CasesBy , , and
Convictions of Rabobank traders tossed on tainted testimony
Court finds U.K. interviews were improperly used by U.S.
A New York appeals court tossed out convictions of two former London-based Rabobank Groep traders for manipulating the Libor benchmark rate, ruling that their forced testimony to a U.K financial regulator was improperly used against them in a U.S. criminal trial.
The ruling Wednesday is a major setback in a seven-year government investigation of rigging in the Libor market and could undermine prosecutions of cross-border crimes. Anthony Allen and Anthony Conti were the first bankers put on trial in the U.S. Libor, the London interbank offered rate, is a daily estimate of borrowing costs among the world’s biggest banks. It’s used to value trillions of dollars of financial products, including mortgages, commercial loans and derivatives.
The three-judge panel said prosecutors improperly used testimony that Allen and Conti, along with several coworkers, were forced to provide to the U.K.’s Financial Conduct Authority in order to build the criminal case against them. That testimony was used in the form of a key government witness who had read transcripts of the interviews Allen and Conti had earlier given to the FCA. The witness, Paul Robson, pleaded guilty and then testified during Allen and Conti’s trial.
“The Fifth Amendment’s prohibition on the use of compelled testimony in American criminal proceedings applies even when a foreign sovereign has compelled the testimony,” U.S. Circuit Judge Jose Cabranes wrote on behalf of the panel.
The FCA never took action against Allen and Conti, though it did ban Robson from the industry.
The government said in a filing that prohibiting the use of the U.K. testimony “could seriously hamper the prosecution of criminal conduct that crosses international borders.” Prosecutors in the case also told the court that the case against Conti and Allen wasn’t built from the testimony they had given the FCA.
A Justice Department spokeswoman declined to comment on the ruling. The government could ask the full appeals court to reconsider the decision.
“It’s a very solid vindication of our client’s Fifth Amendment rights,” said Tor Ekeland, a lawyer for Conti. “We’re thrilled that this long ordeal for our client is over.”
Michael Schachter, a lawyer for Allen, said the decision is "a tremendous relief" for his client and his family "who now look forward to putting this stressful chapter of their lives behind them."
Ekeland said he thinks the ruling will force U.S. prosecutors to be “very careful” about prosecuting foreigners in the U.S. after they’ve been forced to provide evidence in their home countries.
The Rabobank case stood out as a victory for the Obama administration’s Justice Department, which was criticized for not aggressively pursuing bankers and corporate executives for fraud. At least 15 individuals have been charged in the overall Libor investigation and cases against former traders at Deutsche Bank AG are pending in New York.
Four former Rabobank traders pleaded guilty and agreed to testify against Allen and Conti. Those individuals could seek to have their convictions vacated in light of Wednesday’s ruling. A lawyer for Takayuki Yagami, one of the men, said it’s too early to tell whether that will happen.
"There is precedent in this district for dismissing cases against a cooperator where the cases against the main targets were dismissed on appeal," said Andrew Frisch, Yagami’s lawyer.
The ruling could also have larger implications for the U.S. as it has more routinely sought to work with foreign jurisdictions in rooting out criminal behavior, said Robertson Park, a former federal prosecutor who worked on the Libor investigation of Barclays Plc.
"I can assure you that this opinion is being read very carefully by lawyers in these multinational investigations -- VW, Audi and now Daimler, any of these," said Park, now a partner at Murphy & McGonigle in Washington. "This is definitely causing a scrub."
Unlike the U.S. where there are greater protections from self-incrimination, compelled interviews are often used by the FCA and the U.K. Serious Fraud Office to aid investigations. They’re generally not admissible as evidence in criminal proceedings and are largely used to question witnesses rather than suspects.
“This ruling highlights the dangers of cross-border investigations and prosecutions where protections afforded by one country are not necessarily respected in a different jurisdiction,” said Roland Ellis, a London lawyer who represented one the acquitted Barclays Libor traders. “Fortunately, in this case, the high regard given to the privilege against self-incrimination in the U.S. ultimately prevented a circumvention of this right.”
In its Libor investigation, the FCA questioned Allen, Conti and others at Rabobank under threat of imprisonment if they refused to testify. The agency granted the witnesses so-called use immunity, which meant that their statements could not be used against them in a later criminal prosecution. Under U.S. law, the government can’t force a defendant to testify without the additional guarantee that it won’t use evidence developed from the testimony.
The FCA later provided Allen’s and Conti’s testimony to Robson, who reviewed and marked up a transcript and took several pages of notes. While the issue of the government’s use of compelled testimony was raised before Allen and Conti’s 2015 trial, U.S. District Judge Jed Rakoff waited until after their convictions to consider the matter.
Rakoff upheld the convictions in February 2016, finding that federal prosecutors had separately developed a “significant” amount of evidence independent of the U.K. investigation. Allen got two years in prison while Conti was sentenced to one year. Both men have remained free pending the appeal.
The appeals court Wednesday ruled that Robson’s testimony was tainted and required reversal of Allen and Conti’s convictions and the grand jury indictment that had been filed against them.
“This tainted testimony was significant both at trial and in the grand jury, because it provided the only first-hand eyewitness account that refuted the defendants’ central argument for acquittal, and was therefore not harmless beyond a reasonable doubt,” Cabranes wrote.
The case is U.S. v. Allen, 16-00898, U.S. Court of Appeals, Second Circuit (Manhattan).
— With assistance by David McLaughlin