United States v. Allen, 071917 FED2, 16-898-cr (Lead)

Docket Nº:16-898-cr (Lead), 16-939-cr
Opinion Judge:JOSÉ A. CABRANES, CIRCUIT JUDGE
Party Name:United States of America, Appellee, v. Anthony Allen and Anthony Conti, Defendants-Appellants.[*]
Attorney:Michael S. Schachter (Casey E. Donnelly, on the brief), Willkie Farr & Gallagher LLP, New York, NY, for Defendant-Appellant Anthony Allen. Aaron Williamson, Tor Ekeland, P.C., Brooklyn, NY, for Defendant-Appellant Anthony Conti. John M. Pellettieri (Leslie R. Caldwell, Assistant Attorney General;...
Judge Panel:Before: Cabranes, Pooler, and Lynch, Circuit Judges.
Case Date:July 19, 2017
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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United States of America, Appellee,

v.

Anthony Allen and Anthony Conti, Defendants-Appellants.[*]

Nos. 16-898-cr (Lead), 16-939-cr

United States Court of Appeals, Second Circuit

July 19, 2017

          Argued: January 26, 2017

         On Appeal from the United States District Court for the Southern District of New York

         This case-the first criminal appeal related to the London Interbank Offered Rate ("LIBOR") to reach this (or any) Court of Appeals-presents the question, among others, whether testimony given by an individual involuntarily under the legal compulsion of a foreign power may be used against that individual in a criminal case in an American court. As employees in the London office of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. in the 2000s, defendants-appellants Anthony Allen and Anthony Conti ("Defendants") played roles in that bank's LIBOR submission process during the now-well-documented heyday of the rate's manipulation. Defendants, each a resident and citizen of the United Kingdom, and both of whom had earlier given compelled testimony in that country, were tried and convicted in the United States before the United States District Court for the Southern District of New York (Jed S. Rakoff, Judge) for wire fraud and conspiracy to commit wire fraud and bank fraud.

         While this appeal raises a number of substantial issues, we address only the Fifth Amendment issue, and conclude as follows.

         First, 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.

         Second, when the government makes use of a witness who had substantial exposure to a defendant's compelled testimony, it is required under Kastigar v. United States, 406 U.S. 441 (1972), 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.

         Third, a bare, generalized denial of taint from a witness who has materially altered his or her testimony after being substantially exposed to a defendant's compelled testimony is insufficient as a matter of law to sustain the prosecution's burden of proof.

         Fourth, in this prosecution, Defendants' compelled testimony was "used" against them, and this impermissible use before the petit and grand juries was not harmless beyond a reasonable doubt.

         Accordingly, we REVERSE the judgments of conviction and hereby DISMISS the indictment.

          Michael S. Schachter (Casey E. Donnelly, on the brief), Willkie Farr & Gallagher LLP, New York, NY, for Defendant-Appellant Anthony Allen.

          Aaron Williamson, Tor Ekeland, P.C., Brooklyn, NY, for Defendant-Appellant Anthony Conti.

          John M. Pellettieri (Leslie R. Caldwell, Assistant Attorney General; Andrew Weissman, Carol Sipperly, Brian R. Young, Sung-Hee Suh, and Michael T. Koenig, Fraud Section, on the brief), Criminal Division, United States Department of Justice, Washington, D.C., for Appellee.

          Before: Cabranes, Pooler, and Lynch, Circuit Judges.

          JOSÉ A. CABRANES, CIRCUIT JUDGE

         This case-the first criminal appeal related to the London Interbank Offered Rate ("LIBOR") to reach this (or any) Court of Appeals-presents the question, among others, whether testimony given by an individual involuntarily under the legal compulsion of a foreign power may be used against that individual in a criminal case in an American court. As employees in the London office of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. ("Rabobank") in the 2000s, defendants-appellants Anthony Allen and Anthony Conti ("Defendants") played roles in that bank's LIBOR submission process during the now-well-documented heyday of the rate's manipulation.[1] Allen and Conti were, for unrelated reasons, no longer employed at Rabobank by 2008 and 2009, respectively. By 2013, they were among the persons being investigated by enforcement agencies in the United Kingdom ("U.K.") and the United States for their roles in setting LIBOR.

         The U.K. enforcement agency, the Financial Conduct Authority ("FCA"), 2 interviewed Allen and Conti (each a U.K. citizen and resident) that year, along with several of their coworkers. At these interviews, Allen and Conti were compelled to testify and given "direct use"-but not "derivative use"-immunity.3 In accordance with U.K. law, refusal to testify could result in imprisonment. The FCA subsequently decided to initiate an enforcement action against one of Defendants' coworkers, Paul Robson, and, following its normal procedures, the FCA disclosed to Robson the relevant evidence against him, including the compelled testimony of Allen and Conti. Robson closely reviewed that testimony, annotating it and taking several pages of handwritten notes.

         For reasons not apparent in the record, the FCA shortly thereafter dropped its case against Robson, and the Fraud Section of the United States Department of Justice (the "DOJ") promptly took it up.4 Robson soon pleaded guilty and became an important cooperator, substantially assisting the DOJ with developing its case. Ultimately, Robson was the sole source of certain material information supplied to the grand jury that indicted Allen and Conti and, after being called as a trial witness by the Government, Robson provided significant testimony to the petit jury that convicted Defendants.

         In October 2014, a grand jury returned an indictment charging Defendants with one count of conspiracy to commit wire fraud and bank fraud, in violation of 18 U.S.C. § 1349, as well as several counts of wire fraud, in violation 18 U.S.C. § 1343.5 Following a trial held in October 2015 in the United States District Court for the Southern District of New York (Jed S. Rakoff, Judge), a jury convicted on all counts. The District Court sentenced Allen principally to two years' imprisonment and Conti to a year-and-a-day's imprisonment.6Agreeing that Defendants had raised a "substantial issue" for appeal, the District Court granted bail pending appeal.[7]

         In their appeal, Allen and Conti challenge their convictions on several grounds. We address only their Fifth Amendment challenge, however, and conclude as follows.

         First, 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.

         Second, when the government makes use of a witness who has had substantial exposure to defendant's compelled testimony, it is required under Kastigar v. United States, 406 U.S. 441 (1972), 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.

         Third, a bare, generalized denial of taint from a witness who has materially altered his or her testimony after being substantially exposed to a defendant's compelled testimony is insufficient as a matter of law to sustain the prosecution's burden of proof.

         Fourth, in this prosecution, Defendants' compelled testimony was "used" against them, and this impermissible use before the petit and grand juries was not harmless beyond a reasonable doubt.

         Accordingly, we REVERSE the judgments of conviction and hereby DISMISS the indictment.

         I. BACKGROUND8

         A. LIBOR

         Some journalists and bankers have called LIBOR the world's most important number.9 It is a "benchmark" and "reference" interest rate meant to reflect the available borrowing rates on any given day in the "interbank market"-in which banks borrow money from other banks. The so-called LIBOR fixed rates, as published daily, are regularly incorporated into the terms of financial transactions entered into across the globe, and the overall value of these LIBOR-tied transactions reaches (measured in U.S. dollars) into the hundreds of trillions.[10]

         Throughout the time period relevant to this case, LIBOR rates were administered by a private trade group, the British Bankers' Association ("BBA"). As summarized by a New York Federal Reserve staff report: LIBOR's origination has been credited to a Greek banker by the name of Minos Zombanakis, who in 1969 arranged an $80 million syndicated loan from Manufacturer's Hanover to the Shah of Iran based on the reported funding costs of a set of reference banks. In addition to providing loans at rates tied to LIBOR, banks whose submissions determined the fixing had also begun to borrow heavily using LIBOR-based contracts by the mid-1980s, creating an incentive to underreport funding costs. As a result, the [BBA] took control of the rate in 1986 to formalize the data collection and governance process. In that year, LIBOR fixings were calculated for the U.S. dollar, the British pound, and the Japanese yen. Over time, the inclusion of additional currencies and...

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