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

• Decision Date: 19 July 2017
• Docket Number: 16-939-cr (con),Nos. 16-898-cr (Lead),AUGUST TERM 2016,s. 16-898-cr (Lead)
• Parties: UNITED STATES of America, Appellee, v. Anthony ALLEN and Anthony Conti, Defendants–Appellants.
• Court: U.S. Court of Appeals — Second Circuit

864 F.3d 63

UNITED STATES of America, Appellee,

v.Anthony ALLEN and Anthony Conti, Defendants–Appellants.^*

Nos. 16-898-cr (Lead)

16-939-cr (con)

AUGUST TERM 2016

United States Court of Appeals, Second Circuit.

ARGUED: JANUARY 26, 2017

DECIDED: JULY 19, 2017

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.⁶ Agreeing 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, 92 S.Ct. 1653, 32 L.Ed.2d 212 (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 integration of existing ones into the euro left the BBA with oversight of fixings over ten currencies as of 2012.¹¹

During that period of time, there was no direct governmental regulation of LIBOR submissions.¹²

For each of the world's major currencies, the BBA assembled a panel of banks—typically established institutions that were active in the interbank market in that currency and had a large presence in London. The LIBOR panels for the U.S. Dollar ("USD") and Japanese Yen ("JPY") consisted of 16 banks, including Rabobank, a Dutch bank.¹³ As explained below, these panel banks submitted the figures that the BBA used to calculate a currency's official LIBOR rates.

According to the LIBOR "definition" on the BBA's website during the relevant time period, each panel bank, every day at around 11 a.m. London time, was to "contribute the rate at which it could borrow funds, were it to do so by asking for and then accepting inter–bank offers in reasonable market size just prior to 1100."¹⁴ Each panel bank typically designated a particular employee to be principally responsible for submitting that bank's LIBOR contributions generally or for a particular currency or set of currencies. That employee, a so–called LIBOR submitter, would submit multiple rates within each currency that varied based on the hypothetical loan's "tenor," or duration (pursuant to the basic proposition that the interest rate of a loan will vary based, among other things, on the loan's duration). There were fifteen tenors ranging from overnight to one year—e.g. , one month (or "1M"), three months (or "3M"), and so forth.

After receiving submissions from each panel bank, the BBA would, within each tenor of each currency, sort the submissions from lowest to highest, disregard the lower and upper quartiles, and average the remaining submissions. The resulting number became the LIBOR fixed rate and was released to the public daily (through Thomson Reuters, acting as the BBA's agent).¹⁵ Accordingly, for sixteen–bank panels like the USD and the JPY panels, each day, and with respect to each tenor, the BBA would disregard the highest four and lowest four submissions from the panel, and then average the remaining eight submissions to produce that day's LIBOR fixed rate in each tenor of USD and JPY—e.g. , the 1M USD LIBOR rate.

As noted, LIBOR fixed rates, as published every day shortly after 11 a.m. London time, are incorporated into the terms of financial transactions—such as so–called "interest rate swaps"—throughout the world.¹⁶ An interest rate swap, to take one example of a LIBOR–based financial instrument, is an agreement between two parties in which one agrees to pay a fixed interest rate on some agreed–upon notional amount, while the other party agrees to pay a floating rate (usually tied to the LIBOR) on that same amount. The two sides agree to exchange payments on agreed–upon dates over the course of an agreed–upon time period. The date on which the floating rate is set (or reset) is often called the "fixing" or "fixing date."¹⁷ If the floating rate references LIBOR, the relevant LIBOR rate on a fixing date determines how much or how little that party pays. Put simply, one party bets that interest rates (using LIBOR as the reference) will increase, and the other bets that interests rates (again, based on LIBOR) will decrease.

In effect, and in short, money changes hands as LIBOR rates change. And the panel banks, the joint controllers of...