Decision that let Rabobank traders off the hook complicates US-UK joint investigations

26 July 2017 12:34pm
UK USA Flags

21 July 2017. By Richard Vanderford.

US law enforcers cooperating with overseas counterparts, particularly those in the UK, need to tread carefully when building a case, an appeals court warned in a decision issued earlier this week. Evidence-gathering practices that are legal in Britain can wreck a trial if charges are brought stateside, the court said in a decision overturning the conviction of two former Rabobank traders.

Former London-based Rabobank traders Anthony Allen and Anthony Conti on Wednesday escaped prison sentences for manipulating the London Interbank Offered Rate, a key interest benchmark, after the US Court of Appeals for the Second Circuit ruled that testimony UK authorities forced them to give tainted their US trial.

The UK Financial Conduct Authority made the two men provide accounts of their conduct on penalty of jail. Though legal in the UK, forced testimony runs afoul of US constitutional protections, the court said.

The decision threw out the indictment against the two men and overturned their conviction at trial.

The ruling was a significant upset for US prosecutors, who secured the men's convictions after a multiyear investigation and trial that featured testimony from several cooperating witnesses. Beyond this one case though, the court's ruling could force US and UK authorities to rethink how they conduct joint investigations.

The Second Circuit rejected arguments that throwing out the charges over investigative techniques that were legal in the UK would make cross-border investigations too difficult to manage. US law enforcement has to be aware of potential problems foreign collaboration poses at the outset, the court said.

"So‐called cross‐border prosecutions have become more common," US Circuit Judge Jose Cabranes wrote in the decision on behalf of a three-judge panel. "We do not presume to know exactly what this brave new world of international criminal enforcement will entail. Yet we are certain that these developments abroad need not affect the fairness of our trials at home."

Cabranes had previously expressed skepticism over the prosecution, saying at the outset of January's oral arguments in the case that he wondered why his court was the one fielding it.

"They are relatively low-level employees," Cabranes said. "They worked in London for a Dutch bank that may be a household name in the Hague but is not in my relatively parochial American world."

"All of this is a puzzlement to me," he said.

In Wednesday's opinion, he also noted that US prosecutors had begun to be embedded in the offices of their UK counterparts.

The Second Circuit's decision gives a practical dimension to that generalized skepticism. Prosecutors on both sides of the Atlantic must more carefully map how they intend to proceed, or risk a US prosecution running aground.

The seeds for the collapse of the case against Conti and Allen were planted far before the men ever appeared in a US court.

Both spoke to the FCA early on as it proceeded with its own investigation, as UK law required. In the US, they would have have been able to invoke a right against self-incrimination and forced testimony guaranteed under the Fifth Amendment.

UK enforcers, following procedure, shared the compelled testimony of Conti and Allen with Paul Robson, a one-time colleague who was also under investigation. But the UK never brought its own charges, leaving the case to US Justice Department prosecutors.

Robson later briefed an FBI agent who testified before the grand jury that indicted Conti and Allen. He also testified at trial.

Conti and Allen were convicted in November 2015. Afterward, the district court judge considered Robson's exposure to the forced testimony, but found it hadn't overly colored what he said at trial.

That was a mistake, the Second Circuit said. Robson's exposure to the defendants' forced testimony, notwithstanding his later assertion in a hearing that reading it didn't make a difference, tainted both the indictment and trial, the appellate panel said.

The Second Circuit noted that Robson's testimony had changed after his exposure to the compelled testimony of Conti and Allen, a key factor.

"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," he said.

For cross-border investigations, the cautionary tale is clear. The UK authorities, following their own procedure, tainted a key witness.

US prosecutors can appeal, though the 81-page decision is well-reasoned and the implications of overturning it are clear: US prosecutors might be free to gather evidence abroad using methods that would be illegal at home.

Cabranes noted in the decision that the government's preferred legal standard "would remove any bar to introducing compelled testimony directly in US prosecutions similar to this one — as in, 'Your honor, we offer Government Exhibit 1, the defendant's compelled testimony.' "

The US Supreme Court seems unlikely to take up a case that would allow prosecutors to end-run the Fifth Amendment, a bedrock of US criminal law.

The impact on future cases isn't immediately apparent. Two ex-Deutsche Bank traders indicted in New York, though, asked on Wednesday for a hearing to determine whether their own case is tainted. One of the defendants, Gavin Black, was himself forced to testify before the FCA.

"A hearing is necessary to determine whether the government's evidence is wholly independent of any compelled testimony," lawyers for the defendants wrote.

In theory it might be possible for prosecutors to bring a new indictment of Conti and Allen without Robson's involvement at all, but the practical difficulty illustrates the possible pitfalls of UK-US cooperation.

Leaving aside statute of limitation issues, by some defense lawyer estimates Robson's involvement has tainted the entire prosecution and FBI team who spoke with him, so a whole new team would have to be brought in. It would have been much simpler for prosecutors to have coordinated better with UK authorities after identifying, as early as possible, possible targets of US prosecution.

Indeed, the Second Circuit itself suggested that solution.

"The government was plainly aware from the outset of the need for close coordination of its efforts with those of the UK authorities," Cabranes said.

"The practical outcome of our holding today is that the risk of error in coordination falls on the US government (should it seek to prosecute foreign individuals), rather than on the subjects and targets of cross‐border investigations," he said.

The two vindicated defendants surely appreciate the Second Circuit's formula for apportioning this risk. For prosecutors, the decision is unlikely to slow down cross-border probes, found particularly often in financial sector prosecutions, but might counsel them to map out their approach before they set out.

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