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Second Circuit Will Not Revisit Opinion Barring Testimony Compelled by Foreign Sovereigns

On Thursday, the United States Court of Appeals for the Second Circuit refused to revisit a July 2017 decision by a panel of that court in United States v. Allen, which held, among other things, that the Fifth Amendment prohibits the use of compelled testimony in U.S. criminal proceedings, even when the testimony was lawfully compelled by a foreign sovereign. Thursday’s Order is significant because it ensures that the Allen decision is the law of the Second Circuit, and the government’s only remaining option to challenge Allen is to petition the United States Supreme Court for review.

The circumstances in Allen arose in the wake of the well-publicized LIBOR rate manipulation scandal. Among many other prosecutions, the United States sought to prosecute two citizens of the United Kingdom – Anthony Allen and Anthony Conti. Allen and Conti worked in the London office of a European bank, and were responsible for the bank’s U.S. dollar LIBOR submissions. The United States indicted Allen and Conti for wire fraud, bank fraud, and related conspiracy charges for allegedly manipulating the bank’s LIBOR submissions in favor of the bank’s trading positions. Following a full trial, Allen and Conti were convicted.

Allen and Conti appealed their convictions – and for good reason. Before being indicted in the United States, both Allen and Conti gave testimony to the U.K. Financial Conduct Authority (“FCA”) in connection with a nearly identical LIBOR manipulation investigation. Allen and Conti’s testimony to the FCA was compelled under penalty of imprisonment, and there is no Fifth Amendment analogue in such proceedings that shields an individual from giving self-incriminating testimony. A separate target of the FCA’s LIBOR investigation was then allowed to review Allen and Conti’s compelled testimony. That target subsequently became a cooperating witness for the United States – giving statements to the FBI, and ultimately testifying as a government witness at Allen and Conti’s trial. In addition, the FBI agent who testified in the grand jury to secure Allen and Conti’s indictment relayed information that was provided to the government exclusively through the cooperating witness.

On appeal, the Second Circuit overturned Allen and Conti’s convictions, dismissed their indictments, and clarified the boundaries of the Fifth Amendment in the process. First, the court held that the Fifth Amendment’s prohibition on the use of compelled testimony applies even when a foreign sovereign has compelled the testimony (and even when the foreign sovereign has acted perfectly lawfully in doing so). Second, if the prosecution uses a witness who has had substantial exposure to a defendant’s compelled testimony, the prosecution must prove that the witness’s review of the compelled testimony did not shape, alter or affect the evidence used in the grand jury or at trial. Moreover, where a witness has materially altered his testimony after being substantially exposed to a defendant’s compelled testimony, the government must produce something more than a bare, generalized denial that the witness’ testimony was tainted by the compelled testimony.

With Allen now firmly cemented as the law of the Second Circuit, there is more reason than ever to believe that its holdings will impact not only investigations and prosecutions in the Second Circuit, but throughout the entire country.

While the facts of Allen involved criminal prosecution, it is likely that Allen will impact SEC investigations. First, the Fifth Amendment provides protection to individuals under investigation by the SEC in that the SEC cannot compel individuals to testify against their own interest. That protection is limited because the SEC, as a civil litigant, is usually entitled to an adverse inference when an individual asserts the privilege. However, if the SEC receives compelled testimony from the FCA, it would appear that under Allen that the SEC would be prevented from using the substantive testimony in any subsequent prosecution. Second, given how often the SEC staff coordinates with the criminal authorities, the SEC staff will have to be very careful about sharing the substance of foreign compelled testimony with witnesses that the criminal authorities may want to use in any parallel criminal prosecution.

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About this Author

Mary P. Hansen, White Collar Criminal Defense Attorney, Drinker Biddle Law Firm

Mary Hansen is a partner on the firm’s White Collar Criminal Defense & Corporate Investigations team, where she focuses her practice on defending clients in regulatory investigations as well as white collar criminal proceedings in the securities industry.  She also assists clients with internal investigations and compliance and prevention strategies.

Prior to joining the firm, Mary was an Assistant Director of the U.S. Securities & Exchange Commission’s Division of Enforcement, where she was a member of the division’s Market Abuse and...

Nicholas S. Feltham, attorney, Drinker Biddle, Philadelphia, criminal and civil litigation

Nicholas S. Feltham represents clients in both white collar criminal matters and complex civil litigation. Nick’s white collar experience includes representing witnesses, subjects, and targets of federal criminal cases - from the initial meeting through trial; counseling both companies and witnesses throughout SEC investigations; and conducting internal investigations. His experience in complex civil matters is also extensive. Nick has successfully represented clients in class actions, civil RICO actions, and civil environmental enforcement litigation, among many others.