The minefield of cross-border investigations
February 2018 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION
Financier Worldwide Magazine
February 2018 Issue
The upsurge in cross-border investigations, notably in a succession of recent market manipulation cases, has given rise to unprecedented levels of cooperation between UK and foreign law enforcement agencies. As indicated by then Assistant Attorney General Leslie R. Caldwell in March 2016, “collaboration and coordination among multiple regulators in cross-border matters is the future of major white-collar criminal enforcement”.
One aspect of this increased cooperation has been the subject of recent commentary: the appropriateness of the US authorities’ use of compelled testimony obtained in foreign jurisdictions.
This is the subject of an application currently playing out in the US, where ex-Deutsche Bank traders are on trial for manipulating LIBOR. The defendants, Matthew Connolly and Gavin Black in United States v. Connolly et al, have been contesting the use of compelled interviews provided by Mr Black to the UK Financial Conduct Authority (FCA), in related criminal proceedings in the US.
In UK regulatory investigations, led by the FCA, obtaining evidence from witnesses is often done via a compelled interview. In contrast to the US, the subject of a compelled interview does not have a right to refuse to respond to a question or to remain silent. Indeed, the Financial Services and Markets Act 2000 provides that failure to comply with a requirement to attend and answer questions without reasonable excuse, or giving information that is false or misleading (either knowingly or recklessly), may lead to the individual being treated as if they were in contempt of court.
The limitations on the use of compelled evidence in the US
Broadly, as a result of the Fifth Amendment, it is clear that the use of a defendant’s compelled testimony, as well as evidence derived directly and indirectly from it, against him is prohibited in the US. It is also the case, as explained in Kastigar v. United States, that the prosecution must prove that the evidence “it proposes to use is derived from a legitimate source wholly independent of the compelled testimony”.
On its face, these principles are logical and, seemingly, uncontentious. In the past year, however, the true parameters and ramifications of these principles have come under the spotlight in the context of cross-border investigations into LIBOR fixing.
United States v. Allen et al
In an interesting twist, in 2017, the US Court of Appeals for the Second Circuit had to determine whether the US government’s reliance on a cooperating witness amounted to a violation of the Fifth Amendment and Kastigar.
Rabobank traders Anthony Allen and Anthony Conti, together with their colleague Paul Robson, had been subject to parallel investigations by the FCA and the US Department of Justice (DOJ) in relation to their role in submitting LIBOR.
As part of the FCA investigation, all three had attended a compelled interview with the UK regulator. In line with normal investigation practice, the FCA then provided Mr Robson with its evidence, which included transcripts of Mr Allen and Mr Conti’s compelled interviews with the FCA. Mr Robson conducted a detailed review of those transcripts as part of his defence preparation. The FCA subsequently dropped its investigation into Mr Robson and he pleaded guilty to the charges he faced in the US. Mr Robson then agreed to cooperate with the DOJ investigation against Mr Allen and Mr Conti, becoming its key prosecution witness.
While there was no suggestion that the DOJ had directly used Mr Allen or Mr Conti’s compelled testimony (it had in fact been at pains to ensure that the FCA did not share this evidence with it), the traders challenged the DOJ’s case on grounds that its reliance on Mr Robson’s evidence was incorrect as Mr Robson would have been ‘tainted’ by his review of their FCA transcripts.
In a landmark judgement, the Second Circuit agreed that, contrary to Kastigar, the DOJ had built its case against Mr Allen and Mr Conti based on evidence obtained from the compelled FCA interviews and overturned the traders’ convictions. The Second Circuit clarified and confirmed that when the US government makes use of a witness who has been exposed to a defendant’s compelled testimony, the government bears the “heavy burden” to prove that the witness’s exposure to the compelled testimony did not “shape, alter or affect the evidence used by the government”.
United States v Connolly and Black
Following that successful outcome, the Deutsche Bank traders, Mr Connolly and Mr Black, attempted a similar challenge, although this time stretching the parameters of the Fifth Amendment and Kastigar further.
Their challenge had two key aspects. First, the FCA investigation team member who conducted Mr Black’s interview had also sat in during the DOJ’s interview of potential witnesses. Secondly, the DOJ had inadvertently published extracts of Mr Black’s FCA compelled interview, which could have been viewed by and therefore ‘tainted’ the potential witnesses.
Their application for a hearing was heard in October 2017. Although US District Judge Colleen McMahon immediately dismissed Mr Connolly’s application on the basis that he had not himself provided compelled evidence to the FCA, she granted Mr Black’s application for a hearing, scheduled to take place in late January or February 2018. Judge McMahon stated that “the possibility of taint is not entirely hypothetical” and was particularly scathing of the presence of an FCA investigation team member at the DOJ interviews. The outcome of that hearing is eagerly awaited.
The future use of compelled evidence in cross-border investigations?
These cases highlight the limitations and practical difficulties faced by prosecuting authorities where there are parallel investigations on foot. The decision in Allen was hailed as having a chilling effect on cross-border investigations on the basis that it will discourage the US authorities from seeking assistance from overseas regulators for fear of challenge. Whether that will turn out to be the case remains to be seen and the outcome of this latest legal challenge in Connolly will be watched closely in case it further stretches the parameters of the role and use of compelled evidence in cross-border investigations.
For individuals who find themselves the subject of an interview request, whether as a witness or the subject of investigation, there are lessons to be learned. Any request should be considered carefully and advice must be sought as to the consequences of compulsion and the risk of any criminal liability exposure, whether in the UK or abroad. Highly specialised legal advice is required from counsel who has a deep understanding of the many facets of multi-agency investigations and experience of challenging law enforcement agencies.
Sona Ganatra and James Carlton are partners and Julianna Tolan is a barrister at Fox Williams. Ms Ganatra can be contacted on +44 (0)207 614 2544 or by email:email@example.com. Mr Carlton can be contacted on +44 (0)207 614 2634 or by email: firstname.lastname@example.org. Ms Tolan can be contacted on +44 (0)207 614 2595 or by email: email@example.com.
© Financier Worldwide
Sona Ganatra, James Carlton and Julianna Tolan