MANHATTAN (CN) — Two British bankers had their convictions for manipulating the London Interbank Offered Rate – better known as Libor – overturned Wednesday, after the Second Circuit found the Fifth Amendment’s prohibition on coerced testimony also applies when foreign governments have done the coercing.
In late 2015, a federal jury determined that Rabobank employees Anthony Allen and Anthony Conti committed wire fraud and bank fraud after a four-week trial that introduced jurors to the arcane acronyms of international finance.
Rabobank, a Dutch company, is short for Cooperatieve Centrale Raiffeisen-Boerenleenbank, which has had several employees convicted of Libor manipulation.
Libor is the rate banks charge one another for short-term loans necessary to carry on their business.
With this rate tied to more than $300 trillion in financial derivatives, Bloomberg Markets dubbed it the “world’s most important number.”
Though the U.S. Department of Justice may have been eager to protect the integrity of this market, the Second Circuit found Wednesday that prosecutors failed to apply constitutional protections to the foreign defendants.
“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,” U.S. Circuit Judge Jose Cabranes wrote in an 81-page opinion.
Two years before the trial, the United Kingdom’s Financial Conduct Authority interviewed Allen, Conti and their co-workers, forcing them to testify under threat of imprisonment.
In turn, the men were provided “direct use” immunity for their testimony, but there was no such promise for “derivative use.”
British regulators used Allen and Conti’s compelled testimony to start an enforcement action against their co-worker Paul Robson, whose case was eventually dropped.
In the United States, Robson ultimately became an important cooperating witness against Allen and Conti, and he was the sole source of certain information supplied to the grand jury.
The New York-based federal appeals court unanimously found that this testimony was tainted.
“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,” the opinion states. “To be clear, we do not purport to prescribe what the U.K. authorities (or any foreign authority) may do in their witness interviews or their criminal trials. We merely hold that the self‐incrimination clause prohibits the use and derivative use of compelled testimony in an American criminal case against the defendant who provided that testimony.”
U.S. Circuit Judges Rosemary Pooler and Gerard Lynch rounded out the three-judge panel, which ordered a new trial for the men.
Allen’s attorney Michael Schachter, a partner with the law firm Willkie Farr & Gallagher, celebrated the decision.
“Today’s decision is a tremendous relief for Tony Allen and his family, who now look forward to putting this stressful chapter of their lives behind them,” he said.
His client had been facing a two-year sentence, which had been delayed pending appeal.
Conti’s attorney Aaron Williamson also echoed those sentiments.
“We’re very pleased with the court’s decision, which we view as an vindication of important Fifth Amendment principles,” he said. “Most importantly, Tony and his family can move forward without fear of being pulled apart for a year of their lives.”
Conti had faced a sentence of one year and a day.
The Department of Justice declined to comment on the Second Circuit ruling.