Last week, whistleblowers reporting potential violations occurring outside of the United States again found themselves on the outside looking in at protections afforded to domestic whistleblowers when the Southern District of New York ruled that the anti-retaliation provision of the Dodd-Frank Act does not apply extraterritorially. This decision followed Asadi v. GE Energy USA LLC, No. 12-345, 2012 WL 25222599 (S.D. Tex. June 28, 2012), in which a district court in Texas reached the same conclusion.
In Liu v. Siemens AG, a Taiwan citizen and former employee of Siemens China brought suit against its German parent company for violating Dodd-Frank’s anti-retaliation provision. Liu claimed that he was illegally fired for reporting possible Foreign Corrupt Practices Act (“FCPA”) violations. District Judge William H. Pauley, IIII, dismissed the complaint. Noting that the anti-retaliation provision is silent as to extraterritorial effect, the district court applied the “presumption against extraterritoriality” set forth by the Supreme Court in Morrison v. Nat’l Austl. Bank Ltd, 130 S. Ct. 2869 (2010) to hold that Congress did not intend the provision to apply extraterritorially. The court found this conclusion reinforced by the fact that section 929(P) — a different section of the Dodd-Frank Act — which provides the Securities and Exchange Commission (“SEC”) with the authority to bring enforcement actions for conduct and transactions abroad, does expressly provide for extraterritorial application. The court reasoned that this provision “would be quite superfluous” if Congress intended the entire act to apply extraterritorially. (The district court also dismissed the complaint for the independent reason that the disclosures of FCPA violations that Liu alleged were not “required or protected” under Sarbanes-Oxley and were therefore beyond the scope of the anti-retaliation provision.)
In his decision, Judge Pauley cited approvingly to Asadi, which also found that the anti-retaliation provision does not apply extraterritorially. In Asadi, a dual citizen of the U.S. and Iraq, temporarily assigned to Jordan by his U.S. employer, was fired after raising bribery concerns in violation of the FCPA. As in Liu, the Southern District of Texas applied Morrison to hold that whistleblowers outside of the United States were not the intended protectees of Dodd-Frank’s anti-retaliation provision. Although the plaintiff there was a U.S. citizen who worked for a U.S. company, the court held that the majority of the events giving rise to the action occurred outside of the United States and therefore outside of the protection of the provisions.
Extraterritorial whistleblowing is not new to Dodd-Frank, and neither is the trend against extraterritorial protections. In 2006, the First Circuit held that the Sarbanes-Oxley Act did not protect whistleblowers working in foreign countries. Carnero v. Boston Scientific Corp., 433 F.3d 1, 18 (1st Cir. 2006). The Department of Labor Administrative Review Board followed suit in 2011, dismissing the claims of a Columbia-based whistleblower for protection under the Sarbanes-Oxley whistleblower provisions. Villanueva v. Core Labs NV, ALJ Case. No. 2009-SOX-006, 2011 WL 6981989, at *1 (Dep’t of Labor, Dec. 22, 2011) (currently on appeal before the Fifth Circuit).
In 2012, whistleblowers from 49 foreign countries reported 324 potential corruption violations to the SEC, accounting for nearly 11% of the SEC’s total whistleblowing tips. These decisions, therefore, may be good news for corporations with employees abroad concerned about the growing number of claims by whistleblowers. That said, overseas employers are not off the hook. Dodd-Frank expressly provides the SEC with the authority to pursue violations of its statutes worldwide, leaving corporations vulnerable to federal investigation, prosecution, and sanctions. And as the Liu court noted, its holding is not inconsistent with the proposition that a person outside the United States can be a “whistleblower” under Dodd-Frank—and eligible for whistleblower awards.