The D & O Diary
Dodd-Frank Anti-Retaliation Provisions Don't Protect Overseas Whistleblower
When the SEC Whistleblower Office presented its first full fiscal year annual report last November, the agency reported that 324 (or 10.8%) of the 3,001 whistleblower reports the agency received came from whistleblowers outside the United States. This statistic suggested that the Dodd-Frank whistleblower provisions could lead to the revelation of financial misconduct overseas, and also suggested the possibility that these non-U.S. whistleblower reports could lead to increased revelation of FCPA violations. (The report noted that 3.8% of the whistleblower reports involved alleged FCPA violations.)
However, a recent decision in the Southern District of New York could put a damper on overseas whistleblowing. In an October 21, 2013 opinion, Judge William H. Pauley held that the Dodd-Frank Act’s whistleblower anti-retaliation provisions do not protect whistleblowers outside the U.S. Judge Pauley’s opinion can be foundhere. Judge Pauley’s decision follows a June 2013 Southern District of Texas decision in the GE Energy (USA) case (here) in which Judge Nancy Atlas held that the anti-retaliation provisions do not apply extraterritorially. Without the protection of the anti-retaliation provisions, prospective overseas whistleblowers could be deterred from submitting reports to the SEC.
Meng-Lin Liu, a Taiwanese national, served as Group Compliance Officer for Siemens A.G.’s Chinese healthcare division. He became concerned that the Chinese unit was paying kickbacks to obtain imaging equipment contracts with Chinese and North Korean hospitals. He reported concerns to company officials, including his concern that the payments circumvented compliance procedures put in place following the company’s 2008 guilty plea to FCPA charges. Liu received negative performance reviews he believed were written in retaliation for raising concerns. He was later demoted and in early 2011 his employment contract was terminated. In May 2011, Liu reported possible FCPA violations to the SEC.
Liu instituted a Dodd-Frank Act whistleblower anti-retaliation action against Siemens in the Southern District of New York. Siemens moved to dismiss, arguing that the anti-retaliation provisions do not apply extraterritorially.
In his October 21 opinion, Judge Pauley granted the company’s motion to dismiss. Citing the U.S. Supreme Court’s decision in Morrison v. National Australia Bank for the proposition that U.S laws do not apply extraterritorially unless Congress clearly expresses intent for a statute to apply extraterritorially, Judge Pauley found that in enacting the Dodd-Frank Act, Congress had not show an intent for the anti-retaliation provisions to apply extraterritorially.
Judge Pauley also rejected Liu’s argument that the anti-retaliation provisions should apply to Siemens merely because Siemens has ADRs that trade on the NYSE, noting that in the Morrison case, National Australia Bank had ADRs trading in the U.S. but that that fact was not determinative of the question of the reach of the securities laws.
Judge Pauley said:
This is a case brought by a Taiwanese resident against a German corporation for acts concerning its Chinese subsidiary relating to alleged corruption in China and North Korea. The only connection between the United States is the fact that Siemens has ADRs traded on an American exchange, just as in Morrison…There is simply no indication that Congress intended the Anti-Retaliation Provision to apply extraterritorially.
Judge Pauley also rejected Liu’s argument that he was entitled to protection under the Sarbanes-Oxley whistleblower provisions. He also considered but concluded that he did not need to decide the question whether or not Liu was even a “whistleblower” to whom anti-retaliation protections would otherwise apply given that he did not file his whistleblower report until after he his employment contract had been terminated.
Judge Pauley accepted that overseas employees could be a whistleblower within the meaning of the Dodd-Frank Act. Clearly, given the significant number of whistleblower reports from outside the U.S. in the program’s first full fiscal year, overseas employees have responded to the opportunity to provide whistleblower reports.
However, many prospective whistleblowers learning that they would not have the benefit of the anti-retaliation provisions might now be less willing to come forward. In the absence of these protections, the volume of whistleblower reports from outside the U.S. might well decline, which in turn potentially could result in fewer reported violations of the FCPA.
The one consideration that might reassure prospective overseas whistleblowers is the extent of the SEC’s effort to protect the anonymity of the whistleblower to whom the agency recently awarded the record-level $14 million whistleblower bounty. At least some prospective overseas whistleblowers might yet come forward even without the anti-retaliation protections if they believe their anonymity will be preserved.
Nevertheless, the absence of anti-retaliation protection for non-U.S. whistleblower could deter many prospective overseas whistleblowers from filing reports with the SEC.
Hat tip to the S.D.N.Y. Blog (here) for the link to Judge Pauley’s opinion.
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