Are whistleblowers outside of the United States protected by the anti-retaliation rules found in the US Securities Laws? Perhaps surprisingly, the answer turns out to be no.
Why is the answer no? According to the recent New York federal district judge decision handed down on October 21, 2013, the answer is no because Congress never intended Dodd-Frank’s whistleblower anti-retaliation provisions to apply outside the United States.
The case at issue involved a whistleblower retaliation claim filed in New York district court against Siemens by a former compliance officer for Siemens’ healthcare business in China. According to the complaint the plaintiff, who lives in Taiwan, was fired in 2010 one week after attempting to blow the whistle internally about business practices that potentially ran afoul of anti-bribery rules. The plaintiff reported the possible FCPA violations to the SEC in May of 2011. He filed his anti-retaliation suit against Siemens for firing him in January of 2012.
While there are several interesting issues in this case, I’m focused here on the court’s holding that Dodd-Frank’s anti-retaliation provisions do not apply to the plaintiff because he and all the activities in question were outside of the United States.
Why was I surprised? I was surprised because of Congress’ and the SEC’s clear policy trajectory when it comes to whistleblowers. While the concept has evolved over time, Congress’ and the SEC’s intention throughout has been to encourage whistleblowers to come forward. This encouragement has more recently taken the form of bounties. However, the most fundamental encouragement offered to whistleblowers are the anti-retaliation rules put in place for their protection (through both Sarbanes-Oxley and Dodd-Frank).
Unfortunately for the SEC, in the absence of clear authority from Congress, its policy directive cannot overcome the recent and very the clear policy direction the US courts have taken when it comes to cases involving issues that arise outside of the United States. Followers of D&O liability issues will remember the 2009 Supreme Court case Morrison v. National Australia Bank, detailed in the July 2010 D&O Databox – Securities Class Action Report. In Morrison the Court drew a bright line to exclude from US courts Securities Exchange Act Section 10(b) actions brought by foreign plaintiffs who had used a foreign exchange to purchase shares of a foreign issuers. There have subsequently been a series of cases whose result has been, essentially, to keep foreign matters out of US courts. The recent Siemens case is another in this series.
Does this mean that US companies should feel free to ignore whistleblower complaints that arise outside of the US? Clearly not. After all, even if an individual whistleblower outside of the US may not be able to pursue a retaliation claim in the US courts, there’s still the issue of a company’s defending itself against actual FCPA charges. A pattern of retaliating against alleged whistleblowers—even whistleblowers located outside the US—isn’t going to be a good fact when it comes to planning a company’s defense.
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And now, completely switching gears…Thank you C-Suite Insight Magazine for the great interview! The focus of the just-released edition is “Sharpening the Focus on Strategic Risk.” I’m delighted to have been included in this issue that tackles tough issues ranging from cyber security to the difficult question of how to optimize the board’s effectiveness when it comes to linking strategy and risk.
The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: firstname.lastname@example.org.