In a ruling that may discourage employees from blowing the whistle on companies engaging in bad behavior outside the US, a US appeals court said that Dodd-Frank whistleblower protections have a limited reach to domestic affairs.
The landmark financial reform bill authorized the Securities and Exchange Commission (SEC) to bring enforcement actions based on evidence of retaliation against whistleblowers who report potential securities law violations. In June, the SEC exercised this power for the first time against NY-based hedge fund Paradigm Capital Management, which some considered a warning shot to other registered advisors.
In the case, Liu v. Siemens AG, the plaintiff claimed to have discovered improper payments made to officials in North Korea and China made by a Chinese subsidiary wholly owned by a German parent listed on the New York Stock Exchange. The plaintiff alleges he was later fired for reporting the bribes to his superiors.
The appeals court dismissed the case holding that the alleged facts involved only extraterritorial conduct, which was not within the reach of US anti-bribery laws contained in the Foreign Corrupt Practices Act. The appeals court, like the district court, also refrained from weighing in on whether or not Liu was disqualified from whistleblower protection because he did not report the suspected wrongdoing to the SEC until he was fired – some courts have ruled it is a requirement to reach out to the SEC first to be afforded the Dodd-Frank protections.
The Liu case echoes a 2012 case, filed by Khaled Asadi on former employer General Electric (GE), which involved the plaintiff voicing concerns that the company had violated FCPA but it was unclear if he had filed with the SEC. At the time Jordan Thomas, partner at Labaton Sucharow and chair of the firm's whistleblower representation practice said the interpretation garnered was that you are not an SEC whistleblower unless you file with the SEC formally
“The impact of the decision more broadly is that this is going to discourage some whistleblowers from coming forward – particularly whistleblowers overseas who are working for the entity which the misconduct is alleged,” said Thomas.
One way for foreign whistleblowers to steer clear of this predicament is to report anonymously.
“I think what has changed is that people overseas working for the [accused] entity are going to be more reluctant to report if they fear retaliation, or they will report anonymously,” said Jordan. “Many whistleblowers today are reporting anonymously to avoid this problem.”