By John F. Fullerton III

A New York federal district court has become the second court to hold that the Dodd-Frank anti-retaliation provision, 15 U.S.C. § 78u-6(h)(1)(a), which prohibits retaliation against a whistleblower who makes disclosures required or protected by the Sarbanes-Oxley Act, among other laws, does not apply extraterritorially.  In Meng-Lin Liu v. Siemens A.G. (pdf), a judge of the Southern District of New York, consistent with a decision earlier this year by a Texas district court, held that a Taiwanese compliance officer working for a Chinese subsidiary of a German parent company, who complained within the organization of alleged violations of the Foreign Corrupt Practices Act (FCPA) occurring in China and Korea, and was subsequently discharged, could not sustain his whistleblower retaliation claim in the United States, and dismissed his complaint accordingly.

The court applied a well-settled principle of statutory analysis in finding that the Dodd-Frank Act’s silence regarding whether the Section 78u applies extraterritorially provides a “strong presumption” against its application to conduct outside of the United States.  This presumption against the extraterritorial reach of the anti-retaliation provision is bolstered by the existence of another section of Dodd-Frank that expressly permits the SEC to pursue enforcement actions for certain conduct or transactions occurring outside of the United States, which would be superfluous if the entire Act applied extraterritorially.  The court rejected the argument that because non-U.S. citizens working abroad for non-U.S. subsidiaries may be eligible for whistleblower bounty awards, they must therefore also be covered by the anti-retaliation provisions.  The court found that the only connection with the United States – that Siemens A.G. has listed American Depository Receipts on the New York Stock Exchange, and is therefore subject to securities laws within the United States – was insufficient to overcome the requirement that there be some sign of Congressional intent for the anti-retaliation provision to apply overseas.

Observing that the similar anti-retaliation provision of Section 806 of the Sarbanes-Oxley Act also does not apply extraterritorially, the court dismissed the complaint for the additional reason that Section 806 does not “require or protect” disclosure of alleged FCPA violations, regardless of whether it applies extraterritorially.  Reporting violations of the FCPA simply does not fall within the scope of conduct which constitutes protected activity under Section 806.  The court also acknowledged that there is a split of authority among the federal courts regarding whether a Dodd-Frank whistleblower has engaged in protected activity if he or she only reports the misconduct internally, rather than reporting it to the SEC or other governmental agencies, but found that it did not need to resolve that issue in light of the other grounds for dismissal of the complaint.

The facts of this case weighed heavily in favor of the court’s decision, which has provided additional support for the general concept that the Dodd-Frank anti-retaliation provision does not apply extraterritorially.  It remains to be seen, however, what courts might decide in a more complicated scenario in which there were additional contacts and connections with the United States.

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