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Dodd-Frank Whistleblower Protection: For America Only

The U.S. District Court for the Southern District of New York has held that the whistleblower protection provisions of the Dodd-Frank Act do not apply outside the United States, even where the employee alleged he was terminated for raising compliance concerns under U.S. international law. Specifically, the court found that Dodd-Frank did not protect an employee of Siemens in China who alleged he was terminated in retaliation for raising compliance concerns under the U.S. Foreign Corrupt Practices Act (FCPA). The decision will strike many observers as remarkable, since the extraterritorial provisions of the FCPA itself have been construed so broadly. The opinion in the case, Liu v. Siemens AG, Civ. No. 13 Civ. 317 (WHP) Slip Op. (S.D.N.Y. Oct. 21, 2013), may be viewed online here.

The plaintiff in the case, Meng-Lin Liu, a resident of Taiwan, was employed by Siemens China as a Division Compliance Officer. Siemens China is a subsidiary of Siemens AG, a German company whose American Depositary Receipts trade on the New York Stock Exchange. After Liu raised anti-bribery compliance concerns at Siemens China, his employment contract was terminated in 2010. After his termination he reported possible violations of the FCPA to the U.S. Securities and Exchange Commission under the SEC’s whistleblower program.

Liu then brought action against Siemens under the Dodd-Frank anti-retaliation provision, which provides as follows:

No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower . . . in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), [the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.)], section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the [SEC].

15 U.S.C. § 78u-6(h)(l)(a). The Dodd-Frank Act defines “whistleblower” as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC], in a manner established, by rule or regulation, by the [SEC].” 15 U.S.C. § 78u-6(a)(6).

Siemens moved to dismiss the case for failure to state a claim, arguing (among other things) that the anti-retaliation provision is not applicable outside the United States. Liu argued that by using the phrases “any individual” and “no employer,” the statute evinces an intent to protect whistleblowers wherever they are. The Court rejected Liu’s hypothesis, stating that the statute is silent regarding whether it applies extraterritorially. That silence, said the Court, “invokes a strong presumption against extraterritoriality.” Liu, Slip Op. at 5. Consequently, the Court dismissed Liu’s claim.

Interestingly, the Court also rejected the idea that the anti-retaliation provision must protect foreign whistleblowers since the statute in essence creates foreign whistleblowers. The Court stated that “[t]he fact that a person outside the United States may be a “whistleblower” under Dodd-Frank does not compel the conclusion he is protected by the Anti-Retaliation Provision. Slip Op. at 6.

An earlier holding by the U.S. Court of Appeals for the 5th Circuit took a different approach but reached a similar result in July 2013. In that case, Asadi v. GE Energy, 720 F.3d 620 (5th Cir. 2013), the Court ruled that a GE Energy employee in Iraq who was terminated after reporting potential anti-bribery compliance concerns to his employer (but not to the SEC) did not qualify as a whistleblower under Dodd-Frank, and thus was not protected by the anti-retaliation provision. The Asadi opinion may be viewed online here. Interestingly, the lower court in Asadi reasoned (like the Liu court) that Asadi was not protected from retaliation because the Dodd-Frank anti-retaliation provisions are not extraterritorial. SeeAsadi v. GE Energy, 2012 U.S. Dist. LEXIS 89746 (S.D. Tex. 2012). The Fifth Circuit, reviewing the case de novo, declined to review that reasoning and based its holding on the inapplicability of the “whistleblower” definition. Asadiid. at note 13.

The effects of these rulings warrant careful attention. For example, corporations involved in international business may wish to look closely at their own anti-retaliation policies and be careful to tailor them properly. While we would expect courts to continue to examine the limits on whistleblower retaliation under Dodd-Frank, the Asadiholding is not binding outside the Fifth Circuit, and the Liuholding is not binding outside the Southern District of New York.

Separately, it will be interesting to see whether the number of foreign whistleblowers is affected by these holdings. The SEC reported that in Fiscal Year 2012, it fielded over 3,000 whistleblower allegations. See U.S. Securities and Exchange Commission, Annual Report on the Dodd-Frank Whistleblower Program, Fiscal Year 2012, available online here. Of those, 115, or 3.8 percent, were FCPA-related allegations, and thus have inherently international fact patterns. Id. at Appendix A. If Dodd-Frank does not protect foreign whistleblowers or those who do not file formal allegations with the SEC, that may cause a chilling effect on the number of reports in the future.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume III, Number 321

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Lawrence M. Braun. Corporate International Attorney, Sheppard Mullin, Law firm
Partner

Larry Braun is the former Co-Chairman of the firm’s Corporate Practice Group.  In addition to his law degree, Mr. Braun holds an M.B.A. in Finance from the Kellogg School at Northwestern University and has attained the New Jersey C.P.A. Certificate Requirements.  Mr. Braun was previously a managing director of the largest private investment banking firm on the west coast. Mr. Braun is resident in the firm’s Los Angeles office where he represents public and private companies in the areas of mergers and acquisitions, corporate finance, securities and general business.

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Brian Daly, Sheppard Mullin, White Collar Defense, Government Contracts
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Mr. Daly chairs Sheppard Mullins' Government Contracts and White Collar Defense practice groups and works out of the firm's Los Angeles office.  Mr. Daly is a former Assistant United States Attorney for the Central District of California, Criminal Division, Public Corruption and Government Fraud Section.

As a federal prosecutor, Mr. Daly was responsible for the investigation and prosecution of a wide variety of fraud and whistleblower cases, including health care fraud, aerospace and defense contractor fraud, and environmental violations.  From 1991 through April 1995, Mr. Daly served as Director of the government's Southern California Government Fraud Task Force and supervised numerous law enforcement agents from various federal agencies.  He received the 1992 Department of Justice Director's Award for Superior Performance as an Assistant United States Attorney, and the 1994 Department of Justice Special Achievement Award for Sustained Superior Performance as an Assistant United States Attorney.

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J. Scott Maberry, Lawyer, Sheppard Mullin, International Trade, Trade Practice
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Mr. Maberry is an International Trade partner in the Government Contracts, Investigations & International Trade Practice Group in the firm's Washington, D.C. office.

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Mr. Maberry's expertise includes counseling and litigation in export controls, the Foreign Corrupt Practices Act (FCPA), anti-terrorism, economic sanctions, anti-boycott controls, and Customs.  He also represents clients in negotiations and dispute resolution under the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA), and other multilateral and...

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Jonathan Stoler, Labor, Employment Attorney, Sheppard Mullin, law firm
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Jonathan Stoler is a partner in the firm's Labor and Employment practice group.  He is the head of the firm’s labor and employment practice in New York and co-chairs the firm's National Non-Competition and Trade Secrets Team.

Mr. Stoler's practice encompasses a wide range of labor and employment matters, including the defense of single plaintiff and class action discrimination, wrongful discharge and wage/hour claims, in addition to employment contract, non-competition, whistleblower, sexual harassment and related claims.  He regularly...

212-634-3043
James M. Zimmerman Corporate Trade Attorney Sheppard Mullin law firm
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Mr. Zimmerman is a partner in the Corporate practice group in the firm's Beijing office. 

Mr. Zimmerman is chairman emeritus of the American Chamber of Commerce China, which represents more than 2,800 US companies and individuals with trade and investments in China, and was elected and served as the organization’s chairman for two terms (2007, 2008) and vice chairman for two terms (2005, 2006).

Mr. Zimmerman has been involved with trade-related matters for 25 years and represents US companies in a broad range of industries with respect to...

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