August 14, 2014

Dodd-Frank Whistleblower Retaliation Protections No Good Outside the U.S.

By Jason Enzler

The Second Circuit Court of Appeals issued a decision today holding that the Dodd-Frank whistleblower retaliation protections do not apply abroad. The Court based its holding on the lack of any connection between the U.S. and the improper conduct alleged in the case as well as the absence of any Congressional intent that the whistleblower protections would apply outside of the country.

The whistleblower, Liu Meng-Lin, is a citizen of Taiwan who was employed by Siemens China Ltd., a wholly owned Chinese subsidiary of the German corporation Siemens AG. Siemens has issued securities listed on the New York Stock Exchange (NYSE). According to Mr. Meng-Lin’s complaint, Siemens employees were engaged in a scheme of making improper payments to Chinese and North Korean officials in violation of the Foreign Corrupt Practices Act. Mr. Meng-Lin reported these activities internally, and claimed he was retaliated against for doing so, resulting ultimately in his termination.

After he was fired, Mr. Meng-Lin filed his allegations in a whistleblower complaint with the Securities & Exchange Commission and in a complaint in the District Court for the Southern District of New York. Importantly, as the Court noted, Mr. Meng-Lin did not plead in his complaint that “any of the events related to his firing – the allegedly corrupt conduct, [his] discovery of that conduct, [his] efforts to address the corrupt conduct through Siemens’s internal protocols, or his subsequent mistreatment by Siemens – occurred within the territorial jurisdiction of the United States.” In other words, the only connection between the alleged facts and the U.S. was that Siemens is listed on the NYSE. The Court swiftly rejected this reasoning, relying on Supreme Court precedent to find that such a connection was too “fleeting.” The Court also rejected Mr. Meng-Lin’s argument that Congress intended the Dodd-Frank whistleblower retaliation protections to apply internationally.

While the decision is fairly straight-forward, at least a couple of points are worth mentioning. The Court noted, but did not rule on, the question of whether the Dodd-Frank whistleblower bounty provisions should apply abroad. Assuming they do (and the Court makes clear that it is not a safe assumption), then this ruling could result in situations where foreign whistleblowers receive awards, but not protection from retaliation. This result would seem to contradict the reason why Congress included both retaliation and bounty provisions in Dodd-Frank – they each are important parts of a program designed to incentivize whistleblowers to come forward. Perhaps it is time for Congress to clarify this and other issues courts have encountered with the relatively young law.

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