The Dodd-Frank Wall Street Reform and Consumer Protection Act was heralded as providing whistle-blowing employees protection from retaliation by their employers. In Liu v. Siemens AG, handed down last week, the Second Circuit limited the reach of the Act’s anti-retaliation protections to domestic whistleblowers. In doing so, the Court rejected a claim brought by a Taiwanese lawyer employed by a German corporation who disclosed suspected Foreign Corrupt Practice Act violations by the corporation’s Chinese subsidiary, finding that the relevant provisions of the Dodd-Frank Act did not apply “extraterritorially.”
Although the Court’s decision is significant in its impact on foreign whistleblowers, leaving them vulnerable to employer retaliation and raising questions about what facts sufficiently may link the retaliation to the United States, it also is significant for the issues it does not address: first, whether the Act’s protections apply to employees who blow the whistle internally rather than to the SEC and second, whether the statute applies to FCPA violations at all. The first issue intentionally was left unanswered by the Second Circuit. Manybelieved that the question of the Act’s applicability to internal reports, which also was sidestepped by the district court in Liu, would be addressed by the Second Circuit because of current disagreement among federal courts on this point.
Under the Dodd-Frank Act, a whistleblower is defined as a person who provides information relating to a violation of the securities laws to the SEC and the anti-retaliation provisions kick in when a person is penalized for blowing the whistle. In Liu’s case, he was terminated not for providing information to the SEC (which he did subsequent to his termination), but for reporting the alleged FCPA violations pursuant to his employer’s internal compliance procedures. A three-judge panel of the Second Circuit ruled that Congress did not intend the statute to apply extraterritorially. Because the facts in Liu’s case did not allege that any events related to his firing happened within the United States or implicated domestic concerns, his claim was dismissed. Accordingly, the appellate court did not reach the question of whether Liu’s internal report of wrongdoing would qualify for Dodd-Frank protection.
A number of federal district courts have found that the anti-retaliation provision of the Act is triggered where an employee makes an internal report of misconduct despite the statute’s definition of whistleblower. Indeed, the SEC itself has assumed this position, filing an amicus brief in the Liu case urging the Second Circuit to give deference to the agency’s rule granting protection from retaliation under Dodd-Frank to employees who make protected disclosures irrespective of whether they report the information to the SEC or another source.
The Fifth Circuit has taken the opposite view, however. In Asadi v. G.E. Energy (USA), LLC, the Fifth Circuit ruled that an employee who reported an FCPA violation directly to his employer was not a whistleblower under the Act and therefore was not entitled to the protection of the anti-retaliation provision. As pointed out by the SEC, limiting the scope of protection to only those individuals who disclose directly to the SEC would “substantially weaken” the agency’s authority to pursue enforcement actions against retaliating employers.
A second issue left open by the Second Circuit in Liu is the question of whether the Dodd-Frank anti-retaliation provision applies to individuals who report corporate conduct in violation of the FCPA. Dodd-Frank specifically protects employees who are retaliated against for making disclosures “required or protected” under the Sarbanes-Oxley Act, the Securities Exchange Act of 1934, 18 U.S.C. § 1513(e) – which prohibits retaliation against an individual who provides information about the commission of a federal offense to the government, or “any other law, rule or regulation subject to the jurisdiction of the SEC.” The district court in Liu held that FCPA violations do not fall into any of the required or protected categories of disclosure set forth in the Dodd-Frank anti-retaliation provision. The Second Circuit specifically declined to determine whether the district court’s conclusion was correct, leaving open the question of whether employees who are retaliated against for reporting FCPA violations are without recourse under Dodd-Frank.
Although employees who are retaliated against as whistleblowers sometimes may seek recourse under other laws, including the whistleblower provisions set forth in the Sarbanes-Oxley Act which specifically protect internal disclosures, the Dodd-Frank whistleblower protections are more extensive. Dodd-Frank has a double damages provisions for lost wages, a longer statute of limitations, and allows plaintiffs to file claims directly in federal court, all of which make it more attractive to whistleblowers. For this reason, litigation of the issues left untouched by the Second Circuit will continue.