In 2009, Meng-Lin Liu, a compliance officer of Siemans China, began raising concerns that the company was engaging in corrupt practices related to the sale of medical equipment to hospitals. When Mr. Liu continued to express his concerns and attempted to implement anti-corruption procedures, he was demoted and barred from traveling to a compliance conference. In late 2010, Mr. Liu stated at a company meeting that compliance was low and that full compliance would reduce the company’s business drastically. Later that day Mr. Liu received a letter terminating his employment; subsequently, he reported the alleged violations to the SEC.
Had Mr. Liu worked in the United States, or had the bribes at issue involved American parties, he would likely be protected by the anti-retaliation provision of the Dodd-Frank Act. However, the Court in Liu v. Siemens A.G., 13-cv-317 (S.D.N.Y. 2013) found that the anti-retaliation provision only protects whistleblowers in the United States – even though the FCPA applies to all companies that issue securities (as defined in the statute), not just bribes involving Americans.
In ruling against Mr. Liu, the Court invoked Morrison v. Nat’l Australia Bank, 130 S.Ct. 2869 (2010), a recent Supreme Court case which held that the Dodd-Frank Act does not apply to transactions outside the United States except where the law specifically states otherwise. The Liu Court found it irrelevant that Mr. Liu could be considered a “whistleblower” under the Dodd-Frank Act because foreign whistleblowers are not protected by the anti-retaliation provision. There is no dispute that Siemens traded securities on the New York Stock Exchange at the time and was thus subject to the regulations of the Dodd-Frank Act. But because the specific acts complained of by Mr. Liu were not directly connected to the United States, the court concluded that Mr. Liu was not protected by the anti-retaliation provision of the Dodd-Frank Act.
The Supreme Court in Morrison based its decision on the general presumption that Congress normally regulates domestic matters – not because Congress cannot regulate extraterroritial matters but because it generally does not do so. However, the Foreign Corrupt Practices Act is not an ordinary domestic law. The FCPA applies to companies that issue American securities and are therefore subject to SEC regulations. The law expressly prohibits bribery of any foreign official by any issuer of securities (as defined in the statute) and does not limit its application only to bribes involving American employees or transactions. Indeed, the SEC’s 2013 Annual Report on the Dodd-Frank whistleblower program showed that over 10% of the year’s total whistleblowing complaints were submitted from outside the United States. Chances are good that a significant portion of those complaints do not include direct involvement in corrupt practices by American companies or individuals.
The result of the Liu court’s decision is that Mr. Liu’s counterpart in America, or his counterpart who monitors trade with American companies, would be protected by the anti-retaliation provision of the Dodd-Frank Act – but Mr. Liu is not protected. This is not because the FCPA does not prohibit the alleged actions; it does. The Liu court was clear that it was not deciding whether Mr. Liu qualified as a whistleblower. Rather, the anti-retaliation action of the Dodd-Frank Act does not extend to protect Mr. Liu – even though it appears that Mr. Liu could in theory recover a whistleblower award. There is an additional complication, as noted in the Liu decision, that courts are divided as to whether whistleblowers receive protection from retaliation upon making any report, including to internal company authorities, or only upon filing a complaint with a government agency.
An appeal is pending before the Second Circuit. The SEC has filed an amicus brief with the Circuit arguing that whistleblower protection should extend to individuals who engage in whistleblowing activities. After the revelations of financial fraud that continue to rock American and global industries, the potential of whistleblowers to reduce government waste and ensure lawful business practices is obvious. Laws intended to encourage whistleblowers to speak up need to strictly enforced and broadly interpreted to incentivize knowledgeable insiders to tell the truth and protect them from the ravages of greed.