2nd Circuit Narrows Reach of Whistleblower Protections

The 2nd Circuit has ruled that Dodd-Frank’s whistleblower protections, previously reported here, do not apply to tipsters outside the United States. In Liu v. Siemens AG, a former lawyer and compliance officer sued Siemens, alleging he was demoted and eventually fired in retaliation for his internal complaints about improper payments by Siemens employees to officials in North Korea and China. The employee’s claims sought extraterritorial application of Dodd-Frank, as he did not allege that any of the events related to his firing occurred within the United States.

The 2nd Circuit found “no indication Congress intended the whistleblower protection provision [of Dodd-Frank] to have extraterritorial application,” and therefore, affirmed the lower court’s dismissal of the employee’s claims. The court, however, declined to reach what many considered the bigger issue on appeal—whether the employee’s reporting of the alleged fraud internally (as opposed to the SEC) qualified him for whistleblower protection under Dodd-Frank. The 2nd Circuit dodged that issue by ruling that Dodd-Frank did not apply to conduct overseas in the first place, leaving open the growing dispute over whether internal reporting is covered by the law’s anti-retaliation provisions.

The court’s ruling may have a chilling effect on overseas complaints about alleged violations of the Foreign Corrupt Practices Act (FCPA), previously covered here. Because the FCPA contains no private right of action, plaintiffs who claim to be FCPA whistleblowers often bring FCPA claims under Dodd-Frank’s anti-retaliation provision. But the 2nd Circuit’s ruling could discourage whistleblowers outside the United States from bringing FCPA related claims, now that they may become subject to retaliation for doing so.