NWC amicus seeks SOX protection for international whistleblowers

Yesterday, I had one of those moments that makes a lawyer’s adrenalin run. At 4:00 p.m., the clerk’s office called to inform me that my request for an extension of time was denied. My brief would be due by midnight. Luckily, I was somewhat prepared with a draft of my brief on whether Congress intended the Sarbanes-Oxley Act (SOX) to protect corporate whistleblowers outside the U.S. boundaries. It is an issue that will affect millions of employees who work for multinational corporations around the world. It is an issue important enough to make adrenalin run.

The amicus brief for the National Whistleblowers Center got filed late last night. It explains how the “crucial” whistleblower protection will not work if corporate fraudsters can just transfer their compliance-sensitive work overseas. If the workers outside the U.S. have no whistleblower protection, managers who want to retaliate will know they can fire them at will. Internal compliance programs will be ineffective at encouraging employees to come forward with information about violations. Does anyone really think that Congress passed the SOX whistleblower protection to encourage companies to transfer jobs outside the U.S.?

The case is Villanueva v. U.S. Department of Labor, No. 12-60122, in the U.S. Court of Appeals for the Fifth Circuit. In 2008, Villanueva sent emails to corporate executives in Houston reporting how other company executives were engaged in tax transfer schemes that falsely transferred profits to low-tax Curacao, an island in the Caribbean Sea. He also reported that Core Labs accountants in Columbia were making false claims to evade the Columbian value added tax (VAT). After Villanueva refused to sign a false tax return, Core Labs fired him. I reported on this case in prior blog posts when the Department of Labor’s Administrative Review Board ruled 3-2 against Villanueva, and when NWC and NELA submitted an amicus brief to the ARB.

William Villanueva’s attorney, David Mair of New York City, filed the Brief of Petitioner last week. It argues that when Core Labs officials made the decision to fire Villanueva, they did so in Houston and thereby violated SOX. Both Mair and the NWC amicus argue that when Core Labs filed its financial reports with the SEC, it was promising the U.S. government that it was complying with SOX and protecting all the whistleblowers who had concerns about the correctness of that report. As SOX was intended to enhance public confidence in our financial markets, the whistleblower protection must protect anyone with information about attempts to misrepresent a company’s true liabilities.

Based on our experience in Schroeder v. Greater New Orleans Federal Credit Union, we can expect that the Fifth Circuit will conduct oral argument this winter and issue a decision next year.

UPDATE: The Department of Labor, in conjunction with lawyers from the Department of Justice, has just filed their response brief (on August 22, 2012). It addresses the NWC amicus only on page 19, relying only on Congress’ silence on the issue of extraterritoriality. To me, this is a weak response to the argument that SOX will not work if multinational companies can just shift their compliance work to locations outside the US and thereby evade the SOX whistleblower protection. Do they think Congress was unaware of how big companies have subsidiaries all over the world? When Congress amended SOX to include all subsidiaries, and when it is necessary to cover all subsidiaries to make the law work, that should make clear enough that SOX covers all the employees of all the subsidiaries.

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