DOL Confirms SOX Whistleblower Protections Do Not Apply Extraterritorially

At a time when the extraterritorial reach of U.S. regulations seems to grow at a rate faster than the economy, U.S. employers breathed a sigh of relief when the U.S. Department of Labor's Administrative Review Board (ARB) confirmed by a 3-2 vote that the whistleblower provision of Title VIII of the Sarbanes-Oxley Act (SOX) has no extraterritorial application.

In Villanueva v. Core Labs. NV, Saybolt de Colombia Limitada, ARB Case No. 09-108 (ARB Dec. 22, 2011), the ARB affirmed a decision dismissing a whistleblower complaint, despite the fact that the alleged retaliatory decision occurred in the U.S., because the complaint involved a foreign citizen who alleged violations of foreign law by his foreign employer.

The difficulty in future cases will be determining the extent to which the essential claims at issue trigger extraterritorial application of SOX.

The Complaint

The complainant lived and worked in Colombia for over 20 years as the General Manager (CEO) for Saybolt de Colombia Limitada (Saybolt Colombia), a Colombian company. He was not a U.S. citizen and never worked in the U.S. during his employment. Importantly, Saybolt Colombia did not list securities in the U.S. under Section 12 or file reports under Section 15(d) of the Securities and Exchange Act of 1934.

The complainant believed Saybolt Colombia was violating Colombian tax laws as a result of a transfer pricing scheme between Saybolt Colombia and an affiliate in the Dutch Antilles. He allegedly raised concerns to his superiors in Colombia as well as to the Chief Accounting Officer of the company's indirect affiliate in Houston, Texas. The affiliate, Core Laboratories N.R. ("Core Labs"), is a Netherlands company publicly traded on the New York Stock Exchange. Two independent investigations in response to the claims failed to find any impropriety. Nevertheless, the complainant refused to sign the company's Colombian tax returns when they became due and claimed that after his report to the affiliate in Houston, he was denied a pay raise and eventually terminated. He further alleged that his termination was perpetrated by American executives of Core Labs in the U.S.

The complainant filed a whistleblower complaint under SOX, which was heard by an Administrative Law Judge (ALJ) at the Department of Labor. In dismissing the complaint, the ALJ relied primarily on Carnero v. Boston Scientific Corporation, 433 F.3d 1 (1st Cir. 2006), the only federal appellate court decision to...