Administrative Review Board Reverses Course, Takes Position that Sarbanes-Oxley Whistleblower Protections Apply ExtraterritoriallySeptember 13, 2017
SOX § 806, titled Whistleblower Protection For Employees Of Publicly Traded Companies, provides that a publicly traded company may not “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of any lawful act done by the employee . . . to provide information, cause information to be provided, or otherwise assist in an investigation regarding any conduct which the employee reasonably believes constitutes a violation of” certain specified anti-fraud provisions. Id. at 4–5 (quoting 18 U.S.C. § 1514(a)). Applying the “presumption against extraterritoriality,” as required by Supreme Court precedent, the ARB previously concluded that SOX “Section 806(a)(1) does not allow for its extraterritorial application.” Villanueva v. Core Labs., NV, ARB No 09–108, ALJ No. 2009-SOX-006, slip op. at 8–12 (ARB Dec. 22, 2011) (en banc) (citing Morrison v. Nat’l Australian Bank, Ltd., 561 U.S. 247 (2010)).
In Blanchard, the ARB reversed course, finding instead that “SOX § 806 applies extraterritorially” under the Supreme Court’s decision in RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090 (2016). ARB No. 15–031, slip op. at 6–7. In a decision by Judge Royce (who dissented in Villanueva), the ARB concluded that Congress intended SOX § 806 to apply extraterritorially because (i) the provision applies to publicly traded companies, which include foreign issuers, and (ii) certain “predicate offenses” for whistleblower protection, such as wire fraud, apply to “foreign commerce.” Id. at 7–12. ARB found, however, that § 806 does not “cover all foreign conduct of publically-traded foreign companies”; rather, the “misconduct of a foreign issuer/employer under the statute must still ‘affect in some significant way’ the United States. Id. at 12.
ARB also held that “[e]nforcement of Blanchard’s complaint does not require extraterritorial application of SOX,” because that plaintiff “alleged that his U.S. employer violated the U.S. mail and wire fraud statute by making false statements to the U.S. government in connection with U.S. contractual security and billing obligations.” Id. at 12, 14. In addition, although the plaintiff was “located in Afghanistan,” the conduct at issue “occurred on a U.S. air force base and directly implicated the security of the United States, U.S. military personnel, and U.S. contractors.” Id. at 17. Therefore, the ARB’s statement that SOX § 806 has extraterritorial effect is likely dicta. In fact, Chief Judge Igasaki in his concurrence emphasized that Blanchard did not “present an opportunity to define the general extraterritoriality of § 806.” Id. at 20 (Igasaka, C.J., concurring).
The ARB’s position also is contrary to the weight of court decisions, including in the Second Circuit, holding squarely that the whistleblower protections of SOX do not apply extraterritorially. See, e.g., Ulrich v. Moody’s Corp., 2014 WL 4977562, at *7 (S.D.N.Y. Sept. 30, 2014) (“[T]he anti-retaliation provisions of the SOX Act or Dodd–Frank do not apply extraterritorially.”) (citing Liu Meng-Lin v. Siemens AG, 763 F.3d 175 (2d Cir. 2014)); see also Carnero v. Boston Sci. Corp., 433 F.3d 1, 8–18 (1st Cir. 2006) (“Congress did not intend 18 U.S.C. § 1514A [SOX § 806] to apply extraterritorially.”).