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Feb 03

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DOL’s ARB limits SOX whistleblower protections To U.S. employees

By a 3-2 vote, the Department of Labor’s Administrative Review Board (ARB) limited the jurisdiction of the Sarbanes-Oxley Act (SOX) whistleblower protection outside the United States. The case is Villanueva v. Core Laboratories, NV, ARB No. 09-108, ALJ No. 2009-SOX-6 (ARB Dec. 22, 2011) (en banc).

The ARB received multiple amicus briefs setting out the impacts of their decision, applicable case law, and the legislative history. Unlike prior decisions that summarily dismissed extraterritorial application of SOX’s whistleblower protection, this ruling was supported by a full briefing.

Most U.S.-based companies provide whistleblower reporting systems for their operations in numerous foreign countries. This is an excellent approach to fraud reduction having nothing to do with legal compliance. However, if a company is interested solely in minimal legal compliance, an aggressive interpretation of this ARB decision could support reducing the scope of one’s whistleblower reporting system to only U.S.-based employees. While we would not recommend this approach, there is no doubt that providing a U.S.-only solution is much easier and less expensive.

While providing substantial protection to multi-national employers, there are important limitations to this case. Specifically:

  1. Because the case was brought before Dodd-Frank existed, it is not clear whether the case addresses Dodd-Frank’s whistleblower provisions. As noted above, the ARB mentions Dodd-Frank’s provisions, but this may not be sufficient to provide authority for Dodd-Frank application. Additionally, unlike SOX, the ARB may not have jurisdiction over Dodd-Frank disputes.
  2. The ARB was split 3 to 2. The dissenters desired broader U.S. SOX reach for a U.S. registrant.
  3. Since the facts of each case are important in determining a U.S. nexus, other circumstances involving foreign employees could provide different results.

We review the case in greater detail and the decision’s rationale in this article.

 

About the author

David Nolte

I am a founding principal of Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I am a Certified Public Accountant (CPA) and an Accredited Senior Appraiser (ASA), as well as having other professional credentials. I regularly serve as an expert witness involving damages measurement. My litigation-oriented resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2012/02/dols-arb-limits-sox-whistleblower-protections-to-u-s-employees/

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