Jurisdiction - Japan
Reports and Analysis
Japan – US Federal Appeals Court Holds That The Dodd-Frank Act’s Whistleblower Anti-Retaliation Provisions Do Not Apply Extraterritoriality.

5 September, 2014

 

Legal News & Analysis ā€“ Asia Pacific – Japan ā€“ Regulatory & Compliance

 

The US Court of Appeals for the Second Circuit in Liu Meng-Lin v. Siemens AG, 13-4385-cv (2d Cir. N.Y. Aug. 14, 2014) upheld a lower court’s decision to grant Defendant Siemens’ motion to dismiss a claim alleging wrongful termination brought by Taiwanese resident, Liu Meng-Lin, a former employee of Siemens China. The Second Circuit held that the Dodd-Frank whistleblower anti-retaliation provision relied upon by Mr Liu did not apply extraterritorially, to a non-US citizen employed abroad by a foreign company, where all events allegedly giving rise to the liability occurred outside the United States.

 

Background


Plaintiff, Liu Meng-Lin was employed as a compliance officer of Siemens China, a wholly owned subsidiary of NYSE-listed Siemens AG. Mr Liu claimed that he was demoted and then had his employment terminated after reporting his belief to his employer that Siemens’ employees were making improper payments to Chinese and North Korean officials. Notably, after he was fired, Mr Liu made a report about the conduct to the SEC. Mr Liu brought a claim in the United States District Court for the Southern District of New York alleging that by firing him Siemens had violated the whistleblower anti-retaliation provision of the Dodd-Frank Act (15 U.S.C. Ā§ 78uā€6(h)(1)). The District Court granted Siemens’ motion to dismiss for failure to state a claim holding (1) that the relevant provision of the Dodd-Frank Act did not have extraterritorial effect and (2) the statute’s anti-retaliation protection did not apply because the disclosure of potential FCPA violations at issue was neither “required nor protected” by the statute. (Meng-Lin Liu v. Siemens A.G., 978 F. Supp. 2d 325 (S.D.N.Y. 2013)).

 

 

Dodd-Frank Whistleblower Protections Do Not Apply Extraterritorially


On appeal, the Second Circuit stated that Mr Liu was required to show either (1) the relevant conduct took place in the United States or (2) that the anti-retaliation provisions of Dodd-Frank apply extraterritorially. With respect to the first prong of the test, the court found that “the whistleblower, his employer, and the other entities involved in the alleged wrongdoing are all foreigners based abroad, and the whistleblowing, the alleged corrupt activity, and the retaliation all occurred abroad. The facts alleged in the complaint reveal essentially no contact with the United States regarding either the wrongdoing or the protected activity.”


With respect to the second prong, the Court applied the settled presumption against extraterritoriality set forth in Morrison v. National Australia Bank Ltd., 561 U.S. 247, 255 (2010), which held that the US legislation is presumed to apply domestically, unless a contrary intent and a “clear indication of extraterritoriality” appears in the legislation. The court found that there was nothing in the text of the statute, or the legislative history of Dodd-Frank, which suggested that the whistleblower anti-retaliation provision was to work extraterritorially. The Court rejected Mr Liu’s attempt to distinguish Morrison by arguing that Siemens had listed securities on the NYSE, noting that Morrison found a mere listing of securities to be “fleeting” and something which “cannot overcome the presumption against extraterritoriality.” In essence, the court held that where the whistleblower, the employer, the conduct at issue, the report, and the alleged retaliation were all located abroad, the plaintiff could not invoke protection of a US law that did not have extraterritorial effect.


Less Protection For Overseas Whistleblowers


In following Morrison’s presumption against extraterritoriality, the Second Circuit has confirmed that foreign whistleblowers who have no connection with the United States, and whose conduct has no connection with the United States, are not protected by and cannot bring an action under the Dodd-Frank Act’s whistleblower anti-retaliation laws. This is an important development for non-US companies in evaluating their policies and procedures concerning their compliance with Dodd-Frank’s whistleblower provisions.


Implications For Japanese Companies


Japanese companies may take comfort in the fact that the US Federal Appeals Court has ruled that the anti-retaliation provisions of the Dodd-Frank Act do not have extraterritorial application. However, Liu Meng-Lin v. Siemens AG was a case brought by a Taiwanese resident against a German corporation for alleged corruption in China and North Korea stemming from the actions of its Chinese subsidiary. It should be borne in mind that a more balanced mix of domestic and foreign elements may bring the alleged conduct under the territorial scope of the relevant provisions of the Dodd-Frank Act. In addition, if there is a perceived weakening of the enforcement powers of the SEC and DOJ abroad, it is entirely possible that domestic anti-corruption efforts will be stepped up to pick up the slack.

 

herbert smith Freehills

 

For further information, please contact:

 

Peter Godwin, Partner, Herbert Smith Freehills
peter.godwin@hsf.com

 
David Gilmore, Partner, Herbert Smith Freehills 
david.gilmore@hsf.com 

 

Elaine Wong, Herbert Smith Freehills
elaine.wong@hsf.com

Comments are closed.