DOL Rules That SOX Whistleblower Provision Has No Extraterritorial Application

The U.S. Department of Labor’s Administrative Review Board (ARB) ruled in a 3-2 en banc decision that Section 806 of the Sarbanes-Oxley Act of 2002 has no extraterritorial application. Villanueva v. Core Labs., NV, ARB No. 09-108 (Dec. 22, 2011).

Complainant, a Colombian national, was the CEO of Saybolt de Colombia Limitada (Sayboldt), an indirect subsidiary of Core Laboratories (Core), a Dutch company whose securities are registered under the Securities Exchange Act and traded on the New York Stock Exchange. Core had an office in Houston, and Complainant alleged that Core controlled Sayboldt’s business. Complainant further alleged that he complained of a tax evasion scheme that violated Columbian law to Core executives located in Houston, and that they retaliated against him by, among other things, terminating his employment.

Complainant filed a claim under Section 806 of SOX, which OSHA and an ALJ dismissed. The ARB affirmed the dismissal, principally relying on Morrison v. National Australian Bank, Ltd., 130 S. Ct. 2869, 2877 (2010), to evaluate whether Section 806 has an extraterritorial reach and to examine whether the fraudulent activity Complainant reported would trigger an extraterritorial application of Section 806. The ARB was persuaded that Section 806 does not apply extraterritorially, noting that Section 806(a)(1) refers only to domestic securities laws, criminal laws and financial regulations, and is silent to its extraterritorial application. Likewise, the ARB found that Section 806 did not cover Complainant’s claim because of the foreign nature of the alleged fraud. More specifically, the ARB ruled that dismissal was warranted because Complainant did not show that Core’s U.S. accounting policy was fraudulent, identify any domestic financial statement that was fraudulent or otherwise point to a violation of U.S. law. But, in a footnote, the ARB stated that, in addition to considering where the fraud occurred (which was the driving factor in this case) the following should be considered: the location of the job and the employer; the location of the retaliatory act, and the nationality of the laws allegedly violated that the complainant was retaliated against for reporting.

This decision represents a departure from the ARB’s recent decisions expanding the reach of Section 806.