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Corporate whistle-blower protection under the Sarbanes-Oxley securities law stops at the U.S. border. The First Circuit U.S. Court of Appeals has become the first appellate court to weigh in on the whistle-blower protections under the Sarbanes-Oxley Act, saying it does not extend to foreign workers employed by the overseas subsidiaries of U.S. companies. “If the whistle-blower protection provision is given extraterritorial reach in a case like the present one, it would empower U.S. courts and a U.S. agency, the [Department of Labor], to delve into the employment relationship between foreign employers and their foreign employees,” Judge Levin Campbell wrote on behalf of the panel. “We believe if Congress had intended that the whistle-blower provision would apply abroad to foreign entities, it would have said so,” he said. Ruben Carnero is an Argentinean who worked for two Brazilian subsidiaries of Boston Scientific Corp. as Latin American business development director. In 2002, according to the opinion, he filed suit, claiming that the company had fired him in retaliation for disclosing to the parent company that its subsidiaries created false invoices and inflated sales figures. Carnero v. Boston Scientific Corp., 04-1801. Carnero sought reinstatement as part of his whistle-blower suit in Boston. In 2003, Boston Scientific brought its own suit in Argentina accusing Carnero of defamation. But the company was denied an injunction against him in the still pending suit, Campbell said. “We think the opinion is inconsistent with the statute, not only the legislative history but its plain meaning, said Carnero’s attorney, Edward Griffith of Bolatti & Griffith in Boston. Griffith said that nearly identical language in other sections of the landmark 2002 securities law has been interpreted by the Securities and Exchange Commission to apply to foreign companies. The language was intentionally written to sweep broadly and to protect employees from retaliation for reporting frauds, he argued. Parts of Sarbanes-Oxley have created quite a stir in Europe, but that has not prevented the SEC from applying those sections to international companies that are listed on the U.S. stock exchanges to protect U.S. securities markets, he said. “If that gives rise to a foreign law conflict then so be it. That is a question for Congress,” he said. Griffith said that they have not decided whether to pursue an appeal. Boston Scientific’s attorney, James Nagle, said, “I think this is the first time any circuit court has come to grips with the international aspects of the Sarbanes-Oxley whistle-blower rules. For multinational corporations it is an important question to answer.” There are questions that the court did not address in the case. The decision leaves open whether a U.S. citizen working in a foreign subsidiary would have protection for whistle-blowing on overseas conduct, and whether a foreign citizen working directly for a publicly traded U.S. company overseas would be protected, said Nagle, of Goodwin Procter in Boston. The appeals court did point out that Carnero might have been protected if the whistle-blowing had occurred at a domestic subsidiary over alleged misconduct in the United States, Campbell wrote. However, when it come to overseas whistle-blowers, the statute is silent about its international reach, according to the court. And while investor protection against corporate fraud may be a factor in support of extraterritorial application, plenty of other factors militate against international application, Campbell wrote. Campbell quoted at length from the Congressional Record to show that senators were concerned with the uneven application of whistle-blower protections from state to state, and that they did not comment on international implications. Congress made no provision for international enforcement. There was no money allocated for overseas investigations, for coordination with the Department of State, for interpreters or for the use of foreign personnel, Campbell said. Pamela A. MacLean is a reporter with The National Law Journal, a Recorder affiliate based in New York City.

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