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Corporate whistleblower protection under the Sarbanes-Oxley securities law stops at the U.S. border, said the first U.S. appellate court to address the issue. The U.S. Court of Appeals for the First Circuit has held that the law does not extend to foreign workers employed by the overseas subsidiaries of U.S. companies. “If the whistleblower 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 H. Campbell wrote on behalf of the panel. “We believe if Congress had intended that the whistleblower 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. , No. 04-1801. Mr. Carnero sought reinstatement as part of his whistleblower suit in Boston. In 2003, Boston Scientific brought its own suit in Argentina accusing Mr. Carnero of defamation. But the company was denied an injunction against him in the still pending suit, Judge Campbell said. “We think the opinion is inconsistent with the statute, not only the legislative history but its plain meaning, said Mr. Carnero’s attorney, Edward Griffith of Bolatti & Griffith in Boston. Mr. Griffith said that nearly identical language in other sections of the landmark 2002 securities law has been interpreted by the Securities and Exchange Commission (SEC) 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. Mr. Griffith said that they have not decided whether to pursue an appeal. Boston Scientific’s attorney, James W. Nagle, said, “I think this is the first time any circuit court has come to grips with the international aspects of the Sarbanes-Oxley whistleblower rules. For multinational corporations it is an important question to answer.” Philip M. Berkowitz, a partner at Nixon Peabody who heads the firm’s international labor and employment law practice team, commented that “the First Circuit got it right � Congress clearly didn’t intend to apply SOX’s whistleblower provisions overseas. Congress was focusing on domestic issues in creating a whistleblower remedy, and Carnero’sresult is compelled by Supreme Court precedent.” Mr. Berkowitz, a Law Journal columnist, was not involved in the Carnerolitigation. 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 whistleblowing on overseas conduct, and whether a foreign citizen working directly for a publicly traded U.S. company overseas would be protected, said Mr. Nagle, of Goodwin Procter in Boston. The appeals court did point out that Mr. Carnero might have been protected if the whistleblowing had occurred at a domestic subsidiary over alleged misconduct in the United States, Judge Campbell wrote. However, when it come to overseas whistleblowers, 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, Judge Campbell wrote. Judge Campbell quoted at length from the Congressional Record to show that senators were concerned with the uneven application of whistleblower 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, Judge Campbell said. Nonetheless, Mr. Berkowitz said the case illustrates that “the issue of SOX’s extraterritorial application is a real conundrum for U.S. companies operating overseas, and Carnerodoesn’t settle the matter.” First, although it is unlikely, he said Congress could amend SOX, as it amended Title VII in 1991, to give the whisteblower provision to give that law extraterritorial effect. Moreover, other important provisions of SOX already have explicit extraterritorial application, Mr. Berkowitz said. For example, Section 1107 amended the federal criminal law to prohibit retaliation against anyone giving truthful information to law enforcement officers relating to the commission of any criminal offense. SOX explicitly declares that this provision applies overseas. Finally, Wal-Mart and McDonalds, and other US companies operating overseas, have tried to implement SOX-inspired policies, such as anonymous hot lines to encourage whisteblowers. But Mr. Berkowitz said these policies have met with a hostile reception in European courts where several recent decisions in Germany and France have held that they violate labor and privacy laws. � Pamela A. MacLean is a staff reporter for The National Law Journal, an ALM affiliate of the New York Law Journal. A version of this article originally appeared in National Law Journal on Jan. 16.

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