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Corporate whistle-blower protection under Sarbanes-Oxley stops at the U.S. border. That was the verdict of the U.S. Court of Appeals for the First Circuit, which ruled in January that whistle-blower protections under securities law do 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 [U.S. 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.” The decision, the first from an appellate court on this issue, dismissed a whistle-blowing claim brought by Ruben Carnero against Boston Scientific Corporation. An Argentinean, Carnero worked for Boston Scientific Argentina as Latin American business development director. He was fired in August 2002 and, according to the opinion, subsequently sued. He claimed that his former employer retaliated against him for disclosing to its parent company that its subsidiaries had created false invoices and inflated sales figures. Carnero sought his job back as part of the whistle-blower suit he filed in Boston. In 2003 Boston Scientific brought its own suit in Argentina accusing Carnero of defamation. But, according to Campbell’s decision, the company was denied an injunction against him in the still pending suit. “We think the opinion is inconsistent with the statute, not only the legislative history but its plain meaning,” says Carnero’s attorney, Edward Griffith of Boston’s Bolatti & Griffith. Griffith says 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 protect employees from retaliation for reporting frauds, he argues. 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 says. “If that gives rise to a foreign law conflict, then so be it; that is a question for Congress.” Griffith says they have not decided whether to pursue an appeal. James Nagle, outside counsel for Boston Scientific, says, “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.” But there are questions the court did not address, says Nagle, of Goodwin Procter in Boston. The decision does not say whether a U.S. citizen working in a foreign subsidiary would have protection for whistle-blowing on overseas conduct, or whether a foreign citizen working directly for a publicly traded U.S. company overseas would be protected. 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. When it comes to overseas whistle-blowers, however, 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. Campbell also noted that Congress made no provision for international enforcement � there was no money allocated for overseas investigations, for coordination with the U.S. Department of State, for interpreters, or for the use of foreign personnel. a version of this story first appeared in the national law journal, a sibling publication of corporate counsel.

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