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Law360: Court Split Likely To Lead To More FCPA Whistleblowing; contributing authors Joan E. Marshall and Phillip C. Zane

Court Split Likely To Lead To More FCPA Whistleblowing

Law360, New York (February 13, 2014,  1:42 PM ET) — Two burgeoning —  and seemingly disparate — legal trends affecting Foreign Corrupt  Practices Act enforcement have emerged recently. These forces may  presage a marked increase in whistleblower-driven FCPA investigations as well as the shareholder suits such corporate fraud investigations tend  to inspire.
First, federal regulators and prosecutors continue their high-profile  expansion of FCPA enforcement. Federal authorities began to prioritize  such actions in the early 2000s, and the heightened whistleblower  protections afforded FCPA informants under the Dodd-Frank Wall Street  Reform and Consumer Protection Act have contributed to the program’s  ongoing growth in more recent years. Second, a recent divide among  federal courts suggests an erosion of the protections these  whistleblowers can expect to receive under federal law, but  paradoxically, may result in more violations reported within the United  States.
These dual realities suggest that federal authorities will continue to  process FCPA tips at a growing rate, and that this growth may accelerate as more employees report FCPA violations directly to the government.
The FCPA holds liable any company that is based and/or publicly traded  in the United States whose employees or agents engage in acts of bribery with foreign government officials.[1] The act is remarkably broad in  its scope, effectively covering the conduct of all individuals working  for or on behalf of any company based or traded in the United States.  This allows prosecutors to hold companies accountable for, among other  things, acts committed by foreign employees of attenuated subsidiaries  and contractors of the company.
For example, the U.S. Securities and Exchange Commission successfully prosecuted Dow Chemical Company after a fifth-tier Dow subsidiary bribed Indian officials to expedite  the approval of pesticide products in that country.[2] The FCPA also  covers payments to agents of foreign governmental entities — including  employees of companies that are owned or controlled by the foreign  state. This point is particularly salient for companies doing business  in countries like China, where state-controlled companies dominate the  economy.
While Congress enacted the FCPA in 1977, federal enforcement of the act  increased sharply in 2004. In the act’s first 23 years — from 1977 to  2000 — the SEC brought a total of nine FCPA enforcement actions.[3] In  the next three years, that total doubled.[4] In 2010, the SEC created a  new subdivision dedicated exclusively to FCPA prosecution,[5] and  between that year and 2013, the commission averaged almost a dozen new  FCPA actions a year.[6]
These prosecutions have yielded enormous government recoveries. The prosecution of the German manufacturing conglomerate Siemens AG, for example, produced a 2008 settlement under which Siemens agreed to  pay some $800 million in disgorgement and fines to the SEC and the U.S. Department of Justice in addition to more than $850 million to German authorities for bribing government officials on five continents.[7]
This marked increase in FCPA enforcement dovetails with the recent  federal priority of aggressively promoting whistleblowing through the  enforcement of the Dodd-Frank Act. Under Section 922 of Dodd-Frank, the  federal government rewards whistleblowers who report high-stakes[8]  corporate malfeasance implicating America’s securities laws with between 10 to 30 percent[9] of the amount recovered.[10]
In addition to establishing financial incentives, the Dodd-Frank Act  affords whistleblowers certain protections, including the promise of job reinstatement, compensation for legal fees, and the payment of twice  the amount of back pay owed to any whistleblower who has suffered  retaliation from an employer for reporting violations that qualify for  Dodd-Frank protection.[11]
A number of recent federal rulings, however, have conflicted in their  interpretations of the reach of Dodd-Frank’s whistleblower protections  and cast doubt on the certainty of protection for certain types of  whistleblower reports. In mid-October 2013, for example, a Massachusetts district court affirmed that Dodd-Frank protected whistleblowers  regardless of whether they reported the qualifying crime to the SEC, to  any other federal agency, or to their employer.[12]
Less than a week later, however, a Manhattan federal judge rejected this reasoning in Liu v. Siemens AG, and denied whistleblower protections to a Siemens employee who had reported alleged FCPA violations  internally.[13] Four days thereafter, a different judge in the same  court rejected her colleague’s logic and extended whistleblower status  to a different employee who had reported an alleged qualifying  securities crime only to his employer, and not to the government.[14]
The only federal appellate court to address this question has ruled that Dodd-Frank’s whistleblower protections apply narrowly. In July 2013,  the U.S. Fifth Circuit Court of Appeals denied whistleblower status to  the former Iraq country director for GE Energy in Asadi v. GE  Energy.[15] In that decision, the Fifth Circuit scrutinized a perceived  inconsistency between the two definitions of “whistleblower” within  Dodd-Frank’s Section 922 — one defining the term for incentives  purposes, the other to establish protections — and held that the act  provides whistleblower protections only to those who report a violation  to the SEC itself.[16]
Accordingly, the court concluded that the plaintiff — who had reported  potential FCPA violations only to his supervisors — was not a  “whistleblower” entitled to Dodd-Frank retaliation protections.[17] This holding rejected a string of trial-level federal decisions[18] and  dismissed an SEC-promulgated rule specifically designed to harmonize  Section 922’s inconsistent definitions.[19]
Importantly, the Fifth Circuit also declined to reverse the underlying  district court’s ruling that reports of FCPA violations made outside the United States did not qualify for Dodd-Frank whistleblower  protection.[20] Three months thereafter, the Southern District of New  York’s Liu ruling, which drew great inspiration from Asadi, stated  expressly what the Fifth Circuit had implied — that Dodd-Frank protects  only whistleblowers who make their reports while within the United  States.[21]
Together, Liu and Asadi hold that Dodd-Frank protects only those who  report qualifying FCPA violations (1) to the SEC (2) while within the  United States. The Liu court also emphasized the fact that the plaintiff in that case was a “Taiwanese resident,” seemingly suggesting that the  court believes the act protects only whistleblowers residing in  America.[22]
This is a critical shift in the law for FCPA whistleblowers and, where  applicable, their legal representatives. (Whistleblowers who wish to  report violations to the commission anonymously must retain a lawyer in  order to do so.[23])
According to the “2013 Annual Report to Congress on the Dodd-Frank  Whistleblower Program,” which the SEC’s Office of the Whistleblower  released in November 2013, the commission received 30 percent more FCPA  tips during fiscal year 2013 than in 2012.[24] Moreover, the SEC  received more foreign-based whistleblower tips from China than from any  country other than the United Kingdom and Canada.[25] Finally,  California generated the most domestic-based whistleblower tips of any  state by far: 375 whistleblower reports originated in the Golden State,  with the next-highest state — New York — registering only 215.[26]
Considering that the recent federal rulings call into question the  application of Dodd-Frank’s whistleblower protections to FCPA violations reported from outside the United States, one can expect more of these  tips to come from whistleblowers located in America — and particularly  in states like California that enjoy extensive and longstanding ties  with Chinese business interests.[27] One can also expect to see an  increase in employee whistleblowers who report FCPA violations directly  to the SEC in order to ensure their protection under Dodd-Frank. Both  factors should accelerate the growth[28] of the SEC’s whistleblower  program under Dodd-Frank.[29]
Although lawyers should not expect this to automatically translate to an increase in whistleblower representations — again, informants who do  not wish to report violations anonymously are free to proceed without an attorney — the plaintiffs bar should find cause for optimism in one of  the likely collateral effects of increased FCPA enforcement: the  shareholder class suits that will inevitably follow.
—By Fabrice Vincent and Kevin Budner, Lieff Cabraser Heimann and Bernstein LLP, Joan E. Marshall and Phillip C. Zane, GeyerGorey LLP, Archie Grubb, Beasley Allen Crow Methvin Portis & Miles PC, and Ben Fuchs
Fabrice Vincent is a partner and Kevin Budner is an associate in Lieff Cabraser’s San Francisco office.
Joan Marshall is a partner in GeyerGorey’s Dallas office. Phillip Zane is of counsel in the firm’s Washington, D.C., office.
Archie Grubb is a partner with Beasley Allen in Montgomery, Ala.
Ben Fuchs is a third-year law student at Tulane University Law School  and a former print and new media journalist who can be reached at
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their firms, their clients, or Portfolio Media  Inc., or any of its or their respective affiliates. This article is for  general information purposes and is not intended to be and should not be taken as legal advice.

[1] 15 U.S.C. § 78dd-1 et seq. The Act creates an exception, however,  for payments made “to expedite or secure the performance of a routine  governmental action by a foreign official, party, or party official.” 15 U.S.C. § 78dd-1(b) (emphasis added).
[2] Press Release, “SEC Files Settled Enforcement Action Against the Dow Chemical Company for Foreign Corrupt Practices Act Violations,” U.S.  Securities and Exchange Commission (February 13, 2007) (available here: (last  accessed February 10, 2014).
[3] “SEC Enforcement Actions: FCPA Cases,” U.S. Securities and Exchange  Commission (available here: (last accessed  February 10, 2014).
[4] Id.
[5] Press Release, “SEC Names New Specialized Unit Chiefs and Head of  New Office of Market Intelligence,” U.S. Securities and Exchange  Commission (January 13, 2010) (available here: (last accessed February  10, 2014).
[6] “SEC Enforcement Actions: FCPA Cases,” supra, n.3.
[7] See Press Release, “SEC Charges Siemens AG for Engaging in Worldwide Bribery,” U.S. Securities and Exchange Commission (December 15, 2008)  (available here: (last  accessed February 10, 2014).
[8] The program provides such payments to whistleblowers only when the  government’s total recovery exceeds $1 million. This requirement is  mitigated, however, by the fact that the “total recovery” reflects  recoveries secured through all actions related to the whistleblower’s  provided information. In contrast, the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 only provides for back pay. Compare 15  U.S.C. § 78u-6(h)(1)(C) with 18 U.S.C. § 1514A(c)(2).
[9] The SEC assesses three factors in determining how much to reward  whistleblowers: (1) the significance of the whistleblower-provided  information; (2) the level of assistance the whistleblower has provided  during the investigation and prosecution; and (3) the level of  importance the Commission places on deterring the sort of conduct under  scrutiny in the particular case. 15 U.S.C. § 78u-6.
[10] 15 U.S.C. § 78u-6.
[11] Id.
[12] Ellington v. Giacoumakis, CIV.A. 13-11791-RGS, 2013 WL 5631046, at  *9–10 (D. Mass. Oct. 16, 2013) (holding that a financial planner’s  internal reporting of his employer’s violation of securities laws  covered under the Dodd-Frank whistleblower section constituted a  protected act of whistleblowing).
[13] Liu v. Siemens A.G., 13 CIV. 317 WHP, 2013 WL 5692504, at *4 (S.D.N.Y. Oct. 21, 2013).
[14] Rosenblum v. Thomson Reuters (Mkts.) LLC, 13 CIV. 2219 SAS, 2013 WL 5780775 (S.D.N.Y. Oct. 25,  2013). As with the Ellington whistleblower, the plaintiff in Rosenblum  alleged retaliation for accusing the employer of violating the  Sarbanes-Oxley Act of 2002 rather than the FCPA. Whistleblowers who  report violations of either of these laws, among other securities laws,  qualify for protection under the Dodd-Frank Act so long as the alleged  violator is a publicly held company and the alleged violation meets the  other requirements outlined in Section 922 of the Dodd-Frank Act.
[15] Asadi v. GE Energy (USA), L.L.C., 720 F.3d 620 (5th Cir. 2013).
[16] Id. at 629.
[17] Id.
[18] Id. at 625.
[19] Id. at 630 (justifying its decision to deny Chevron deference to the SEC rule on grounds that since Section 922 “clearly  expresses Congress’s intention to require individuals to report  information to the SEC to qualify as a whistleblower under Dodd-Frank . . . we must reject the SEC’s expansive interpretation of the term  ‘whistleblower’ for purposes of the whistleblower-protection provision”) (emphasis added).
[20] Id. at 621.
[21] Liu v. Siemens A.G., 13 CIV. 317 WHP, 2013 WL 5692504, at *10  (S.D.N.Y. Oct. 21, 2013) (concluding that “[t]here is simply no  indication that Congress intended the Anti–Retaliation Provision to  apply extraterritorially” and warning that “an intrusion into the  employment law of a foreign nation could disrupt the “delicate field of  international relations,” an interest protected by the presumption  against extraterritoriality”).
[22] Id. at *9–10.
[23] 15 U.S.C. § 78u-6.
[24] The Commission received 149 FCPA tips during fiscal year 2013, as  opposed to 115 during fiscal year 2012. “2013 Annual Report to Congress  on the Dodd-Frank Whistleblower Program,” U.S. Securities and Exchange  Commission, pg. 20 (November 2013) (available here: (last  accessed February, 2014).
[25] Id. at 22. The SEC did not indicate how many of these China-based tips invoked the FCPA.
[26] Id. at 21.
[27] Although the SEC did not provide data on FCPA tips by source  country, one can reasonably expect that a portion of reports originating in nations like China and Russia, where conditions create an inherently high risk of FCPA violations, allege FCPA violations. See, e.g., David  Voreacos, “China’s Bribery Culture Poses Risks for Multinationals,”  Bloomberg (November 21, 2013) (available here: (last accessed February 10, 2014).
[28] The SEC’s Dodd-Frank whistleblower program reportedly received  3,001 tips in fiscal year 2012—the program’s first full year in  existence—and 3,238 in fiscal year 2013. The tips arrived from all 50  states as well as from 55 countries. “2013 Dodd-Frank Whistleblower  Report,” supra, n.24, at 1.
[29] Id. at 1–2.

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