Academic journal article Journal of Corporation Law

Why Dodd-Frank's Whistleblower Provision Blows: Its Failure to Protect Overseas Whistleblowers

Academic journal article Journal of Corporation Law

Why Dodd-Frank's Whistleblower Provision Blows: Its Failure to Protect Overseas Whistleblowers

Article excerpt


In July 2010, President Barack Obama signed into law the Dodd -Frank Wall Street and Consumer Protection Act (Dodd-Frank).1 Dodd-Frank's purpose was "[t]o promote the financial stability of the United States by improving accountability and transparency in the financial system, to end 'too big to fail,' to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices."2 One way that Dodd-Frank aims to promote accountability and transparency in the financial system is to incentivize and protect whistleblowers that report violations of the securities laws. 3

As Congress debated the bill, Dodd-Frank's whistleblower provision received little notice.4 Despite initial obscurity, the provision has gained a lot of attention particularly because it allows whistleblowers to receive monetary awards for tips they report to the Securities Exchange Commission (SEC).5 In fiscal year 2012, the SEC received 3001 tips from whistleblowers.6 In fiscal year 2013, the number of tips the SEC received increased to 3238.7 These tips concerned corporate disclosures and financials, fraud, and manipulation.8 In both 2012 and 2013, tips came from all 50 U.S. states.9 In 2012, tips came from 49 countries outside the United States, and in 2013, tips came from 68 countries outside the United States.10 This Note is concerned with the whistleblower tips that come from outside the United States, particularly the anti-retaliation protection Dodd-Frank offers to these overseas whistleblowers. In this Note, the term overseas whistleblowers describes U.S. citizens who work for American controlled companies in foreign countries and who disclose any violations of the securities laws by those companies to the SEC.

This Note is organized as follows: Part II describes who is a whistleblower, as defined by the common law, the Sarbanes-Oxley Act of 2002 (SOX) and Dodd-Frank. It then addresses the theories that favor applying U.S. law extraterritorially and discusses extraterritorial application of U.S. federal employment law, focusing on the Age Discrimination in Employment Act of 1967 (ADEA), Title VII of the Civil Rights Act of 1964 (Title VII), the Fair Labor Standards Act of 1938 (FLSA), the Equal Pay Act of 1963 (EPA), and the whistleblower provisions in SOX and Dodd -Frank. Finally, Part II introduces cases interpreting the extraterritorial application of Dodd -Frank's whistleblower provision.

Part III analyzes how U.S. courts use the presumption against extraterritoriality to determine whether U.S. law applies to conduct or people outside U.S. territory. It discusses Morrison v. National Australia Bank, the most recent Supreme Court case rejecting extraterritorial application of U.S. anti-fraud regulations. Part III then analyzes how the district courts used the Morrison opinion to evaluate the extraterritorial application of Dodd-Frank's anti-retaliation protection. It analyzes court reasoning in the cases that determined that the ADEA and Title VII did not have extraterritorial reach, and how, in response to these decisions, Congress amended the ADEA and Title VII to ensure their extraterritorial application. Finally, Part III analyzes why Congress decided that certain U.S. laws, such as the FLSA, should not have extraterritorial application.

Part IV recommends that Congress pass an amendment to explicitly extend Dodd - Frank's anti-retaliation protection to overseas whistleblowers. It is up to Congress to change the law because the presumption against extraterritorial application of congressional legislation prevents the courts from reaching a different interpretation. Finally, Part IV argues that Congress should pass such an amendment because the protection against retaliation will encourage overseas whistleblowers to report employer securities misconduct to the SEC.


A. Who is a Whistleblower?

The general definition of a whistleblower in the employment context is "an emplo yee [who] reports, exposes or protests, either publicly or within the organization, either the employer's or a fellow employee's criminal, immoral or otherwise improper activity. …

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