The whistle-blower protection measures of the Sarbanes-Oxley Act do not extend to foreign employees of overseas subsidiaries of U.S. firms, according to a recent court ruling. Some related issues still remain open to question, however.
An American court of appeal announced the ruling in the case of Ruben Carnero, an Argentinean who worked for two Brazilian subsidiaries of Boston Scientific Corp. In 2002, he asserted in a whistle-blower suit filed in the U.S. that he was fired for disclosing to the parent company that its Brazilian subsidiaries created false invoices and inflated sales figures.
The judge in the case said that ruling in Carnero's favour would have exceeded the jurisdiction of the court, because it would have meant delving into the employment relationship between foreign employers and their foreign employees. In other words, the scope of the Sarbanes-Oxley Act can only be increased by Congress reaching agreements on such issues with the government's of other countries.
It appears Congress never considered the likelihood of conflicts involving foreign employees and firms when legislating for the act. This is evident from the fact that Congress made no provision for international enforcement, allocating no money for overseas investigations, for coordination with the Department of State, for interpreters, or for the use of foreign personnel.
The question of whether U.S. citizens working for a foreign subsidiary have whistle-blower protection for overseas conduct, however, still remains unanswered. Ambiguity also remains regarding the protection of foreign citizens working directly for a publicly traded U.S. company overseas. It is worth noting that several regulations of the Sarbanes-Oxley Act concerning whistle-blowing have already come into conflict with labour laws in France and Germany.
“The decision taken by the judge is somewhat open to debate, given that the U.S. Securities and Exchange Commission employs some of the regulations of the Sarbanes-Oxley Act in its relations with foreign companies. So why not also protect witnesses in cases of financial fraud?" says Denis Zenkin, marketing director at InfoWatch.
“The ruling undoubtedly weakens the effectiveness of the Sarbanes-Oxley Act for large international companies, because it becomes disadvantageous for foreign employees (and they are a large part of the workforce at international corporations) to complain about their employers and expose their machinations," Denis Zenkin adds.
Source: IT Compliance Institute
