The National Whistleblowers Center (NWC) and the National Employment Lawyers Association (NELA) filed an amicus brief this week in Villanueva v. Core Laboratories NV, a case pending at the U.S. Department of Labor’s Administrative Review Board (ARB). The brief argues that SOX should protect whistleblower William Villanueva, even though he worked for Core’s subsidiary in Columbia.

Core Laboratories NV is a publicly traded company based in Houston, Texas.  It provides services to the petroleum industry. For 16 years, William Villanueva worked as CEO of Saybolt Columbia, Core’s subsidiary.

In 2008, Villanueva sent emails to corporate executives in Houston reporting how other company executives were engaged in tax-transfer schemes that falsely transferred profits to low-tax Curacao, an island in the Caribbean Sea. He also reported that Core accountants in Columbia were making false claims to evade the Columbian value added tax (VAT). After Villanueva refused to sign a false tax return, Core fired him.

Villanueva filed a complaint with the Department of Labor (DOL) claiming that he was fired in retaliation for raising his concerns. He claimed that his discharge violated the 2002 Sarbanes-Oxley Act (SOX). An administrative law judge (ALJ) granted Core’s motion to dismiss on grounds that Villanueva worked outside the U.S. Villanueva appealed to the ARB.  Earlier this Summer, the ARB asked for amicus briefs on whether SOX can apply to the employees of off-shore subsidiaries. It also asked for discussion about the effect of the U.S. Supreme Court’s decision in Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010).

Our amicus brief argues that Villanueva’s case does not raise issues of extraterritorial application of SOX since his protected activity consisted of emails sent to the U.S., and the decision to fire him was made in the U.S. In the alternative, it argues that the very nature of SOX (enacted after Enron and other companies abused off-shore subsidiaries to defraud shareholders) requires that SOX apply to all subsidiaries of companies traded in the U.S. stock markets. This argument builds on the ARB’s decision in Johnson v. Siemens Building Technologies, ARB No. 08-032, ALJ No. 2005-SOX-0151 (ARB March 31, 2011). In Johnson, the ARB held that SOX has always protected the employees of subsidiaries of publicly traded companies.

Many thanks go to R. Scott Oswald and Nicholas Woodfield of The Employment Law Group for leading the research and writing for this brief, and also to Rebecca Hamburg of NELA for working with the team that includes Stephen M. Kohn and myself of NWC. This brief will hopefully assist the ARB in expanding SOX’s coverage so that it can be effective in protecting our stock markets from frauds committed anywhere in the world. In the meantime, it would be wise for whistleblowers with extraterritoriality issues to preserve their claims until the ARB issues its decision here.