Complaint about Foreign Tax Violations Sunk Under SOX

On February 12, 2014, the Fifth Circuit in Villanueva v. U.S. Department of Labor held that an employee did not engage in protected activity under SOX when he reported alleged violations of Columbian tax laws to U.S. executives at his employer. Villanueva was a non-U.S. citizen working in Colombia for a Colombian subsidiary of a Netherlands company that was publicly traded in the U.S. He allegedly reported a transfer pricing scheme, pursuant to which his Colombian employer would be required to use a Dutch Antilles entity of the company for inspection services that his employer performed for non-Colombian clients. As part of the scheme, 10% of the contract revenues were paid to the Dutch Antilles company even though it did not procure the contracts or conduct the services. Villanueva alleged that his Colombian employer wrongfully claimed Value-Added-Tax exemptions on the work and, as a result, it was able to under-report its taxable revenue to Colombian authorities. Villanueva claimed that after he reported these issues to, among others, executives in the United States, he was denied a pay raise and his employment was terminated.

The Fifth Circuit affirmed the dismissal of Villanueva’s claims under SOX, holding that “Villanueva did not provide information regarding conduct that he reasonably believed violated one of the six provisions of U.S. law enumerated in § 806; rather, he provided information regarding conduct that he reasonably believed violated Colombian law. In other words, he failed to show that he engaged in protected activity under § 806.” This is just the latest decision out of the Fifth Circuit in which it has endorsed a strict and correct reading of whistleblower statutes as drafted, and it is a significant victory for U.S. multinationals as it will help to close the floodgates of whistleblower litigation involving alleged retaliation for reporting violations of non-U.S. laws.

Topics:  DOL, Multinationals, Offshore Payments, Retaliation, Sarbanes-Oxley, Tax Fraud, Violative Conduct, Whistleblowers

Published In: Civil Procedure Updates, International Trade Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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