[Congressional Record Volume 149, Number 16 (Wednesday, January 29, 2003)]
[Senate]
[Pages S1725-S1727]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CORPORATE WHISTLEBLOWER PROTECTIONS IN THE SARBANES-OXLEY ACT
Mr. LEAHY. Mr. President, I rise to note an important victory in the
fight to protect whistleblowers and to praise my good friend Senator
Chuck Grassley for his leadership in this fight.
The Washington Post reported yesterday that the Department of Labor
has reversed its view on how it will interpret an important provision
of the Sarbanes-Oxley Act on corporate misconduct. The provision we
enacted provides a Federal law protecting corporate whistleblowers from
retaliation for the first time. The law was designed to protect people
like Sherron Watkins from Enron, who was recently named one of Time
magazine's ``People of the Year,'' from retaliation when they report
fraud to Federal investigators, regulators, or to any Member of
Congress. The law was intentionally written to sweep broadly,
protecting any employee of a publicly traded company who took such
reasonable action to try to protect investors and the market.
The reason that Senator Grassley and I know so much about the
legislative intent behind this provision is that we crafted it together
last year in the Judiciary Committee and worked to make it part of the
Sarbanes-Oxley Act on the Senate floor. We had both seen enough cases
where corporate employees who possessed the courage to stand up and `do
the right thing' found out the hard way that there is a severe penalty
for breaking the `corporate code of silence.' Indeed, in the Enron case
itself we discovered an e-mail from outside counsel that noted that the
Texas Supreme Court had twice refused to find a legal protection for
corporate whistleblowers and that implicitly gave Enron the go ahead to
fire Ms. Watkins for reporting accounting irregularities.
Senator Grassley has always been a leader in protecting the rights of
whistleblowers, and I was proud to work with him in the area of
corporate reform to craft such a groundbreaking law.
Unfortunately, from the very day that President Bush signed the
Sarbanes-Oxley Act into law, Senator Grassley and I had to fight the
administration to make sure that the law would not be gutted. On the
same night that the law was signed, the White House issued an
interpretation that incorrectly and narrowly interpreted our provision.
Specifically, the White House stated that corporate whistleblower's
disclosure to Congress would not be protected unless the whistleblower
made the report to a congressional committee already conducting an
authorized investigation. This interpretation was at odds with the
legislative intent and the clear statutory language of the Act, which
protected reasonable reports of fraud to ``any Member of Congress.''
Senator Grassley and I had good reason to write the law with such
broad coverage. Most corporate whistleblowers do not know the ins and
outs of the jurisdiction of Congress's various committees, nor should
they be expected to. Simply picking up the phone and calling your local
Senator or Representative to report a case of securities fraud should
be protected. In addition, by definition most ``whistleblowers'' are
reporting fraud that is not widely known. They are blowing the whistle.
Thus, their revelations do not come as part of already commenced
investigations. They may lead to such investigations as well as
contribute to them. The White House interpretation would have excluded
among the most important revelations of corporate fraud made to
Congress.
The administration's interpretation was reinforced the next day when
the White House spokesman repeated that there were limits on the types
of disclosures to Congress that would be protected. Finally, in
addition to these White House interpretations, former Solicitor of
Labor Eugene Scalia filed a troubling brief that adopted this narrow
interpretation not only in the context of the Sarbanes-Oxley Act, but
regarding the environmental whistleblower provisions, as well.
That is where Senator Grassley stepped in. As he has done so many
times before, under both Republican and Democratic administrations, he
went to bat for the rights of the lone whistleblower against the huge
bureaucracy. Once again, through his perseverance, he has proven that
you can fight not only city hall but the executive branch of the
Federal Government.
Working together, we wrote a series of letters to the administration
protesting their narrow interpretations and making the legal case that
they were at odds with the legislative intent and clear language of the
provision that we wrote. Each and every time that the administration
responded by stonewalling or giving half answers, Senator Grassley was
there to protect the law we had worked so hard to write.
Finally, on January 24, 2003, almost a half year after our first
letter, the administration gave in. In a letter from the new Acting
Solicitor of Labor to Senator Grassley and to me he stated, ``It is the
Department's view that under Sarbanes-Oxley, complaints to individual
Members of Congress are protected, even if such Member is not
conducting an ongoing Committee investigation within the jurisdiction
of a particular Congressional committee.. .'' The letter promised that
new rules and regulations effectuating this policy change would follow.
I am quite sure that when those regulations come out that Senator
Grassley will once again be paying close attention, as will I. Where
the integrity of our financial markets and our Government are
concerned, we can do no less. I look forward to working with Senator
Grassley to protect the rights of whistleblowers in the 108th Congress,
as we did in the 107th Congress. It is an honor and a privilege to work
with Senator Grassley on these important matters.
I ask unanimous consent that the letters I have referenced above and
the Washington Post story, be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
U.S. Senate,
Committee on the Judiciary,
Washington, DC, July 31, 2002.
Hon. George W. Bush,
President of the United States, The White House, Washington,
DC.
Dear Mr. President: As coauthors of the recent corporate
whistleblower provision in the Corporate and Criminal Fraud
Accountability Act, section 806 of the Sarbanes-Oxley Act, we
are writing to express our shared concern about interpretive
statements made by the White House staff only hours after you
signed the Act into law.
According to media reports, the White House views this
bipartisan provision, which was approved unanimously both by
the Judiciary Committee and the full Senate, as protecting
employees only if they report fraud to Congress ``in the
course of an investigation.'' This narrow interpretation is
at odds with the plain language of the statute and risks
chilling corporate whistleblowers who wish to report
securities fraud to Members of Congress.
The provision in question, codified at 18 U.S.C.
Sec. 1514A, states that it applies to disclosures of fraud
whenever ``the information or assistance is provided to or
the investigation is conducted by . . . any Member of
Congress or any committee of Congress.'' (emphasis added). By
its plain terms, there is no limitation either to ongoing
investigations of Congress or to matters within the
jurisdiction of any Congressional Committee.
The reason for this is obvious. Few whistleblowers know,
nor should they be expected to know, the jurisdiction of the
various Committees of Congress or the matters currently under
investigation. The most common situation, and one that the
recent Administration's statement excludes from protection,
is a citizen reporting misconduct to his or her own
Representative or Senator, regardless of their committee
assignments. Such disclosures are clearly covered by the
terms of the statute.
We request that you review and reconsider the
Administration's interpretation of section 806 of the
Sarbanes-Oxley Act. It embodies a flawed interpretation of
the clearly
[[Page S1726]]
worded statute and threatens to create unnecessary confusion
and to discourage whistleblowers such as Sherron Watkins and
Coleen Rowley from reporting corporate fraud to Congress.
Sincerely,
Patrick Leahy,
Chairman.
Charles E. Grassley,
U.S. Senator.
____
U.S. Senate,
Committee on the Judiciary,
Washington, DC, August 1, 2002.
Hon. Alberto R. Gonzales,
Counsel to the President, The White House, Washington, DC.
Dear Mr. Gonzales: We appreciate your letter received today
seeking to clarify the President's statement regarding the
corporate whistleblower provisions in the Corporate and
Criminal Fraud Accountability Act, section 806 of the
Sarbanes--Oxley Act.
While the President's earlier statement was: ``Given that
the legislative purpose of Section 1514A of title 18 of the
U.S. Code, enacted by section 806 of the Act, is to protect
against company retaliation for lawful cooperation with
investigations and not to define the scope of investigative
authority or to grant new investigative authority, the
executive branch shall construe section 1514(a)(1)(B) as
referring to investigations authorized by the rules of the
Senate or the House of Representatives and conducted for a
proper legislative purpose.''
Your letter now clarifies that contrary to the sweeping
language above, ``the President's statement provides guidance
to the executive branch in construing the provision only on a
single, very narrow point. . . .'' (Emphasis added). That
narrow point being what is defined as an ``investigation''
for purpose of the Act, and not all of section 1514(a)(1)(B),
which you agree applies to more than merely investigations.
To ensure there is no confusion on this matter, and in
light of seemingly broader interpretations provided by
Whitehouse spokespersons, please respond to the following
scenario.
An employee who works at a publicly traded company provides
information to a Member of Congress (and assume for this
question the Member is not a chairman or ranking member of a
Committee and is not a member of a Committee with
jurisdiction) regarding a violation as enumerated under
Section 1514A(a)(1) of the Act. Finally, assume that there is
no investigation being conducted by the Member at the time
the information is provided. Do you believe that employee is
or is not afforded the protections of Section 1514A?
There is no question in our minds that the Congressional
intent (and the clear language of the statute) is that the
answer to the above scenario is yes--the employee is
protected, whether there is an investigation pending or not.
Our desire is to protect the well-intentioned employee who
contacts his elected representatives (or any representative
for that matter) and not require that employee to consult the
Congressional Directory and Congressional Record prior to
making his call to determine whether he/she will be afforded
the whistleblower protections of the Act.
The statute reflects this intent, protecting the actions of
an employee of a publicly traded company: ``(1) to provide
information, cause information to be provided, or otherwise
assist in an investigation regarding any conduct which the
employee reasonably believes constitutes a violation of
section 1341, 1343, 1344, or 1348, any rule or regulation of
the Securities and Exchange Commission, or any provision of
Federal law relating to fraud against shareholders, when the
information or assistance is provided to or the investigation
is conducted by--. . . (B) any Member of Congress or any
committee of Congress; . . .''
Section 1514A(a)(1). Emphasis added.
Thank you for your time and assistance. We look forward to
your response.
Cordially yours,
Patrick J. Leahy,
Chairman.
Charles E. Grassley,
Ranking Member, Subcommittee on Crime and Drugs.
____
U.S. Senate,
Washington, DC, January 15, 2003.
Hon. George W. Bush,
President of the United States of America, The White House,
Washington, DC.
Dear President Bush: I am writing in response to a letter
of December 20, 2002, that the White House sent in response
to Senator Grassley's and my joint letters of August 1 and
October 31 expressing concerns regarding the Administration's
enforcement of the corporate whistleblower provisions that we
included in the Sarbanes-Oxley Act. I am dismayed at the
Administration's overly narrow interpretation of these
important whistleblower protection provisions in the
corporate accountability legislation.
While I appreciate your response, it does little to clear
the ambiguity created by the prior statements by the
Administration, as set forth in our letters. It leaves
potential whistleblowers like Sherron Watkins of Enron (who
recently shared the honor of being selected Time Magazine's
``Person of the Year'' with two other whistleblowers) to
guess at whether or not they can be fired for reporting an
allegation of corporate fraud to their Representatives or
Senators in Congress.
The unwillingness to clarify this matter is puzzling to me.
After having confused the matter with a series of misleading
and contradictory statements, the White House cannot simply
state the scope of 18 U.S.C. Sec. 1514A ``will ultimately be
addressed by the courts.'' The ambiguity caused by the
Administrations's own statements has now been allowed to
persist for almost half a year, and it threatens effective
enforcement of these important corporate reforms. In fact,
White House spokesperson Ari Fleisher further fueled this
ambiguity on July 31, 2002 by stating:
``What the action taken last night [the interpretive
statement] does is say that it's up to Congress to determine,
through its own rules and procedures, whether to grant
individual members of Congress investigative powers that
would trigger the statute.
``Nothing in the statute or the signing statement prevents
Congress from granting that authority to whoever it chooses.
This is a congressional issue, and a congressional decision.
``If Congress wants to allow individual members of the
Congress, individual senators, individual House members,
whether in the majority or the minority, no matter who they
are, to conduct investigations, then that individual, if
somebody was a whistleblower to that individual, the
whistleblower would have all protections. If Congress decides
that the only way to have an investigation is through the
committee-authorized process, then the whistleblower will go
through that committee. So this is a congressional matter and
a congressional determination.''
Thus, Mr. Fleisher's public statements on behalf of the
White House leave the impression that the White House would
require some type of additional Congressional rule-making
before affording the statute its full affect. Aside from
being legally incorrect (an act of Congress passed nearly
unanimously and signed into law by the President of the
United States requires no further action to be fully
enforced), such statements create a real risk. Corporate
whistleblowers will be chilled form making reports of fraud
unless they are assured that the law protects them from
retaliation. It is incumbent upon the Administration to clear
up the ambiguity which it has helped to create from an
unambiguous statute.
Nor am I persuaded that, as you write, it would not be
``appropriate'' for the White House to provide a legal
interpretation to a Member of Congress regarding a statute
that the Administration is entrusted to enforce. The
Executive Branch, unlike the courts, provides such
interpretive guidance on a frequent basis both to Congress
and to its own employees. In fact, when questions are not
posed as policy-based hypotheticals, as Senator Grassley and
I took pains to do in our letters, the Adminsitration often
refuses to answer because the questions do relate to a real,
pending case. If the Executive Branch will not discuss policy
on a theoretical basis, and refuses to discuss its actions on
specific cases, then what remains?
Indeed, it would be nearly impossible to conduct effective
oversight or to craft legislation designed to cure problems
in the current law without a constructive dialogue between
the Executive Branch and the Congress on precisely such
issues. Understanding the Executive Branch's current
interpretation of the law is particularly important in
matters involving corporate reform. Our financial markets
depend upon the confidence of the American people that our
markets will be effectively policed, and creating uncertainty
about the scope of important corporate reforms can
destabilize such markets.
For these reasons, I urge you to answer all the questions
posed in Senator Grassley's and my previous letters.
Specifically, I request that you state definitively whether
or not you believe that 18 U.S.C. Sec. 1514A protects a
report of fraud or securities law violations by an employee
of a publicly traded company to ``any'' member of Congress
and whether the Department of Labor and the Department of
Justice have been instructed not to take any contrary
position in future litigation.
Thank you for your prompt response in this matter.
Sincerely,
Patrick Leahy,
U.S. Senator.
____
U.S. Department of Labor,
Office of the Solicitor,
Washington, DC, January 24, 2003.
Hon. Charles E. Grassley,
U.S. Senate,
Washington, DC.
Hon. Patrick J. Leahy,
U.S. Senate,
Washington, DC.
Dear Senators Grassley and Leahy: It was a pleasure meeting
with your staff on January 7, 2003, to discuss issues
relating to the implementation of the whistleblower
provisions of the Sarbanes-Oxley Act of 2002. The President
and Secretary Chao, who has responsibility to investigate and
adjudicate allegations of retaliation under this law, share
your view that these provisions are crucial to the federal
government's efforts to combat corporate corruption.
In connection with the Department of Labor's implementation
of the whistleblower protections of the Sarbanes-Oxley Act, I
have reviewed a series of letters you exchanged with the
Counsel to the President concerning the President's signing
statement. In his December 20, 2002 letter, the
[[Page S1727]]
Counsel to the President explained that ``the President's
statement took no position on whether there is whistleblower
protection for employees who lawfully report wrongdoing to
individual Members of Congress, nor did it address whether
whistleblower protection would be limited to those instances
where there was an ongoing investigation or the disclosure
related to a matter within the jurisdiction of a particular
Congressional committee.'' The letter also indicated that
representatives of the Department would be discussing the
issues with your staff.
It is the Department's view that under Sarbanes-Oxley,
complaints to individual Members of Congress are protected,
even if such Member is not conducting an ongoing Committee
investigation within the jurisdiction of a particular
Congressional committee, provided that the complaint relates
to conduct that the employee reasonably believes to be a
violation of one of the enumerated laws or regulations. The
Department currently is finalizing the draft of an Interim
Final Rule and accompanying Preamble implementing the
whistleblower provisions of the Sarbanes-Oxley Act. Although
it would be inappropriate for me to provide you our draft
text at this time, the Department's current intention is to
clarify in the published document our view that complaints to
``any Member of Congress or any committee of Congress'' are
covered by the whistleblower provisions of the Sarbanes-Oxley
Act.
Thank you for your interest in this important matter.
Sincerely,
Howard M. Radzely,
Acting Solicitor.
____
[From the Washington Post, Jan. 28, 2003]
Labor Dept. Shifts Whistle-Blower View
Under Act, Workers Protected When Exposing Wrongdoing to Lawmakers
(By Christopher Lee)
The Labor Department has changed its interpretation of a
new corporate whistle-blower law, a move that will afford
workers who report wrongdoing to Congress greater protection
against retaliation, two senators said yesterday.
In a letter Friday to Sens. Charles E. Grassley (R-Iowa)
and Patrick J. Leahy (D-Vt.), Acting Solicitor Howard M.
Radzely reversed the department's contention that only
whistle-blower contacts with a ``duly authorized''
investigative committee of Congress were protected, not those
with just any lawmaker. That initial department reading of
the Sarbanes-Oxley Act, a corporate accountability law
enacted last summer, conflicted with what the two senators
said they intended when they wrote the whistle-blower
protections into the bill.
``It is the department's view that . . . complaints to
individual members of Congress are protected, even if such
member is not conducting an ongoing committee
investigation,'' Radzely wrote.
Grassley said the reversal would ``make it easier for
corporate whistle-blowers to be protected when they speak out
on wrongdoing in the boardroom.''
``It's a big victory,'' said Blythe McCormack, a
spokeswoman for Leahy.
Grassley and Leahy have sent several letters to White House
officials seeking assurances that the Bush administration
understood the intent of the law. In September, than-Labor
Department solicitor Eugene Scalia filed a friend-of-the-
court brief with an administrative review board seeking to
overturn a $200,000 punitive damages award won by Assistant
U.S. Attorney Gregory C. Sasse of Ohio in a whistle-blower
case against the Justice Department.
Scalia, who resigned his post this month to return to
private practice, had argued that Sasse did not enjoy
whistle-blower protection in his contacts with Rep. Dennis J.
Kucinich (D-Ohio), who was looking into reports of toxic
materials on federally owned land near the Cleveland airport.
Only contacts with investigative panel members are protected,
Scalia wrote.
Scalia also urged that a federal prosecutor could not sue
the Justice Department over workplace disagreements involving
priorities in government litigation.
Sasse, who still has his job, said his supervisors
downgraded his performance reviews, did not grant him
training opportunities and removed him from some cases in
retaliation for his contacts with Kucinich. An administrative
law judge ruled that the Justice Department had retaliated
against Sasse and found that his contacts with Kucinich were
protected.
The Justice Department appealed to the administrative
review board, which has not yet ruled on the case.
Whistle-blower advocates said Scalia was attempting to use
the case, which concerns whistle-blower provisions in
environmental protection laws, to establish a precedent that
would undermine whistle-blowers in cases against
corporations.
Jeff Ruch, executive director of Public Employees for
Environmental Responsibility, a group that defends federal
workers on environmental issues, said a central question of
the Sasse case--whether federal prosecutors can be whistle-
blowers--remains unresolved.
A Labor Department spokeswoman declined to comment on the
case because it is in litigation.
Steven Bell, Sasse's attorney, said the department's
reversal helps his client. ``The Labor Department is
acknowledging that the substance of the brief it filed is
legally inaccurate,'' he said.
____________________