[Congressional Record (Bound Edition), Volume 149 (2003), Part 2]
[Senate]
[Pages 2121-2123]
[From the U.S. 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

[[Page 2122]]

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 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 
     Administration'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.

[[Page 2123]]

       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.
                                  ____

                                              Department of Labor,


                                      Office of the Solicitor,

                                 Washington, DC, January 24, 2003.
     Hon. Charles E. Grassley,
     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 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

                          (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.

                          ____________________