Attorney David Mair represented former Siemens employee Meng-Lin Liu in the whistleblowing lawsuit. Danny Ghitis for The Wall Street Journal

U.S. authorities have reached beyond the country's borders to extract huge settlements from foreign firms like BNP Paribas SA, Total SA and Credit Suisse Group AG . But a new court ruling may mean U.S. law doesn't extend far enough to protect certain whistleblowers who flag such violations.

A federal appeals court last week held that U.S. law can only reach so far into Germany-based Siemens AG 's operations, upholding a lower-court ruling dismissing a whistleblower-retaliation claim a former Taiwanese employee brought against the German firm. The former employee sought protection under a strict new U.S. whistleblower law.

The ruling held that the provisions of the 2010 Dodd-Frank financial-reform law that prohibit retaliation against whistleblower employees don't apply to the former Siemens China staffer. The ruling cited a 2010 U.S. Supreme Court decision that says that legislation doesn't apply outside the U.S. unless there is evidence Congress indicated otherwise.

"The question that we're left with is: Why can the government enforce other securities laws internationally but when it comes to enforcing a new securities law designed to protect people who report securities-law violations, it doesn't reach there?" said Jordan Thomas, partner and chair of the whistleblower representation practice at Labaton Sucharow LLP.

In fiscal 2013, the Securities and Exchange Commission's whistleblower program received tips from people in 55 foreign countries, according to the agency. The most foreign whistleblowers came from United Kingdom, Canada and China, the report said. Tipsters submitting information from abroad made up 12% of the tipsters participating in the program during that period.

The fines foreign companies have paid over securities-law and other violations have been formidable. These companies have faced investigations in the U.S. over lax money-laundering controls in overseas operations, bribery of foreign officials and other conduct abroad.

In June BNP Paribas SA agreed to pay nearly $9 billion and plead guilty to crimes for violating U.S. sanctions. Some of the largest settlements over allegations of foreign bribery and inadequate anti-money-laundering controls have also involved foreign companies, including Siemens's record $800 million settlement with U.S. authorities over bribery charges in 2008. Siemens and three subsidiaries pleaded guilty to Foreign Corrupt Practices Act violations and afterward undertook a massive compliance overhaul.

Meanwhile, the Dodd-Frank law contained provisions that prohibit companies from retaliating against certain whistleblowers and established a bounty program run by the SEC.

But those provisions don't specify whether or not such protections apply abroad. Under the law, employees can bring lawsuits seeking damages for retaliation. The SEC has also said it would penalize firms for whistleblower retaliation and brought its first such case in June.

In last week's decision, the three-judge panel on the Second Circuit Court of Appeals upheld a lower-court ruling granting Siemens's motion to dismiss a case brought by Meng-Lin Liu, a former compliance officer at Siemens China, who said he was fired and retaliated against in other ways for internally reporting allegations of potentially improper payments.

"We conclude that that provision doesn't apply extraterritorially," the opinion said. "The whistleblower, his employer, and the other entities involved in the alleged wrongdoing are all foreigners based abroad, and the whistleblowing, the alleged corrupt activity, and the retaliation all occurred abroad."

Siemens said an internal investigation showed Mr. Liu's accusations were meritless and that his departure from the company resulted from legitimate performance reasons.

"The winners here are multinational employers faced with whistleblower claims implicating conduct that occurs abroad," said Steven Pearlman, a partner at Proskauer Rose LLP and co-head of the firm's whistleblowing and retaliation group. "There is greater comfort that they will prevail in whistleblower actions in the U.S."

The ruling upholds an earlier ruling by a New York district court judge. Mr. Liu appealed that earlier decision.

"Just because you're an issuer on a U.S. exchange, doesn't mean every U.S. law applies to you," said Christian Bartholomew, partner at Jenner & Block LLP, referring to the Second Circuit's opinion. Siemens had American depositary receipts listed in the U.S. but delisted them this year.

David Mair, Mr. Liu's attorney and a partner at New York firm Kaiser Saurborn & Mair PC, said he was disappointed by the ruling, but thinks there is potential for certain overseas whistleblower employees to still be protected from retaliation under Dodd-Frank.

"The court definitely left open the door for the possibility [that] overseas employees could be protected where some events underlying the retaliation took place in the U.S.," said Mr. Mair, who frequently represents foreign whistleblowers.

For instance, a case involving retaliation directed by supervisors the U.S. could potentially have a different outcome, he said.

Despite the ruling, multinational firms based abroad will continue to have compliance programs comparable to those of their U.S.-based peers and enforce policies against retaliating against internal whistleblowers, said Mr. Pearlman.

Write to Rachel Louise Ensign at