Lawsuit brings to light secrecy statements required by KBR
By Scott Higham
February 19, 2014
One of the nation's largest government contractors requires employees seeking to report fraud to sign internal confidentiality statements barring them from speaking to anyone about their allegations, including government investigators and prosecutors, according to a complaint filed Wednesday and corporate documents obtained by The Washington Post.
Attorneys for a whistleblower suing Halliburton Co. and its former subsidiary, Kellogg Brown & Root, said the statements violate the federal False Claims Act and other laws designed to shield whistleblowers.
They filed a complaint with the Justice Department and the Securities and Exchange Commission, requesting an investigation and demanding that the confidentiality statements be turned over to federal authorities so allegations of fraud can be identified.
"The apparent purpose and intent of the confidentiality agreements was to vacuum up any potential adverse factual information, conceal it in locked file cabinets and gag those with first-hand knowledge from going outside the company," Stephen M. Kohn, an attorney for the whistleblower, wrote in the complaint.
Mark E. Lowes, KBR's vice president of litigation, said the confidentially statements are designed to protect the integrity of the internal review process, not to conceal information. He said that the company often receives unfounded complaints and that the process is designed to ensure those complaints are not publicly circulated. He also said KBR employees are encouraged to report allegations of wrongdoing. If those allegations are supported by the facts, he said, they are forwarded to the proper authorities.
Lowes said attorneys for the whistleblower in the fraud case are raising a false issue. "This is a desperate act to try to deflect people from the merits of the case," he said. He said that KBR has filed court motions to dismiss the case and that he expected the motions to succeed.
A spokeswoman for Halliburton said that "the litigation involves alleged activity of KBR, which is now a completely separate company from Halliburton. Accordingly, we have no further comment on the matter."
Halliburton, which owned KBR at the time of the alleged violations, remains a defendant in the law suit, court records show.
For years, Halliburton has been one of the biggest players in U.S. government and U.S. military contracting, and the company was headed by Richard B. Cheney before he became vice president. In 2006, Halliburton separated from Kellogg Brown & Root, which is now a stand-alone company known as KBR.
Between 2002 and 2011, KBR was the largest U.S. contractor operating in Iraq and Afghanistan, winning nearly $40 billion worth of federal work, according to the U.S. Commission on Wartime Contracting in Iraq and Afghanistan. KBR has been the subject of numerous lawsuits and allegations of fraud relating to contracts with the U.S. government, according to the war commission and the Justice Department.
Tim McCormack, a lawyer who specializes in whistleblower cases, said that he has seen numerous confidentiality agreements but that the one used by KBR is particularly stark because it threatens employees with termination and possible legal action if they speak out.
"This is mostly about trying to scare someone into not talking," McCormack said. "It's very effective to say you will be fired or sued. This is a very big company with lots of resources."
The existence of the previously undisclosed statements surfaced two weeks ago during a sworn deposition provided by KBR's vice president of legal affairs. The deposition was taken as part of a whistleblower lawsuit that accuses Halliburton and KBR of inflating the cost of laundry and other services on U.S. military bases in Iraq. The companies have denied the allegations.
The statements prohibit employees who want to report fraud from discussing the "subject matter" of their allegations without "specific authorization" from the company's general counsel. Employees are warned that "unauthorized disclosure of information" could cause "irreparable harm" to the company.
Employees are told that if they violate the terms of the statements, they could face "disciplinary action up to and including termination of employment," according to a copy of the three-paragraph statement.
The statements have been used "for years," KBR attorney Christopher Heinrich said during the Feb. 5 deposition. He said he thought the statements had been drawn up by an attorney for Halliburton. Heinrich also said under questioning that KBR had fielded nearly 1,000 tips concerning one federal contract alone, LOGCAP III, a multibillion-dollar military service and supply contract in Iraq.
Heinrich said the intent of the statement is clear.
"It does instruct the individual that if they want to discuss it they have to get KBR general counsel approval," he said, according to a transcript of the deposition. "They are prohibited from discussing any particulars regarding this interview and the -- and the subject matter discussed in the interview."
Attorneys for Harry Barko, the whistleblower suing Halliburton and KBR, came across the statements during the discovery phase of the lawsuit. The suit alleges that Halliburton and KBR inflated the costs of services provided to military bases under the LOGCAP contract. The suit was filed in 2005, when Halliburton was the parent company of Kellogg Brown & Root.
Barko's attorneys allege in the complaint to the Justice Department and the SEC that the statements were intended to intimidate employees with knowledge of fraud. They said the statements send a message that employees will be fired and sued if they publicly blow the whistle on wrongdoing.
Kohn said the statements violate the federal False Claims Act, which directs federal contractors to ensure that employees are free to report fraud, waste and abuse. Under the act, employers are prohibited from threatening workers who try to reveal fraud in government contracts.
Kohn also said the statements appear to be a violation of the Securities and Exchange Act, which makes it illegal for corporations to prevent employees from telling the SEC about possible violations of securities laws. Halliburton and KBR are publicly traded corporations and subject to SEC regulations.
"The confidentiality statement unquestionably impedes such communications," Kohn said in the complaint. "It has a chilling effect on any employee disclosures, and contains explicit threats targeting any employee who may step outside of the corporate secrecy shield reflected in the confidentiality statement."
A Justice Department spokeswoman declined to comment. A spokeswoman for the SEC cited agency regulations that forbid corporations from preventing "an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement ."