The largest Iraq War defense contractor, KBR-Brown & Root, has been sanctioned by the U.S. Securities and Exchange Commission for requiring employees to sign a restrictive nondisclosure form that prevented them from whistleblowing on fraud and misconduct.
Before a whistleblower could come forward to the SEC or other law enforcement bodies at the Department of Justice to report crimes witnessed at the contractor, he first had to go through KBR’s own law department to get permission to make those disclosures. If the employee skipped the internal requirement, it was grounds for disciplinary action, including termination.
“Though the Commission is unaware of any instances in which a KBR employee was in fact prevented from communicating directly with Commission Staff about potential securities law violations … the language found in the form confidentiality statement impedes such communications by prohibiting employees from discussing the substance of their interview without clearance from KBR’s law department under penalty of disciplinary action including termination of employment,” the SEC said in its enforcement action dated Wednesday.
As a result of the sanction, KBR has revised its confidentiality form to no longer require authorization from its law department before an employee can go to authorities and report any waste, fraud and abuse.
The company was also fined $130,000.
The SEC investigation was triggered by a complaint filed by Kohn Kohn & Colapinto on behalf of a former KBR employee, Harry Barko.
“This is an historic day for whistleblowers,” said Stephen Kohn, Mr. Barko’s lawyer, in a statement. “Corporations have a history of silencing employees by forcing them to sign highly restrictive non-disclosure agreements. Today’s action by the SEC signals the advancement of nation-wide corporate reform. Transparency has triumphed over censorship.”
The action marks an enforcement against a company by the SEC for using language in its confidentiality agreements that stifles the rights of whistleblowers.
The government agency was given the authority under a whistleblower protection enacted under the Dodd-Frank Act.
“SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement, in a statement. “We will vigorously enforce this provision.”
The SEC found the Houston-based global technology and engineering company’s confidentiality agreement to have a “potential chilling effect on whistleblowers’ willingness to report illegal conduct to the SEC,” the government’s statement, which announced the sanction, read.
Mr. Barko was a former contract administrator for KBR in Iraq, who discovered that KBR used a subcontract procedure that vastly inflated the costs of constructing laundry facilities and providing laundry services on at least three military bases.
KBR is now a subsidiary of Halliburton.
Mr. Barko has been in a lengthy court battle with both Halliburton and KBR. He initially filed a lawsuit under the False Claims Act on behalf of the government to recover penalties for the up-charging he witnessed. As part of that suit, he requested documents from the two contractors to prove his case, which both companies have fought to protect.
Last year a judge ruled KBR must turn over the documents to Mr. Barko, but Mr. Barko could also not disclose their contents to the public. The ruling was appealed by KBR, and the court case is ongoing.
• Kelly Riddell can be reached at kriddell@washingtontimes.com.
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