Consumer Fraud

The Fraud List: KBR is a Habitual Offender with Friends in High Places

the fraud list 370x210 The Fraud List: KBR is a Habitual Offender with Friends in High PlacesIf Houston-based KBR (formerly Kellogg Brown & Root) were a person, it would be a prison inmate serving decades of hard time for crimes involving complex kickback schemes, habitual overcharging, bribery, breach of contract, and other illegal misconduct generally intended to cheat the U.S. government out of billions of dollars in Defense funds and boost its own profits.

As it is, KBR has only grown in power, size, and influence over the years, thanks to its connections to high-ranking government officials. The engineering and construction company is a unit of Halliburton, a U.S. multinational corporation with dual headquarters in Houston and Dubai and close ties to former Vice President Dick Cheney, its former chief, and the Bush dynasty.

In addition to more than two dozen documented ethics complaints, alleged health and labor violations, and allegations of poor contract performance, KBR is also the target of multiple False Claims Act cases alleging government contract fraud, many of which were filed by KBR employees and affiliates acting as whistleblowers. The U.S. government has intervened in at least two of these cases.

In November 2009, KBR agreed to pay the U.S. $8 million to settle a False Claims Act case accusing the company of overbilling the government for the logistical support it was contracted to provide to the Army for operations in the Balkans during 1999 and 2000. The lawsuit also alleged KBR of delivering non-conforming products through subcontracted suppliers to Army operations in Kosovo, which were used for the construction of Camp Bondsteel, a main Army base in eastern Kosovo.

KBR paid $2 million to resolve a grand jury investigation and a whistleblower lawsuit filed by a former employee under the False Claims Act in February 2002. The lawsuit included allegations of fraud and other misconduct stemming from the company’s contractual obligations involving its work for the U.S. Army at Fort Ord, Calif. The settlement also required the federal government to cease its investigations, ongoing since 1997, and refrain from taking any further sanctions against the firm.

“Kellogg Brown & Root’s ability to perform further work for the United States government has not been impaired,” the company said in a statement on its website.

Puzzling Relationship

Indeed, KBR’s working relationship with the U.S. government has only become stronger, with billions more in government contracts awarded to the company, even without bidding. KBR holds the largest contract with the U.S. government for work in Iraq, employing about 21,000 workers there to provide logistical support to the U.S. military.

Many of those KBR employees were hired through shell companies based in the Cayman Islands – an offshore tax haven that provides an out for corporations and individuals seeking to escape paying U.S. taxes. These KBR workers were listed as employees of two firms – Service Employees International and Overseas Administrative Services – that exist in the Cayman Islands only on a computer hard drive. The arrangement allows KBR to avoid paying hundreds of millions of dollars in Medicare and Social Security taxes.

In November 2012, several Oregon National Guard soldiers who sued KBR for knowingly exposing them to carcinogenic hexavalent chromium while providing security to civilian workers at the Qarmat Ali water treatment facility in Iraq were awarded $85 million.

In 2009, Halliburton reported that M.W. Kellogg Ltd, a British corporation in which KBR owns 55 percent interest, motioned to settle allegations with the UK’s Serious Fraud Office (SFO) that it paid bribes to Nigerian officials for a decade starting in 1994 to win contracts for the construction of a gas refinery. KBR has already pleaded guilty to U.S. charges and agreed to pay $20 million and retain a corporate monitor for a three-year period.

KBR and its officials have been implicated in a number of other cases involving labor violations, environmental crimes, and even sexual misconduct. Numerous KBR staff have been sentenced to prison and ordered to pay restitution for both paying and accepting kickbacks and paying and accepting bribes. One KBR employee in Iraq was convicted of sexual assault and sentenced to two years in prison, a lifetime term of supervised release, and registered as a sex offender.

These are just a few examples of KBR’s chronic history of fraud, waste and abuse, which helped earn it a spot in the Taxpayers Against Fraud (TAF) Hall of Shame.

Coming Up Next:

Next week’s installment of The Fraud List will feature another repeat offender of the False Claims Act, Boston Scientific Corp. A new story in this series will be published each Thursday. Follow #thefraudlist on Google+, Facebook and Twitter.

Sources:

Taxpayers Against Fraud
CNN
Boston Globe
Washington Post
POGO
Halliburton
U.S. Department of Justice: United States Government Sues Kellogg, Brown & Root Services Inc. and Two Foreign Companies for Kickbacks and False Claims Relating to Iraq Support Services Contract
U.S. Department of Justice: Kellogg Brown and Root (KBR) to Pay $8 Million to Settle Allegations of Fraud
Halliburton Watch
Federal Contractor Misconduct Database