Appeals Court Rules That KBR Can Keep Evidence Of Contract Fraud Secret

Today, the U.S. Court of Appeals for the District of Columbia Circuit granted a petition filed by the defense contractor Kellogg Brown & Root, Inc. ("KBR") and ordered that internal company documents containing evidence that the company defrauded the U.S. government during the War in Iraq can remain secret.

The controversy over the release of the documents commenced in 2014 when a U.S. District Court judge ordered KBR to produce documents the company created during an internal investigation into whistleblower allegations raised by Mr. Harry Barko, a former sub-contracts administrator for the company. The District Court judge privately reviewed the contested documents and concluded that they contained evidence of fraud. In it's ruling the Court held:

"KBR's documents are filled with evidence that certain KBR employees steered contracts to Daoud [a KBR subcontractor]; are filled with evidence that Daoud gave lousy and late contract performance; and are filled with evidence that KBR nevertheless overpaid Daoud with United States funds." District Court Ruling, p. 16.

KBR argued that the documents should be hidden from public review because they were subject to the attorney client "privilege." The appeals court agreed and ruled that the documents themselves would remain secret.

However, the appeals court did grant one major concession to the whistleblower. It held that the whistleblower would be permitted to argue in court that KBR failed to file a mandatory report with the government disclosing evidence of contracting fraud, despite the fact that its own investigation "showed wrongdoing." Appeals court ruling, p. 15.

The appeals court also warned companies like KBR that when they rely upon the attorney client privilege to hide facts surrounding their internal investigations these companies would "bear the risk that their reports will not be accepted as full disclosures" under government contracting rules. Appeals Court ruling p. 16.

In a statement issued today by one of Mr. Barko's counsel, Executive Director of the National Whistleblower Center, Stephen M. Kohn stated: "KBR's victory today is a defeat for all honest taxpayers. When a company's own internal investigation demonstrates that defense contracting fraud occurred, the public has a right to know how their taxpayer dollars were stolen or misused."

"We certainly hope that the government understands that when companies like KBR hide behind the attorney client privilege to keep internal investigatory files secret, those investigations should, as the appeals court noted, 'not be accepted as full disclosures' pursuant to government contracting rules. We request that the United States reopen its investigations into KBR's defense contacting activities during the Iraq War, as it is now perfectly clear that KBR used the attorney client privilege to hide evidence of misconduct from the government," Kohn added.