Peggy E. Gustafson, Inspector General for the Small Business Administration (SBA); Robert E. Craig, Jr., Special Agent in Charge of the Mid-Atlantic Field Office of the Defense Criminal Investigative Service (DCIS), and Frank Robey, Director of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).

Lim, 48, of Fairfax Station, Va., also known as InSeon Lim, pled guilty in July 2014 in the U.S. District Court for the Eastern District of Virginia to three offenses: conspiracy to commit bribery and honest services wire fraud; bribery; and attempting to interfere with and impede tax laws. He was sentenced by the Honorable Leonie M. Brinkema.

Upon completion of his prison term, Lim will be placed on three years of supervised release. He also must pay restitution, including $250,000 to the Department of Defense and nearly $125,000 to the IRS. In addition, he must pay a forfeiture money judgment of $490,262.

Lim is among 18 individuals and one corporation, Nova Datacom, LLC, to plead guilty to federal charges in an investigation that uncovered the largest domestic bribery and bid-rigging scheme in the history of federal contracting cases. Overall, participants in the scheme stole over $30 million in government money through inflated and fictitious invoices.

According to a statement of offense, signed by Lim as well as the government, Lim was a public official until April 2012. The charges involve his activities as an assistant project manager and product director with the Program Executive Office Enterprise Information Systems, a part of the Army that provides infrastructure and informational management systems.

Until June 2010, Lim resided and worked in Seoul, South Korea. While in South Korea, his primary duties were to oversee and implement communications systems upgrades for the U.S. forces there, which included approximately 10 communications centers and various other special projects at military sites throughout the country. Among other things, Lim coordinated work on a major contract, which, in turn, had numerous sub-contracts.

From June 2010 until his resignation in April 2012, Lim worked as a product director at Fort Belvoir, Va.

In the statement of offense, Lim admits that he secretly used his official position to enrich himself by soliciting and accepting gifts, payments and other things of value from government contractors—totaling more than $490,000—in return for favorable official action. Among other things, the statement of offense notes, Lim received payments personally and to accounts that he controlled; payments for travel, vacation, vehicles, cellphones and cellular service for himself and family members; ownership interests in two companies, and other benefits.

In exchange, Lim now admits, he provided favorable official action on subcontracts obtained and retained by the favored government contractors as requested and as opportunities arose. He also disclosed confidential bid information to the favored government contractors.

“This Army official sold the public trust for a half-million dollars in bribes,” said U.S. Attorney Machen. “Lim is now headed to prison along with many other corrupt officials and government contractors brought down in this sweeping investigation. His fate is a warning shot for other government officials tempted to sell out the American people to line their own pockets that they should think twice. The prison sentences handed out in this case make clear that government officials and business people who corrupt the contracting process put their own freedom at risk.”

“In his role as a federal contracting officer, In Seon Lim betrayed the trust that was placed in him by fellow citizens by taking bribes in exchange for providing favorable action on government contracts,” said Assistant Director in Charge McCabe. “The FBI, with our partners, will continue to investigate and expose fraudulent kickback schemes that tarnish the good and ethical work that procurement officers carry out on behalf of the U.S. government each and every day.”

“The kickback scheme in which In Seon Lim participated disrespected the hard work and dedication of thousands of government employees who are committed to providing honest services in the federal contracting process,” said Special Agent in Charge Kelly. “IRS-Criminal Investigation stands committed to weeding out individuals, who abuse the privilege of their positions as a public official, for their personal gain.”

“Today’s sentencing is a reminder that public servants are accountable for their actions, and individuals who violate the public’s trust will be brought to justice,” said Small Business Administration Inspector General Gustafson. “The actions of In Seon Lim and his conspirators grossly undermine the honest work being done every day by Federal employees and government contractors. I want to thank the U.S. Attorney’s Office for its dedicated leadership and professionalism in pursuit of justice served today.”

“As a contracting official for the Department of Defense, In Seon Lim disregarded his duty, lived a lie at the expense of the American taxpayers, and completely violated the trust placed in him by his position,” said Special Agent in Charge Craig. “The Defense Criminal Investigative Service and our law enforcement partners are fully committed to aggressively investigating and prosecuting this kind of illegal activity within the federal procurement process.”

“Mr. Lim admitted that he secretly used his official position to ‘enrich himself’ when committing these selfish criminal acts,” said Director Robey, of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit. “That attitude and the related criminal actions will not be tolerated in the Department of the Army. Let this again be a warning to all who work with and for the U.S. Army: if you commit contract fraud, we will catch you and do everything within our power to see you brought to justice, just like Mr. Lim.”

The court documents provide details about numerous contracts and payments. For example:

-Nova Datacom: According to the statement of offense, two former employees of the Northern Virginia company—Alex N. Cho, also known as Young N. Cho, and Nick Park—paid Lim $40,000 in cash in 2007. In addition, Park paid for Lim’s travel, lodging, meals and entertainment during a trip to the Philippines in 2007, and Cho paid for Lim’s lodging, $10,000 cash, and a $1,000 casino chip during a trip later that year to Las Vegas. Lim, meanwhile, agreed to use his official position to recommend the company for a contract valued at nearly $330,000.

-Avenciatech:According to the statement of offense, former officials of Avenciatech, Inc., a government contractor based in Annandale, Va., provided Lim with cash payments; payments for hotel stays for Lim and family members, including a trip to the Atlantis resort in the Bahamas; payments to finance the purchase of a 2010 Lexus automobile, and payments for other things of value. One of the officials, Oh Sung Kwon, also known as Thomas Kwon, also assisted Lim in obtaining financing for the purchase of a home in Fairfax Station, Va., where Lim resided following his reassignment in 2010 to a position at Fort Belvoir. Lim, meanwhile, assisted the company in obtaining more than $3 million in contracts.

-UEI: Nick Park left Nova Datacom in 2007 and co-founded another government contractor, Unisource Enterprise Inc. (UEI), based in Annandale, Va. According to the statement of offense, in exchange for favorable treatment, Lim was given a secret ownership in UEI. Among other things, Lim provided Park with sensitive procurement information. He also assisted the company in obtaining a government sub-contract worth over $1.1 million.

Cho, Park, and Kwon are among those who earlier pled guilty to charges in the case.

In addition to pleading guilty to the conspiracy and bribery charges, Lim admitted that he failed to report the bribes he received on tax returns for the years 2007 through 2011. He also failed to keep records that would allow him to file accurate records for 2012 and 2013.

In announcing today’s sentence, U.S. Attorney Machen, U.S. Attorney Boente, Assistant Director in Charge McCabe, Special Agent in Charge Kelly, Inspector General Gustafson, Special Agent in Charge Craig, and Director Robey thanked those who investigated the case from the FBI’s Washington Field Office; the Washington Field Office of the Internal Revenue Service-Criminal Investigation, the Office of the Inspector General for the Small Business Administration; the Department of Defense’s Defense Criminal Investigative Service; the Defense Contract Audit Agency, and the Army Criminal Investigation Command. They also expressed thanks to the U.S. Marshals Service for its assistance on the forfeiture matter.

They also praised the efforts of those who prosecuted the case, including Assistant U.S. Attorney Michael K. Atkinson of the Fraud and Public Corruption Section and Assistant U.S. Attorney Anthony Saler of the Asset Forfeiture and Money Laundering Section, of the U.S. Attorney’s Office for the District of Columbia, and Assistant U.S. Attorney Jack Hanly, of the U.S. Attorney’s Office for the Eastern District of Virginia.

Finally, they expressed thanks for assistance provided by former Assistant U.S. Attorney Bryan Seeley; former Special Assistant U.S. Attorney Christopher Dana; Forensic Accountant Maria Boodoo; Paralegal Specialists Tasha Harris, Krishawn Graham, and Taryn McLaughlin; and Legal Assistant Jessica McCormick, all of the U.S. Attorney’s Office for the District of Columbia.

Article found at the Department of Justice

U.S. Government Accountability Office denied the contract protest stating:

We deny the protest.

The agency issued the RFP on June 2, 2014, with a proposal submission date of July 2. Thereafter, the agency issued six amendments to the solicitation which modified the performance work statement and sections L and M of the RFP, conducted questions and answers, and ultimately extended the proposal submission date to August 29.

As relevant to the protest allegations, section L of the RFP, as amended, included a definitive responsibility criterion requiring offerors to provide certain Spanish Certificates of Classification at the time of proposal submission, as follows:

5. Certificates of Classification

• All offerors shall, at the time of proposal submission, hold current Certificates of Classification identified below. If any part of the work is to be subcontracted, the offeror must submit the subcontractor’s certificates with their proposal. The offeror or subcontractor performing the actual work must be the one holding the respective Certificate of Classification required per activity.

• Offerors shall submit a certified copy of the updated Certificate of Classification with their price proposal. Failure to comply with this requirement may result in rejection of the offer, as a failure to meet a material requirement. Classifications for this solicitation are identified below: Registro Oficial de Contratistas, Ministerio de Economia y Hacienda (Registro Central de Empresas Consultoras o de Servicios):

Read more on the decision of the contract protest here ⇒

Friendly rivalry

He admitted killing Mr McGuigan, a former Royal Marine who had been living in Tameside, and Mr Hoare, in August 2009. Former soldier Mr Milsom was with Mr McGuigan and Fitzsimons on the night of the shooting. He told the inquest how just hours after Fitzsimons arrived in Baghdad, Mr McGuigan shared a drink with them. The meeting began with friendly rivalry about their former regiments, he said, but deteriorated and the pair squared up to each other.

Mr McGuigan then said to Fitzsimons: "Come on then, give it your best shot."

Fitzsimons threw a punch, hitting him in the face, and Mr McGuigan, originally of Peebles, Scotland, replied: "You wuss. You punch like a girl."

Mr Milsom said he then stepped in to calm things down, before returning to bed and falling asleep drunk.

He said he didn't hear the five shots that were fired that night but was woken in the morning by a colleague who said: "Your mate has just killed two of our blokes."

The inquest heard the men had been drinking, despite a no alcohol policy. There had also been banter about Fitzsimons' sexuality after he showed colleagues a teenage boy online and said he was his current partner, the hearing was told. The men had been working for British security firm ArmorGroup, part of G4S, based in the Iraqi capital's fortified Green Zone. Since the killings, the Fitzsimons family have questioned whether their son was well enough to be employed by the security firm.

Deputy coroner for Greater Manchester South, Joanne Kearsley confirmed she would be seeking evidence relating to the employment policies of G4S.

The inquest continues.

Original Story found at BBC News

And while the four Blackwater guards on trial for the deaths of 14 of the victims claimed they believed they were under attack by an insurgent car-bombing attempt, no weapons or explosives were found on any of the dead Iraqis, despite an extensive FBI investigation. Instead, the official US investigation led to three men facing manslaughter charges, one accused of murder, and a fifth admitting manslaughter of other victims and testifying against his former colleagues.

But the 12 jurors who sat through harrowing evidence from victims and their relatives were not asked to assess the proportionality of the response. Like so many controversial encounters with security forces the world over, the crux of case is not whether the dead Iraqis posed a threat to the Blackwater convoy, but whether the guards’ belief that they did was a reasonable one.

From the perspective of soldiers working in hostile environments – whether as contractors or in the military – the distinction is a crucial protection and something that will have weighed heavily on the minds of a jury that included several veterans and US government employees. Other Blackwater employees – also working as guards for the US State Department – had been hit by a roadside bomb elsewhere in the city earlier that day.

Yet remarkably little evidence was presented to justify the guards’ ultimately false belief that the vehicles in Nisour Square posed a similar threat.

Both the prosecution and defence teams agreed that the primary reason for the guards thinking the convoy was about to be blown up was they had seen a white Kia sedan rolling toward them in what they claimed was a suspicious manner.

Defence lawyers allege the car was moving relatively fast and the guards shot at its engine block first to disable it, before killing the occupants. Prosecution lawyers allege the occupants – who turned out to be a medical student and his mother – were shot first and the car rolled forward slowly once the driver was dead because it was an automatic and his foot was off the brake.

The main alternative evidence presented to support the theory of self-defence concerned reports from some in the convoy that they had heard the sound of AK-47 gun fire and concluded it must have come from insurgents firing on the convoy.

Though this was not corroborated by any Iraqi witnesses, defence lawyers argued the theory was supported by a handful of AK-47 bullet casings found near the scene and several small dents on the Blackwater armoured vehicles and a leaking radiator that could have been caused by incoming rounds.

Prosecution lawyers argue that the damage was more likely to have been caused by fragments from the grenades that the guards were using and that bullet casings were a common sight on the streets of Baghdad at the time.

As justification for the killing of 14 unarmed civilians, several of whom appear to have been shot in the back allegedly while trying to flee the scene, such evidence may appear painfully thin. But jurors asked to convict the four defendants – Nicholas Slatten, Paul Slough, Evan Liberty and Dustin Heard – need only reasonable doubt to acquit in such circumstances.

Since an earlier attempt to try the same case collapsed when a judge questioned the way the defendants were initially interrogated, for the many Iraqis enraged by the incident, this may be the last chance to hold the men accountable.

Read the petition for cert: KBR seeks cert.pdf ⇒

A federal court jury in Portland handed the company a costly loss in the fall of 2012, awarding 12 Oregon Guard soldiers and veterans $85 million after finding KBR showed negligence by allowing them to be exposed to a carcinogenic compound in Iraq in 2003. The judge later reduced the award to $81 million, which the company has appealed to the Ninth Circuit.

The petition to the Supreme Court arises from a parallel case in Texas, where a group of soldiers from other states and the United Kingdom also sued KBR over their exposure to a chemical compound called sodium dichromate, which contains the carcinogen hexavalent chromium. The substance was used by Iraqis to keep water pipes and machinery from corroding, and soldiers said it was stored at Qarmat Ali, the pillaged water plant where they were sent to provide security for KBR employees.

Michael Doyle, who represents soldiers in both the Oregon and Texas cases, said KBR's petition to the high court raises "the same old issues" the company has unsuccessfully raised in Oregon and elsewhere. He predicted the court will not hear the petition.

The legislation allows the U.S. Justice Department to prosecute government contractors and employees for certain crimes committed overseas.  Tragedies like the 2007 killing of unarmed civilians in Baghdad by private security contractors with Blackwater underscore the need for clear jurisdiction and trained investigative and prosecutorial task forces able to hold wrongdoers accountable. Four Blackwater guards involved in the Nisour Square shooting are currently on trial.

“The Blackwater trial is only just now under way, seven years after this tragedy, and the defendants continue to argue in court that the U.S. government does not have jurisdiction to prosecute them,” SenatorLeahy said. “This bill would also provide greater protection to American victims of crime, as it would lead to more accountability for crimes committed by U.S. government contractors and employees against Americans working abroad.”

“Although the number of American military personnel in Iraq and Afghanistan has been reduced in recent years, our commitment to the rule of law has not, and closing the accountability gap for U.S. contractors operating overseas is more urgent than ever,” Representative Price said. “We have seen the peril of allowing firms such as Blackwater to operate in a legal no-man’s land—a few bad actors can put our international relationships at risk and undermine the missions we ask our military and diplomatic personnel to complete. The bottom line is: if contractors working on behalf of the United States commit crimes abroad, DOJ should be able to prosecute them.”

CEJA also lays the groundwork to expand U.S. preclearance operations in Canada – which would enhance national security and facilitate commerce and tourism with our largest trading partner. The United States currently stations U.S. Customs and Border Protection (CBP) Officers in select locations in Canada to inspect passengers and cargo bound for the United States before they leave Canada, and Leahy has long called for an expansion of land, rail, marine and air preclearance operations that would greatly benefit the U.S. economy. CEJA would ensure that the U.S. has legal authority to hold our own officials accountable if they engage in wrongdoing, and thereby help pave the way to finalizing the expanded Canada preclearance agreement.

Other provisions in the Civilian Extraterritorial Jurisdiction Act include:

• Expand criminal jurisdiction over certain crimes committed by United States employees and contractors overseas;

• Direct the Justice Department to create new investigative task forces to investigate, arrest and prosecute contractors and employees who commit serious crimes overseas;

• Require the Attorney General to report annually to Congress about the offenses prosecuted under the statute and the use of new investigative resources.

The text of the Civilian Extraterritorial Jurisdiction Act is available online.

But instead of Mr Carroll, a former member of the elite Navy SEAL Team Six, being disciplined, Mr Richter was the one sent home. U.S. Embassy officials in Baghdad told him he had to end his investigation and leave Iraq because he was disrupting the security options Blackwater was providing for diplomatic staff, the New York Times reports.

ust over two weeks later, Blackwater contractors opened fire in Baghdad's Nisour Square, allegedly killing 17 civilians and wounding 20 others. The incident caused massive outrage among the Iraqi public and is believed to be one reason Iraqi leaders refused to agree to allow U.S. troops to stay in the country past 2011.

Mr Richter claims: 'Mr. Carroll’s statement was made in a low, even tone of voice, his head was slightly lowered; his eyes were fixed on mine. I took Mr. Carroll’s threat seriously. We were in a combat zone where things can happen quite unexpectedly, especially when issues involve potentially negative impacts on a lucrative security contract.'

Mr Carroll has not commented publicly on the allegations. Despite his abbreviated visit to Iraq, Mr Richter's report paints a damning picture of Blackwater, which was paid more than $1billion to guard American diplomats.

He comments in his report that 'Blackwater contractors saw themselves as "above the law" and actually believed that they "ran the place."'

Mr Ritcher details a pattern of drunken partying by Blackwater contractors, including with female visitors.

In one incident, he describes four guards drunkenly commandeered a $180,000 armored vehicle to drive to a party and then crashed it into a blast barrier.

Contractors kept their weapons in their personal quarters, despite rules against it, and carried all manner of automatic weapons, machine guns and rocket launchers - even when the contractors were not certified to use them, according to the report.

Blackwater guards were also alleged to frequently run Iraqi civilian cars off the road and fire into neighborhoods, sometimes even killing civilians, Mr Richter alleges.

Mr Richter's review also found the company's security operations lacking. The contractor often reduced or otherwise changed the number of men assigned to a protective detail without getting permission from the State Department.

They also over-billed the State Department and falsified records, Richter alleges.

A Blackwater-affiliated contractor also allegedly mistreated migrants it hired to work in its security compound, offering them low wages and squalid conditions for housing - including packing three men in a tiny room with no bed.

The company was also accused of badly mismanaging a cafeteria on its compound, providing unsanitary and substandard food. Conditions were so bad, a U.S. military officer wrote a letter to the State Department saying it should be shut down.

Blackwater was sold in 2010 and the new owners changed its name to Academi. A spokeswoman for Academi, based in Virginia, declined to comment.

Iraqi officials had demanded to try to Blackwater guards alleged to have committed the 2007 Nisour Square massacre in Iraqi courts. However, in 2008, the U.S. government indicted 14 security contractors on charges related to the shooting.

In 2009, a federal judge threw out all charges.  However, an appeals court allowed the charges to go forward. The case is still pending.

Neither Young nor his attorney could immediately be reached for comment. Young is listed as Inactive Ready Reserve, according to Virginia Keys, a spokeswoman for the Internal Revenue Service Criminal Investigation Division, which was among the agencies investigating the case. Keys said Young was a Special Forces lieutenant colonel while on active duty.

Young pleaded guilty in December to disclosure of procurement information and money laundering in connection with a military contract for services in Afghanistan. U.S. District Court Judge Tena Campbell, in Salt Lake City, sentenced Young to 42 months in prison, followed by 36 months on supervised release.

Between March and June of 2007, Young was deployed to Afghanistan with the Combined Joint Special Operations Task Force as an official liaison for Afghan National Security Force Partnering.

During his deployment, while he was involved in the transfer of greater responsibility for Afghanistan’s national security to the Afghans, a decision was made to solicit a pilot contract to train Afghan forces in weapons maintenance and property book management.

Young admitted to federal prosecutors that he had confidential bid, proposal and source selection information concerning the pilot contract and that he disclosed information to two officials of American International Security Corp., which eventually won the contract.

Another defendant in the case, Christopher Harris, who worked as the country manager in Afghanistan for AISC, received more than $17 million during the life of the contract. Harris, 49, of Lake Havasu, Arizona, pleaded guilty to conspiracy to commit government procurement fraud and money laundering and is scheduled to be sentenced June 23, according to an announcement of Young’s sentencing by the U.S. Attorney’s Office in Utah, which prosecuted the case.

“Conduct like we see in this case undermines the confidence of American taxpayers who continue to pay for the cost of our efforts in Afghanistan,” said David B. Barlow, U.S. attorney for the Utah District, in an announcement of the sentencing.

“Young held a position of trust with the United States Army and violated his ethical duties as a soldier. He knew full well that he could not ethically use or disclose the protected information as he did,” Barlow said.

Other investigators in the case were the Army Criminal Investigation Command’s major procurement fraud unit, Defense Criminal Investigative Service and U.S. Immigration and Customs Enforcement’s Homeland Security Investigations.

The relator filed his case against KBR under the False Claims Act (FCA) in 2005, alleging that KBR had overcharged the government in a variety of ways under KBR’s LOGCAP III contract. During discovery, the relator requested that KBR produce documents relating to internal audits and investigations of alleged misconduct that was reported by KBR employees under LOGCAP III. KBR asserted that the material was protected by the attorney-client privilege and work-product doctrine. After the relator moved to compel, the court conducted an in camera review of the documents.

In a March 6, 2014 ruling, the court ordered KBR to produce the contested documents, finding that they were created for the business purpose of complying with the mandatory disclosure regulatory scheme. The court held that because of the lack of attorney involvement in the investigation, and the fact that non-attorneys conducted the interviews and prepared the investigative reports, there was no evidence that the documents were created to obtain or provide legal advice to the company or were prepared in anticipation of litigation. In a subsequent decision, the court also noted that KBR may have waived its privilege and work-product claims by placing the documents at issue when it relied on the documents during summary judgment. The district court’s decision, which has been appealed to the D.C. Circuit, has been stayed pending appellate review.

The district court’s view that internal, corporate investigations may not be privileged poses wide reaching ramifications for contractors. Most notably, is the potential chilling effect that the decision could have on contractors’ willingness to conduct investigations or not to document their findings and conclusions. Neither outcome furthers the purpose of the mandatory disclosure regime under the Federal Acquisition Regulation (FAR), which is to encourage timely disclosures and transparency with the government. Indeed, such a position appears to be inconsistent with the protections afforded under the FAR, which provide that contractors need not waive privilege when complying with the mandatory disclosure rules. See FAR 52.203-13. In addition, the district court’s decision indicates that courts may more frequently begin to scrutinize asserted privilege claims over corporate investigations, including who, what, when, why, and how the matter was investigated, rather than accept representations from companies that the materials are protected. Under such a review, it is questionable whether a general assertion that the matter was investigated under the auspices of counsel would be sufficient if the investigation was not actually conducted by counsel. Finally, although the materials in this case related to a mandatory disclosure assessment, the court’s holding could apply beyond mandatory disclosures, as its reasoning potentially extends to any type of corporate investigation.

Considerations for Contractors in the Wake of Barko ​ 

The effects of Barko may be limited to its facts, where KBR attempted to use the documents offensively, in support of its motion for summary judgment, to assert that no wrongdoing occurred and where non-attorneys conducted and generated the investigation materials. Presumably, had KBR refrained from placing the documents at issue and conducted the investigation through counsel, the court may have found the materials to be protected from discovery. Nevertheless, Barkoraises important considerations and best practices for contractors.

1. When conducting internal investigations, contractors should ensure that counsel are actively participating in the review, and not just generally supervising or overseeing the matter. The more hands-on efforts by attorneys a company can show, the better chances are that any investigation materials will be protected by the attorney-client privilege and work-product doctrine.
2. Contractors should also revisit their procedures surrounding the handling of corporate investigations, including mandatory disclosure reviews, to confirm that the investigations are for purposes of seeking or providing legal advice to the company, and not simply for making business decisions regarding the regulatory requirements alone. Counsel should ensure that all investigatory documents are drafted with this purpose in mind and clearly indicate that they are being drafted to provide legal advice and/or in anticipation of litigation, with the appropriate legends. Additionally, counsel should be involved in all communications relating to the investigation.
3. Contractors should ensure that counsel takes the lead on the investigation. Counsel should evaluate the evidence and draft any investigation findings, analyses, or reports. Further, where appropriate, contractors should evaluate using outside counsel to conduct the investigation, which will demonstrate that the investigation is being undertaken to provide legal advice and, thus, privileged. To the extent that non-attorneys participate in the process, any reports should be marked as drafts and reflect that they are providing the information at the request of counsel. Counsel should evaluate and finalize any such materials.
4. During an investigation, counsel should take all interviews or at least attend them if that is not possible. Counsel should ensure that witnesses are given Upjohn instructions that inform them that the interview and investigation are being conducted for the purpose of providing legal advice to the company. Such procedures should provide further evidence that the investigation is privileged.
5. Finally, given the ruling in Barko, contractors should review their policies regarding all internal investigations, including mandatory disclosures, to ensure that they are current and that the company will be sufficiently protected in the event protected documents are ordered to be produced. While Barko dealt with a qui tam action under the FCA, the foregoing considerations equally apply to any disclosure scenario, including responses to IG subpoenas and FOIA requests.

“Alleged statements that costs were ‘reasonable,’ ‘actual,’ or based on adequate analysis constitute false claims under the FCA due to KBR’s alleged reckless failure to verify the truth of First Kuwaiti’s claims in light of information suggesting that First Kuwaiti’s claims were inflated, information of which KBR was or should have been aware at the time it made each claim for payment,” Darrow said.

In its motion to dismiss, KBR claimed that whether costs are reasonable is an “inherently subjective determination,” and that allowing the FCA claims to continue would grant the government license to “freely transform disputed issues in cost reimbursement contracts into fraud claims.”

The company also claimed that the federal court did not have jurisdiction over portions of the suit alleging it violated the Contract Disputes Act and breached its contract, which Darrow rejected.

KBR is the U.S. Army’s primary contractor for logistical support in Iraq under the Logistics Civil Augmentation Program, and the government says it has paid the company tens of billions of dollars for logistical support services since awarding the contract. KBR is paid a 1 percent base fee and a discretionary award fee of up to 2 percent on top of project costs, according to the government’s original complaint.

The U.S. Department of Justice filed the $150 million set of claims against the company in 2012, claiming First Kuwaiti’s bid for the subcontract proposed a cost-per-trailer that nearly doubled what the manufacturer of the buildings suggested, which KBR explained to the government was intended to reflect First Kuwaiti’s commitment to assume the risk of increased cost related to war-zone delays. Despite its agreement to bear those costs, First Kuwaiti allegedly asked KBR twice to up the contract price because of government-caused problems that delayed the trailers.

But KBR and First Kuwaiti allegedly knew early on they would not meet a December 2003 deadline to install the trailers, in part because the supplier was not able to ship enough trailers, then blamed delays on the government, the complaint says. The suit says many of the delays KBR experienced in installing the trailers are attributable to weather or acts of God, and were not the government’s fault.

An attorney for KBR did not resond Tuesday to a request for comment. A DOJ representative could also not be reached.

KBR is represented by Jan Paul Miller of Thompson Coburn LLP.

The DOJ is represented by in-house attorneys Michael D. Granston, Russell B. Kinner, John A. Kolar and Judith Rabinowitz.

The case is United States of America v. Kellogg Brown & Root Services Inc. et al., case number 4:12-cv-04110, in the United States District Court for the Central District of Illinois, Rock Island Division.

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 lawsuit, 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.”

Over the past decade, the U.S. military has outsourced its overseas base-support responsibilities to private contractors, which have filled the lowest-paying jobs on military bases with third-country nationals, migrant workers who are neither U.S. citizens nor locals. As of January 2014, there were 37,182 third-country nationals working on bases in the U.S. Central Command region, which includes Afghanistan and Iraq — outnumbering both American and local contract workers.

These laborers do the cooking, cleaning, laundry, construction and other support tasks necessary to operate military facilities. In Afghanistan they primarily come from India and Nepal and are employed by subcontractors for one of two large American companies, Fluor Corp. and Dyncorp International, which manage U.S. bases in Afghanistan under the Department of Defense’s Logistics Civil Augmentation Program. Dozens of subcontracting companies, mostly headquartered in the Persian Gulf, work on Fluor and Dyncorp contracts.

South Asian workers are at the bottom of the social hierarchy on U.S. bases. They earn far less than American or European contractors, work 12-hour days with little or no time off and, on some bases, aren’t allowed to use cellphones or speak to military personnel. On the base we visited, Camp Marmal, most were surprised and nervous when we approached them, concerned that talking to journalists could get them in trouble. One young man’s face contorted in terror when asked whether he had paid a recruiting fee. He shook his head no, fearful of any reprisals. “To come here, you have to use an agent,” another worker told us. “There is no other way. So we pay money to come.”

An agent is a person from a recruitment agency hired to find laborers for a company — in this case, the subcontractor. Sindhu Kavinamannil, a certified fraud examiner who has investigated labor networks between India and the Middle East, says there are tens of thousands of recruitment agencies in India and Nepal, the majority of them unregistered. They might be headquartered in large cities, she adds, but they each have hundreds of agents and subagents spread out across small towns and villages.

At Camp Marmal, the most prominent Fluor subcontractor is Ecolog International. One current Ecolog employee we met, who didn’t want to be identified, said he paid $4,000 to an agent in his village for a job he was told would pay $1,200 per month. His recruiter told him the final papers would be signed in Dubai, a crucial stopping point for workers en route to Afghanistan. In Dubai he learned his salary would be only $500 per month. Because he had borrowed money at a high interest rate to pay his recruitment fee, he had no choice but to work for an entire year just to earn enough money to pay off his loan.

“We can call this bonded labor or human trafficking, because it all starts with false promises about what the job is, and they have to pay an amount to get the job,” Kavinamannil explains. “Debt will make you work anywhere. It doesn’t matter if it’s a war zone.” When we reached out to Fluor, which manages Camp Marmal, the company said it “provides hotlines to allow individuals to report anonymously any suspected instances of human trafficking” and holds its subcontractors to a “zero tolerance policy regarding trafficking in persons.”

Yet that Ecolog employee’s experience is fairly typical. Of 75 people “Fault Lines” contacted who work or used to work on U.S. bases across Afghanistan, 65 said they paid agents fees ranging from $1,000 to $5,000. Many said their monthly salaries, generally $400 to $800, ran several hundred dollars short of what they were promised. Some paid fees, only to be warehoused by an agent for months and never receive a job. Nearly everyone we talked to was still paying back loans.

According to a former human resources manager at a major subcontractor in Afghanistan, who asked to remain anonymous, subcontractors intentionally steer potential South Asian job candidates through third-party recruiters. The workers we spoke with confirmed this experience, saying that when they attempted to apply directly to companies like Ecolog, they received no response or were directed to apply through an agent.

Why would a company outsource hiring when it receives direct applications? “Employees at the subcontractor are taking kickbacks from these agents,” the former manager told us. “They tell the workers to apply through the agent, and the agent gets money from (the workers). The agent splits some of that fee with the people in human resources.”

In other words, because taking fees from applicants is illegal, subcontractors outsource hiring to recruiters who are willing to pass a portion of their fees up the chain. As a result, applicants who pay recruiting fees are often indirectly paying their employer — the subcontractor — simply for the opportunity to work.

In Dubai, we tested these allegations by setting up an undercover meeting with an agent who recruits workers for Ecolog and Supreme Group, another contractor in Afghanistan. We posed as representatives from a fledgling U.S.-based subcontractor, looking to hire workers from India and Nepal for U.S. military contracts.

The agent explained that subcontractors like Ecolog do not actually pay him. Though his contract states that Ecolog owes him $300 for each worker he recruits, in reality, he said, he pays an Ecolog representative a small bribe to hire people from his candidate pool. His earnings come entirely from fees paid by job candidates. And it didn’t take long before the agent offered to give us $100 to $200 for each worker we were willing to hire from him.

When we contacted Ecolog, the company told us that the details of its arrangements with suppliers constitute sensitive information but that it is against company rules for its staff to receive funds from recruiters. The company added that it is also against its policy for employees to pay recruitment fees and that Ecolog welcomes direct applications.

The recruiter we met told us he has supplied 9,000 third-country nationals for Ecolog and Supreme contracts in Afghanistan.

This is the business model operating on United States military bases in Afghanistan and Iraq. It’s the same model used by employers in the oil-rich Gulf countries, which have long relied on cheap migrant labor from South Asia to build their economies. The crucial difference is that the trafficking of workers to U.S. bases is made possible by U.S. tax dollars.

According to Sam McCahon, a former Army judge advocate general officer who is an advocate for reforming the military contracting system, more than 500,000 contract laborers have worked on U.S. facilities since 2002. He estimates that this exploitive system has wasted over $15 billion of taxpayer money. And it has left tens of thousands of men from across India and Nepal deeply scarred and mired in crushing debt.

In India we visited two villages in the southern state of Tamil Nadu, from which hundreds of men have traveled to jobs on U.S. military bases. Govindnagaram (pop. 6,452) and Odaipatti (pop. 13,892) lie in the bucolic valley of the Nilgiri Hills, where, as farming incomes have dropped over the past decade, residents have had to look elsewhere for work. The area has become fertile ground for recruiting agents and loan sharks looking to reap quick profits.

“Farming isn’t like it used to be. Now most people use the land as collateral, and that’s how they go abroad,” explained Ganesan Subbaiah, who has worked as a cook with the U.S. military. Subbaiah sold his father’s farmland and his mother’s jewelry to pay an agent for a job with a U.S. military in Afghanistan. But after he arrived in Dubai to sign his contract, he was told he would be going to an American base in Djibouti for a much lower salary.

We spoke to dozens of men in the villages, and each of them had a story of deception, loss and humiliation in his quest for work. Some, so shattered by their experience, vowed never to look overseas for work again. Others held out hope for a direct line — sans agents — to a job on a U.S. base to pay off their outstanding debts.

For these men, the U.S. military’s regulations to discourage trafficking have had no impact. “We’ve already paid the agents for the job,” explained a man named Kumaran, who said his agent — after collecting a hefty fee — made him sign a declaration stating he had not paid anything. “If we tell the U.S. military that we paid a fee, they’ll just send us back, and we’ll lose everything.”

Another man, who had worked at Camp Taji in Iraq, remembered that upon arrival, his contractor required him and his colleagues to sign a Trafficking Awareness form, issued by the Department of Defense. “We all knew — and they knew — that we had paid,” he said, referring to his supervisors. “Oh, yeah, everybody knows.”

The only possibility for change, he thought, was if workers could be hired directly, without the need for a fee. But McCahon says that’s unlikely to happen because there’s so much money to be made under the existing contracting system. “American contractors make more profit off this process than if they hire the workers directly,” he says. “That’s because the U.S. government pays prime contractors, like Fluor and Dyncorp, on a cost-plus basis, which means the government reimburses all of their allowable costs and then typically pays them a fixed profit of 6 percent of those costs. Subcontractors have been reported to make profits of more than 75 percent by hiring cheap, trafficked labor and overcharging prime contractors. But the incentive is for prime contractors not to care — they incur more costs, and thus make more profit, by subcontracting it out.”

The U.S. government has been aware of inequities and violations in the military contracting system for at least eight years. In 2012 both the Obama administration and Congress issued new rules to curtail these problems. But no contractor has ever been prosecuted, suspended or fined for trafficking abuses on U.S. military contracts. When pressed for a reason, McCahon responded,“If you look at most of the defense contractors, the large entities, they tend to be staffed and headed by former generals. They still have friends in the Pentagon.”

The Department of Defense has yet to respond to “Fault Lines” for this report.