Big corporations have a history of bullying whistleblowers into submission.
By Stephen M. Kohn
intent on blunting the whistleblower reforms embodied in the Dodd-Frank
Act have long been muzzling their employees with non-disclosure
agreements. Restrictive confidentiality agreements are nothing but
corporate censorship – and it needs to end.
in big financial services industries need to be able to alert the public
– and the courts – of questionable practices. That’s why President
Obama signed the Dodd-Frank Act into law in July 2010: it was designed
to address the fraud that contributed to the massive financial meltdown
experienced in Europe, the United States and the rest of the world.
thanks to whistleblowers that we learned about illegal activity at
Enron, Bernie Madoff’s offices and Swiss banks like UBS and HSBC,
resulting in the collection of billions of dollars in sanctions. Any
doubt as to the importance of whistleblower protections in exposing
corporate fraud was laid to rest in 2012 by the US Attorney General Eric
Holder who described them as “nothing short of profound”.
No wonder that companies tried to undermine Dodd-Frank from the get go.
companies have developed broadly worded non-disclosure agreements that
restrict the release of confidential information to the company’s legal
department as a condition of employment – though the exact number is
unknown. When leaving the company, employees who have threatened to file
a whistleblower claims were also forced to accept non-disclosure
requirements as a condition of a settlement or before they could obtain a
severance payment after they were fired or laid off.
agreements explicitly prohibit employees from communicating with anyone,
except attorneys hired by the company. Some go as far as explicitly
barring communication with regulators, such as the Securities and
We have seen numerous companies require
employees questioned by the government to secretly provide them with
insights into the scope of the investigation. These employees can then
be effectively turned into informers against the government itself.
even more Kafkaesque is that almost every non-disclosure agreement
strictly prohibits the employee from telling the government of the
existence of these secrecy agreements, and the restrictions placed upon
But that’s about to change. On 1 April, the US Securities
and Exchange Commission fined the mammoth defense contractor, KBR, Inc.
(formerly Kellogg, Brown & Root), for requiring employees to sign
restrictive non-disclosure agreements. It took the courage of a single
whistleblower, Harry Barko, to get us to this point.
reported extensive contracting fraud by KBR to regulators, to show how
they unlawfully profited from lucrative contracts during the war in
Iraq. But as he tried to hold the company accountable for its
misconduct, he learned that witnesses at KBR who could support his
claims were all required to sign secrecy agreements. Mr. Barko was the
first to challenge their legality.
The action taken by the SEC is
historic and the full brunt of its force has yet to be felt. This is the
first time that a government regulatory agency has sanctioned a
corporation for executing agreements that “chilled” an employee’s
ability to report financial crimes to the Justice Department, to
Congress, to the SEC and to other regulatory agencies.
action represents an important step forward, but we can’t stop here. The
agency must continue to spearhead its worldwide investigation to
uncover and terminate a long-standing insidious corporate practices and
SEC Press Release
SEC Enforcement Action