KBR tax loophole raises new questions

When it comes to paying federal taxes on its workers in Iraq, KBR says it was exempt because they were foreign hands hired through subsidiaries in the Cayman Islands.

But when it comes to job-related injuries, including those at an Iraqi water plant, the Houston-based defense contractor says those same workers are Americans who must file their grievances with the U.S. government.

Under federal compensation laws, U.S. companies working for the government in Iraq and elsewhere overseas are mostly shielded from employee lawsuits. The 1941 Defense Base Act entitles injured workers instead to government-funded medical care and other benefits.

"It's an unbelievable hypocrisy," Sen. Byron Dorgan, D-N.D., chairman of the Senate Democratic Policy Committee, said of KBR's position.

When asked to respond, KBR, which split from Halliburton last year, said it established its overseas subsidiaries in accordance with the law.

"We have complied with all IRS guidelines in establishing these companies," KBR said in an e-mailed statement.

On Friday, two former KBR employees testified before Dorgan's committee that company officials knowingly exposed them and others to the carcinogen sodium dichromate at the Qarmat Ali water plant in Iraq.

Danny Langford, who worked at the plant, and Edward Blacke, a health and safety specialist, said they were told in a July 2003 meeting that the orange substance covering the grounds did not pose a health risk.

Ten days later, KBR project managers acknowledged in a private meeting that the presence of sodium dichromate had caused serious health problems with nearly 60 percent of workers exhibiting symptoms.

"People are potentially exposed to something that may be very dangerous," says a memo detailing minutes from the Aug. 8, 2003, meeting.

KBR, which was not represented at the hearing, denies any negligence.

"KBR's commitment to the safety and security of all employees, the troops and those we serve, is the company's top priority," spokeswoman Heather Browne said in a statement. "We take issue with the assertion that KBR knowingly harmed troops and was responsible for an unsafe condition."

As the biggest defense contractor in Iraq, KBR has found itself under intense scrutiny by congressional Democrats who say the company has underperformed and gouged U.S. taxpayers.

Most recently, Democrats decried the company's practice of hiring workers — including Langford and Blacke — through two subsidiaries in the Cayman Islands, which allowed KBR to avoid paying Social Security and other federal employee taxes.

President Bush signed legislation Tuesday that closes that tax loophole by requiring that foreign subsidiaries of U.S. government contractors are treated as American employers.

In the case of complaints by workers at the Iraq water plant, the company has said the employees should be regarded as part of the KBR team and therefore, under the Defense Base Act, unable to sue for damages.

Dorgan said both the Pentagon and KBR should be liable for health hazards posed to workers like Langford and Blacke.

"I cannot fathom how the Defense Department continues to contract with contractors that not only don't perform, but seem to cover up responsibilities" that "deal with the health and safety of workers," said Dorgan.