By Jessica Dye

(Reuters) – The government can pursue “enhanced” penalties from Houston-based defense contractor KBR Inc over allegations that employees took kickbacks involving military contracts in Iraq, Afghanistan and Kuwait, a federal appeals court ruled on Friday.

The U.S. Circuit Court of Appeals for the Fifth Circuit ruling reinstates the government’s civil claim against KBR in connection with employees’ alleged violations of the Anti-Kickback Act, a law that bars government contractors and subcontractors from using bribes to influence awards.

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In 2010, the U.S. government joined a whistleblower lawsuit alleging that employees in KBR’s transportation department accepted bribes in the form of meals, gifts and entertainment, from companies seeking to secure subcontracts with KBR to transport military goods around the globe.

The government sued under a section of the Anti-Kickback Act that allows it to recover enhanced penalties for “knowing” violations of the law. Under that law, judges can impose civil penalties equal to twice the amount of each kickback, and up to $11,000 for each occurrence of the prohibited conduct.

The government’s suit alleged KBR employees took 317 separate kickbacks with a total value of roughly $46,000, according to court filings.

KBR argued that it could not be penalized for its employees’ actions, and that the U.S. government had not shown that the employees acted to benefit KBR. A federal judge in Texas dismissed the government’s claim in 2011.

The U.S. appealed, and on Friday, the U.S. Circuit Court of Appeals for the Fifth Circuit reversed the lower court and said that KBR could be found vicariously liable for its employees’ conduct under the anti-kickback law. It did not address the merits of the government’s case.

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A KBR spokesman said the company was disappointed with the ruling. A representative for the Justice Department did not immediately return a request for comment.

A former supervisor in KBR’s transportation department, Robert Bennett, pleaded guilty in 2008 to accepting perks on at least 40 occasions in connection with the military contracts. Kevin Smoot, an employee at subcontractor EGL Inc, pleaded guilty in 2007 to lying to federal investigators and giving kickbacks to KBR employees, including Bennett.

(Reporting by Jessica Dye in New York; Editing by Eric Beech and Robert Birsel)

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[Private military contractor (PMC) with a grenade launcher via Shutterstock.com.]