In Navy fraud case, prosecutors say contractor got more work despite poor performance
After a month at sea, the 5,000 sailors aboard the USS George Washington couldn't wait to hit the bars, legalized brothels and other attractions in Brisbane, Australia. But when the aircraft carrier arrived for a port visit in July, crew members remained stuck on board for six frustrating hours because a Navy contractor couldn't find a gangway.
It was the second major embarrassment in less than a year for the contractor, Glenn Defense Marine Asia. In February, the Philippine Senate publicly excoriated the Singapore-based company after finding that it had collected untreated sewage from U.S. Navy ships and illegally dumped it into protected waters near Subic Bay.
Despite the dumping violations and poor performance, Navy contracting officials kept giving the contractor more lucrative business to resupply ships and submarines in the region. Two days after the blunder in Brisbane, records show, Navy officials awarded the firm a no-bid $1 million contract extension to provide port services in Malaysia.
Today, Glenn Defense Marine and its president, Leonard Glenn Francis, are principal characters in one of the biggest contracting-fraud investigations in the Navy's 238-year history. The Justice Department has accused Francis, a Malaysian widely known in maritime circles as "Fat Leonard," of bribing Navy officers with prostitutes and cash for inside information that enabled him to fleece the government. Seven senior Navy officials have been charged, suspended or placed on leave, and the Navy has said it expects that more will get in trouble.
In a recent court filing, federal prosecutors in San Diego gave a clearer picture of the scope of the investigation, saying it has involved more than 100 law enforcement agents working in eight states and eight Asian countries. U.S. federal agents are teaming with authorities from other countries, including the Royal Thai Police and Singapore's Corrupt Practices Investigation Bureau.
The court filing also reveals that prosecutors have expanded their estimate of the financial damage that Francis and his firm inflicted on the Navy, saying their tally of alleged fraud exceeds $20 million and is likely to keep rising. The executive has been in federal custody in San Diego since September, when he was arrested in a sting operation after agents lured him to the United States. He has pleaded not guilty.
In addition to finding salacious evidence of sailors selling secrets for sex, cash and other favors, the investigation has pinpointed systematic weaknesses in the Navy's worldwide contracting bureaucracy.
According to affidavits filed by agents from the Pentagon's Defense Criminal Investigative Service, Francis and other executives from Glenn Defense Marine cheated the system with ease by forging hundreds of invoices, price quotes and other documents to overcharge for fuel, food and port services.
The firm made little effort to conceal the fraudulent nature of the paperwork, repeatedly submitting the same false forms for reimbursement, the affidavits show. Navy contracting officials in Singapore and Japan rubber-stamped many of the claims, even though a cursory check could have exposed the scam, according to the agents' statements.
In September, the Navy terminated contracts with Glenn Defense Marine worth up to $200 million. But it took the step only after federal authorities arrested Francis, as well as a deputy executive at the company, a Navy commander and a senior Naval Criminal Investigative Service agent allegedly involved in the bribery scheme.
Court papers show that criminal investigators had been scrutinizing the Singapore firm at least since 2009. Rather than declare the firm off-limits, however, Navy contracting officials steadily delivered more business to Francis.
Navy contracting officials based in Asia would not answer questions about their dealings with Francis and his firm, referring questions to Navy headquarters.
Rear Adm. John Kirby, the Navy's chief spokesman, said federal regulations prohibit public disclosure of Glenn Defense Marine's past performance on Navy contracts, including whether the firm has received negative reviews. He said that a Navy contracting officer tried to penalize the company after the sewage-dumping incident in the Philippines and asked for a partial refund of expenses from the port visit but that the matter was under appeal.
A corporate spokeswoman for Glenn Defense Marine in Singapore and a Washington attorney for Francis and the company also declined to comment.
To win a bigger share of the Navy's business, Glenn Defense Marine submitted bids that were sometimes so low that competitors formally complained there was no way it could cover its costs, let alone turn a profit, a review of contracting records shows.
In an attempt to minimize expenses, the Navy negotiated fixed prices for many port services in advance. While Glenn Defense Marine was stuck with its low bid for those fixed services, the contracts contained major loopholes that the company was able to exploit, according to prosecutors.
Under certain conditions, Glenn Defense Marine could charge higher prices for fuel, "incidental services" and port tariffs, or fees charged by local port officials. To do so, the company was required to submit paperwork justifying the added expenses, such as quotes from multiple subcontractors or invoices from port officials.
In case after case, however, federal investigators found that Glenn Defense Marine simply made up those bills and bids.
During one nine-month period in 2011 and 2012, the company submitted 282 false quotes from subcontractors for incidental services at three ports in Thailand alone, resulting in losses to the Navy of $2.3 million, according to federal criminal charging documents.
Similarly, during the same period, Glenn Defense Marine billed the Navy for $4 million in fictitious tariffs at two of the Thai ports, submitting more than 100 fraudulent invoices from purported Thai government agencies that in reality were shell companies, the charging documents show.
Glenn Defense Marine also artificially inflated the price of fuel, overbilling the Navy by more than $3 million for just five fuel purchases in Thailand in the fall of 2011, the documents show.
Rival firms to Glenn Defense Marine said they complained for years to Navy contracting officials in Japan and Singapore that Francis was using unfair business practices, to no avail.
"There is no way that anybody who's been there for five minutes can't have smelled something," said a senior executive with another maritime company in Asia who spoke on the condition of anonymity to avoid jeopardizing his business relationships with the Navy. "But the Navy routinely decided to look the other way. It was just constantly outrageous."
Glenn Defense Marine was able to overcharge more easily at certain locales in Southeast Asia where Navy officials were naive about local business practices and the bureaucracy, according to federal investigators. Francis called these places "Pearl Ports" and bribed Navy officers to send ships there more often, court records show.
Navy statistics show that the number of ship visits to the Pearl Ports soared sharply three years ago.
In 2009, for example, Navy vessels stopped at four Pearl Ports — Phuket and Laem Chabang in Thailand and Port Klang and Sepangar in Malaysia — a total of seven times. The next year, the number of visits jumped to 48, a nearly sevenfold increase.
Traffic at the Pearl Ports remained at similarly high levels in 2011 and 2012, but it has plunged this year, with just six visits to the four ports.
Navy officials said the drop had nothing to do with Francis's arrest, attributing this year's reduction to budgetary cutbacks. Conversely, they said the increase in 2010 was prompted by the Obama administration's strategic pivot to Asia, which emphasized an increased military presence in the region.
But court records show that between 2010 and 2012, Francis bribed at least two Navy officers into giving him sensitive information about ship schedules and steering vessels to the Pearl Ports.
For Francis, a particularly prized destination was Port Klang, a short drive from the Malaysian capital of Kuala Lumpur. Another company he owns bought the cruise terminal there in 2010, effectively giving it complete control over port services and freedom to raise prices.
In August 2011, after prodding from Francis and another Glenn Defense Marine executive, Navy Cmdr. Michael Vannak Khem Misiewicz, who has pleaded not guilty to bribery, informed the two men in an email that the Navy would extend a planned stay by the USS John C. Stennis, an aircraft carrier, at Port Klang the next month.
"See, you ask — I deliver! LoL!" Misiewicz wrote in the email, according to court papers.
Glenn Defense Marine subsequently charged the Navy $1.3 million for a five-day visit to Port Klang.