Navy Secretary Ray Mabus said Friday that he expected more damning revelations about the way the service conducts business to come out of the ongoing investigation of the alleged fraudulent activities of Glenn Defense Marine Asia and its chief executive, Leonard Glenn “Fat Leonard” Francis.
“It’s fair to say there will be more disclosures coming” and more top officers coming under suspicion in the contracting for port services for Navy ships worldwide, Mabus said at a Pentagon briefing. “I certainly don’t think we’ve seen the end of it.”
“I expect to continue to see headlines” in the felony fraud case involving bribes and prostitutes in which Francis currently is out on bail and under house arrest in San Diego, Mabus said.
“I would rather get bad headlines than let bad people get away," Mabus said.
While condemning the fraud, Mabus hailed the Navy’s response. He said the Naval Criminal Investigative Service began to suspect that one of its agents, John Beliveau II, was tipping off Francis about Navy inquiries on his firm in exchange for luxury trips and prostitutes.
The NCIS planted bogus information with Beliveau that Francis was in the clear, setting up a sting operation in which Francis was lured in September to San Diego, where he was arrested in a fraud case developed by Laura E. Duffy, the U.S. Attorney for Southern California, Mabus said.
Earlier this week, Beliveau pleaded guilty to bribery charges in federal court in San Diego. The plea could be a major break in the case, if Beliveau has agreed to testify against others in return for leniency at sentencing.
Since September, two admirals, two captains, and two commanders have also come under investigation in the growing scandal involving GDMA, which has won contracts from the Navy worth more than $200 million since 2009.
Mabus had no immediate figures for how much the Navy spends each year for husbanding services -- meaning the supply of fuel, food and other basics for ships in port -- and he also did not have an estimate on how much Francis allegedly made by overcharging the Navy.
However, Mabus described one method shady contractors routinely had used to boost charges for ships in port. Ships’ commanders frequently complained that contractors were charging for far more waste water taken off Navy ships than actually occurred, Mabus said. To correct the problem, “we put in flow meters. Now we know” how much water is being removed, Mabus said.
In trying to describe the scope of the contracting problem, Elliott Branch, the deputy assistant Navy Secretary for Acquisition and Procurement, said that the Navy carries out about 350,000 separate transactions annually with contractors that were worth $75-95 billion.
The cost for husbanding services was a “small percentage” of the total amount for contracting, but still a significant sum, Branch said. He also could not immediately give an estimate for how much the Navy spends on husbanding services.
Mabus suggested that the temptation to defraud was difficult to suppress when government money was involved. “We go after people,” Mabus said, but “anytime you’ve got this kind of money (involved), you’ve got people trying to steal.”
“This not only goes against all the ethics rules we have” in the Navy, Mabus said, “this goes against everything we learned at home. Everybody knows it’s wrong to take a bribe.”
Francis allegedly bribed Navy officers with everything from cash to Lady Gaga tickets for advance information on where ships were heading.
The investigation of Francis and GDMA has also led the Navy to take a closer look at other firms providing husbanding services for ships.
On Thanksgiving eve, the Navy announced that its business with Britain-based Inchcape Shipping Services was being suspended while the Justice Department and the Navy investigated “questionable business integrity affecting ISS's present responsibility to be a government contractor.”
“The suspension prevents Department of the Navy (DON) and all other Federal departments and agencies from entering into any new contracts” with Inchcape or its affiliates, Rear Adm. John F. Kirby, then the Navy’s chief of Information, said in a statement.
The Navy did not specify Inchcape’s “questionable” practices but the New York Times, citing court records from civil fraud suits, said the main allegation involved paying commissions to subcontractors for major discounts on work for the Navy. Inchcape then allegedly pocketed the difference rather than refunding the discounts said to be worth millions to the Navy.
Inchcape was an occasional competitor with GDMA in providing “husbanding” services including everything from tugboats to fuel and food for Navy ships at ports in the Pacific.