As ‘Fat Leonard’ Scandal Grinds On, Another Navy Fraud Case Is Under The Radar

More than four years ago in a San Diego hotel, federal investigators arrested Leonard Glenn “Fat Leonard” Francis in what was the opening step in a fraud and bribery scandal that continues to resonate through the Navy.

Francis soon pleaded guilty to a decade-long scheme in which he bribed Navy officers and officials and enlisted their help in defrauding the government out of at least $35 million for his ship servicing company, Glenn Defense Marine Asia.

While the Fat Leonard scandal has torn through the Navy, upending careers of nearly two dozen current and former Navy officers and officials who have pleaded guilty and hundreds more who are under scrutiny, a second case alleging extensive fraud in ship servicing by a different company has cut a far narrower profile.

The case, a whistleblower lawsuit brought by three former employees of Inchcape Shipping Services, alleges the company defrauded the government of tens of millions of dollars between 2005 and 2014.

The former employees said they discovered a wide-ranging fraud scheme and brought it to the attention of senior executives, but nothing was done. They ended up leaving the company and began providing information to the government in 2009, the lawsuit says.

U.S. Navy photo

The fraud allegedly involved submitting invoices to the Navy for services that were either bogus, or inflated the cost of the work, and double-billed for other services. The suit also said the company kept two sets of books to conceal the fraud, and pocketed savings — such as rebates, discounts and credits — from subcontractors.

The suit was filed under seal in 2010, and remained secret for nearly five years, until November 2015. That’s when the Department of Justice publicly announced it would join the suit — a key step in whistleblower suits because it indicates the government believes there is merit to the claims and will work to recoup money.

The company has denied wrongdoing and is contesting the case in court. In a statement, the company said the lawsuit had nothing in common with the notorious Fat Leonard cases — other than both companies are involved in ship servicing work.

But for government watchdogs, the similarities between the two are troubling and illuminate a longstanding problem of overseeing contractors in the service.

“This can’t be dismissed as just ‘one bad apple’ theory or defense,” said Scott Amey, the general counsel for the Project on Government Oversight and a longtime expert on government contracting.

“Inchcape shows this was more systemic, and the Navy wasn’t doing a very good job of at contracting and avoiding corruption and ethics violations.”

The cases differ in key respects. The Inchcape case is a civil — and not a criminal — case. And no one has been charged with crimes in connection with the fraud alleged in the suit, as has been the case in the Fat Leonard scandal.

Still, there are some similarities. Both involve allegations of long-running, systematic fraud and overbilling of the Navy by both Inchcape and Glenn Defense Marine Asia.

Both companies are involved in ship “husbanding” work — providing services to Navy ships when they go to foreign ports, such as removing sewage, providing fresh water, food and on-shore services.

Glenn Defense had contracts to service ships of the 7th Fleet in ports across Asia. The allegations against Inchcape, the largest marine management company in the world, center on ports in Africa, southwest Asia, and the Americas where ships of the 5th and 6th Fleet operate.

The allegations of fraud also occurred during the same time period — for about a decade starting in the early to mid-2000s.

There are no salacious allegations of Navy officials getting the services of prostitutes or being treated with lavish parties Francis was famous for throwing. But the Inchcape suit does say an internal company audit in 2008 turned up $234,000 in “entertainment and promotional expenses that could constitute improper monetary arrangements with Navy officials.”

The gifts included cameras and cell phones — swag that Francis also handed out to Navy officials on the take.

A Navy spokesman said that there have not been any investigations or punishments of Navy officers in connection with the Inchcape matter.

In a email statement, a spokesman for Inchcape said it disputes the factual allegations in the lawsuit, which the statement characterized as a disagreement between the company and the government over shipping services delivered years ago.

Court records show that the government had been investigating Inchcape for several years, and in 2013 acted to suspend them from further contracts.

That move came just weeks after Francis was arrested in San Diego and the extent of his bribery and fraud scheme was just being revealed.

That suspension was overturned in early 2014 by a federal judge, who questioned the Navy’s “long delay” in taking action against the company. “There is no explanation in the record as to why this matter became an emergency in November 2013,” Judge James Merow wrote.

Nearly seven years since it was first filed, the lawsuit has not moved forward. More than a year ago Inchcape filed a motion to dismiss the suit in U.S. District Court in Washington, D.C., but there has been no ruling — and no other filings since.

That could indicate both sides are trying to work out a settlement.

Lawyers for the plaintiffs — three former Inchcape employees — did not comment or respond to a message seeking comments on the status of the case.

A spokeswoman for the Department of Justice also declined to comment because the case is still active.

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