WASHINGTON (WASHINGTON POST) For Fat Leonard, conning the US Navy was a big piece of cake.
The Navy allowed the worst corruption scandal in its history to fester for several years by dismissing a flood of evidence that the rotund defence contractor was cheating the service out of millions of dollars and bribing officers with booze, sex and lavish dinners, newly released documents show.
The Singapore-based contractor, Malaysian Leonard Glenn Francis, found it especially easy to outwit the Naval Criminal Investigative Service (NCIS), the renowned law enforcement agency that has inspired one of the longest-running cop shows on television.
Starting in 2006, in response to a multitude of fraud complaints, NCIS opened 27 separate investigations into Francis' company, Glenn Defense Marine Asia. In each of those instances, however, NCIS closed the case after failing to dig up sufficient evidence to take action against the firm, according to hundreds of pages of law enforcement records obtained by The Washington Post under the Freedom of Information Act.
Known as Fat Leonard for his 350-pound physique, Francis held lucrative contracts to resupply US warships and submarines in ports throughout Asia.
He was also legendary within the Navy for throwing hedonistic parties, often with prostitutes, to entertain sailors.
Other Navy documents obtained by The Post show that staffers at US Pacific Fleet headquarters were so worried about the potential for trouble that they drafted a new ethics policy to discourage Navy personnel from accepting favours from Francis.
But their effort was blocked for more than two years by admirals who were friendly with the contractor, according to officials familiar with the matter.
Despite rising signs of widespread fraud, the Navy kept awarding business to Francis' company. In 2011, Glenn Defense won deals valued at US$200 million to service US vessels at ports stretching from the Russian Far East to Australia.
It took NCIS agents and federal prosecutors until 2013 to gather enough evidence to charge Francis and arrest him in a sting operation in San Diego. He has been in federal custody since then, having pleaded guilty to defrauding the Navy of US$35 million.
His sentence is pending. One of his attorneys, Ethan Posner, said Glenn Defense "had an extraordinary record in securing the Navy's vessels and protecting American naval personnel."
He declined to comment further.
Besides Francis, 12 people - including an admiral and nine other Navy personnel - have pleaded guilty to federal crimes. Five other defendants still face charges.
Justice Department officials say there is no end in sight to the investigation and that 200 people have fallen under scrutiny. Among them are about 30 current or retired admirals, according to Navy officials.
NCIS officials declined to comment in detail about the 27 closed investigations into Glenn Defense. But they acknowledged that they were slow to recognize the scale of the fraud and the extent to which the Navy had been corrupted. Francis has admitted in court to bribing "scores" of Navy officials, only some of whom have been publicly identified."In hindsight, maybe we could have dug a little deeper than we did," John Hogan, NCIS's executive assistant director for criminal operations, said in an interview. But he said the fact that the agency opened so many investigations into Glenn Defense shows that it was taking allegations against the firm seriously.
Hogan said other factors hobbled NCIS. After the Sept. 11, 2001, attacks, for instance, most NCIS agents who specialized in financial crimes were reassigned to the counterterrorism division.
Navy Secretary Ray Mabus said that the service was vulnerable to contracting fraud when he first took office in 2009 and that NCIS should have recognised earlier that there was a pattern of trouble with Glenn Defense.
"I'm not going to defend at all opening and closing 27 cases," Mabus said in an interview. "Something should have raised a red flag along there somewhere."
A former state auditor in Mississippi, Mabus said he pushed the Navy to adopt stricter internal accounting controls and other "tripwires" to detect signs of fraud. He said that the Navy moved more aggressively to investigate Glenn Defense starting in 2010 but that it took three more years to arrest Francis because he had bought off so many Navy officials.
"Francis had established a pretty good network, including a lot of Department of Navy personnel, who were able to explain away these allegations," he said.
"There were people inside the Navy who were trying to shut this down, who were coming up with reasons not to pursue it."
Federal court records show that Francis methodically cultivated a network of paid Navy informants over many years and planted them throughout the bureaucracy.
He had spies inside the Navy's regional contracting office in Singapore, the US Embassy in Manila and the wardroom of the USS Blue Ridge, a command ship that serves as the flagship for the Navy's 7th Fleet and the hub for maritime operations in Asia.
In exchange for paid sex with prostitutes, cash and luxury vacations, Francis' informants fed him a near-daily diet of classified material and inside information that enabled him to keep gouging the Navy and outfox his pursuers for years, according to court records.
Francis' most valuable mole was John Beliveau II, a turncoat NCIS supervisor who received a 12-year prison sentence in October.
At the sentencing hearing, Assistant US Attorney Brian Young marvelled at the extent to which Francis had corrupted NCIS and compared him to an infamous Massachusetts mobster.
"We tried to come up with an example of . . . another instance in which a criminal enterprise so thoroughly penetrated a federal law enforcement agency," Young said. "You would have to look back to the 1980s when Whitey Bulger's Winter Hill Gang penetrated the Boston FBI."
An examination of NCIS case files shows a clear pattern in which the law enforcement agency was quick to dismiss complaints about brazen cheating by Glenn Defense.
In June 2006, a Navy officer in Hong Kong told NCIS that Glenn Defense had overcharged the Navy $68,000 to pump sewage from the aircraft carrier USS Ronald Reagan during a three-day port visit. The officer reported that the Reagan's supply officers knew the sewage invoice had been falsified but approved it as part of an unorthodox arrangement to repay an old debt to Glenn Defense from a prior port call.
An NCIS agent based in Japan obtained the invoices and verified the allegations after a five-day investigation. But rather than pursue it further, the agent closed the case and wrote a note saying that the findings would be referred to the Reagan's commanding officer, according to NCIS files.
In an interview with The Post, the officer who flagged the fraudulent sewage bill said he was stunned that NCIS let the case drop."What else could I have done to expose this racket?" said David Schaus, who has since left the military. Others in the Navy, he added, "made my life hell" after they learned he had tried to blow the whistle on Glenn Defense.
The Reagan's commander, then-Capt. Terry Kraft, was acquainted with Francis. Navy records show Glenn Defense had treated Kraft and other senior officers to an "extravagant" dinner in Hong Kong during the 2006 port visit, as well as pricey meals elsewhere in Asia.
Kraft climbed the ranks to become a two-star admiral but was censured last year along with two other flag officers and forced to retire after the Navy discovered he had not fully reimbursed Francis for the meals. Kraft has said the censure was unfair and that a superior officer had directed him to attend the meals with Francis.
In an email to The Post, Kraft said he was unaware of the Hong Kong sewage-removal dispute and that he "was never approached by NCIS or anyone else about any possible overbilling." In fact, he said, he had complained to his entire chain of command about high port costs during the Reagan's deployment to Asia that year, to no effect.
Other allegations about Glenn Defense rolled into NCIS offices in Asia on a steady basis, according to the law enforcement case files.
In 2007, the naval inspector general in Washington forwarded a document asserting that the defense contractor was grossly overcharging the Navy to provide port security. It is unclear from the case file whether NCIS agents followed up.
"Everybody knew that (Glenn Defense) had been under investigation," said a senior Navy officer who served in Asia and spoke on the condition of anonymity because he was not authorized to talk to a reporter. "Everybody also knew that nothing ever happened with those investigations."
Later that year, the NCIS office in Manila received an anonymous letter, accompanied by documents, alleging that Glenn Defense had overcharged for port fees, armed security guards and other services during a visit by the USNS Fred Stockham to Subic Bay in the Philippines."I hope you share the same concern when reading these documents and take swift action to stamp out this fraud, waste and abuse," the letter said. NCIS agents shared the documentation with the Navy's contracting office in Singapore, which responded that the allegations were false, according to the case files. The case fizzled.
Years later, NCIS belatedly discovered that two Navy contracting officials in Singapore at the time had secretly been on Francis's payroll, according to court records.
A supervisor, Paul Simpkins, pleaded guilty and was sentenced this month to six years in federal prison for taking $350,000 in bribes, as well as the services of prostitutes, from Francis. Simpkins expressed remorse in court. "I made an unethical choice and am now reaping the results," he said in a letter to the judge.
A subordinate, Sharon Gursharan Kaur, was charged this year by Singapore authorities with accepting US$100,000 in cash and luxury vacations in Bali and Dubai. Kaur's case is pending, and her attorney did not respond to emails.
Mike Lang, a former Navy supply corps officer who was stationed in Singapore from 2005 to 2008, said some contracting officials there were suspiciously quick to swat aside concerns about Glenn Defense.
"They'd always side with Glenn Defense and paint us as troublemakers. They'd say, 'Why are you harassing our contractors? You're making my job hard,' " Lang said in an interview.
In September 2009, NCIS opened an investigation that caught Glenn Defense trying to bilk the Navy out of US$743,368 by concocting fake fuel receipts from fictitious suppliers in the Philippines, according to law enforcement files.
When the Navy confronted Glenn Defense with hard evidence that the suppliers did not exist, the company withdrew its claim for payment. NCIS closed the case and allowed Glenn Defense to walk away without penalty, reasoning that because the Navy did not actually pay the bogus invoice, "there appears to be no loss to the US Government in this transaction," the case file states.
Other NCIS files reveal how little the Navy knew about Glenn Defense's internal operations, even though it depended on the company to provide critical services such as port security for US ships and submarines.
Bolstering security in foreign ports became a renewed priority for the Navy in 2000, when the USS Cole, a guided-missile destroyer, was attacked with a boat bomb by al-Qaida operatives during a port visit in Yemen.
In December 2009, NCIS opened a counterintelligence investigation into Glenn Defense after Navy officials in Japan realised they lacked basic background information on the firm's employees and subcontractors and had no way of knowing whether they posed a security threat.
An NCIS agent learned that under its contracts with the Navy, Glenn Defense was obligated to conduct background checks on its staff and subcontractors. But the contracts did not require the firm to share the results - or even employees' names - with the Navy, according to NCIS case files.
When the NCIS agent asked Glenn Defense officials whether they would be willing to provide the information voluntarily, he was rebuffed. Frustrated, the unnamed agent gave up, but not before adding a note in the case file that NCIS needed to do more to "develop confidential sources within" Glenn Defense.
Meanwhile, unbeknown to NCIS, Francis was infiltrating the Navy with ease.
During the same month that NCIS began its ill-fated counterintelligence probe, a Navy commander leaked confidential NCIS documents to Francis about a separate fraud investigation into Glenn Defense, according to prosecutors. That case also went nowhere.
The commander, Bobby Pitts, formerly the chief of the Navy's contracting office in Singapore, was charged in May with obstruction of justice. He has pleaded not guilty. His attorney, Richard Boesen, declined to comment.
-- In early 2010, worries about Glenn Defense were escalating at U.S. Pacific Fleet headquarters in Hawaii, according to Navy emails and memos obtained by The Post.
Some Pacific Fleet staffers felt an alarming number of Navy officers had developed a blind spot in their personal dealings with Francis. Stories were filtering back to headquarters about Francis' extravagant banquets in ports such as Singapore; Bali; Tokyo; Phuket, Thailand; and Kuala Lumpur, Malaysia.
Along with pricey champagne, Cuban cigars and platters of Kobe beef, Francis would pay for strippers that he called his Elite Thai SEAL Team, court records show. One party in Manila - for officers from the USS Blue Ridge - lasted for days in the presidential suite of the Makati Shangri-La Hotel and featured a steady flow of alcohol and prostitutes, according to an indictment of one officer who allegedly attended.
In January 2010, Edward Hanel Jr., a senior civilian lawyer based in Hawaii, drafted an ethics message for all 140,000 sailors and civilian personnel in the Pacific Fleet. It was meant to remind them that federal ethics rules prohibited accepting gifts worth more than US$20 apiece, or US$50 over the course of a year, from defense contractors.
While there were exceptions to the dollar limit for personnel serving overseas, Hanel's directive introduced a crackdown: a requirement to submit receipts and a written justification for accepting gifts of meals, lodging, transportation or entertainment.
The draft ethics message did not single out Francis by name, but it applied only to contractors that provided port services to the Navy. In Asia, that almost always meant Glenn Defense.
The proposal, however, quickly hit a wall. Senior Pacific Fleet officers rejected the draft and spent 2 1/2 years revising and softening the message, according to the Navy emails and memos. By the time it was approved, the requirement to submit gift reports and receipts had been watered down.
Hanel declined to comment. But two retired Navy officers familiar with the matter said the ethics message was blocked by admirals who were friendly with Francis.
With the ethics message bogged down in the Pacific Fleet bureaucracy, Francis continued to host dinners and parties for Navy officers, particularly those on the USS Blue Ridge, the 7th Fleet flagship.
Mike Seaman, a retired chief petty officer who served on the USS Blue Ridge, recalled a party that was held under a big-top tent on the bow of the warship when it visited Jakarta, Indonesia, in 2010.
Seaman said he and other enlisted personnel were not invited but were standing on the pier watching guests arrive when Francis appeared in a black stretch Hummer limousine.
"About a dozen beautiful Asian women got out, and there were no dudes, other than Fat Leonard and maybe one of his guys," Seaman said in an interview.
The women were scantily dressed and boarded the USS Blue Ridge with Francis, according to Seaman."It was kind of weird to see the dude roll up with some badass chicks," he added. "They weren't bottom-shelf tuna. They were real good-looking women." -- At the same time that ethical concerns were growing in 2010, some staffers at Pacific Fleet headquarters were becoming alarmed by how much it was costing the Navy to do business with Glenn Defense.
While the firm received good reviews for its service and reliability, the Navy had become uncomfortably dependent on Glenn Defense at several Asian ports where it held a monopoly on fuel and supplies.
With expenses rising, it became clear to logistics officers that Francis had skillfully negotiated contracts with the Navy that gave him extraordinary latitude to set his own price for certain services.
"Anybody who wanted to could drive a loaded forklift through the holes that were in those contracts," said a retired Navy captain who worked for Pacific Fleet and spoke on the condition of anonymity because of the ongoing investigation.
"At that point, there was only so much we could do. What ended up happening is we restricted his ability to bilk the living snot out of us."
A team of supply and logistical officers based in Hawaii began holding weekly videoconferences with counterparts in Japan and Singapore to devise tactics for holding down expenses and making it harder for Glenn Defense to bill for unnecessary services, according to Navy memos about the meetings.
Supply officers had long suspected that Glenn Defense was gouging the Navy for sewage removal by overstating how many gallons it pumped away. The team's solution was to require all ships and submarines to install a simple flow meter to measure the exact amount.
The team discovered that the Navy could save a bundle by using its own oilers to refuel ships at sea instead of relying on Glenn Defense to do it in port.
Similarly, the team found that the company was charging sky-high prices for port security; Pacific Fleet issued guidelines curtailing some of those services.
"That was the focus of our attention: how to get costs under control without hurting operational performance," said Ron Carr, a retired Navy captain who was part of the team.
He said the Navy still depended on the equipment and infrastructure that Francis provided in many out-of-the-way ports.
"He was just greedy and took too much," Carr added. "If he hadn't done that, he could have worked for the Navy for 100 years."
Over three years, the logistics team estimated that it saved the Navy $30 million, according to internal memos. Meanwhile, the team also accumulated a pile of evidence that Glenn Defense had crossed the line from creative accounting to outright fraud.
Members of the team said that they shared the material with NCIS but that little seemed to come of it.
"We thought they were a bunch of incompetent boobs," said another retired Navy officer, who spoke on the condition of anonymity because of the ongoing investigation.
"We were like, 'Hey, guys, we're giving you a bunch of fake invoices.' "
One problem was that the logistics team, too, had been infiltrated by Francis.
According to the group's internal memos, members recognized that someone was feeding intelligence about their activities to Francis, but they could not figure out who. "Was advised that there is a mole who is reporting all inside (Navy) information directly to" Glenn Defense, a Dec 3, 2012, memo stated.
Emails show that the group had been sharing its discussions with Cmdr. Jose Luis Sanchez, a 7th Fleet operations officer who, unknown to them, was on Francis's payroll. He was later arrested on conspiracy charges and has since pleaded guilty. Sanchez's lawyers declined to comment because his sentencing is pending.
In an interview with The Post at their headquarters in Quantico, Virginia, NCIS officials cited several reasons Glenn Defense was able to get away with its crimes for so long.
The biggest factor, they said, was that NCIS sharply de-emphasised fraud and corruption investigations after the Sept 11, 2001, attacks, when counterterrorism became the agency's primary mission.
Before then, NCIS had 140 special agents around the world assigned to economic crimes. By 2002, there were just eight.
The numbers have gradually rebounded in recent years, to 83 agents today. Until 2008, however, NCIS did not have a single agent stationed in Asia who focused on fraud or financial crimes.
"We didn't have any fraud-designated people in that part of the world, so you'd just have your regular agent taking a report," said Hogan, the executive assistant director for criminal operations.
"There really wasn't one single person overseeing all those complaints."
Even then, NCIS agents who specialised in fraud were more focused on whether contractors were supplying counterfeit or substandard equipment or parts - a big problem for the military.
Glenn Defense had a reputation within the Navy for providing reliable, high-quality service. If there were disputes over how much it charged, many NCIS agents considered that a problem for Navy contracting personnel to sort out.
"When you go to Navy officials, the contracting folks, and they say, 'We don't see a problem,' what are you supposed to do?" Hogan said.
Karen Lochli, the NCIS division chief for economic crimes, credited Francis with cleverly recognising and exploiting the agency's institutional weaknesses.
"Leonard Francis was smart," she said. "He was a savvy businessman and criminal."
He also bought lots of goodwill by relentlessly befriending and buttering up admirals and other senior Navy officers, showering them with gifts and meals.
"His social network made him successful, absolutely," Lochli added.
Of the 27 closed investigations into Glenn Defense, NCIS released heavily redacted files from 17 of them. It withheld the others in their entirety, saying they contained information that could affect active investigations into Navy officials suspected of conspiring with Francis.
Lochli said the volume of investigations demonstrated that "there's a clear concern here with Leonard Francis.""It doesn't mean NCIS walked away from Leonard Francis and said, 'There's nothing to see here,' " she added.
After NCIS recognised in 2012 that it had been compromised by a turncoat agent, the agency assigned a small number of personnel to effectively launch a new, clean investigation into Glenn Defense.
The NCIS agents recruited a half-dozen supply officers and Pacific Fleet personnel to help. They were required to sign binding nondisclosure agreements not to share information about the investigation with anyone else in the Navy, according to a memo summarizing the arrangement."Because of the clandestine nature of the . . . investigation, it was absolutely essential that these Navy officials not inadvertently tip off Leonard Francis or (Glenn Defense) to the active criminal investigation targeting him and his company," the memo said.
The turning point came in the summer of 2013, when NCIS intentionally planted false information in its case files declaring that several investigations into Francis were being closed for lack of evidence.
The gambit was that one of Francis' moles would see the information and pass it along to him, tricking him into lowering his guard, according to court records.
It worked. "Good news," Francis texted one of his employees in July 2013. "Thailand n Korea cases all closed, only Japan pending, and shud close NCIS :)"Two months later, thinking he was in the clear, Francis traveled from Singapore to San Diego to meet with two Navy admirals in hopes of landing new contracts. Instead, he was arrested in his hotel suite.
Even so, Francis and his conspirators almost got away with it.
Federal authorities said they caught a lucky break by narrowly winning a race to gain access to Francis' emails, which contained years of incriminating message exchanges with his paid Navy informants.
Although one of his moles had warned him repeatedly to erase the email traffic, an overconfident Francis was slow to cover his tracks, according to copies of Francis's text messages contained in court records.
By the time he finally acted, the Justice Department had sent a warrant to Google a few days beforehand.
"If we were a couple of days late, if the fax machine at Google didn't work, we're not here today," Young, the federal prosecutor, said at a court hearing in October.
"Leonard is still under contract with the Navy, and tens of millions of dollars are continuing to evaporate into thin air."