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Navy Procurement Fraud: Revisiting Fat Leonard

- Posted on 09/08/21

By: Dennis E. Boyle

In 2006, a Special Agent with the Naval Criminal Investigative Service (NCIS), David Schauss, became suspicious of the relationship between several Naval contracting officers and Glenn Defense Marine Asia (GDMA), run by Leonard Glenn Francis, a Malaysian national known as “Fat Leonard”, perhaps because he weighed a purported 350 pounds.  Francis, however, was able to use his influence to quash Schauss’ investigation and have his position eliminated.  Several years of ineffectual investigation followed until in 2013, Francis was indicted on numerous fraud related charges.  In January 2015, he pled guilty to Conspiracy to Commit Bribery, Bribery, and Conspiracy to Defraud the United States.

On the same day that Francis pled guilty, Captain David Dusek, U.S. Navy was charged by Information and pled guilty to Conspiracy to Commit Bribery.  Dusek had been the Deputy Director of Operations for the 7th Fleet headquartered in Yokosuka, Japan before serving as the executive officer aboard the USS Essex and the commanding officer of the USS Bonhomme Richard.  He used these positions in the Navy to benefit GDMA and Francis.  In return, he received meals, alcohol, entertainment, the services of prostitutes, and luxury hotel stays.  At the time of this press release, the allegations of the criminal conduct should have been shocking to the Navy.

Since 2013, the investigation into corruption associated with Fat Leonard and GDMA (although Fat Leonard has lost weight while in U.S. custody).  Thus far, more than 440 people have come under the scrutiny of federal investigators.  Many of these individuals have been prosecuted in federal court, including a large number of senior officers.  The most senior officer to be convicted and sentenced thus far was Rear Admiral Robert Gilbeau, U.S. Navy who in 2017 was sentenced to 18 months in prison.  Other senior officers, including Rear Admiral Bruce Loveless, U.S. Navy, Captains David Newland, James Dolan, Donald Honbeck and David Lausman, U.S. Navy, Colonel Enrico DeGuzman, U.S. Marine Corp, Commander Mario Herrera, U.S. Navy and Commander Stephen Shedd, U.S. Navy are facing trial on November 1, 2021.

The Navy has also established the Consolidated Disposition Authority (CDA) to the disposition of perhaps hundreds of other cases either by administrative action or court-martial.

The Scheme.

GDMA was a ship husbandry firm.  Broadly speaking, ship husbandry involves the provision of all aspects of ship supply, maintenance, cleaning, and general upkeep. When naval vessels are involved, the husbandry firm actually becomes part of the military operation of the ship since the firm ensures the operational readiness of the vessel.  Whenever ships deploy to distant oceans for extended operations, ship husbandry services are even more critical to operations. Contracts for husbandry services can be extremely lucrative for the company providing the services.

In the case of GDMA, Francis was able to develop a network of spies within the Seventh Fleet who would disclose classified information concerning the movement of vessels and then use that information to position itself to provide services for the vessels involved.  He then paid bribes, supplied prostitutes, and took other corrupt actions to influence officers and civilian employees of the Navy to divert business to GDMA.  By using prostitutes and paying bribes, Francis also compromised some officers, forcing them to do his bidding.  The Navy Officer of Inspector General estimates that Francis’ scheme cost the Navy an additional $200 million dollars.

Francis’ scheme continued for more than a decade, and his influence was such that he was able to act with impunity.  One of his co-conspirators was a Supervisory Special Agent with NCIS named John Bertrand Beliveau.  SSA Beliveau would search NCIS databases for investigations into Francis and GDMA.  This would include information about potential witnesses and co-operating witnesses.  According to the Department of Justice Press Release, over a period of years, Beliveau helped Francis avoid “multiple criminal investigations”.  From 2008 through 2012, Francis provided Beliveau with cash, “lavish dinners”, entertainment and alcohol at “high-end night clubs”.  After pleading guilty to Bribery and Conspiracy to Commit Bribery, he was sentenced to twelve years in prison.

The Charges.

The government has pursued a number of different charges in federal court.  These include Conspiracy to Defraud the United States, Defrauding the United States, Wire Fraud, Bribery, Conspiracy Wire Fraud and False Statements.  Many of the individuals who have pled guilty thus far have pled guilty to False Statements charges rather than frauds themselves.  Lying to investigators is one of the most commonly charged felonies.  Anyone involved in a federal investigation should seek the advice of an experienced fraud defense attorney before talking to agents.

Military court-martials are convened in accordance with the Uniform Code of Military Justice (UMCJ).  Charged that arise in corruption case like the Fat Leonard case include: Article 81, Conspiracy, Article 124a, Frauds against the United States, Article 124a, Bribery, Graft, Article 124b, False Official Statements, Article 107, Obstruction of Justice, Article 131b, and Conduct Unbecoming an Officer, Article 133.

Any of these charges, whether they be military or civilian, can put a person in prison for decades.  They are all very serious.

The Defense of a Corruption Case.

As with many criminal investigations, the government in the Fat Leonard scandal has both overreacted and underreacted.  Let’s consider the government’s initial approach to GDMA.  For years, Francis’ moto was “nothing is too good for the fleet”.  He was known, legitimately, as a tough husbandry agent who could get things done in the toughest of places.  As Commander Mike Misiewicz, U.S. Navy told the Defense News Service “he was a crook, but he was our crook”.[1]  At the time when Francis was perpetuating his fraud scheme, U.S. was becoming more and more concerned about People’s Republic of China (PRC).  Francis became a lynchpin in the Navy’s efforts to contain the PRC.

It is also important to remember that the primary mission of the Navy is to be ready to combat adversaries of the United States.  That mission would focus attention on the threat posed by the PRC, and concerns about fraud, waste, and abuse would be secondary.  If the post-World War II history of the United States, the government has frequently dealt with dishonest, unsavory characters, including members of the Mafia.  Those working with Francis would most likely have been grateful for the support he provided.

Naval officers observing GDMA and Francis prior to his arrest might assume that he was part of U.S. Navy operations.  He had numerous connections to admirals and other high-ranking officials and moved in circles that one would think only the most trusted of individuals would be permitted to enter.  However, anyone who closely examined Francis’ operations should have known that there was an issue.  As early as 2006, NCIS Special Agent Schauss attempted to open an investigation but was thwarted.  Francis’ practice of providing meals, lodging and prostitutes in exchange for government contracts was clearly illegal, as his subsequent guilty plea demonstrates.  He was, by any measure, a corrupt individual involved in a fraudulent scheme, and for years, the Navy did nothing.  This is an underreaction of the highest order.

Then, just as it had initially underreacted, the powers that be grossly overreacted.  Press reports indicate that in addition to the federal cases prosecuted by the Department of Justice, over 450 names were referred to the Navy Consolidated Disposition Authority (CDA), the Convening Authority specially designated by the Secretary of the Navy to administer the military justice system with respect to military personnel involved in the Fat Leonard scheme.

As with the Tailhook Scandal of the 1990s, just about everyone who had any connection with GDMA, or Francis are subject to scrutiny even though the vast majority of these people did not engage in any criminal conduct.  In the Tailhook Scandal, senior Navy Leaders, including the Commander of the Naval Investigative Service (now NCIS), initially downplayed the activities that happened at a defense contractor sponsored event in Las Vegas.  When Congress and the public became aware of the conduct of officers at the event, the Navy and Department of Defense acted against many people who was present at the event, even if there was no evidence they had actually done anything wrong.[2]  As a result, the careers of many officers were unfairly destroyed.

Similar risks exist in the Fat Leonard Scandal.  There would most likely have been three different groups of people aiding Francis: 1) those who know that Francis was a criminal and voluntarily joined his scheme; 2) those who may have suspected fraudulent conduct but never “looked into it”; and 3) those who worked with GDMA but did not know that criminal activity was involved.  The government is not always careful in putting potential defendants into the correct category.  The subject of any investigation or the accused in a court-martial must understand that decisions that are made early in an investigation can taint a defense later on.

Is the Fat Leonard Scandal Unique?

Unfortunately, frauds in government procurement are neither new nor unique to the Navy.  The False Claims Act, was passed in 1863 to combat rampant fraud during the Civil War.  Since then, thousands of individuals have been charged in a variety of frauds.  We have represented dozens of corporations and individuals suspected of fraud—although in many cases where we become involved in cases alleging fraud, our clients are able to avoid criminal prosecution.  It is important to emphasize that not every activity that looks like a fraud is a fraud.  All cases are different, and each requires a careful and thorough investigation.

The Fat Leonard cases live on, and now, years after Francis first pled guilty, new cases still arise.  Earlier this year, Pornpun “Yin” Settaphakorn, a GDMA manager in Thailand, was extradited to the United States to stand trial.  In a case unrelated to the Fat Leonard case but nevertheless involving a ship husbandry firm providing services to the U.S Navy, two individuals, have pled guilty to Bribery charges.  In that case, Sung Yol “David” Kim, the South Korean owner of a ship husbandry firm, bribed James Driver, the Merchant Marine Captain in charge of a USNS cargo ship to use Kim’s services.  This case is noteworthy for its similarity to the Fat Leonard Scandal.  It demonstrates that these cases continue to arise.

What to Do if You Are Involved With or Suspected of Procurement Fraud?

Without an experienced white-collar defense attorney who understands both Navy and military culture, an innocent person can be swept up by a legal process that puts them in prison and destroys their lives.  Even people who may be technically guilty deserve the best defense possible so that they are not unfairly punished.  We work in both the federal criminal and military justice systems and understand how to defend people involved. Call us.  We can help.

[1] Like so many of Francis’ associates, Commander Mislewicz is currently serving a prison sentence

[2] At the beginning of the Tailhook Scandal, I was a lieutenant in the U.S. Navy Judge Advocate General’s Corp and the senior prosecutor stationed in Mayport, Florida and was involved in the early stages of the investigation.  However, I left active duty before any charges were filed.  Significant procedural errors by the Navy and the Department of Defense resulted in almost no convictions in the scandal, although a large number of officers were administratively punished.