• U.S.

Navy Sinks In Hookers and Bribes Scandal

9 minute read

The U.S. 7th Fleet packs all the power and majesty one would expect from the world’s biggest armada: about 65 ships, 300 aircraft and 40,000 personnel, ranging over an area of operations that covers one-quarter of the earth’s surface. But a force that size runs more on guts than glory: 30¢ of every Navy dollar goes not to the purchase of the ships or the salaries of sailors but to the much less glamorous category called operations and maintenance. That includes $180 million annually for such outlays as sewage-removal services that pump waste from nuclear-powered carriers into rusty scows, aging tugboats that park the lumbering hulls in overseas ports and vast chow deliveries that feed shipboard populations the size of small towns. In 2010, 7th Fleet ships made 371 port visits, paying Asian husbanding firms up to $250,000 per ship per day.

It was in that logistical netherworld of provisioning that the Malaysian millionaire Leonard Glenn Francis allegedly collaborated with a small but growing number of U.S. Navy officers to perpetrate a scam that prosecutors estimate cost U.S. taxpayers at least $20 million. In exchange for bribes of cash, hotel stays, hookers and tickets to Lady Gaga concerts, shore-based Navy officers responsible for scheduling 7th Fleet port visits funneled ships to what Francis called his “pearl ports” around the western Pacific, where he allegedly overcharged them for everything from freshwater to bolstered post-9/11 security.

At the core of the scandal is a startling charge: that midlevel, deskbound officers moved the Navy’s fleet around the Pacific Ocean in trade for bribes and other favors and shared their classified steaming plans with a private foreign firm. Six officers–including two admirals involved in intelligence operations, two captains and two commanders–as well as a former officer now working as a Navy civilian have been implicated, three of those have been charged, and Navy officials predict more arrests. Francis and his cousin are jailed awaiting trial, and the Navy has canceled more than $200 million in contracts with his firm.

The Navy says the case is an isolated incident. “It’s disconcerting to know that there are some–although not very many–officers that allowed themselves to be bribed for information and, in some cases, in such an immoral and unethical fashion,” says Rear Admiral John Kirby, the service’s top spokesman. But late last month, the Navy suspended business with a British-based company that holds more than $240 million in contracts with the U.S. 5th Fleet in and around the Persian Gulf, alleging multiple overpayments.

The Navy, like the U.S. military as a whole, has seen its $150 billion annual budget nearly double since 9/11. And while all those budgets are tightening now after two wars and a sequester, there is still an ocean of untracked cash sloshing through the system. The billing scandal is a reminder that the service’s bookkeeping and oversight have not kept pace with its ever improving weapons systems, especially when it comes to operations abroad. “Everyone in the Defense Department overseas, including the Navy, is open to temptation when you have huge amounts of money and very inadequate oversight internally,” says Charles Tiefer, a military-contracting expert at the University of Baltimore School of Law.

Profits and Port Calls

Prosecutors’ filings in the Francis case suggest there was a consistent pattern of gifts from Francis followed by Navy favors, tantamount to quid pro quos. The three Navy officials charged in the case so far allegedly accepted travel, hotel suites and the services of female escorts. Francis apparently had as many prostitutes as piers in various Asian cities, including Kuala Lumpur, Manila and Singapore, “based on the content of e-mails between Francis and the Escort Service Provider, including many pictures of young women along with their age, height and bra size,” a Pentagon investigator said in a sworn statement. All three U.S. officials who have been charged so far have pleaded not guilty.

Francis, 49, a Malaysian national who lives in Singapore, was well positioned to benefit from a Navy that never worried much about tracking its bills. Glenn Marine Defense Asia was founded by Francis’ grandfather after World War II and grew to span ports in more than a dozen nations that had been supplying U.S. Navy vessels for more than 25 years. Francis himself is charming and engaging, says retired Navy captain Kevin Eyer, who met him for the first time at a 2005 Christmas party in Hong Kong. Francis, Eyer says, made “a conscious effort to cultivate officers for the day that they might be able to prove helpful to him.”

Francis’ first key contact in the Navy appears to have been a 7th Fleet logistician, Commander Jose Sanchez, who allegedly began sharing classified data with Francis in 2009, according to federal documents filed in the case. Francis gave Sanchez more than $100,000 in cash, along with travel, upscale hotel stays and prostitutes, after Sanchez began serving as the fleet’s deputy logistics officer in Yokosuka, Japan. Francis allegedly hired female escorts for Sanchez and unnamed Navy friends who traveled to Kuala Lumpur and Singapore in 2009 and nicknamed themselves the Wolf Pack. Sanchez asked for pictures of the women for “motivation.” Francis was happy to oblige: “We will hook up after the FLAG dinner, will arrange a nest for you guys and some birds.” Sanchez appreciated the effort: “Yummy … daddy like.”

Francis asked Sanchez to “swing” business to his operation at the Thai port of Laem Chabang, which lacked a prenegotiated Pentagon fuel deal. “Ask and you shall receive,” Sanchez e-mailed Francis. “We worked this out this morning …” The destroyer U.S.S. Mustin spent more than $1 million on fuel during a 2011 visit there, more than double the cost of buying fuel from a husbanding agent with a prenegotiated contract.

Francis also trained his sights on Commander Michael Vannek Khem Misiewicz, who in 2011 was serving as the 7th Fleet’s deputy operations officer. “We gotta get him hooked on something,” Francis told his Japanese manager, who was also a former Navy officer. Their goal: bring the U.S.S. John C. Stennis, a Nimitz-class carrier, to Francis’ facility at Malaysia’s Port Klang. After allegedly providing Misiewicz with Lion King tickets and other favors, the officer responded by e-mailing the fleet’s upcoming port-visit schedule to the company. The Japanese manager e-mailed Francis, “We got him!!”

Visits by carriers, much bigger than other surface ships, were especially lucrative. Glenn Marine charged $884,000 for a five-day 2012 visit to Laem Chabang by the U.S.S. Abraham Lincoln. Pentagon auditors concluded that was at least $500,000 too much. After the U.S.S. George Washington diverted from Singapore to Port Klang, Francis flew Misiewicz and his family to Cambodia for a cousin’s wedding, put him up at the swank Shangri-La Hotel in Singapore and gave him tickets to a 2012 Lady Gaga concert in Thailand. Francis pleaded for more. “Send me the latest updated schedules Bro,” Francis e-mailed Misiewicz that month. “I need more visits please in Pearl Ports. Cheers, Leonard G. Francis.”

Francis’ techniques for wringing extra profits from Navy visits weren’t particularly clever: he would bid low to win the chance to perform routine maintenance, prosecutors believe, and then piled on inflated extras once the ships made their way to his yards. Glenn Marine won a Navy contract with a bid of $21.6 million to supply ships in northeastern Asia. That was a third the size of a competing bid by South Korea’s DaeKee Global Co. DaeKee’s protest to the Government Accountability Office that the winning bid was too low went nowhere. “Price realism,” the GAO explained, wasn’t a Navy requirement. In another case, a Glenn Marine manager told a subordinate to inflate by 1,500% the bill for patrol boats to guard the amphibious assault ship U.S.S. Essex during a 2011 port visit to Bali, according to the federal filings.

System Failure

The Navy has always done business this way, permitting officers to manage their ships’ resupply far from home. But if thousands of agreements with local suppliers of water, food, tugs and port fees might once have been difficult to monitor, that excuse is eroding in a computerized age. “The U.S. Navy’s ability to track and analyze port-visit cost changes remains rudimentary,” a 2009 Navy report said.

And for all the Navy’s protests that the case is an isolated event, it looks more like evidence of a broken system: it wasn’t a single band of Navy officers working together to fleece the government and enrich themselves; rather, each officer appears to have acted individually. Investigators are looking into whether other officers may have accepted gratuities from Francis simply because they were there when he was spreading his bribes around.

Just before Thanksgiving, the service said it had suspended business with Inchcape Shipping Services, a Dubai-owned, British-based ship-husbanding firm with $240 million in contracts to service the U.S. 5th Fleet in and around the Persian Gulf. The same day, former Navy engineer Ralph Mariano reported to federal prison in Massachusetts to begin serving a 10-year sentence after running an $18 million kickback scheme in Newport, R.I., from 1999 to 2011. He was convicted of pocketing $3 million in checks and biweekly payments of $3,500 in cash from 2003 to 2011 through fraudulent invoices. And federal authorities are investigating a fourth case involving three senior Navy intelligence officials who allegedly charged the Navy $1.6 million for rifle silencers that cost $8,000 to produce.

The Navy’s takedown of Francis was as much a warning to the service as it was a triumph. Even as the feds began to close in, Francis was warned by Sanchez that the Navy Criminal Investigative Service was sniffing around. But Francis insisted he had another friend on the inside and dismissed the warning. “I have inside Intel from NCIS and read all the reports,” he e-mailed Sanchez. Francis had what seemed like a good reason to relax: an ex–7th Fleet’s force protection chief, John Beliveau, now working for NCIS, allegedly provided Francis with Navy files relating to the growing probe of Glenn Marine after receiving gifts from him. Once investigators suspected that Beliveau was Francis’ source, they planted a fake file concluding that the investigation into Glenn Marine had run its course. No charges would be brought, the false file reported.

When Francis traveled to California in September to discuss future business at the Navy’s request, federal agents arrested him on bribery charges in his suite overlooking San Diego’s harbor.

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