On Thursday January 15, 2015, in the United States District Court in San Diego, California, Leonard Glenn Francis and his Singapore-based defense contractor firm, Glenn Defense Marine Asia (“GDMA”), Ltd., both pleaded guilty to bribery, conspiracy to commit bribery, and conspiracy to defraud the United States government. Fifty-year-old Francis, known affectionately in his personal circles as “Fat Leonard” because he stands at 6 foot 3 inches and weighs 350 pounds, will be sentenced by U.S. District Judge Janis Sammartino on April 3, 2015, along with the corporate defendant, GDMA. As a part of his guilty plea, Francis agreed to cooperate with the government in its ongoing investigation and agreed to forfeit $35 million dollars in illegal proceeds earned through government contracting fraud. At sentencing, Francis faces a maximum of 25 years in prison. Federal prosecutors characterize this investigation as ongoing. At sentencing, corporate defendant GDMA faces a maximum sentence of 5 years’ probation on each of the three criminal counts and a respective maximum fine of $500,000 on each count. Thus far, Francis is the seventh person to plead guilty in what the government describes as the Navy’s largest government contracting fraud case in U.S. history. The New York Times reports that this investigation has spanned eight states, eight Asian countries, and has involved more than 100 law enforcement agents.
During his guilty plea in federal court, Francis admitted that he and his government contracting firm defrauded the U.S. Navy by overcharging for services related to port visits by Navy ships and submarines. The Associated Press reported that GDMA owned and operated numerous ports throughout Asia and had contracted with the U.S. government for approximately 25 years, providing Navy ships with water, food, fuel, trash removal, and port security, among other services. Francis’ scheme to fatten his pockets at the government’s expense was four-fold.
First, Francis admittedly bribed Navy officials to steer ships toward his ports by providing Navy officials with more than $500,000 in cash payments and hundreds of thousands of dollars’ worth of lavish gifts such as: luxury hotel suites, expensive dinners, fine wines and top-shelf liquor, Spanish suckling pigs, designer handbags, the services of prostitutes, and ornamental swords, just to name a few.
Second, according to The Los Angeles Times, Francis maximized his ability to outbid his competitors for government contracts by bribing Navy officials to provide him and his company with information, in some cases classified information, about the movements of Navy ships and submarines.
Third, once GDMA had secured contracts with the Navy, Francis and his cohorts padded their profits by overcharging the Navy for services to the tune of approximately $20 million dollars in fraudulent billing.
Finally, Francis allegedly kept the heat off of himself and his company for years by boldly bribing a Naval Criminal Investigations Services (“NCIS”) special agent in charge of investigating his company.
Thus far, numerous Navy officials and other government contractor employees have been implicated in this criminal investigation. For example, earlier in the day on January 15, 2015, Navy Captain Daniel Dusek also pleaded guilty in federal court in San Diego to one count of conspiracy to commit bribery. The San Diego Union-Tribune reported that Dusek had served as the Navy’s Seventh Fleet’s deputy operations manager, the executive officer aboard the USS Essex, a large amphibious assault ship, and most recently as the commanding officer of the USS Bonhomme Richard, which has a crew of more than 1,000 sailors. According to the plea agreement, Francis bragged in an internal e-mail referring to Captain Dusek as his, “golden asset” and praised Dusek’s ability to “drive big deck” ships toward his “fat revenue GDMA ports.” According to a Department of Justice Press Release, Dusek admitted in his guilty plea that in 2010 GDMA paid for Dusek and his family to stay in a hotel in Hawaii in exchange for classified information. Later that year, Francis provided Dusek with prostitution service and a hotel room at the Shangri-La Hotel in the Philippines. Dusek thereafter persuaded the Navy to send the USS Abraham Lincoln and its strike group to a Malaysian Port owned by Francis and GDMA.
Other defendants who also have pleaded guilty include: Navy Commander Jose Luis Sanchez, who pleaded guilty on January 5, 2015, to bribery and conspiracy to commit bribery; NCIS Special Agent John Beliveau, II, who pleaded guilty to accepting bribes on December 17, 2013; GDMA executive Alex Wisidagama (first cousin to Francis), who pleaded guilty to conspiracy to defraud the U.S. government; Navy Petty Officer 1st Class Dan Layug, who pleaded guilty to conspiracy to commit bribery on May 20, 2014; and Navy Lieutenant Commander (Retired) Edmond Aruffo, who later worked for Francis as GDMA’s manager of Japan operations, who pleaded guilty to conspiracy to commit bribery on July 3, 2014. Beyond these guilty pleas, at least one other Navy Commander has been indicted by the grand jury and awaits trial. The Washington Post reported that two Navy Admirals have also been stripped of their security clearances, though neither admiral has been charged with a crime. Francis’ plea agreement also implicates an additional Navy Lieutenant Commander, as well as a government contracting specialist, both of whom are not identified by name in the plea agreement and neither of whom has been charged with a crime to date.
Anyone who contracts with the federal government should make sure that their company and their employees are familiar with and trained on the various federal criminal statutes, which prohibit bribery, fraud, false claims, and kickbacks. The federal bribery statute, 18 U.S.C. Section 201, prohibits anyone from offering a public official anything of value with intent to influence any official act. The statute broadly defines “public official” to include any officer or employee of any branch of the U.S. government or the District of Columbia government, among other public officials. Section 201 also prohibits public officials from seeking, receiving, or demanding a thing of value in return for influencing an official act. The federal conspiracy statute, 18 U.S.C Section 371, together with 18 U.S.C Section 201, prohibits two or more persons from making an agreement to offer a public official anything of value with intent to influence an official act. Section 371 also prohibits public officials from conspiring with others to receive anything of value with intent to influence an official act. Section 371 also makes it unlawful for two or more persons to agree to defraud the U.S. government or any federal agency. Additionally, the federal false claims statute, 18 U.S.C. Section 287, prohibits anyone from presenting a false, fictitious, or otherwise fraudulent claim to any department or agency of the federal government. Finally, in the context of federal health care contracting, 42 U.S.C. Section 1320 prohibits anyone from offering to pay anything of value in return for a referral or inducing business reimbursable under a federal health care program. Section 1320 also prohibits anyone from or from receiving anything of value in return for a referral or inducing business reimbursable under a federal health care program. Government contractors should keep in mind that there are also civil penalties associated with fraud and/or false claims to the government.
Anyone who is being investigated for or has been charged with any type of government contracting fraud should consult with an experienced white collar criminal defense attorney to make sure their rights are protected. Additionally, companies who contract with the government should consider bringing in a white collar criminal defense attorney to conduct compliance training and to conduct internal investigations of suspected wrongful government contracting conduct; evaluate whether it is in the company’s best interest to self-report credible and substantiated allegations to the government; and determine whether appropriate compliance policies and procedures are in place to prevent any future allegations of wrongdoing or even the appearance of impropriety.