Bloomberg News

U.S. Navy Secretary Predicts Contracting Scandal Will Expand

December 20, 2013

U.S. Navy Secretary Ray Mabus said the fallout from a contractor bribery scandal that allegedly involved trading prostitutes for classified information is likely to widen, as he pledged to crack down on fraud.

“I certainly don’t think we’ve seen the end of it,” Mabus told a Pentagon press conference today, stopping short of saying whether more arrests of naval officers are likely.

Leonard Glenn Francis, chief executive officer of Singapore-based Glenn Defense Marine (Asia), was arrested in September and charged with bribing two U.S. Navy commanders with cash and prostitutes to help win dockside supply contracts. Francis has pleaded not guilty.

The two commanders were charged, along with a U.S. Naval Criminal Investigative Service agent, who pleaded guilty this week to conspiracy to commit bribery. The Navy also suspended access to classified information for two of its top admirals who handle intelligence matters after putting them on leave pending further investigation.

The case has disclosed lax oversight of contracting in the ship-supply industry. The Navy uses contractors to provide dockside services at foreign ports for supplies and waste removal. Last month, the Navy suspended its contracting with a second supply company, Inchcape Shipping Services Ltd., owned by Dubai-based Istithmar World PJSC, because of what it called evidence of “questionable business integrity.”

A third company, Malta-based Multinational Logistic Services, known as MLS, the Navy’s largest ship supply contractor with contracts valued at $346 million, put a senior executive on leave this week pending an inquiry into how he had administered Navy contracts at Inchcape, the New York Times reported.

Inside Agent

While declining to discuss specifics of the bribery scandal, Mabus defended the Navy’s handling of it.

The Naval Criminal Investigative Service opened an investigation into Glenn Defense Marine in May 2010 based on suspicious claims and invoices the company submitted, Mabus said, and discovered that “one of their own” agents was connected to it.

The agent, John Beliveau, admitted that he’d supplied the contractor with confidential information about the probe into billing practices in exchange for prostitutes and cash, U.S. prosecutors said this week.

“While we’re obviously not pleased about the alleged misconduct of those involved in the Glenn Defense Marine Asia case, I do believe that the discovery and disposition of those allegations are indications that our efforts are working,” Mabus said.

‘Red Team’

Pledging a further crackdown on contracting abuse, Mabus said, “I would rather get bad headlines than let bad people get away.” The Navy has formed a “red team of experts” to examine the ship-supply contracting process and recommend ways to correct deficiencies, he said.

The Navy also “will further standardize requirements, further standardize contract vehicles, further standardize administration, and increase oversight” of contractors, he said. That will include increasing “the use of fixed-price line items,” he said.

Too often, Mabus said, contractors may bid low on a contract to win it, only to tell the Navy later that they lack certain items and will supply alternatives at a higher price.

Mabus also claimed credit for an increase in suspensions and debarments of contractors for misconduct and poor performance. Since 2009, he said, the Navy has suspended 252 contractors and debarred 400.

Annual Funding

Mabus and other Navy officials said they couldn’t provide an estimate of how much money is at stake in the bribery case or may be lost to fraud and abuse.

The Navy obligates $75 billion to $95 billion a year in contracts through about 350,000 transactions involving tens of thousands of contractors, said Elliott Branch, the service’s deputy assistant secretary for acquisition and procurement.

Glenn Defense Marine provided Navy ships with hundreds of millions of dollars in goods and services in at least a dozen countries for more than 25 years, according to the U.S. attorney’s office in San Diego, where the case is being tried.

The case is U.S. v. Francis, 13-03782, U.S. District Court, Southern District of California (San Diego).

To contact the reporter on this story: David Lerman in Washington at dlerman1@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


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