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Wednesday
Jan252017

Could one real compliance officer have saved the Navy's Pacific Command?

The Fat Leonard scandal has decimated the U.S. Navy's Pacific Command. So far, sixteen defendants have been charged in the case. They include an Admiral, five Commanders, a Captain, and a Petty Officer. In other words, the chain of command.

Fat Leonard is Leonard Glenn Francis. The Malaysian national, 51, pleaded guilty to bribing scores of U.S. Navy officials with travel, meals, cash, electronics, parties, and prostitutes. He's waiting to be sentenced.

His Singapore-based company -- Glenn Defense Marine Asia -- provided port services to U.S. Navy ships in Asia. As part of his plea agreement, Francis admitted over-billing the Navy more than $35 million on contracts to stock and clean ships.

Some defendants gave Fat Leonard sensitive Navy secrets -- ship movement schedules, port-of-call plans, reports about investigations into his company, and pricing information from competitors. Others helped him defraud the Navy with phony or inflated invoices. One helped Fat Leonard's vessels avoid customs inspections in and out of the Philippines. Most of the defendants lied to investigators about their dealings with Fat Leonard.

It was a scandal that could have been avoided. Fraud complaints about Fat Leonard and his company started in 2006, the Washington Post reported. The Naval Criminal Investigative Service (NCIS) opened 27 separate investigations into his company.

"In each of those instances, however, NCIS closed the case after failing to dig up sufficient evidence to take action against the firm," the Washington Post said. The paper reviewed hundreds of pages of law enforcement records ­obtained under the Freedom of ­Information Act.

Navy staffers at U.S. Pacific Fleet headquarters were so worried about potential trouble that they drafted a new ethics policy to discourage Navy personnel from accepting favors from Fat Leonard, the WaPo report said. "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."

*     *     *

Every Navy officer takes and oath and is supposed to uphold it. So they're all expected to be part of the compliance function.

I, [name], do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.

But when compliance is part of everyone's job, is it sometimes no one's job? That looks like what happened in the Navy's Pacific Command. Corruption reached all levels. Instead of exposing the graft, the chain of command covered it up.

*     *     *

What about the future?

Instead of relying on everyone for compliance, what about designated compliance officers who report to someone outside the immediate chain of command. Give that compliance officer continuous and open access to the books and records, like an on-site independent auditor. Make the compliance officer someone whistleblowers can trust and rely on to protect against retaliation from within the chain of command. See e.g. Compliance 2.0.

Embedding an independent compliance officer deters shenanigans -- for the Navy or any other organization. Outside eyes always increase the chances of getting caught.

For the Navy, the objection to that arrangement is obvious. The military can't do its job without a chain of command. But the Navy already has a detailed complaint procedure. Even NCIS is supposed to have a role. None of that stopped Fat Leonard's corruption and fraud.

Independent oversight. A safe outlet for whistleblowers. Checks and balances. That's the only way real compliance can work.

The Fat Leonard scandal has already left behind too much human wreckage. For the Navy, something new is worth a try.

*       *        *

Here's a look at some of that human wreckage. It involves 16 defendants, so far.

In addition to Fat Leonard, four other executives from his company have been charged -- Alex Wisidagama, Ed Aruffo, Neil Peterson, and Linda Raja.

Wisidagama pleaded guilty and was sentenced in March to 63 months in prison and $34.8 million in restitution to the Navy. Aruffo has pleaded guilty and is waiting to be sentenced. Peterson and Raja were extradited from Singapore to the United States last month. Their cases are pending.

The remaining 11 defendants are current or former U.S. Navy officials.

They include:

Admiral Robert Gilbeau (pleaded guilty)

Lt. Commander Gentry Debord (sentenced to 30 months in prison)

Commander Bobby Pitts (awaiting trial)

Captain Daniel Dusek (sentenced to 46 months in prison)

Commander Michael Misiewicz (sentenced to 78 months in prison)

Lt. Commander Todd Malaki (sentenced to 40 months in prison)

Commander Jose Luis Sanchez (pleaded guilty)

Former NCIS Supervisory Special Agent John Beliveau II (sentenced to 144 months in prison)

Petty Officer First Class Daniel Layug (sentenced to 27 in prison), and

Paul Simpkins, a former DoD civilian employee who oversaw contracting in Singapore (sentenced to 72 months in prison).

Three other Rear Admirals including the commander of naval forces in Japan retired in 2015 after the Secretary of the Navy censured them for the Fat Leonard scandal.

___

Richard L. Cassin is the publisher and editor of the FCPA Blog.

Reader Comments (2)

As a civilian and a Brit it may not seem that I can add to this discussion. But as a fraud investigator with over 20 years experience in using data analytics and having provided specialist consultancy to the UK's Ministry of Defence counter fraud service for over 9 years I'd like to add my thoughts. Richard suggests that there should be an independent compliance officer embedded in the organisation. This is crucial, as is an independent reporting line. Ideally they should be outside the normal chain of command, but have a military background to understand procurement process.The officer is not just involved in compliance, this may be a language issue, but in independently testing, auditing and investigating the systems and processes. A technique used in the UK is to ignore the official policies and procedures and instead identify the workflows, follow the money, and work out how to break the conventional system. In the UK we call the fraud penetration testing, similar to cyber security, we attack the system to identify its weaknesses.

Richard Kusnierz
Divisional Director Advanced Investigative Data Analytics
Haymarket Risk Management Limited
January 25, 2017 | Unregistered Commenterrichard Kusnierz
Was a compliant made to the Navy Inspector General? It seems the IG, also has jurisdiction to investigate these allegations and the IG reports directly to the Secretary of the Navy.
January 26, 2017 | Unregistered CommenterKim Brown

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