The Navy already is investigating a number of senior Navy officers in connection with an alleged overbilling scheme by another maritime services contractor, Glenn Defense Marine Asia, whose chief executive was arrested in September on charges that he bribed Navy officers.

Fat Leonard (in the middle) is in jail in San Diego awaiting trial 

Fraud, Waste and Abuse 

For the past four years, Navy officials strongly suspected they were being ripped off by a major defense contractor that resupplied ships and submarines across Asia. The service launched several reviews and criminal investigations, but none produced hard evidence of wrongdoing.

The chief executive of the contractor, Glenn Defense Marine Asia, seemed to have a uncanny knack for swatting away auditors' concerns. He even managed to persuade the Navy to give him more lucrative contracts, worth up to $200 million.

Now, federal prosecutors say they finally figured out how Leonard Glenn Francis — known in Navy circles as "Fat Leonard" for his imposing girth — was able to dodge scrutiny for so long. They have accused the Malaysian businessman of recruiting several high-placed moles in the Navy. The informants allegedly leaked sensitive information about contracts as well as closely guarded details about law-enforcement probes targeting Glenn Defense Marine, enabling the company to bilk the U.S. government out of more and more money as it fended off the investigations.

The case is shaping up as the biggest corruption scandal to hit the Navy in years. Two Navy commanders have been arrested — the most recent on Wednesday — and charged with feeding inside information to Francis, as has a senior agent with the Naval Criminal Investigative Service.

In addition, a Navy captain who has not been charged but is under investigation was relieved of his ship's command last month. Court papers suggest that still more officers could be implicated.

The case has exposed how the Navy remains vulnerable to kickbacks and bribes from its extensive network of contractors, despite past pledges by the Pentagon to strengthen oversight.

In particular, affidavits filed by investigators demonstrate how easy it was for a foreign contractor to allegedly pry loose secrets from the Navy with age-old temptations: sex and money. All three of the Navy officials charged in the case are accused of selling information to Singapore-based Glenn Defense Marine in exchange for regular visits with prostitutes, travel expenses and other perks.

In October 2009, Francis received an alert from one of his alleged moles, Navy Cmdr. Jose Luis Sanchez, a deputy logistics officer for the Navy's Seventh Fleet. According to charging documents, Sanchez reported that Navy officials were raising concerns about $111,000 in expenses billed by Glenn Defense Marine for a Navy ship's visit to Malaysia. "Will call tonight to discuss," Sanchez said in an email.

In exchange, Francis provided Sanchez and other Navy personnel with female escorts and upscale hotel rooms during visits to Singapore and Malaysia, according to the charging documents.

"Yummy . . . daddy like," Sanchez enthused in a Facebook message after the contractor sent him emails describing the arrangements.

Sanchez was arrested Wednesday and charged with conspiracy to commit bribery. Prosecutors said he regularly provided Glenn Defense Marine with classified reports of ship movements and scheduled port visits, as well as other inside information that gave the firm an edge in bidding for contracts.

Sanchez was granted release on $100,000 bond Thursday and is scheduled to appear in court in San Diego this month, according to his attorney, Vince Ward. Ward declined to comment on the allegations against Sanchez, saying he only recently took up the case.

In 2010, Glenn Defense Marine continued to attract the suspicion of Navy officials. In July 2010, court records show, the Naval Criminal Investigative Service opened a probe into allegations that the contractor had submitted false claims for $110,000 in dockage and wharfage fees from a Navy ship exercise in Thailand.

Investigators say, however, that Francis was able to closely track the progress of that probe thanks to another mole. According to court papers, Francis had recruited a senior agent with the NCIS, John Beliveau II, to provide him with details of the case as it unfolded by sharing material from internal NCIS files.

In addition, Beliveau "specifically counseled" Francis on how to respond to inquiries from other NCIS agents, court papers show.

Francis bragged about his ability to evade scrutiny a year later, even after NCIS opened a second criminal probe into his firm, the records show.

In a 2011 email to a colleague, Francis said the fraud cases were "hard to prove and charge. I have inside Intel from NCIS and read all the reports. I will show you a copy of a Classified Command File on me from NCIS ha ha."

Beliveau was arrested on bribery charges in September and is free on bond. Prosecutors said he surreptitiously downloaded law-enforcement files about the Glenn Defense Marine investigations from NCIS databases and shared the information with Francis over a period of two years, most recently in August.

In exchange, court records allege, Francis plied him with prostitutes, money and travel expenses. One of Beliveau's attorneys, Gretchen von Helms, said he had pleaded not guilty. "He's an extremely honorable man. As the case proceeds through the court that will become clear," she said."

Navy officials were especially sensitive about the potential for contract fraud after an unrelated kickback scandal erupted in 2011 in Rhode Island. Federal authorities there charged a Navy systems engineer and a defense contractor with bilking the Navy out of $10 million.

In April 2011, Navy Secretary Ray Mabus announced the appointment of a special oversight panel to prevent future fraud cases. "We will not accept any impropriety, kickbacks, bribery or fraud," he promised.

Three months later, despite the ongoing investigations targeting Glenn Defense Marine, the Navy awarded Francis' company three new contracts worth a potential $200 million over five years.

The contracts were to resupply, refuel and provide a variety of other services — tugboat guides, food, trash removal and wharf security — to Navy ships during port visits across Asia.

Prosecutors say Francis quickly exploited the deals by billing the Navy for inflated or invented expenses, often with the help of corrupt Navy officers.

In October 2011, for example, Francis emailed Sanchez asking him to help "swing" a deal for Glenn Defense Marine to sell fuel to the USS Mustin during a visit to a port in Thailand, according to charging documents.

"Ask and you shall receive," Sanchez replied in an email. "We worked this out this morning."

The Navy bought the fuel from Glenn Defense Marine for $1 million, the documents show, even though it would have cost less than half that figure on the open market.

Navy officials said they did not have enough evidence to charge Francis or prevent him from procuring contracts until recently.

The investigations "simply weren't mature enough until very recently because he was being tipped off," said a senior Navy official, speaking on the condition of anonymity because the case is ongoing.

Francis was arrested in September in San Diego after investigators lured him to the United States in a sting operation. He remains in custody. His attorney, Edward Swan Jr., did not return a phone call Thursday seeking comment. Officials with Glenn Defense Marine have declined comment.

Prosecutors from the U.S. Attorney's Office in San Diego, which is leading the investigation, said in court papers that they are still assessing the scope of the alleged fraud but said it exceeded $10 million in just a handful of episodes.