US Navy officials charged in ‘Fat Leonard’ fraud

A Malaysian national operating from naval bases in Singapore and across Asia has managed to cause one of the biggest criminal fraud cases in US Navy history. US government investigators have detained and charged multiple US Navy officials for offences relating to bribery and corruption.

The Malaysian national is named Leonard Glenn Francis – widely known as “Fat Leonard” – who operated Glenn Defense, a maritime service company which held more than $200 million worth of contracts to resupply and refuel US Navy vessels across Asia.

The scandal became public in September 2013 when federal investigation agents Leonard Glenn Francis, from his base in Asia to San Diego in a sting operation. Leonard Glenn Francis believed that Glenn Defense was on the cusp of being awarded further US Navy contracts; instead he was arrested and charged with bribery and corruption offences. Leonard Glenn Francis has since pleaded guilty to bribing “scores” of US Navy officials with prostitutes, cash, gifts, expensive meals and other indulgences over a decade.

Leonard Glenn Francis has allegedly now admitted to cheating the US Navy out of at least US$35 million by ways of forging invoices, overbilling, running kickback schemes and gouging for standard maritime services. Essentially, Leonard Glenn Francis bribed senior officers within the US Navy so that they would turn a blind eye to the increased charges.

Leonard Glenn Francis operated a sophisticated machine to penetrate various levels of the US Navy establishment to ensure he obtained the information he needed and covered his tracks where necessary. Leonard Glenn Francis allegedly recruited three officers within the US Navy to act as paid moles for the contractor, Glenn Defense Marine Asia, by leaking intelligence about criminal investigations into the company or other information to give the firm an unfair advantage over competitors.

It is alleged that Leonard Glenn Francis and Glenn Defense had:

  • Bribed US Navy officers with access to prostitutes and gifts of cash or electronic items
  • Corruptly arranged the US Navy to grant diplomatic clearance to Glenn Defense so that it could avoid inspections and dodge customs duties into the Philippines
  • Bribed a retired commander to leak Naval Criminal Investigative Service (NCIS) files to Glenn Defense to help the firm thwart fraud inquiries.

Leonard Glenn Francis adeptly identified personnel on ship and shore, civilian and uniform, who were willing to work with him to defraud the US Navy. Leonard Glenn Francis even hired retired IS Navy officers who then helped recruit active-duty officers to assist with supplying information.

With the high level contacts with US Navy decision makers, Leonard Glenn Francis was able to have ships steered to certain ports where Glenn Defense could easily overcharge the Navy for services.

Leonard Glenn Francis benefited from the US Navy ignoring warnings over the years from honest US Navy personnel, some who requested reviews and cancellations of contracts due to the huge charges for services that Leonard’s company billed. When he fell under suspicion, Leonard Glenn Francis had a Navy criminal investigator pass him internal documents about investigations into Glenn Defense.

Leonard Glenn Francis was an adept networker and worked hard to cultivate relationships in the Navy. He chose to host lavish parties for US Navy officers at select restaurants and bars, spending freely to entertain. Leonard Glenn Francis would then start the bribery process by giving small gifts to individual officers such as whisky or the services of a prostitute – those that accepted the gifts were then targeted to obtain information whilst the gifts were increased in frequency and value.

In 2008, Leonard Glenn Francis targeted one US Navy officer based at the Fleet Logistics Centre in Yokosuka, Japan. The officer was involved in the naval supply system, responsible with providing logistics support for ships, awarding and overseeing contracts.

This officer provided internal US Navy information on ship schedules, port visits, and how the service would handle ship servicing contracts and controlling costs. Leonard Glenn Francis exploited this information so that he could charge excessive costs. In exchange, the officer received more than US$100,000 in cash, stays at luxury hotels and the services of prostitutes.

Leonard Glenn Francis built up a web of contacts throughout the US Navy – including those on contract review boards, which could recommend and approve bidders for Navy contracts. Leonard Glenn Francis would then have his contacts steer contracts for servicing ships to Glenn Defense in Thailand and the Philippines.

The federal investigation has established that Leonard Glenn Francis ran a decade-long scheme by which he defrauded the US Navy out of tens of millions of dollars by targeting a handful of key points in Asian operations of the fleet.

So far, federal investigators have charged 14 individuals and prosecutors have said that as many as 200 others are under investigation. According to US Navy officials, nearly 30 admirals are under scrutiny for possible criminal or ethical violations.

 

Questionable hiring practices in Asia causes Conflict of Interest for banks

The UK based Barclays Bank PLC has become the latest international bank to reveal that U.S. authorities are investigating some of their hiring practices in Asia – suggesting a conflict of interest. Sources indicate that Barclays Bank is alleged to have improperly recruited friends and family members of Asian government officials as well as top executives in the region with which the bank had previous dealings.

The Securities and Exchange Commission [SEC] is known to be already making inquiries into around a dozen banks in the U.S. and Europe regarding similar aspects of their foreign personnel recruiting. HSBC Holdings PLC has also recently disclosed that it had received information requests from the SEC as to their hiring practices around potential hires with ties to Asian government officials. Such inquiries by the SEC have been active since August 2013, when J.P. Morgan Chase & Co. disclosed that the SEC was likewise reviewing its hiring processes in Asia.

One recent report in the WSJ stated that J.P. Morgan Chase & Co. had hired friends and family members of executives at seventy-five percent of the major Chinese companies it helped take public in Hong Kong during the decade long boom in Chinese IPOs of major firms. The numbers reportedly came from a document compiled by the bank as part of a federal bribery investigation into the behaviour.

Other US Banks with operations in Hong Kong are rumoured to have hired friends and family members of senior executives at major Chinese companies, which were taken public in Hong Kong between 2005 and 2013. There are questions as to whether such hiring activity would breach current U.S. foreign-bribery laws.

“Sons and Daughters” China personnel hiring program

A 2015 inquiry by US Authorities further revealed the leading US bank J.P. Morgan had hired over 200 candidates said to be part of China’s business and political elite under a system supposedly known internally as “Sons and Daughters”. U.S. authorities are still investigating the program to determine whether this activity may have constituted bribery under the U.S. Foreign Corrupt Practices Act. The FCPA makes it illegal for US companies to give anything of value to a foreign official with the intention of improperly influencing their decisions.

Such conflict of interests can occur when departments within an organisation take actions with disclosing sensitive issues to legal or compliance officers. Some of the Banks currently under investigation by the US Authorities may have pursued an advantage by recruiting personnel with insight to possible deals, without fully disclosing these personal connections to legal counsel within the banks. Failure to develop, or enforce, suitable Standard Operations Procedures [SOPs] regarding the method for hiring personnel, coupled with poor oversight by senior management and reporting structures probably contributed to this situation.

Tips for Avoiding a Conflict of Interest

  1. Have a system to check for conflicts of interest – make sure such checks are documented and all levels of managements are aware of the requirement for such checks
  2.  Even if there is no conflict at the start of a relationship, keep your radar on as the matter proceeds – and even after it ends. Some conflicts appear over time. Others may arise after the matter is concluded.
  3. Take action at the slightest hint of a conflict arising – Talk to any clients and management overseeing the matter at the first instance
  4. Don’t just keep silent and look the other way – encourage all levels of management to speak up once a problem arises
  5. Full disclosure and client briefings can often defuse a sticky situation and prevent a bad situation getting far worse

Do you need to know more about our services and how Regents can assist you with investigations? Simply go to our Contact Us page for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

 

 

Mobile Phone Thefts

Ever since mobile phones became an essential tool for businesspeople, their theft and resale has posed a security problem for companies. The latest smart phones are not only costly, they can also contain crucial data relating to the company and the personnel working there.

Other than taking the obvious security steps such as not leaving a phone on the table or checking pockets for the mobile phone on exiting taxi [a common way to lose a phone], there a number of technical actions that can be taken:

1.    Ensure that the phone has a security PIN plus a locked SIM
2.    Install tracking software that can be activated remotely should the phone go missing
3.    Have all data backed up to the cloud
4.    Where possible, have critical data encrypted

Once one of your personnel discovers that a mobile phone has been stolen or gone missing, have your IT people start to track the phone using the installed software. Alert the telecom provider so that the phone can be deactivated and prevented from making costly calls or downloads – often the telecom provider can locate the phone quicker. If you suspect that the phone has been stolen, make a Police report so that they can identify the thief with the help of the tracking process.

It should be noted that to counter thefts of mobile phones and their reuse / sale, some telecom providers have now created a registry of reported missing or stolen phones via the serial number or IMEI embedded in the phone. Therefore, should a missing or stolen mobile phone be placed on such a register, a telecom provider checking this phone before signing up a new client would flag this problem.

This cooperation between telecom providers in the USA has made it much harder, if not impossible, to reactivate a flagged phone. That’s the good news. Here’s the bad: the database only applies to the USA and other countries are slow on implementing a similar program.

This means that for those phone owners living outside the USA, there is little protection with recovering or cancelling their missing phones. And savvy iPhone thieves have realized that the way to get around these restrictions is by selling phones overseas.

There is already a steady trade of second hand mobile phones being traded in when users want a new phone. These old phones may then be reconditioned and shipped overseas where customers will buy them at a discounted price. Some dishonest players use these channels to sell found or stolen phones for instant cash.

Whether the phone was lost by accident or stolen by a thief, the process of re-sale and use by a third party exposes the data on your missing or stolen mobile phone to being downloaded and used as part of an identity theft attack. A locked and secure mobile phone is essential – make sure you have a six figure PIN installed.

This is a threat that will only increase as we store more and more data on our mobile phones. To give some idea on the scale of the problem today; take note that in the USA it is estimated that the loss and theft of mobile phones cost consumers over $30 billion in 2012, while around 110 smartphones are said to be lost or stolen each minute in the USA.

Now, where did I put my phone……..

Do you need to know more about our services and how Regents can assist you with theft or IT security issues? Simply go to our Contact Us page for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once. Visit our Fraud Investigations webpage for more information.

Fraud audits for companies and organisations

Fraud is an ever increasing problem for companies and organisations of all sizes. According to the Certified Fraud Examiners recent survey in 2008 in the USA alone, around US$994 Billion was lost to fraudulent activity. Fraud is a different form of commercial crime, the very nature of how it is carried out means that the victims are unaware of the fraud unless it is uncovered during an audit, an investigation, a whistleblower or else it becomes so substantial that it begins to serious damage the very wellbeing of the business. As business continues to move faster and payments and transactions move ever more onto computers and the internet, the scope for fraud grows ever larger.

Based upon this, how can you be sure that you and your company are not unwitting victims of fraud right now?  One method to answer these questions and take steps to prevent fraud is to have an external expert conduct a forensic anti-fraud audit on your business or organisation.

Broadly speaking a forensic anti-fraud audit seeks to:

1.    Identify the opportunities for fraud within your business;
2.    Identify the controls and procedures which protect your business from fraud [and those that don’t];
3.    Verify financial transactions that are not adequately protected from fraud as being valid or suspect; and
4.    Fix, introduce and monitor controls to protect your business from ongoing

Transactional fraud

  • Transactional fraud occurs whereby employees or managers responsible for making payments to employees [pay roll], suppliers, creditors or financial organisations make false or erroneous payments to themselves or entities they control. Transactional fraud provides the widest scope for dishonest employees to defraud the company or organisation.

A simple example is the use of double payments. The employee pays a legitimate supplier normally via EFT then makes another payment via cheque for the same amount to themselves or as `cash’. The employee then enters this additional transaction as a further payment to the supplier and keeps the money for themselves. This results in the business appearing to be less profitable unless the fraud can be identified and halted.

Other dishonest employees create false or `ghost’ suppliers while they create false invoices for goods never supplied or services never provided. The dishonest employee then creates and approves illicit transactions to supposedly pay for these fictitious goods or services.

Areas which a fraud audit can take action include:

  • Confirm whether a supplier is genuine, verify address and business records [are the contact details the same as an employee?]
  • Via data mining with company and bank data, match transaction to invoices to identify over payments or unjustified payments;
  • Look for double payments within a short time period;
  • Examine pay roll lists and verify against data mined transaction data to determine ghost employees or over time claimed but not worked

Fuel charge fraud
Employees are commonly given an expense account for fuel purchased in relation to travel to / from work plus travel on the behalf of the company meeting clients, attending meetings etc. Often such expenses are not closely monitored and unjustified or dishonest claims can quickly surface.

A fraud audit focusing on possible fuel charge would seek to review the available records and data in relation to fuel claims and:

  • Review details as to size of petrol tank for claimed car and mileage completed
  • Match quantities [in litres] of fuel purchased to size of fuel tank – does the receipt indicate that more fuel was purchased than could be fitted in the tank? Are they filling up their spouses’ vehicle at the same time?
  • Review the frequency of fuel purchases to claimed mileage – do the purchases fit the mileage and seem reasonable
  • Compare the address of the fuel station against the claimed travel route – if a trip was from KL to Melaka, why does the receipt show an address in Ipoh? Do the dates match for the claimed travel

Fraud audit purposes
A fraud audit review seeks to provide the comfort that fraudulent activity had not occurred whilst identifying improvements and efficiencies for internal controls with an implementation plan and ongoing monitoring.

A fraud audit seeks to supply enable a company with a better understanding within the business of the need for improved fraud risk management processes and effective management of a
potentially damaging incident in terms of reputation.

However fast your business is growing or how large the company has become, remember that “Fraud can happen to anyone, including well run and respected businesses” and may be happening right now eating away at your profits and will only get worse until it is addressed.

Do you need to know more about our services and how Regents can assist you with preventing fraud and money laundering? Simply go to our Fraud Investigation page for further details and us send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.

Money cards and Anti Money Laundering

Gift card vouchers can be the perfect solution for a birthday when you’re not sure what present to buy. Simply pay cash at the store or shopping mall and transfer the same value onto the voucher to be used at the designated outlets or mall. Travellers Cheques have been replaced by `Travel Money Cards’ following the same principle – customers deposit funds onto a separate ATM card which are available in various currencies. Incorporating a PIN, the customer can then withdraw the funds from ATM machines in the foreign country until the card is spent. If the card is stolen along with the PIN, then the most that can be lost is the value still stored on the card.

But such convenience has also attracted fraudsters, organised crime gangs and terrorist groups to solve a problem they all face; how to move funds between individuals around the country and overseas without the threat of being apprehended at Customs for cash smuggling or have the Electronic Funds Transfers traced by the authorities.

Recent arrests in the US have documented that some crime groups are increasingly using the money cards, many of which are bought with “digital currency” via the Internet using fake credit cards or compromised bank accounts. With casinos and banks the most established means for money laundering, and thus coming under heavier scrutiny for Anti Money laundering [AML], medium scale money launderers are increasingly turning to `Travel Money Cards’ to distribute their illicit funds because they provide ease and anonymity.

Gift voucher cards are normally designated as closed-system or closed-loop cards because they can only be used at the retailers or shopping mall that issued them. Open-system money cards (such as those linked with card companies VISA and MasterCard) can be used at most retail stores and many of them are useable as ATM cards where the card holder can withdraw the value on the card in cash from most ATM machines in the world.
Because these cards can also be reloaded with funds via online transactions or else at banks or via a cash-tills transaction, they’re an effective method for fraudsters, criminals and money launderers for distributing funds quickly and covertly.

Criminals can thus load cash onto multiple pre-paid open-system cards and courier the cards to their counterparts outside the country. The counterparts can then withdraw the funds in cash in their own currency with ease from local ATM machines. When the card is spent it can be discarded and the cash is untraceable.

There are many businesses and organisations that legitimately purchase gift card vouchers as rewards for their staff for meeting productivity targets or else as gifts for their customers around the holiday periods. Such large volume purchases help to muddy the water for transactions by fraudsters so they don’t stand out. Thus a fraudster can make a series of transactions for a few thousand dollars each time and is unlikely to raise any red flags.

The added bonus for a fraudster is that he can place several thousand dollars on a retail gift card and not have to deal with a currency transaction report – such as he would at a bank – and it wouldn’t be recorded on a suspicious activity report. In fact, experienced fraudsters will avert attention by breaking a large-dollar amount transaction into a number of smaller amounts over a period of a few weeks (a method of laundering sometimes referred to as `Smurfing’). The expiry date on the cards is usually 12 months, giving them sufficient time to transfer the card value back into cash [if they don’t spend it at the store first].

Fraudsters may sell or auction the gift cards online via websites such as  SwapaGift.com, CardAvenue.com, and even eBay. They sell the cards at a slight discount but it isn’t much different than bringing amounts of cash into a casino, buying chips, gambling for a short while, and then cashing out with one or more cashier’s cheques to hide the scheme.

Businesses have to be cautious that their own legitimate buying of money cards has not been infiltrated by a fraudster who person helping them to launder money. We have investigated a number of frauds for businesses where poor procedures and oversight allowed fraudsters to abuse their gift card buying system and defraud thousands of dollars meant for their customers.

As this method of fraud and money laundering is relatively new, businesses need to be aware of this fraud risk and implement monitoring and detection methods to combat any fraud and money laundering.

Do you need to know more about our services and how Regents can assist you with fraud or Anti Money Laundering issues? Simply go to our Contact Us page for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once. Visit our Fraud Investigations webpage for more information.

Air India Found Wanting – Designing a Robust Fraud Prevention Program

Stelios Haji-Ioannou, founder of budget airline EasyJet once uttered the famous phrase “If you think safety is expensive, try an accident”. This was based upon his dire experience in 1991 when a tanker belonging to his father’s shipping company spilled 50,000 tonnes of oil in an environmental catastrophe that claimed five crew members’ lives. As chief executive, Stelios Haji-Ioannou barely escaped incarceration in Italy for manslaughter.

Likewise, any substantial business or organisation is tempting fate by failing to have a Robust Fraud Prevention Program in place. The risks may not be an oil spill but can be equally costly to the bottom line and damaging to the reputation of the business.

As an example for failing to have an adequate Fraud Prevention Program in place, the state owned airline Air India has recently been in the news for all the wrong reasons. Allegations of rampant theft, fraud and maladministration have been widely circulated. These have included tales of repeated thefts of liquor from flights, diversion of spare parts for illicit sales, kick-backs related to the orders of goods plus pilots being paid for duties not performed.

State owned Air India is now facing the reality of job cuts or cease flying certain routes. The failure by executives and management to inculcate an atmosphere of anti-corruption as well as implement an anti-fraud structure has set the scene for wide scale waste and theft.

Any company, institution or organisation –must create and implement a robust fraud prevention programs that is staffed and overseen by capable fraud examiners.

A fraud prevention program will help to protect a company or organisation by:

  1. Instituting a whistle-blower hotline whereby employees and contractors can make confidential tip-offs regarding fraudulent behaviour;
  2. Setting the principled “tone at the top” so that the whole business or organisation embodies the anti-fraud ethos;
  3. Developing a code of conduct and a confirmation process to structure anticipated behaviour for all personnel and contractors
  4. Creating an environment that ensures audit trails for purchase, orders etc. are in place;
  5. Hiring and promoting appropriate employees via a Pre-Employment Screening program;
  6. Instituting suitable anti-fraud and graft training programs;
  7. Identifying and measuring fraud risks;
  8. Implementing and monitoring internal controls;
  9. Having a strong and independent audit committee;
  10. Contracting independent external auditors;

Stopping fraud before it occurs is the ultimate goal of a successful fraud prevention and awareness program.

Hotlines Run Hot
Honest and responsible employees & contractors will utilise hotlines to report irregularities and suspicions anonymously without fear of retaliation. Anti-fraud surveys by the ACFE have reported that hotlines can cut an organization’s fraud losses by approximately up to one half.

An independent third-party vendor can set up whistle-blower hotlines; receive, screen and log confidential calls before passing along relevant information to investigative entities for their action.

Extra effort should be made to communicate the existence, contact channels and benefits of the hotline to all employees and contractors on a regular basis to report any suspect or improper business practices.

Three fraud mitigation actions
Fraud experts have outlined three main actions to mitigate fraud: create a culture of honesty and high ethics, evaluate anti-fraud processes and controls, and develop an appropriate ongoing oversight process.

Setting the Tone at the Top
A company or organisation’s executive and management team sets the moral and ethical direction for all employees and contractors to follow. Employees need to know that the upper echelons believe and submit to a high level of ethical behaviour. Management must clearly communicate a zero tolerance for fraud and the need to follow the pronouncement with education and awareness campaigns to reinforce policies and procedures.

Develop a Code of Conduct
The keystone of an effective fraud prevention program is a culture with a strong value system founded on integrity. This value system can be reflected in a code of conduct. The code of conduct should be created with the involvement and input of employees so that they can be guided whilst making appropriate decisions during their workday.

A code of conduct should include written standards that are designed to deter dishonest or immoral behaviour, promote honest and ethical conduct by all employees plus advise employees what they can and cannot do. The code of conduct should be provided in both a soft and hard copy to all employees, circulated regularly and translated into appropriate languages for overseas locations.

Confirmation Process
People with low integrity or external pressures may be deterred from committing fraud if they know that there is an oversight and confirmation process which increases the likelihood that they will be caught. After issuing the code of conduct to all employees, each should be required to sign a statement indicating that they have read and understood the code’s requirements and will comply with them. This will have the effect on those who have signed the statement can’t later hide behind the claim of ignorance.
Do you need to know more about our services and how Regents can assist you with preventing internal theft and corrupt activities?

Simply go to our Internal Theft or Corruption Investigation pages for our phone numbers or else send an email to contactus@regentsriskadvisory.com with your contact details and we will respond at once.