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U.S. Navy Faces Another Major Contracting Scandal

bahrain
USS Theodore Roosevelt calls at Manama, Bahrain, January 2018. MLS and Rafaraci are accused of defrauding the Navy of hundreds of thousands of dollars in connection with this single port call (USN)

Published Oct 13, 2021 8:24 PM by The Maritime Executive

The U.S. Navy is facing down another port services scandal, and this one could have significant reach. According to charging documents released last week, it has the potential to be even bigger than the "Fat Leonard" contracting scandal that has dogged 7th Fleet for years. Frank Rafaraci, CEO of defense contracting firm Multinational Logistics Services (MLS), stands accused of corrupting Navy personnel in order to overcharge the service by at least $50 million dollars - far more than the $36 million corruptly obtained by Leonard "Fat Leonard" Glenn Francis and his firm. 

In court papers filed in connection with Rafaraci's arrest, prosecutors contend that he bribed a Navy official in order to secure the service's business in Manama, Bahrain. According to the warrant, Rafaraci "corruptly gave, offered, and promised . . . things of value, as part of a course of conduct of favors and gifts flowing to [the official] in exchange for a pattern of official acts" that favored MLS. 

Rafaraci was arrested in Malta last month, according to the Washington Post, and the U.S. government is attempting to have him extradited for trial. His company obtained roughly $1.3 billion in Navy port service contracts over the past 10 years, and the warrant contends that he overcharged at least $50 million between 2011-2018 by inflating invoices. 

In an affadavit laying out part - but not all - of the alleged scheme, Special Agent Cordell De La Pena of the Defense Criminal Investigative Service (DCIS) described a simple bribery arrangement that gave MLS an advantage at the port of Manama, Bahrain. On July 11, 2015, a U.S. Navy official with oversight responsibility for husbanding contracts in Manama allegedly emailed MLS' chairman with an unusual offer: "Can I please make a loan out to you for $20,000?” Six weeks later, Rafaraci allegedly emailed his accountant and asked for $20,000 in cash for "MLS Bahrain." 

The Navy official has already pled guilty and is a cooperating witness. He told investigators that Rafaraci brought the $20,000 in cash to Manama and gave it to him in a meeting at the Diplomat Hotel.

MLS received $100 million in contracts to service ships at Manama between 2013-2021. The contracts provided for a daily flat-rate husbanding fee that was determined by a competitive bid process. MLS was supposed to pass on its service costs to the Navy at cost, without markup. However, according to the affadavit, MLS submitted inflated invoices for port services. 

"MLS obtained inflated invoices for Port Authority Services from local port authorities and submitted these to the U.S. Navy for reimbursement. MLS and the port authority then split the difference between the actual cost of the goods or services and the inflated price reflected on the false invoice," according to De La Pena. 

As an example, MLS was hired to provide husbanding services to the carrier USS Theodore Roosevelt during a port call in Manama in January 2018. MLS submitted invoices from the Manama port authority to the U.S. Navy totaling more than $325,000. However, the firm's accounting records allegedly show that it only paid out $178,000 to the Manama port authority - allowing it to pocket the difference. 

Further, Rafaraci stands accused of laundering these funds from MLS' bank account in Malta into shell bank accounts for his own personal use - even after his bankers began asking questions about the purpose of the transfers.