WASHINGTON--(BUSINESS WIRE)--The U.S. Department of Justice announced today that it has joined and elected to proceed with a “qui tam” (whistleblower) False Claims Act action alleging that Inchcape Shipping Services (ISS), one of the world’s largest providers of marine logistics and support, and its subsidiaries defrauded the U.S. Navy by submitting false invoices for services it provided to Navy ships during port calls around the world.
The whistleblower suit against Inchcape was brought under the U.S. False Claims Act by three former senior employees of the company who are represented by the law firms of Vogel, Slade & Goldstein and Katz, Marshall & Banks of Washington D.C.
The former employees are Larry Cosgriff, a retired Naval Reserve Intelligence Officer and Senior Vice President of ISS Government Services from 2007 to 2010; Noah Rudolph, a former Special Agent for the Federal Bureau of Investigation and CFO of ISS’s Government Services Division from 2008 to 2009; and Andrea Ford, an ISS government services manager from 2007 to 2010.
The whistleblower complaint alleges that all three resigned from the company after discovering a wide-ranging overbilling scheme and bringing it to the attention of the company’s CEO Claus Hyldager and other senior executives, only to be rebuffed in their effort to stop the fraud and prevent further illegal acts. In July 2009 the three contacted the government to provide evidence of the alleged worldwide fraud against the Navy. Hyldager resigned from Inchcape three months ago.
Commenting on the Justice Department’s decision to proceed with her clients’ False Claims Act action against Inchcape, whistleblower lawyer Janet Goldstein stated, “This case should serve as a wake-up call to corporations not to ignore employees who step forward to report wrongdoing. The complaint alleges repeated efforts by our clients to persuade Inchcape executives to come clean with the Navy and return the ill-gotten gains – efforts that were ignored by Inchcape. Our clients concluded they were left with no other choice but to contact the government.”
Inchcape provides a wide range of husbanding services such as arranging for pilots and tugs, hiring on-shore vehicles, procuring food and removing sewage for thousands of port calls by Navy ships throughout the world, including in Southwest Asia, the Americas and Africa. Since 2003, the Navy has entered into several husbanding contracts with Inchcape and its subsidiaries and has paid approximately $400 million to the company to service its ships.
“Under its husbanding contracts, Inchcape pledged to ‘bring the highest level of commitment’ to obtaining goods and services for Navy ships at fair prices,” said co-counsel Alison Asarnow. “Our clients’ complaint alleges that, instead, Inchcape conspired with its subsidiaries and vendors to gouge the Navy wherever and whenever possible.”
The whistleblower complaint describes a host of methods that Inchcape allegedly used to overcharge Navy ships, from small Coast Guard cutters to the largest aircraft carriers. These methods included presenting false and marked-up invoices from vendors, maintaining a double set of invoices in its files to conceal the overbillings from auditors, concealing discounts, rebates and other credits from vendors that it should have passed on, failing to report its own financial interest in vendors it hired for services, and double-billing for fixed price items and again for goods and services that should have been included in the fixed-price charges.
Detailed in the complaint are specific incidents of alleged fraud spanning the globe. Among the allegations:
- In the Persian Gulf, during the contract period of 2005 to 2014 in which the Navy paid Inchcape over $280 million for services in 11 nations, Inchcape routinely inflated the prices on multiple vendor invoices by 15-20% or more and pocketed the difference as profit. In one example, the complaint cites a 4-day call by the USS Eisenhower in Jebel Ali in 2009 in which ISS’s Dubai office booked a gross profit margin of $222,788.
- In Panama, Inchcape submitted false claims for Panama Canal tolls; in one example charging over $14,000 for two Navy ships when the actual bill had been less than $7,000.
- In South Africa, ISS marked up vendor invoices for barges, cranes, forklifts, portable toilets, South African tours, hotel bookings and a host of other goods and services.
- In Peru, under a contract with subsidiary Inchcape Shipping Service S.A., the Navy was to receive certain services at cost, such as fuel. While required to obtain fuel from a designated supplier, Inchcape instead went through a non-authorized supplier, marked up the invoice by $50,000 and submitted the false claim to the Navy.
- In Mexico, during port calls to Cozumel, Mazatlán and Acapulco, Navy ships were routinely charged up to 10 times the true costs of services ranging from ship pilots to long distance telephone airtime.
The lawsuit, captioned US ex rel. Rudolph, Ford & Cosgriff v. Inchcape Shipping Services, et al., Civil Action No. 10-1109 (D.C. 2010), was filed under the qui tam provisions of the False Claims Act, which authorize individuals with information about fraud against the government to bring a lawsuit on behalf of the government and to share in the government recoveries. The lawsuit seeks three times the amount of damages sustained by the United States as a result of Inchcape’s false billings. The complaint was filed under seal on June 30, 2010 in the U.S. District Court for the District of Columbia and made public today.