Wednesday, May 30, 2018

Established Marine Services and Logistics Group Pays Multi-Million Dollar Penalty

Allegations of Overcharging US Navy Cost 170 Year Old Company Dear
Shipping News Feature
US – Inchcape Shipping Services, one of the oldest names in maritime services, ships stores and logistics, together with certain of its subsidiaries, have agreed to pay $20 million to resolve allegations that it violated the False Claims Act by knowingly overbilling the US Navy under contracts for ship husbanding services from 2005 and 2014, in ports around the world. The claims against Inchcape, a UK headquartered marine services contractor, are allegations only, and there has been no determination of liability.

Inchcape provided goods and services to US Navy ships at ports in several regions throughout the world, including southwest Asia, Africa, Panama, North America, South America and Mexico. Inchcape provided ships with food and other subsistence items, waste removal, telephone services, ship-to-shore transportation, force protection services and local transportation.

The lawsuit alleged that from 2005 to 2014, Inchcape knowingly overbilled the Navy for these services by submitting invoices that overstated the quantity of goods and services provided, billing at rates in excess of applicable contract rates, and double-billing for some goods and services. Acting Assistant Attorney General Chad Readler, head of the Justice Department’s Civil Division, said:

“Federal contractors may only charge the government for costs allowed by their federal contracts. The Department of Justice will take action against contractors that knowingly submit inflated claims to the armed forces, or any other agency of the United States, as those inflated claims wrongfully divert taxpayer dollars.”

Inchcape, a subsidiary of the Istithmar World investment firm and the Dubai government-owned Dubai World, said in a statement to Reuters that it ‘disputed the allegation but had decided to settle the case because it was still in its early stages after 8 years and appeared likely to remain a distraction for years to come’, adding that it must put the matter behind it so that the company can focus on the future and that the settlement had ended the matter ‘without any finding of fault’.

The lawsuit was brought under the qui tam (or whistleblower) provisions of the False Claims Act by three former employees of Inchcape, Noah Rudolph, Andrea Ford and Lawrence Cosgriff. Under the act, a private citizen may bring suit on behalf of the United States for false claims and share in any recovery. The government may intervene in the case, as it did here. The False Claims Act allows the government to recover treble damages and penalties from those who violate it. As part of today’s resolution, the whistleblowers will receive approximately $4.4 million.

The lawsuit alleged that Cosgriff, Rudolph and Ford resigned from the company after discovering the alleged multi-million dollar 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 Federal Bureau of Investigation and provided evidence of the alleged worldwide fraud against the Navy. Hyldager resigned from Inchcape in 2015. Inchcape subsequently hired new senior management who were not implicated in the fraud.

The lawsuit described a host of methods that Inchcape allegedly used to overcharge Navy ships, from small Coast Guard cutters to the largest aircraft carriers. Among the allegations:

In the Persian Gulf, during the contract period of 2005 to 2014, 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 four-day call by the USS Eisenhower in Jebel Ali in 2009 in which Inchcape'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, Inchcape marked up vendor invoices for barges, cranes, forklifts, portable toilets, South African tours, hotel bookings and a host of other goods and services.

In Mexico, during port calls to Cozumel, Mazatlán and Acapulco, Navy ships were routinely charged up to 10 times the true cost of services ranging from ship pilots to long distance telephone airtime.

Photo: The USS Eisenhower under way.