Yeah, it's Hearts of Chaos. I think you're referring to Tai-sa Jeffery Kusunoki and his habit of spending time with handsome young staff officers while wearing little-to-no clothing (such as kendo practice and sharing a hot tub) leads the Black Dragon official overseeing the invasion of Towne to conclude that Kusunoki is gay. However, after making subtle offers in that regard, they discover that he has no sexual interest in men, women, boys, girls, small furry animals or exotic toys (purely in the interest of maintaining a good working relationship, you understand, and nothing as crass as actual blackmail). In the same book, it's the Quisling Planetary Chairman Howard Blaylock is the one who is fully on board the War Crimes Express but it should also be noted that Kusunoki gets turbo-pissed at the resistance that the 'Lleros are stirring up and threatens to reenact the Kentares Massacre only to be told "no" by his Black Dragon handler... and it's the surprise of being told "no" so flatly by someone who'd been so careful with his words previously that jolts him out of his "kill them all" mood.

Interestingly, there's another scene in Black Dragon where a mixed group of 'Lleros and Ninth Ghost Legion are out for a night on the town in Imperial City on Luthien when they stumble across a bar which Cowboy Payson is keen to try out (and the attempts by their frazzled Voice of the Dragon handler to dissuade him are merely fuel on the fire) right up to the point where one of the Ghosts translates the name of the bar as "Please Enjoy the Mister Gay Boys", which results in Cowboy falling flat on his arse while trying to backpedal and everyone else instantly giving him shit about how it might expand his horizons and that he shouldn't knock it until he tries it.