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INTERTANKO NORTH AMERICAN PANEL Developments in Department of Justice Prosecutions Jonathan K. Waldron October 22, 2007 PowerPoint PPT Presentation


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INTERTANKO NORTH AMERICAN PANEL Developments in Department of Justice Prosecutions Jonathan K. Waldron October 22, 2007.

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INTERTANKO NORTH AMERICAN PANEL Developments in Department of Justice Prosecutions Jonathan K. Waldron October 22, 2007

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INTERTANKO NORTH AMERICAN PANEL Developments in Department of JusticeProsecutionsJonathan K. WaldronOctober 22, 2007

The information contained herein is abridged and summarized from numerous sources, the accuracy and completeness of which cannot be assured. This should not be construed as legal advice or opinion and is not a substitute for the advice of counsel.


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How did we get here?

  • Mid-1990s, U.S. began focusing enforcement efforts on the maritime industry

    • Largely focused on garbage discharges from cruise ships

    • First OWS case related to a US-flag integrated tug-barge

  • Trend continued, and in recent years individuals, as well as companies, have become targets

  • Enforcement actions are becoming a priority overseas as well


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DOJ’s Vessel Initiative

  • Ongoing since about 1995 and does not discriminate by vessel type or flag

  • Prosecutors dedicated to maritime environmental prosecutions, along with trained EPA, FBI, and Coast Guard criminal investigators

  • Hundreds of state/federal environmental crimes task forces

  • Criminal enforcement of OWS violations has been a reality for more than a decade – with no ebb in sight


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Summary of U.S. Enforcement

  • All types of commercial vessels – U.S. and foreign flag.

  • Most frequent offense is deliberate violation of MARPOL Annex I.

  • Corporate defendants: criminal fines, community service, probation, court supervised environmental compliance programs.

  • Individual defendants: jail time, probation, criminal fines.

  • Most cases involve deliberate discharges of tons of waste oil, sludge and other pollutants.

  • Intentional falsification of vessel records to deceive port authorities.


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Summary of U.S. Enforcement(continued)

  • Concealment: discharges made at night, hiding of bypass equipment, use of dispersants, tricking of OCM, falsification of Oil Record Book and Tank Sounding Log, etc.

  • Many cases involve obstruction of justice (witness tampering, destruction of evidence, alteration of documents, perjury).


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Motives

  • Saves money on building, purchasing and installing best available technology.

  • Saves money on the cost of offloading waste oil in port and related port fees.

  • Saves money on the cost of OWS/OCM/incinerator parts.

  • Saves money and time on labor and maintenance of equipment and on management of corporate culture.

  • Financial bonuses to Chief Engineers for keeping within projected budget.

  • For crew members: to maintain job in a military-like chain of command.

  • For operators: to reduce costs for owners and customers.


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Prosecution Goals

  • Protection of the environment.

  • Implementation of MARPOL.

  • Punish knowing and intentional violations by those specifically trained and licensed to know better.

  • Hold senior shipboard and shore-side supervisors accountable.

  • Timely exercise of prosecutorial discretion.

  • Help to create even playing field where law abiding companies are not disadvantaged.

  • Deter future criminal conduct.

  • Promote self-audits, voluntary disclosures.


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Recent Trends

  • Continued non-compliance.

  • Increased international enforcement and cooperation.

  • Increased whistleblower awards.

  • Increased criminal penalties.

  • Increased but ineffective compliance efforts within industry.

  • Reduced acceptance of responsibility (i.e. increased litigation and trials).

  • Corporations blaming their employees.

  • Crewmembers blaming their employers.


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Act to Prevent Pollution from Ships

  • Puts limits on discharges, establishes reporting, monitoring equipment, and record keeping requirements

    • Annex I (oil) requirements apply in the navigable waters (3 NM) of the United States

    • Annex V (garbage) requirements apply both in the navigable waters and the Exclusive Economic Zone

  • Civil Penalties

    • Up to $25,000 for each day of a violation

    • Up to $5,000 for a false, fictitious, or fraudulent statement or misrepresentation


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Act to Prevent Pollution from Ships(continued)

  • Criminal Penalties

    • Class D felony for “knowing” violations, meaning up to six years in prison and fines up to $250K for individuals and $500K for companies

  • Enforcement Options

    • Prohibit a ship from entering port

    • Detain a ship in port

    • Administrative penalties

    • Refer the matter to the flag state

    • Prosecute the violation – civil or criminal


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Other Key Environmental Legislation and Theories of Liability

  • Federal Law

    • Clean Water Act (CWA)

    • Oil Pollution Act of 90 (OPA 90)

    • Resource Conservation and Recovery Act (RCRA)

    • Ocean Dumping Act

    • Refuse Act

    • Migratory Bird Treaty Act

  • State Law

  • False Statements, Obstruction of Justice, Conspiracy


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    “False Statements” - What’s the Crime?

    • 18 U.S.C. § 1001:

      “[W]hoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully:

      (1) falsifies, conceals, or covers up . . . a material fact;

      (2) makes any materially false, fictitious, or fraudulent statement or representation; or

      (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; shall be fined under this title or imprisoned not more than 5 years, or both. . .”


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    What’s the False Statement?


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    2006 Prosecutions

    • Corpus Christi Day Cruises: TX – company ($300K); chief engineer

    • MK Shipmanagement Company: NJ– company ($350K)

    • Wallenius Ship Management: NJ – company ($6.5M); chief engineer (ORB/GRB)

    • Chian Spirit: DE– chief engineer; master

    • M/V Sun New: NJ – company ($500K); two engineers

    • M/T Georgis Nikolos: CA – chief engineer

    • Pacific-Gulf Marine: MD – company ($1.5M); two engineers indicted

    • U.S. v. Stickle: FL – conviction of CEO upheld (33 months in prison)

    • Danaos Shipping Co. Ltd.: CA – company ($500K) for cover up related to small spills

    • Overseas Shipholding Group: TX, CA, ME, MA, NC – company ($37M); largest involving deliberate vessel pollution

    • Celebrity Cruises: WA – master ($15K and one year ban for being drunk)

    • Rickmers Reederei: AL – master and company ($375K) guilty of seaman’s manslaughter

    • United States v. Noel Abrogar – 3rd Circuit reversed one year prison sentence for chief engineer; held pollution violations occurring in international waters could not be prosecuted criminally in the United States and thus could not be used to enhance sentences


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    2007 Prosecutions

    • 12 Overseas Shipholding Group Vessels – In June, OSG was sentencedto pay $10 million of a $37 million criminal settlement for 33 environmental violations occurring in Boston; Portland, ME; Los Angeles; San Francisco; and Wilmington, NC. OSG will also serve three-years probation and implement an Environmental Compliance Plan ("ECP"). Twelve current and former crewmembers were awarded $437,000 each under the APPS whistleblower provision for their role in blowing the whistle on the illegal conduct

    • New OSG Development – New Grand Jury probe opened in May

    • M/T Clipper Trojan - Three companies in the Clipper Group indicted in Marchin connection with covering up illegal discharges of oily bilge and sludge ininternational waters. The allegations in the 11-count indictment includeMARPOL violations, conspiracy, false statements, and obstruction of justice. The indictment also alleges that the companies failed to provide sufficienttraining and enforce company policies. On June 13, the chief engineer was sentenced to five months in prison for his role in attempting to cover up the illegal discharges

    • M/V Kriton – On September 6 in Connecticut, the Greek company Ionia Shipmanagement was convicted on 18 counts related: APPS violations (13), falsifying records (3), obstruction of justice (1), and conspiracy (1). The company pled guilty back in 2004 related to discharges from another of its vessels


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    2007 Prosecutions (continued)

    • Fishers Island Ferry – In March, the Fishers Island Ferry District was fined$200,000 in a civil prosecution after its operations manager pled guilty in 2005 for violating the Rivers and Harbors Act. The operations managerwas imprisoned for 30 days for ordering the discharge of raw sewage anduntreated sludge into Long Island Sound

    • Pacific Gulf Marine – In March, two chief engineers serving on U.S.-flagcar carriers pled guilty to conspiracy, false statements, and violations ofAPPS for bypassing the OWS. Another chief engineer pled guilty in May. On August 24 in Maryland, yet another chief engineer from the U.S.-flag car carrier, M/V Fidelio, was indicted on six counts related to illegally discharging bilge and the chief engineer on the M/V Tanabata as convicted on October 16 on three counts related to illegal discharges

    • Little Lady Water Taxi – In February, the captain of a New York ferry wasconvicted of piloting a vessel using a fraudulent master’s license andmaking false statements to the Coast Guard. The captain will serve fivemonths in jail, followed by three-years probation

    • Princess Cruise Lines – In January, Princess pled guilty to a charge ofknowingly failing to operate its vessel at a safe speed while near twohumpback whales, and will pay a $750,000 for violation of the MarineMammal Protection Act. One of the whales, which was pregnant, was struck and killed


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    2007 Prosecutions (continued)

    • M/V New Sun - The chief engineer and second engineer of the bulkerNewSun were sentenced in January. The chief engineer got five months inprison followed by two months supervised release, and the second engineergot three years probation. Both pled guilty in December 2006

    • M/V Irika – In January, Irika Maritime was sentenced after pleading guiltyand ordered to pay $750,000 for failing to maintain an accurate oil recordbook and bypassing the oil-water separator of a Panamanian-flag bulker. Irika Maritime will be on probation for four years and must implementan ECP. The court directed that $250,000 be awarded to the ship’s secondengineer under the APPS whistleblower provision, who provided theCoast Guard inspectors with information about the illegal discharges,including photographs of the flexible hose. In November 2006, the chiefengineer on the Irika pled guilty and was fined $2,500

    • M/V Irene– Both the owner (Chian Spirit Maritime) and operator(Venetico Marine) pled guilty in January to violations of APPS andobstruction of justice and will pay $1.25 million. The chief engineerhad pled guilty in August 2006 and the master in July 2006


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    2007 Prosecutions (continued)

    • M/V Warrier - Twilight Marine, Ltd., pled guilty to grossly negligentoperation of a vessel and was sentenced to pay a $50,000 criminal fine, $100,000 in restitution to be added to a restoration fund, and ordered to comply with an ECP. The Master and other shipboard employees operated the vessel in a grossly negligent manner that endangered the life, limb, and property of a person when two large cracks were found and instead of welding them covered them with tape and paint and admitted this was a “hazardous condition”

    • M/V Valparaiso Star – In May, Fleet Management Ltd., along with the vessel’s captain and chief engineer were indicted on six counts related to illegal discharges: conspiracy, APPS violations, false statements, and obstruction

    • M/V Kent Navigator – On May 17 in Maine, Petraia Maritime was convicted of APPS violations after a jury trial related to illegal discharges of bilge water

    • Richard Oba – On May 18 in Oregon, a charter boat captain was convicted under the Seaman's Manslaughter Act and sentenced to six years in prison for causing the deaths of three of his passengers

    • Athenian Sea Carriers - On June 6 in California, the company and its chief engineer were acquitted on all seven counts related to the illegal discharge of bilge water. Apparently, the jury found the witnesses to be not credible, as their stories were inconsistent and changed throughout their testimony. This was the first OWS case resulting in an acquittal after a trial


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    2007 Prosecutions (continued)

    • Canal Barge Company - On June 6 in Kentucky, the company and three individuals were indicted for violations of the Ports and Waterways Safety Act, the Clean Water Act, and conspiracy for failure to report a benzene leak (failure to report hazardous condition), and then concealing the leak by patching it. The patch ultimately failed, more benzene was released, and crewmembers were injured

    • Calypso Marine - On June 27 in Oregon, a Greek shipping company pled guilty in connection with a false oil record book and was fined $1 million. The chief engineer also pled guilty

    • Kassian Maritime Navigation Agency - On July 23 in Florida, a Greek-based shipping company pled guilty to APPS violations for maintaining a false oil record book related to the M/V North Princess. The company was fined $1.3 million, will serve 30 months probation, and will implement an Environmental Compliance Plan. The second engineer also pled guilty for making false statements to the Coast Guard and was fined $1,000. This case resulted from whistleblower reports, and the ship's wiper and cook were awarded $230,000 each and two third engineers were awarded $20,000 each

    • U.S. Coast Guard - On August 8, 2007 in Hawaii, a Coast Guard Chief Warrant Officer was indicted for obstructing justice and making a false statement related to the illegal discharge of approximately 2,000 gallons of bilge water into Honolulu Harbor from the Coast Guard Cutter Rush


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    2007 Prosecutions (continued)

    • Sunshine Spirit - On August 9 in Puerto Rico, a US-owned, Panama-flag cargo ship was detained for the illegal discharge of bilge water. Apparently, the vessel's crew was unable to operate the OWS when asked to do so by the Coast Guard. The vessel was prohibited from operating until the systems worked properly and the crew was trained

    • M/V Selendang Ayu – On August 22 in Alaska, IMC Shipping Co. pled guilty to two counts of violating the Refuse Act (for the discharge of soybeans and bunkers) and one count of violating the Migratory Bird Treaty Act (for killing thousands of birds) related to an oil spill in the Aleutians. Both are strict liability statutes and IMC will pay a criminal penalty of $10 million, however the plea does not limit civil liability. The cost of the cleanup was over $100 million

    • M/V Sportsqueen – On September 20, vessel owner Accord Ship Management and the ship’s chief engineer pled guilty to the illegal dumping of oily sludge, bilge wastes, and oil contaminated ballast water. Accord will pay a $1.75 million criminal fine and serve a three-year probation term during which time the fleet is banned from U.S. waters and ports. The engineer will serve five months in prison. The captain pled guilty and will serve a prison term of eight months. Five whistleblowers were each awarded $50,000

    • Rowan Industries – On October 9, Rowan Industries Inc. pled guilty to three felonies in U.S. District Court in Texas in connection with routine discharges of pollutants and garbage from a MODU. Nine million dollars in fines


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    Developments on APPS Violations

    • Overseas Shipping (U.S. v. Jho), E.D. Texas

      • OSG challenged government’s ability to prosecute the company for APPS violations related to improperly maintaining the ORB for illegal discharges that occurred in international waters

      • The court agreed – cannot prosecute criminally under APPS unless the pollution occurs in U.S. waters

    • Foreign-Flag Bulk Carrier – (U.S. v. Ntais), W.D. Washington

      • The chief engineer of a foreign-flag bulk carrier pled guilty for failure to maintain an ORB involving discharges of oil through a flexible hose to bypass the OWS

      • In agreeing with the Jho decision, after entry of plea but before sentencing, the Washington court dismissed the substantive counts and assessed a civil penalty of $2,500

    • M/V Kent Navigator - (U.S. v. Petraia Maritime) Maine

      • Charged with failure to properly maintain an ORB in international waters

      • Did not agree with Jho’s reasoning. Presentation of false ORB is a separate crime and not a pollution incident


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    Developments on APPS Violations(continued)

    • Impact of Jho/Ntsais Decisions

      • Whistleblower incentives / rewards are severely limited

      • Can still prosecute ORB violations as false statements

      • Can prosecute civilly or refer to flag state

      • Can still prosecute conspiracy and obstruction of justice

    • Trends

      • DOJ insisting on high penalties for settlement agreements

      • More cases going to trial


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    Seaman’s ManslaughterCases

    • Zim Mexico III

      • Bowthruster failed while leaving the dock in Mobile, Alabama; the ship hit the dock, knocked over a container crane, and a electrician on the dock was killed

        • Allegations that the master and company knew of problems with the bowthruster, but did not fix them

      • Master was convicted after a jury trial under the Seaman’s Manslaughter Act for “neglect or misconduct of a ship’s officer,” a felony

        • Faces up to 3½ years in prison

      • The Act criminalizes “misconduct, negligence, or inattention to duties by a captain, engineer, pilot, charterer, owner, operator or other person employed on or responsible for managing the vessel”


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    New Pollution Prevention Equipment (PPE) Standards

    • Coast Guard Enforcement Guidelines – The Coast Guard published new guidance for the enforcement of MARPOL Annex I during port-state control examinations. See G-PCV Policy Letter 06-01, dated January 20, 2006

    • New PPE Requirements

      • Issue: Many in the maritime community have expressed concernsthat existing PPE, especially technology related to oil-water separator systems, does not work properly

      • IMO/Coast Guard OWS Guidelines: IMO issued MEPC.107(49), "Revised Guidelines and Specifications for Pollution PreventionEquipment for Machinery Space Bilges of Ships." Subsequently,the Coast Guard issued MOC Policy Letter No. 04-13 on March 25, 2005, which provides guidance on implementation of MEPC.107(49)


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    New Pollution Prevention Equipment (PPE) Standards(continued)

    • Tank Vessel PPE: IMO issued MEPC.108(49), Revised Guidelines and Specifications for Oil Discharge Monitoring and Control Systems for Oil Tankers, which upgrades cargo monitor PPE standards. The IMO standards became effective internationally as an amendment to MARPOL on April 1, 2007

    • Coast Guard Proposed Rule: On November 3, 2005, the U.S. Coast Guard published a Notice of Proposed Rulemaking (NPRM)proposing to change PPE performance standards. In short, the NPRM would: (1) require newly constructed oil tankers to install cargo monitors meeting new PPE standards, (2) require newly constructed vessels, and (3) existing oceangoing vessels (only when an existing vessel is replacing the following PPE) to install oil-water separating equipment and bilgealarms to meet new PPE standards

    • Attempts To Revise IMO Standard: U.S. proposed to apply new IMO standard to existing vessels in 2003 and proposed it again in July 2007


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    International Initiativesand Cooperation

    • Increased international cooperation.

    • Increased surveillance and inspections.

    • Canada has enacted new legislation.

    • New EU Directive to pursue criminal sanctions for intentional maritime pollution (intentional, reckless or seriously negligent illegal pollution).

    • France has increased penalties.

    • Australia/New Zealand have escalated enforcement efforts.

    • Tokyo and Paris MOUs have resulted in concentrated inspections.


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    Where Are We Going?

    • Prosecutions are a reality, whether meritorious or not

    • Shipping industry is an easy target

      • We will continue to see more of the same

    • Perception is that violations are industry-wide

    • Compliance programs are absolutely critical


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    Perception is RealityDuring Inspections

    • Good first impressions are extremely important

      • Professionalism, cleanliness, attentiveness, cooperation

      • Documentation, certificates, and records in order

    • No surprises – if there are operational or equipment problems, disclose them

      • Most companies are apparently “getting it”

      • “The OWS doesn’t work” is not, and won’t ever be, a defense


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    Some Key Red Flags

    • Discharges in excess of capacity

    • Flexible hoses / blank flanges

    • Turned nuts and bolts / chipped paint

    • Fresh paint / different colors

    • Lack of sludge or disposal records

    • Leaking oil / hull stains

    • Malfunctioning incinerators

    • ORB irregularities – cross-outs, same handwriting, repeats

    • Irregular alarms

    • OWS systems not matching drawings

    • Lack of familiarity with the OWS system

    • Bypasses are also getting very sophisticated – reversed solenoids, jumper wires, etc. – not just the “magic pipe” anymore


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    How Do Investigations Start?

    • Whistleblowers

    • Remote sensing

    • Competitors

    • Port-state inspections

    • Perception of an industry-wide problem makes things all the more difficult

    • If “red flags” found, criminal investigators called in

    • May include the Coast Guard, EPA, and FBI


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    Rewards/Protections forWhistleblowers

    • Act to Prevent Pollution from Ships

      • “In the discretion of the Court, an amount equal to not more than 1/2 of such fine may be paid to the person giving information leading to a conviction”

    • Alaska Cruise Ship Operations Law

      • Contains a similar “reward” provision


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    Individual’s Rights

    • No one is required to speak with investigators if they do not want to – it is the individual’s choice

    • Everyone has the right to consult with counsel before speaking with investigators

    • If employees choose to speak, they must understand that they have to tell the truth

    • The company may have a policy that encourages crewmembers to speak with counsel before being interviewed, but cannot require it

    • Employees should never interfere with an investigator’s investigation or hide/destroy documents or other possible evidence

    • Employees and crewmembers should be trained on their rights and responsibilities


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    Keys to Compliance

    • Comprehensive ECP

      • Many tools available from international organizations and the Coast Guard

      • Know the legal requirements and have formal written policies and procedures

      • Verify compliance - train the crew and document the training

    • High-level message regarding commitment to compliance

      • WALK THE TALK

      • Corporate presence on board ship during port calls

      • Zero tolerance for violations

    • Shoreside accountability for what is happening shipboard, as well as open communications

    • Assignment of senior corporate official responsible for environmental matters with direct access to CEO

    • Encourage reporting of non-compliance to shoreside employees and contact with shoreside if questions/concerns arise


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    Keys to Compliance (continued)

    • Ensure that vessel equipment is in proper working order

      • Replace old equipment / have spares on hand

      • Verify testing

      • Train the crew on the vessel equipment and document the training

    • Flexible budgets for environmental compliance

    • Analyze waste streams (e.g. content, volume, capacity for storage, treatment disposal and costs)

    • Internal / external audits and documented corrective actions

    • Be in tune with your company’s culture from top to bottom

      • Perceptions of reality on the ship may be very different from perceptions of reality shoreside


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    Common Misconceptions…

    • The whole industry does it…

    • We won’t get caught…

    • Our competitors are a lot worse

    • Sometimes you just have to be out of compliance

    • It’s only a technical violation, there’s no real harm…

    • We were just inspected by the Coast Guard, Flag-State, Classification Society, etc., so we are fine

    • Any engineer should know how to run the ship’s systems or he can figure it out on his own

    • The union provides training, so we don’t have to

    • The Coast Guard thinks we’re great…

    •  Big Red Flags that warrant immediate action


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    QUESTIONS?ContactJonathan K. WaldronBlank Rome LLP600 New Hampshire Avenue, N.W.Washington, D.C. 20037Tel. (202) [email protected]


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