WORLD MARITIME DAY OWS and the Need for Technical Cooperation

1. WORLD MARITIME DAYOWS and the Need for Technical Cooperation Jeanne M. Grasso November 15, 2006 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.

2. Scope Of This Presentation • How did we get here? • Brief overview of criminal prosecutions and enforcement trends • Where are we going? • How to avoid becoming part of the trend

3. 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 in Europe as well, with satellite surveillance being used in many areas

4. 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 – DOJ says it gets new cases every month

5. 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 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 • Criminal Penalties • Class D felony for “knowing” violations, meaning up to 6 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

6. Other Theories of Liability • False statements • Conspiracy • Aiding and abetting • Obstruction of justice

7. “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.. . .”

8. What’s the false statement?

9. Recent Maritime Prosecutions • Act to Prevent Pollution from Ships • Annex I and Annex V • False statements made to federal agents • Falsification of required logs / records • Obstruction of justice • Conspiracy • Most involve prosecutions under these statutes, as well as environmental statutes

10. 2005 Prosecutions… • Schlussel Reederei (M/V Ibuki): HI – company ($750K). • M/V Katerina (DST Shipping): CA – company ($500K); chief engineer; captain • M/V John G. Lemos (Royno Shipping/Pacific & Atlantic Shipping): OR – company ($500K) • Turismo Nautico Del Mar De Cortes (M/V Topaz): PR– company ($100K) • Fujitrans (M/V Cygnus): OR – company ($2M), assistant engineer; chief engineer • SunCruz VI (JAB America, Inc.): FL – Former owner pled guilty to discharging garbage • Fairdeal Group Management/Fair Voyager Maritime SA: NY – companies ($1.5M); captain; 3 crewmembers • Evergreen Marine: CA, NJ, OR, WA, SC – company ($25M) • First Marine Services (Bright Nextage): WA – company ($500K)

11. 2005 - Prosecutions…(continued) • Bottiglieri di Navigazione: AL – company ($325K) • MSC Ship Management (Hong Kong) Limited and MSC Elena: MA – company ($10.5M); second engineer; chief engineer • Fishers Island Ferry: CT – operations manager for ferry system pled guilty to causing the illegal discharge of raw sewage • A.P. Moller-Maersk: CA – company ($500K); second engineer • Boyang (Busan) Ltd.: AK – company again ($1M); chief engineer; first engineer • Magellan Phoenix: NJ – chief engineer

12. 2006 – It continues… • Corpus Christi Day Cruises: TX – company ($300K); chief engineer • MK Shipmanagement Company: NJ– company ($350K) • Wallenius Ship Management: NJ – company ($6.5M); chief engineer pled guilty to, among other things, falsifying both the ORB and Garbage Record Book • Pacific-Gulf Marine: MD – company ($1.5M) • Chian Spirit: DE– chief engineer; master • Overseas Shipholding Group: TX – OSG indicted and reportedly has put $37 million in reserve for fines and penalties • M/V Sun New: NJ – company ($500K) • M/T Georgis Nikolos: CA – chief engineer • Many cases pending • United States v. Noel Abrogar – 3rd Circuit Court of Appeals overturned a 1 year prison sentence levied against a chief engineer for ORB violations. Government sought a sentencing enhancement related to continuing pollution, which occurred in international waters, and the court said basically that pollution violations occurring in international waters (as opposed to ORB violations) could not be prosecuted criminally in the US and thus could not be used to enhance sentences imposed for recordkeeping violations.

13. 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

14. Perception is Reality During 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 • More realities: • In 2005, almost 8,000 ships from 76 countries made over 62,000 port calls in the United States • Over 10,000 port-state control inspections were conducted, and less than 1 percent of vessels subject to port-state inspections were found with violations • Most companies are apparently “getting it” • “The OWS doesn’t work” is not, and won’t ever be, a defense

15. 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

16. 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, Environmental Protection Agency, and the Federal Bureau of Investigation

17. Rewards/Protections for Whistleblowers • 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

18. Individuals’ 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

19. Keys to Compliance • Comprehensive environmental compliance program • 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 • Shoreside accountability for what is happening shipboard, as well as open communications • Encourage reporting of non-compliance to shoreside and contact with shoreside if questions/concerns arise

20. Keys to Compliance (continued…) • Ensure that vessel equipment is in proper working order • Replace old equipment / have spares on hand • Verify testing • Crew training on the vessel equipment and documentation of the training • Flexible budgets for environmental compliance • 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

21. Common Misconceptions… • The whole industry does it…(doesn’t do 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.

22. Questions?Jeanne M. GrassoBlank Rome LLP600 New Hampshire Avenue, N.W.Washington, D.C. 20037Tel. (202) 772-5927grasso@blankrome.com