The Second Circuit Court of Appeals confims US jurisdiction to criminally prosecute ship operators for crew violations of MARPOL.
The Second Circuit Court of Appeals has joined the Fifth Circuit Court of Appeals in confirming that shipowners and operators may be criminally prosecuted and held vicariously liable for entering US waters with false entries in the Oil Record Book (ORB) designed to hide discharges of waste oil in violation of MARPOL. On 20th January 2009 a three-judge panel ruled in the case United States v. Ionia Management1 that the Act to Prevent Pollution from Ships (APPS), the US version of the MARPOL Convention, “imposes a positive duty on the subject ships to ensure that their oil record books are accurate (or at least not knowingly inaccurate) upon entering the ports or navigable waters of the United States”.
Ionia was the ship manager of the tanker KRITON, which delivered oil products to various US east coast ports. At the trial the jury found that the engine room crew under the direction of the chief engineers routinely discharged waste oil into international waters by bypassing the oily water separator and made entries in the ORB to make it appear that the vessel was in compliance. The jury also determined that senior engine room personnel obstructed justice by directing junior crew members to lie to the Coast Guard and by destroying evidence. The company was convicted under the rule of vicarious criminal liability, meaning that there was no proof required that the company management was aware of any of the criminal activity on board the vessel.
The Second Circuit followed the Fifth Circuit’s decision in United States v. Jho2 in holding that the crime under APPS is the failure to “maintain” the ORB.3 Both courts found that maintenance of the ORB implies a duty upon a foreign flag vessel to ensure that the entries are accurate and that this is a continuing duty that applies when the vessel calls at US ports. The MARPOL treaty provides for flag state jurisdiction for compliance within international waters. The court ruled that because the failure to maintain the ORB occurs within US waters, the US as port state has jurisdiction to prosecute the company and the individuals and that there is no positive duty under international law for the port state to refer the matter to the flag state.
Vicarious corporate liability is here to stay
The Second Circuit also considered arguments made by amici curiae4that urged the court to review the standards for corporate vicarious criminal liability. Vicarious liability of a corporation for acts of its agents or employees is well known within the civil law under the rubric “respondeat superior”: let the master answer. It is well established within tort principles that the employer is responsible to pay compensation when an employee’s negligence harms another. This is so even when the employee has acted against corporate policy and instructions, as long as the act leading to the injury can be said to be within the employee’s scope of employment. Amici attacked the wholesale incorporation of the respondeat superior principle into the criminal law on the ground that APPS did not provide for corporate vicarious liability and, absent specificity in the statute, criminal conviction requires some form of intent at least on the part of the corporate management.
The Ionia jury was instructed that “a corporation may be held criminally liable for the acts of its agent done on behalf of and for the benefit of the corporation, and directly related to the performance of the duties the employee has authority to perform”. As is the norm in this type of case, the illegal discharges were in contravention of company policy and the management company was not aware of the illegal discharges or the false entries in the ORB. Indeed, as the result of a prior conviction, Ionia had a court-approved compliance plan at the time of the alleged violations.
The Second Circuit affirmed the jury’s guilty verdict against the company because the operation of the engine room and record keeping were clearly within the scope of employment for the engine room crew. Further, based upon expert testimony put forward by the government, the Second Circuit held that the jury was entitled to find that the bypassing and false entries were performed for the benefit of the company based on the extra time and expense involved in properly disposing of the oily waste water.
Finally, the court rejected the argument made by amici that the government was required to prove within its case that Ionia lacked effective policies and procedures to deter and detect the criminal acts of its employees. The court held that the lack of an effective environmental compliance plan is not an element of proof for the government but instead an effective plan is a defence available to the defendant in showing that the crew member at issue was not acting for the benefit of the company and within the scope of employment.
The Federal Appellate system in the United States is divided into twelve Circuits with each of the Circuit Courts of Appeal responsible for interpreting the federal law within the cases brought before it, subject only to review by the Supreme Court.5 The Second and Fifth Circuits are considered to be leaders in matters of maritime law and their decisions are frequently followed in the other Circuits deciding similar questions. Thus, it is now without doubt that the owner and operator of any vessel entering US waters with an inaccurate ORB are vulnerable to criminal investigation and, if it is shown that the entries were made for the purpose of hiding discharges in violation of MARPOL, the owner and operator will be subject to criminal prosecution and vicarious liability for criminal acts of crew members resulting in severe fines, onerous probation terms and prolonged disruption of their operations. Lack of knowledge of crew non-compliance is no defence. A jury may consider a company’s compliance efforts but, in itself, those efforts are not an absolute defence. Rather, the compliance efforts are facts that may be considered by the jury in determining whether the crew was acting “to benefit” the company. Compliance efforts are also relevant and mitigating factors considered by a court in determining the proper fine after conviction.
Corporate responsibility for environmental compliance requires a vigorous and proactive approach
For many years, Gard has been warning members about the severe penalties for violations of MARPOL through circulars, Gard News articles and seminar presentations. This risk is not just in the US but includes European port and flag states as well. Despite such warnings by Gard, other Clubs and shipping associations, shipowners and operators continue to be charged for vicarious liability for record keeping violations masking illegal discharges. The US prosecutors offer a reward in the form of a portion of the fine to crew members who report violations. So-called “whistleblower rewards” are now well-known in the crewing community and an undeniable incentive to report wrongdoing not to the company but to the authorities. Gard has repeatedly advised members that in order to minimise risk they must implement a vigorous environmental compliance programme and actively audit compliance aboard their vessels. Gard recommends that members benchmark their programme against the guidance document prepared by the International Chamber of Shipping (ICS) and the International Shipping Federation (ISF) “Industry Guidance on Environmental Compliance – A Framework for ensuring compliance with MARPOL”.6 The guidance document includes such topics as management responsibility, corporate and individual responsibility, training, awareness and competence, waste stream analysis and budget, technical equipment, control devices, documentation, internal reporting, external reporting and audit systems. While each company must compose and execute its own environmental compliance programme in conformity with its culture and needs, all programmes should address the components set out in the ICS/ISF framework.
In introducing the framework, ICS and ISF acknowledge the prosecution of companies, particularly in the US, for MARPOL violations and comment that “prosecuting authorities have identified the absence of a systematic approach to identifying and managing compliance with environmental requirements as a common failure”. An effective compliance plan with demonstrable crew training in proper use of the pollution prevention equipment and company environmental policy will, as the Second Circuit has indicated in the Ionia decision, provide a defence to vicarious corporate criminal liability in rebutting the contention that an illegal discharge and false record keeping were for the “benefit” of the company and within the “scope of employment”.
The guidance is relevant to preventing all forms of pollution but can be read in conjunction with the “Shipping Industry Guidance on the Use of Oily Water Separators”, also published by ICS/ISF. Gard recommends both documents to members. Both can be found at www.marisec.org/environmental-compliance.
The MARPOL requirement that oily waste water be processed by an oily water separator and discharges properly recorded in an ORB were first implemented in 1983, more than 25 years ago. MARPOL is one of the most widely subscribed international treaties with virtually all of the maritime nations as signatories. The risks of violation of the treaty requirements have been very well publicised by the P&I Clubs as well as other shipping organisations. No prudent ship operator can send ships to sea today without an environmental compliance plan that includes proper crew training and regular audits.
It is important to remember that the mere institution of a compliance plan alone will not exonerate an owner/operator from culpability for MARPOL/APPS violations. The shipowner and operator must be proactive in ensuring that their environmental polices are
understood and followed by personnel serving aboard their ships. While many ship operations can be sub-contracted, liability for proper performance remains with the owner and operator. Regular, documented on-board audits of shipboard environmental compliance with oversight by senior shore side management are an absolute necessity for effective compliance efforts. Vigorous and proactive management of shipboard environmental compliance will in most instances prevent practices leading to prosecution in the US and, in the event a crew member does violate company policy, will provide the owner and operator with the best defence available under APPS to corporate vicarious liability for the wrongful actions.
1 United States v. Ionia Management S.A., No. 07-5801-cr, 08-1387-cr (2d Cir. 2009), 2009 U.S. App. LEXIS 902 (decided Jan. 20, 2009); 2009 AMC 153.
2 United States v. Jho, 534 F.3d 398 (5th Cir. 2008). The Jho decision is discussed in the article “US law – Oil record book violations” in Gard News issue No. 192.
3 The Act to Prevent Pollution from Ships is intended to implement the MARPOL Convention but the requirement to “maintain” the ORB is not explicit in MARPOL. Rather, the MARPOL regulations refer to making full and complete entries and keeping the ORB for examination for at least three years following the last entry. See “Implications of the Jho Doctrine”, by Dennis Bryant, Senior Maritime Counsel, Holland and Knight, August 2008 at www.marinelink.com.
4 Amicus curiae (plural amici curiae) is a legal Latin term, literally translated as “friends of the court” and refers to someone who volunteers to advocate a position before a court even though they were not a party to the case itself. In the Ionia case a number of business and legal defence associations were amici, namely: Chamber of Commerce of the United States, Washington Legal Foundation, Association of Corporate Counsel, National Association of Criminal Defense Lawyers, National Association of Manufacturers and New York State Association of Criminal Defense Lawyers.
5 Review by the US Supreme Court is discretionary and relatively rare.
6 See article ”ICS/ISF guidance on environmental compliance” in Gard News issue No. 189.
For more information about MARPOL violations in the US readers should
Gard News articles:
– US law – Oil record book violations (issue No. 192);
– The greening of the deep blue sea – Corporate environmental compliance today (issue No. 191);
– US Coast Guard formal policy on voluntary disclosure of MARPOL violations (issue No. 189);
– Oily water separator bypass in the US – The tables are turned (issue No. 189);
– ICS/ISF guidance on environmental compliance (issue No. 189);
– US Coast Guard new Oil Record Books (issue No. 188);
– MARPOL Annex VI – New risks and challenges for owners and charterers (issue No. 187);
– Waste management – From oily water to plastics (issue No. 186);
– US law – MARPOL violations in the US (issue No. 184);
– MARPOL Annex VI – Solving the low sulphur issue (issue No. 184);
– Recent changes in US regulations (issue No. 182);
– Oil and water don’t mix (issue No. 180);
– Pollution – Ships, crews and shore side management face ever-increasing fines and prison sentences (issue No. 175);
– Environmental crime – Myths and reality (issue No. 167);
– The United States Ocean Dumping Act (issue No. 159);
– Discharge of oil prohibited (issue No. 152).
Loss Prevention Circulars:
– New Permit Requirements for Vessels – US Environmental Protection Agency (No. 16-08);
– US Coast Guard – Formal policy on voluntary disclosure of MARPOL violations (No. 13-07);
– Environmental crime – Oil water discharges off the East Coast of Canada (No. 14-02);
– Environmental Crime – Myths and Reality (No. 05-02);
– Oily water separation and discharge: Discharge of oil prohibited (No. 07-01);
– Oily water separation and discharge: Risk of oil pollution versus vessel’s safety (No. 06-01).
P&I Member Circulars:
– International Convention for the Prevention of Pollution from Ships 73/78 MARPOL – Oily Water Separators (No. 03/05).
Gard News 194, May/July 2009
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