Fines continue to take their toll

Fines continue to take their toll

Following an analysis of fines reported to Gard over a period of five years, Gard News provides an update on statistics and current trends and identifies some of the most problematic jurisdictions.

The exposure
On average, approximately 100-120 fines-related incidents are reported to Gard every year. In the five years analysed, Gard’s exposure in respect of fines-related claims was in the region of USD 31 million, which averages USD six million per policy year.

It is also interesting to note how these claims fit within the available P&I cover.

Approximately 15 per cent of the fines reported to Gard fall outside the scope of P&I cover. Typical examples would be fines imposed due to non-compliance with national and international regulations, such as breach of the SOLAS or MARPOL conventions.

Under Gard P&I Rule 47, cover is available for fines imposed  by a competent public authority on the Member or upon a third party whom the Member is legally obliged to reimburse (or whom the Member reimburses with the agreement of the Association) in respect of:

1. Breach of immigration laws or regulations, typically wrongful declarations in respect of crew members. These fines account for 15 per cent of the fines reported to Gard under Rule 47.

2. Accidental escape or discharge of oil or any other substance, or the threat thereof, provided the Member is insured for pollution liability under Rule 38. These fines account for 16 per cent of the fines reported to Gard under Rule 47.

3. Over or short delivery of cargo, or failure to comply with regulations concerning declaration of goods or documentation of the cargo, provided the Member is insured for cargo liability under Rule 34. This type of fines accounts for 34 per cent of the fines reported to Gard under Rule 47.

4. Smuggling or infringement of customs laws other than in relation to cargo carried on the vessel. These fines account for 20 per cent of the fines reported to Gard under Rule 47.

Fines described in 3 and 4 above are referred to as “customs fines” in this article. Unfortunately, customs fines are on the rise, both in terms of the number reported to Gard and the value of the fines imposed. Some national authorities are imposing fines on shipowners for breach of new customs regulations and as a consequence of clerical errors, such as typos or minor errors in the documentation presented by the vessel to the authorities.

Percentage of fines reported under Rule 47. 

Hot spots
During the five-year period analysed, claims have been reported in respect of fines imposed in 70 different countries. In about 30 of these countries, fines were not a regular problem, with only one or two cases reported in each country over the five-year period.

In a group of 35 states (which includes many Mediterranean and Black Sea areas), between three and 20 fines have been reported in the five-year period.

However, in a few countries a disproportionately large number of claims has been reported, suggesting Members should exercise caution when calling at ports in these areas. The most problematic jurisdictions are listed below.

Argentina
Argentina is undoubtedly the jurisdiction where shipowners are most exposed to customs fines. Argentina alone accounts for 18 per cent of all fines reported to Gard in the five-year period analysed. However, nearly half (47 per cent) of all custom fines related to carriage of cargo reported to Gard in the period have been imposed by customs authorities in Argentina.¹  

In an unfortunate new trend, Argentinean customs officials are now requesting cash deposits to secure payment of fines imposed for alleged breach of customs regulations. In the past, security requests have been dealt with by way of issuance of a Club letter of undertaking (LOU) to the vessel’s agent, who is held jointly liable for the alleged breach together with the shipowner. In a recent case involving undeclared goods, customs officials demanded a cash deposit as a guarantee pending commencement of the administrative enquiry, which may take up to six years to conclude. The value of the cash deposit was determined by the customs officials themselves and was based on their assessment of the market value of the undeclared goods. In addition, an LOU had to be issued to the port agent in the event the fine eventually imposed exceeded the value of the initial cash deposit. The vessel was advised that it would be under arrest until the money had been transferred to the designated bank account and that the administrative proceedings for releasing the vessel could take 48 to 72 working hours to complete after receipt of the payment.

Finally, there are also indications that customs fines for infringement of customs laws other than in relation to cargo are also on the rise in Argentina. Gard has seen large fines imposed as a result of typos in the documentation presented by the vessel to the customs authorities, such as minor errors in the declaration of stores, bunker quantity or spare parts. The value of these fines appears to be determined by the customs officials, and is often in excess of the market value of the relevant items.

Turkey
Approximately eight per cent of the fines-related claims reported to Gard during the five years surveyed have been imposed in Turkey. For customs fines related to cargo, Turkey has a system similar to that of Argentina, where the fine can be served on the vessel’s local agent. However, in Turkey it is sometimes possible to avoid a customs fine by issuing a “short shipment certificate” or “correction manifest”, in cases where there is a minor variation between the cargo quantity declared in the bill of lading or manifest and the quantity discharged. The issuance of this type of certificate or correction is a very formal procedure, requiring the involvement of the load port agent and notarisation and legalisation of the documents. It is therefore recommended that Members contact Gard or the local correspondents for advice and guidance if an incident occurs.

New customs regulations related to delivery of spare parts to vessels in Turkey entered into effect on 1st January 2013. Reportedly, Turkish customs authorities now require original invoices for clearance of spare parts. The invoices must have invoice number, date and wet stamp/signature (not copy or digital signature). Local correspondents suggest it may also be helpful to forward copies of the relevant airway bill and packing list. In addition to delay in delivery of the parts, failure to present the invoice may give rise to a fine for breach of customs regulations. Although no incidents involving this new regulation have been reported to Gard so far, the requirements are very stringent and may cause difficulties for shipowners if strictly enforced. 

However, the bulk of the fines imposed in Turkey refer to environmental pollution. These require the immediate appointment of a local lawyer and a court surveyor. Turkish environmental law provides for fines for activities that may give rise to pollution. This means that a fine can be imposed for pollution that has not yet occurred. Therefore, Members should be proactive if there are allegations of pollution, so that local experts can be retained to monitor the situation and assist in case fines are imposed, especially since fines for pollution can involve sizeable sums of money.

USA and Brazil
In addition to Argentina and Turkey, the USA and Brazil are the two other jurisdictions where a large number of fines is regularly imposed on shipowners, accounting for eight and seven per cent respectively of the total number of fines reported to Gard.

In the USA, although fines falling in all four categories described above are regularly imposed, pollution fines remain the main concern, as these can be in the million dollar range.

As for Brazil, while fines under all four categories can also arise, the majority relates to non-compliance with Brazilian immigration laws, more specifically visa requirements, which can be applicable to crew members and/or persons other than crew carried on board, such as crew members’ relatives.

For some time there has been controversy over fines levied by Brazilian authorities on seafarers joining or departing vessels in Brazil with seafarers’ identity documents issued by a country that has not ratified either the 2003 (No. 185) or 1958 (No. 108) ILO conventions or without a valid Brazilian visa in their passport. A current problem is fines in respect of seafarers’ identity documents that do not comply with ILO 185, which, unlike its predecessor 108, does not authorise a flag state to issue seafarers’ identity documents to non-nationals/non-residents. There appears to be a contradictory approach by authorities in different ports regarding the application of the 2003 ILO Convention in Brazil, with authorities in most ports enforcing the 1958 version, but in some, most notably in Rio, enforcing the 2003 version.  It should be added that the ratification of ILO 185 by the Philippines on 11th October 2011 has resulted in a decrease in the number of this type of claim. However, visa requirements are an on-going challenge for vessels calling at Brazil and Members are therefore encouraged to obtain detailed information about Brazilian visa requirements prior to arrival at the first Brazilian port of call, and to co-operate closely with the vessel’s local agent in order to ensure compliance.

Footnotes
¹ See Loss Prevention Circular No. 13-10, “Argentina – Local customs regulations” at www.gard.no.

Any comments on this article can be e-mailed to the Gard News Editorial Team.