U.S. Appellate Court Opinion Has Broad Implications for the Shipping Industry and for the Corporate Community at Large
Act to Prevent Pollution from Ships requirement with continuous duty “to maintain” Oil Record Books complies with international law and found necessary to advance aims of the MARPOL Convention.
On January 20, 2009, the United States Court of Appeals for the Second Circuit decided the case of United States v. Ionia Management S.A. (2009 WL 116966), upholding a criminal vessel pollution conviction and a $4.9 million criminal fine against a vessel management company. The Court adopted the reasoning of a significant recent case in the Fifth Circuit, United States v. Jho, 534 F.2d 398 (5th Cir. 2008), on substantive maritime issues, and provided guidance on general corporate criminal law principles that pertain to all industries.
Facts of the Case
In Ionia Management, the manager of the foreign-flagged oil tanker was convicted on a number of counts, including conspiracy, obstruction of justice, and violating the Act to Prevent Pollution from Ships (APPS). The Court found that the vessel’s crew, under the direction and participation of the chief engineer and second engineer, had routinely discharged oily waste water into the high seas through a “magic hose” designed to bypass the vessel’s pollution control equipment. While the discharges occurred on the high seas, the government successfully prosecuted the company because the vessel’s crew maintained falsified records in U.S. waters and obstructed justice.
Impact on the Shipping Industry
The Second Circuit’s Ionia Management decision reinforces the position of the U.S. Department of Justice that the United States criminal enforcement jurisdiction is appropriate in vessel pollution cases, even where discharges occurred on the high seas.
The Act to Prevent Pollution from Ships (33 U.S.C. § 1901 et seq.) implements two international pollution prevention treaties (collectively referred to as MARPOL) to which the United States is a party: (1) the 1973 International Convention for the Prevention of Pollution from Ships (Nov. 2, 1973; 1340 U.N.T.S. 184), and (2) the Protocol of 1978 Relation to the International Convention for the Prevention of Pollution from Ships (Feb. 17, 1978; 1340 U.N.T.S. 61). The U.S. Coast Guard has issued regulations to implement MARPOL. The relevant regulation here is one that requires vessels “to maintain” an accurate Oil Record Book and keep it “readily available for inspection” (33 C.F.R. § 151.25(a)). APPS and the regulation have two important limitations, however. First, while they apply to U.S. flag vessels anywhere in the world, they apply to foreign-flagged ships only “while in the navigable waters of the U.S.” Second, any action is required to be taken “in accordance with international law.” Shipowners and vessel management companies have argued that those limitations require the United States to refer enforcement actions to a foreign vessel’s flag state where the discharges and entries were made outside U.S. waters.
In Ionia Management, the Second Circuit adopted the Fifth Circuit’s holding in United States v. Jho (534 F.3d 398) and rejected the defense argument that the United States lacked jurisdiction where the discharges occurred at sea and the false entries in the vessel’s required Oil Record Book were not made within the waters of the United States. The Court agreed with the government’s argument that the requirement to “maintain” the record while in U.S. waters meant that the records must also be accurate “or at least not knowingly inaccurate.” The Court therefore held that the United States had no obligation to refer the matter to the vessel’s flag state for enforcement.
The practical effect of the Ionia decision for shipowners and managers is that the criminal vessel pollution enforcement initiative of the U.S. government is alive and well. This is the second Circuit Court of Appeals to consider and reject the defendant’s jurisdictional argument, and the decision will not be ignored by other Courts that consider the issue. The Ionia Management decision might well lead to more frequent prosecutions against foreign-flagged vessels that arrive in U.S. with falsified records on board. It will be increasingly important for shipowners and managers to be vigilant in enforcing their environmental compliance programs, identifying and correcting improper discharge practices, and ensuring that a vessel’s required records are accurate and verifiable.
Broader Implications for the Corporate Community
The Court considered and rejected three defense arguments that have broad implications for the corporate community at large. First, the Court rejected the defense argument that the evidence was insufficient to convict the company on a “respondeat superior” theory of corporate liability, i.e., that the company is responsible for illegal conduct by its employees who were working within the scope of their employment. The defense argued that the vessel’s crew members were not acting within the scope of their employment when they made the discharges and entries in the Oil Record Book. The Court found “ample evidence” that the crew acted in the scope of their employment because they were responsible for maintaining the engine room, discharging waste and recording relevant information when they made the discharges. Further, the Court found that the crew acted at the direction of their supervisors when they made the discharges, made the false entries and lied to the Coast Guard.
The Court also rejected the defense argument that the company could only be prosecuted for the acts of “managerial” employees. The Court cited its contrary view in a 1989 case and found, in any event, that the government presented “overwhelming evidence” that supervisors directed the crew to take the actions at issue.
Finally, the Court rejected an argument made in amicus curiae briefs filed by major U.S. business interest groups that the government must prove as an element of the offense that the corporation “lacked effective policies and procedures to deter and detect criminal actions by its employees.” In other words, the existence of a corporate compliance program might be relevant to whether an employee was acting within the scope of its employment, but the government need not prove its absence in the prosecution of a company.
Compliance programs are still important, and sometimes crucial, in responding to criminal allegations. Although absence of a compliance program is not a required element in the government’s proof of intent, an effective and fully implemented compliance program can be used to persuade the government not to prosecute in the first place. As a matter of Department of Justice policy, federal prosecutors are required to consider whether a company has an effective compliance program as part of their decision whether or not to bring charges against a company. The standards used by prosecutors in this analysis are outlined in the United States Sentencing Commission’s guidance on effective compliance and ethics programs.
In addition to the pre-charging analysis required of prosecutors, effective compliance and ethics programs can also be presented to the trier of fact as evidence of the company’s lack of intent to commit the violations. Compliance programs can also be used as evidence that the specific employees who committed a violation were “rogue” employees, acting against company policy and outside the scope of their employment.
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