One of the things that I have been thinking about over the past few months is the application of the Foreign Corrupt Practices Act (FCPA) to the maritime transport industry and more specifically US/UK companies which hire maritime transport to ship and receive products. For example, in the energy industry many companies will hire ships to bring crude oil to their refineries in the US and then ship out refined products such as gasoline, lubricants or other refined petroleum products across the globe. To do so, they usually employ a contract a called charter party. But first a little law for all you non-boat lawyers out there, courtesy of Wikipedia…
A charter party is an agreement between a shipowner and a merchant, by which a ship is let or hired for the conveyance of goods on a specified voyage, or for a defined period. It is an agreement for the use of a vessel between shipowner and charterer whereby a ship is hired; all terms, conditions and exceptions are stated in the contract or incorporated by reference. The charterer takes over the vessel for either a certain amount of time (a time charter) or for a certain point-to-point voyage (a spot charter), giving rise to these two main types of charter agreement.
In a time charter, the vessel is hired for a specific amount of time. The owner still manages the vessel but the charterer gives orders for the employment of the vessel, pays for the fuel and port costs and may sub-charter the vessel on a time charter or voyage charter basis. A spot charter is where the charterer hires the vessel for a single voyage, and the vessel’s owner (or disponent owner) provides the master, crew, bunkers, supplies, and pays for port costs. A bareboat charter is a subtype of a time charter in which the charterer takes responsibility for the crewing, maintenance, vessel insurance, supplies, and port costs of the ship during the time of the charter, assuming the legal responsibilities of the owner and is known as a disponent owner.
So why would the FCPA apply to all of the above? It is because every time a vessel goes into port there are series of governmental touch points that a ship must go through. Typically these services are handled by a port agent, who is a person or agency responsible for handling shipments and cargo at ports and harbors worldwide on behalf of shipping companies. The port agent can be hired directly by the US company which arranges the shipping or the port agent can be hired by the charter party.
What are some of the tasks of a port agent that have FCPA implications? They may include some of the following: Drawing up, initiating and delivering the required documents (especially for containers), including booking lists, shipping permits, delivery orders all related to the cargo; Fulfilling the necessary formalities regarding the delivery and reception of the goods (customs etc.), Collecting freights for cargoes and passing them along to local port authorities; Arranging for storage bunkers if these are needed; Assisting the master in making the necessary contacts with the local authorities and the harbor authorities; Ensuring a berth for the incoming ship through the local port authorities; Arranging for the pilot and the tugs if necessary, which may be local government employees; Assisting the vessel if there are any government inspections such as for drugs or other contraband, tending to vessel crew that may require to visit a doctor or hospital, waste removal, victualing (groceries); and Drawing up the documents for the customs and harbor services.
The list above certainly sounds like an agent which is dealing with foreign government officials. Even if the US company does not hire the port agent directly but the charter party (owner or vessel charterer) hires the port agent, there still could be FCPA exposure for the US company. This is because the FCPA prohibits payments or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office, for purposes of (emphasis supplied). It is this language of ‘indirectly’ which has gotten many companies into FCPA hot water, certainly by the actions of agents.
All of this means that if your company hires out ships for marine transportation, you should review your management of port agents. As they are clearly agents you may well need to put them through your agent due diligence program. It does not matter if the ship is a non-US flagged vessel or if the charter party is a non-US entity. They all need to be a part of your third party compliance program.
And while you are thinking about your port agents you should also consider the company which you have hired as your charter party. Is that company FCPA or UK Bribery Act compliant? It may well be that the ship’s officers also have to deal with foreign officials in each port in which they enter. They also need to be FCPA compliant.
My final thought is that there may be other entities or persons that your company hires which may well be agents under the FCPA but you are not considering them as such. For the compliance practitioner, this means you should talk to units or persons in your company such as energy traders, your maritime division, your transportation division and your logistics group to determine if you have exposures which you had not previously considered. There may be FCPA exposure lurking out there that you are not aware of and need to evaluate.
This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at firstname.lastname@example.org.
© Thomas R. Fox, 2013