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Will Will ““Magic FuelMagic Fuel”” Be The Next Be The Next ““Magic Pipe?Magic Pipe?””

Discussion of the Shipping IndustryDiscussion of the Shipping Industry’’s Criminal Exposure for s Criminal Exposure for Violations of New MARPOL Annex VI Air Emissions RequirementsViolations of New MARPOL Annex VI Air Emissions Requirements

Michael G. Chalos, March 2013

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Overview

1. WHAT ARE THE NEW STANDARDS?

2. HOW DID THE NEW STANDARDS COME ABOUT?

3. WHICH U.S. AGENCIES WILL ENFORCE THE NEW STANDARDS AND HOW?

4. WHAT IS THE EXPOSURE FOR SHIPS CALLING THE U.S.?

5. WRAP UP: WHERE DO WE GO FROM HERE AND “PLAYING DEFENSE”

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MARPOL ANNEX VI More Than Just Sulphur…

Regulation 12 - Ozone Depleting Substances

Regulation 13 - Nitrogen Oxides (NOx)

Regulation 14 - Sulphur Oxides (SOx)*

Regulation 15 - Volatile Organic Compounds (VOCs)

Regulation 16 - Shipboard Incineration

Regulation 18 – Fuel Oil Availability & Quality Control*

* Addressed In This Presentation

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The Two Sets of Engine Emissions Standards

MARPOL Annex VI consists of two sets of engine emissions standards aimed at controlling emissions from ships:

1. The “global” standards for the minimum sulphur content of fuel and nitrogen oxides (NOx) emissions from engines apply to ships at all times; and

2. The “geographic” based standards that require ships operating in designated Emission Control Areas (ECAs) to comply with more stringent fuel sulphur and engine NOx limits.

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Applicability of Annex VI Low Sulphur Fuel Requirements

IN GENERAL…

1. Global Standards

Commercial Vessels Greater than 400 Gross Tons Engaged in International Voyage.

2. Geographic (North American Emissions Control Area (ECA)

With limited exceptions, all vessels operating within the ECA.

The Phased Standards By the Numbers

Standard Year Fuel Sulphur Content (parts

per million)GeographicEmission Control Area Standard

Pre 201220122015

15,000 ppm10,000 ppm1,000 ppm

Global StandardPre Jan 2012

2012-2020As of 01 Jan 2020

45,000 ppm35,000 ppm5,000 ppm

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Emissions Control Areas IN GENERAL…

• The U.S. deposited its “Instrument of Ratification” of Annex VI with the International Maritime Organization on October 8, 2008

• The EPA “applied” to create the North American ECA with the IMO after consultation with Canada and Mexico

• EPA used ambient air quality data from contiguous 48 states to support health benefits of lower emissions

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The North American ECA (Enforced as of August 1, 2012)

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Key Annex VI/ECA Recordkeeping Requirements

Bunker delivery notes - Regulation 18.5 and 40 C.F.R. § 1043.70. (Maintained for 3 years).

Maintain Representative fuel oil samples, taken at the time of fuel oil delivery, sealed/signed by Master or Officer In Charge. Regulation 18.8.1 and 40 C.F.R. § 1043.70. (Maintained for 1 year).

Written fuel oil changeover procedures, which shows how and when the fuel oil changeover is to be done to ensure that only compliant fuel oil is burned within the ECA. Regulation 14.6 and 40 C.F.R. § 1043.70.

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Key Annex VI/ECA Recordkeeping

Requirements (cont’d)

Fuel Oil Changeover Logbook (a.k.a. Sulphur Record Book)- See Annex VI Regulation 14.6 and 40 C.F.R. §§

1043.70.

Vessels Must Log:– vessel’s position throughout transit of ECA– type of fuel burned – sulphur content after each bunkering operation– position, date and time of any fuel-oil-change-over

operation prior to entering or after exiting an ECA – Any procedures used to comply with the new

emissions limits.– MUST BE COMPLETE, ACCURATE & TRUTHFUL

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Key Annex VI/ECA Recordkeeping

Requirements (cont’d)

Other Important Records:

Record Book of Diesel Engine Parameters – Regulation 13, 40 CFR 1043.70

Ozone Depleting Substances Record Book –Regulation 12, 40 CFR 1043.100(a)

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Alternatives & Exceptions

Alternative Means of Compliance:

– Zero sulphur fuel (i.e. LNG)– Installing gas cleaning systems (“scrubbers”);

must be of an approved type.

Some Very Limited Exceptions (i.e. steamships)

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Inadequate Supply Chains? The Fuel Non-Availability Report

Report of Non-Availability

Allows Vessels Without Compliant Fuel to Enter US

Submitted to the EPA > 96 hours of arrival.

Not a “Get Out of Jail Free” Card.

It amounts to permission to ask for leniency.

Must demonstrate that company made “best efforts”to obtain compliant low sulphur fuel.

Must be signed “under penalty of law”

Must be accurate & truthful

Legal Minefield

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The Act to Prevent Pollution From Ships (“APPS”) – An Overview

• Implements MARPOL Annex VI (and all of MARPOL) in U.S. domestic law

• Enacted in 1980

• Creates comprehensive administration, inspection and enforcement regime

• Provides authority to U.S. Coast Guard and EPA with respect to enforcement of international environmental laws and treaties (MARPOL)

• Criminal and Civil Penalties for violations

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U.S. Enforcement of Annex VI Under APPS

2011 MOU Between USCG and EPA:

• Delineates responsibilities for administration and enforcement between agencies

• Referral of evidence & violations

• Provision of technical expertise (EPA)

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Coast Guard Enforcement What the Inspectors Will Look At

Basic Inspection• Review IAPP Certificate • Review the EIAPP Certificate• Review Exhaust Cleaning Systems

Documentation (If Fitted) for each engine• Review Type Approval Certificate for Incinerator• Examine the Vessel’s Incinerator• Review Bunker Delivery Notes (spot check) for

each fuel delivery• Verify Fuel Samples Onboard (spot check) for

each fuel delivery• Verify vessel is utilizing low sulphur fuel oil*• Examine Any Alternative Compliance Methods

used (if applicable)

* Will entail review of logbook, sounding records, changeover procedures, and informal queries of crew to ensure they understand the policies

“Expanded” ExamMight include…

• Review Technical File• Review Record Books• Review Reports of Non-Compliance provided

to Flag• Sound Tanks and Compare With Shipboard

Annex VI Records• Examine/Test Equipment Used to Switch Over

to ECA Compliant Fuel• Review any Report of Non-Availability• Inspect potential sources of Ozone Depleting

Substances• Test Incinerator

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Criminal LiabilityAPPS (33 U.S.C. §1908): A person who knowingly violates MARPOL…or the regulations thereunder commits a Class D Felony

Fines of $250,000 per count proven or plead to ($500,000 for corporations such as owners and operators)

Corporate vessel interests can be charged for the acts of their employees, even if acting contrary to written company policy.

Source:U.S. Coast Guard

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Other Criminal Statutes Related to the Investigation

• The U.S. Department of Justice often charges multiple counts to increase the possible sentence that will be imposed against seafarers, Owners and Operators of vessels

• DOJ regularly prosecutes the following statutes:– False Statement Act (18 U.S.C. § 1001)– Conspiracy (18 U.S.C. § 371)– Obstruction of Justice (18 U.S.C. § 1505)– Tampering with Witnesses (18 U.S.C. § 1512)– Sarbanes Oxley (18 U.S.C. § 1519)

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Other Consequences

Generally speaking, there is a variety of tools prosecutors may use against crewmembers, owning and managing corporations, and individuals in such corporations once a vessel is merely “suspected” of violating MARPOL and the APPS.

For example, prosecutors can (and will):

• arrest, detain and/or confiscate vessels to obtain security and/or collect fines/penalties based on whistleblower allegation alone;

• criminally charge and/or hold vessel personnel as “material witnesses” for an indefinite period of time as part of the new USCG/DOJ strategy in, particularly, environmental prosecutions;

• criminally charge owning/operating and/or management companies under a theory of vicarious liability; and

• criminally charge responsible corporate officers, as well as, managing company personnel.

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Potential Similarities?

Oily Water Separator Bypass Connection

Jurisdiction

Authority to Investigate

Recordkeeping RequirementsStatutory Offense

Framework

Whistleblower RewardsFines & Publicity for

DoJ

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Voluntary Reporting Appendix V Disclosures

• The Coast Guard Environmental Crimes Voluntary Disclosure Policy

• Applies broadly “to criminal violations under all of the Federal environmental statutes that the Coast Guard administers.”

• Provides that entities who maintain compliance management programs to prevent, detect and correct MARPOL violations and who promptly report such violations within 21 days of discovery may avoid criminal charges so long as:

1. the Coast Guard is satisfied the violation is not part of a pattern or broader practice;

2. the violation does not involve a “prevalent management philosophy or practice that conceals or condones environmental regulations;” and

3. The violation does not reveal conscious involvement or disregard by senior management.

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“Playing Defense”

Expect scrutiny of logbooks and records by Coast Guard Port State Control inspectors

Practice sound International Safety Management (ISM) Code policies and procedures

Train onboard vessel personnel

Know the requirements, policies and options available

Accuracy of ship records is essential:– i.e., if there is a discrepancy between bunker delivery notes

and sampling results, log it accurately in the official records and ensure appropriate company officials are informed!

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For more information, please contact us at:

(516) 767-3600

Or visit our website at:http://www.codus-law.com