By Brian Dunn
The cost of hijacking and corruption
In the film Captain Phillips based on the 2009 hijacking by Somali pirates of U.S.-flagged MV Maersk Alabama, the character played by Tom Hanks is taken hostage for a ransom that was never paid after a tense standoff. Maersk Alabama was also the first American cargo ship to be hijacked in two hundred years.
While hijacking is clearly the most dangerous type of situation facing shipping companies in some parts of the world, there are less severe incidents which still have to be dealt with on a daily basis. One of the most common is bribes to officials at certain ports who can make life difficult and costly if shippers don’t cooperate.
A lot of corrupt officials take advantage of foreign aid from OECD countries, said John Sypnowich, Chief Legal and Compliance Officer, CSL Group. The problem with bribery laws is that they are enforced selectively, he added during a presentation to Borden Ladner Gervais’ (BLG) 30th Annual Maritime Law Seminar in Montreal on Dec. 7.
In 2003, a UN Treaty Convention was passed as a further step towards eradicating global corruption. “Ships are vulnerable, because they are a floating asset going in and out of ports around the world, and are easy targets for corrupt demands. These demands cause delays that can cost millions of dollars and are a significant safety issue for captains and crew.” Ports in Liberia, Nigeria, Ukraine and Argentina are especially problematic, noted Mr. Sypnowich. One solution is to share training techniques with other companies and give them the support they need while in port. Another is to have the collective buying power to stop corruption.
The latter was the idea behind the creation of the Maritime Anti-Corruption Network (MACN) in 2011. Its goal is to work towards a maritime industry free of corruption. The organization has grown to over 110 members, which represent 25 per cent of the world’s cargo tonnage, said Mr. Sypnowich who is also Chair of MACN. “The idea behind it is to support each other and share best practices and tools, and put pressure on problem areas, to try and solve the problem,” he said following his presentation. “As an industry, if we ban together, we have a better chance of dealing with this problem and we have been quite successful in a number of places. The number of incidents among our members has declined. We know that, because members report on places where they get demands for payment and we’ve seen the number of demands going down.”
There are specific examples where this has occurred, such as the Suez Canal where MACN had a “Just Say No” campaign and members can now transit the canal without making any illegal payments or provide gifts. The same applies to some ports in Argentina where members were having issues getting clean hold certificates for their vessels so they could load grain, which has been resolved.
“We’re confident that if we keep at it, and keep growing our numbers, then we’re going to lick this problem,” concluded Mr. Sypnowich.
Criminal conduct is not covered by P&I Clubs and when they work with third parties, they are dealt with on a case by case basis, noted Boriana Farrar, Vice-President, Counsel and Business Development, Director of North America, The American P&I Club.
“Under P&I Clubs, we have mutual obligations and backup. It’s easy to have a policy in place, but in corrupt parts of the world, it’s a different and complicated situation and just saying no doesn’t always work. The clubs provide training and awareness and draconian measures for corruption incidents.”
There is corruption in a lot of industries including construction and oil and gas, but vessels are so vulnerable due to the many points of contact and choke points such as loading and unloading where you run the risk of a shakedown, noted Toronto BLG Partner Milos Barutciski. Cargo is often paid for by governments such as grain shipments which can get stung by briberies. “Try resisting, because often the shakedown is not a real threat, but someone testing you out.”
Ship inspections and investigations
Under the Canada Shipping Act, there is a clear distinction between a ship inspection and a ship investigation, according to Vancouver BLG Partner Graham Walker. While inspectors have broad powers on board like inspecting hulls, machinery, cargo and pollution prevention equipment, they can’t enter living quarters without a warrant or permission, for example. During an investigation, they can only investigate a ship from bow to stern if there has been an incident involving casualties or some contravention of the law. With a warrant, inspectors can seize anything relevant, open and examine any receptacle or package, examine records and electronics and take samples or conduct tests.
Either way, it’s hard to define the intent of various agencies doing an onboard inspection, suggested Dionysios Rossi, also a Vancouver Partner. “Once you switch from an inspection to an investigation, the Charter of Rights and Freedoms comes into effect.” He cited the case of MV Marathassa which was charged with a bunker spill in Vancouver’s English Bay in 2016, in which the right of a reasonable inspection was breached due to misrepresentations to the courts.
“Employees are always a tricky subject since there is possible adversity of interests between employees on the vessel, and owner. There is no downside to not consenting to a warrantless investigation.”
American boarding authorities have more power than Canadian authorities, according to George Kontakis, Associate, K&L Gates LLP, New York. “The (U.S.) Coast Guard can do basically what it wants, and does. They often claim they’re doing a routine inspection when they’re actually doing and investigation.” Once USCG officers are on board and believe a crime may have been committed, they have to right to conduct a bow to stern search,” said Mr. Kontakis. The USCG boarding/inspecting officers have broad authority that does not require them to identify whether they’re conducting a civil versus a criminal investigation. “USCG regularly appears to be conducting a routine inspection, when knowingly seeking out evidence and statements in support of criminal investigations. While USCG’s authority is extremely broad, it is not limitless. Authority is confined to searches for the purpose of safety and documentation inspections.”
Once USCG has boarded, it “may conduct a full stem-to stern search only if circumstances arise during the safety inspection that generate probable cause that there is a violation of United States law.”
Blockchain technology (a decentralized digital ledger that records transactions via electronic blocks across a network of computers) is playing a bigger role in the commercial world, including the shipping industry, according to Jeremy Herschaft, Partner, Blank Rome, Houston, TX. In 2014, Maersk found that a simple shipment of refrigerated containers from East Africa to Europe could involve nearly 30 people and organizations and more than 200 different interactions and communications among them, and the costs associated with related trade documents were estimated to account for a fifth of actual transportation costs. To reduce those costs, Maersk partnered with IBM and developed Tradelens, a blockchain application to track shipping containers, digitalizing the supply chain process from start to finish. The program is intended to encompass shippers, freight forwarders, carriers, ports and customs authorities. There are now over 94 organizations actively involved or have agreed to participate on the TradeLens platform, consisting of, among other organizations, 20 ports and terminal operators, including Port of Montreal and Port of Halifax. In addition, classification society DNV GL intends to put all of its maritime certificates on blockchain to increase its transparency, while Ernst & Young has created Insurewave, a blockchain platform designed to support hull insurance, said Mr. Herschaft. There is also Global Shared Container Platform (GSCP) blockshipping, a proposed container asset registry (like a ship registry) where the full global inventory of containers (about 27 million units) are registered with real-time locations of every single container around the world. The goal within three or four years is to have 16 million containers in the GSCP registry. “The GSCP platform will enable a savings potential for the global container industry of at least U.S. $5.7 billion per year. Furthermore, the platform is expected to reduce global CO2 emissions by at least 4.6 million tonnes yearly,” suggested Mr. Herschaft.