Coast Guard Request For Comments On Mechanisms Used By Publicly Traded Jones Act Companies To Prove Citizenship Following The Trico Investigation

On November 3, 2011 the Coast Guard published a Notice in the Federal Register (76 Fed. Reg. 68,203) requesting information regarding the mechanisms that publicly traded companies employ to ensure compliance with the U.S. citizenship requirements for U.S.-flag vessels with coastwise and fisheries endorsements (together referred to as "coastwise endorsements" in this advisory). Comments are due on or before February 1, 2012. The following is a link to this Notice: http://www.gpo.gov/fdsys/pkg/FR-2011-11-03/pdf/2011-28447.pdf.

Background

The U.S. citizenship requirements for ownership of U.S.-flag vessels that have coastwise endorsements include that at least 75% of the stock or other equity ownership interests in the shipowner must be owned by "citizens of the United States" within the meaning of 46 U.S.C. § 50501 (such persons are described in this advisory as "coastwise citizens"). These citizenship requirements must be met at all levels in the chain of ownership of the company that owns a vessel operated in the coastwise trade. Thus, each entity contributing to the shipowner's eligibility to be a coastwise citizen must itself be a coastwise citizen eligible to document U.S.-flag vessels with coastwise endorsements, and this test must be satisfied by each entity that contributes to the coastwise citizen eligibility at each tier in the ownership chain. 46 C.F.R. §67.31(d).

The Coast Guard's process for determining the citizenship of applicants seeking to document vessels with coastwise endorsements relies on self-certification. As stated in the Notice, when an instance of possible non-compliance by a person is found, that person bears the burden of establishing that it satisfies the applicable citizenship requirements. As discussed below, following the results of an investigation earlier this year regarding Trico Marine Services, Inc., a publicly traded company, and its subsidiaries and affiliates (collectively, "Trico"), the Coast Guard decided to publish the Notice.

See the following link for the results of the investigation and final action memorandum relating to Trico: http://www.uscg.mil/hq/cg5/nvdc/nvdcreport.asp.

The Trico Investigation

In short, in the Trico investigation, the Coast Guard found that the publicly traded parent company was not able to provide proof that at least 75% of its stock was held by persons satisfying the requirements to be coastwise citizens. The investigation was initiated as the result of allegations made by one of Trico's own stockholders, who had engaged in a public battle with the then management of Trico over the direction Trico was taking, although this was not mentioned in the Coast Guard's report. The Coast Guard decided to investigate those allegations because they were credibly documented. Its investigation report made certain findings of fact as to when Trico's vessels were operated in the coastwise trade. Given that Trico was publicly traded and that hence its stock ownership changed frequently, the Coast Guard analyzed Trico's citizenship based on specific dates and lined up its findings with the dates of its U.S.-flag vessel operations.

In reviewing the information concerning Trico's citizenship, the Coast Guard requested Trico to provide evidence that proved that at least 75% of the equity in Trico was owned by persons who satisfied the requirements to be coastwise citizens under 46 U.S.C. § 50501. With respect to each date on which the Coast Guard analyzed the citizenship data provided by Trico, the Coast Guard concluded that Trico failed to establish that at least 75% of its equity was owned by coastwise citizens.

Trico noted...

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