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Marine Log

June 19, 2008

Clipper clipped for $4.75 million in oily waste case

A federal judge in Newark, N.J., today accepted what U.S. Attorney Christopher J. Christie called "a novel plea agreement" between the government and Clipper Marine Services A/S, in a case involving illegal discharges of oily waste from an ocean-going vessel that entered Port Newark in June 2006,

In addition to making a total monetary payment of $4.75 million, the company has agreed to retrofit certain ships with state-of-the-art oily water separators and implement a pilot program involving a cutting-edge real-time remote monitoring system to track oil waste levels and the usage of oil waste processing equipment on board five of its ships."

Of the $4.75 million, $1.5 million is being directed to the National Fish and Wildlife Foundation, to which the U.S. Attorney's Office has directed other such community service payments in environmental cases prosecuted in the District of New Jersey.

Clipper Marine Services was indicted along with two related companies on March 20, 2007, in connection with an attempt by crew members of the M/T Clipper Trojan to cover up illegal discharges of oily waste in international waters.

In a plea entered today in U.S. District Court before U.S. District Judge Peter G. Sheridan, Clipper Marine Services pleaded guilty and admitted that it conspired to defraud the U.S. Coast Guard by maintaining a false Oil Record Book on board the M/T Clipper Trojan that concealed overboard discharges of oil sludge and oil-contaminated bilge water between February and June of 2006.

Clipper Marine Services also acknowledged that it was responsible for the actions of the ship's Chief Engineer, who maintained the false Oil Record Book and presented it to the U.S. Coast Guard during a port state control inspection at Port Newark on June 15, 2006.

The company also acknowledged that the discharges aboard the M/T Clipper Trojan were attributable, at least in part, to its failure to manage the vessel so as to ensure compliance with MARPOL and U.S. law and regulations, and its failure to diligently enforce company policies prohibiting such conduct.

The dumping of oily waste violates the MARPOL Protocol, an international treaty regulating the handling and disposal of oil waste at sea. Ocean-going vessels like the M/T Clipper Trojan are required by international and U.S. law to maintain an accurate Oil Record Book that records any transfer or disposal of oily waste.

In a precedent-setting plea agreement, the company agreed to retrofit four of its oldest vessels with new, higher capacity Oily Water Separators to bring any discharges within the amounts allowable under MARPOL and U.S. law. The company also agreed to implement a remote monitoring system aboard five of its vessels. The system will allow the Coast Guard and onshore employees of the company to monitor waste levels and the use of oil waste processing equipment in real-time using data transmitted via satellite. Such monitoring should help detect and deter improper discharges of oil waste.

"Clipper Marine Services has agreed to install real-time monitoring equipment and upgrade environmental controls on various ships as a result of today's plea agreement," said Ronald J. Tenpas, Assistant Attorney General for the Justice Department's Environment and Natural Resources Division. "This is an important step towards compliance with U.S. and international law that will become the standard for the industry."

"The Coast Guard is satisfied that Clipper Marine Services is taking responsibility for the crimes it has committed," said Rear Admiral Timothy S. Sullivan, Commander, First Coast Guard District, U.S. Coast Guard. "The terms of this agreement demonstrate that Clipper Marine Services is directly targeting and improving problem areas, and I am encouraged by their willingness to retrofit the latest OWS and monitoring technologies. The commercial shipping industry would be well served to follow Clipper Marine Services's example."

The total monetary payment of $4.75 million is apportioned between a fine of $3.25 million and a community service payment of $1.5 million. The community service payment will be made to the National Fish and Wildlife Foundation, to be designated for the "protection, scientific study, and restoration of marine and aquatic resources in the District of New Jersey...."

The plea agreement also provides for a deferred fine of $1.25 million in the event the company fails to implement the remote monitoring system. But the amount of the deferred fine is to be reduced by the direct costs of implementing the pilot system.

The company also agreed to implement an Environmental Compliance Plan for the entire 3-year period of probation.

The ECP will require annual environmental audits aboard any vessels that the company manages and which employ an Oily Water Separator. It also requires that the company implement a variety of policies and management practices designed to ensure compliance with MARPOL. These include crew member and employee compliance training; a system of open reporting by which crew members can anonymously report illegal discharges; the creation of a Corporate Compliance Manager to oversee the implementation of the ECP; and the use of an environmental tagging system in which overboard discharge valves are fitted with numbered tags which are logged in order to track their usage.

Since the incident in June, Clipper Marine Services already had implemented a number of new compliance measures, many of which were incorporated into the ECP. The company's willingness to implement new compliance measures helped make possible the use of innovative terms in the plea agreement.

Charges against the other two defendants, Clipper Wonsild Tankers Holding A/S and Trojan Shipping Co. Ltd., were dismissed. The case had been set for trial on Feb. 19, when the parties reached a preliminary agreement to resolve the matter on February 8, 2008.

Clipper Wonsild Tankers Holding A/S and Clipper Marine Services A/S are Danish companies that commercially operated and technically managed the M/T Clipper Trojan. The Trojan Shipping Co. Ltd., a Bahamas company, is the registered owner of the M/T Clipper Trojan. All three companies are part of The Clipper Group A/S, a global shipping consortium based in Denmark.

Chief Engineer Fernando Magnaye pleaded guilty on Feb. 2, 2007 to charges of presenting a false document to the Coast Guard and attempting to obstruct a Coast Guard inspection. During a plea hearing before Judge Mary L. Cooper in Trenton, Magnaye admitted that he knew about illegal discharges of oil sludge and contaminated bilge waste but nonetheless failed to record those discharges in the M/T Clipper Trojan's Oil Record Book.

Magnaye also admitted that he presented the false Oil Record Book to the Coast Guard and falsely claimed to Coast Guard inspectors that the book was accurate.

He received a five month prison sentence.

Clipper Wonsild Tankers A/S and Clipper Marine Services A/S commented that the decision to settle came after extensive negotiations with the Department of Justice and agreement by the government to dismiss 8 of the 11 counts asserted in the Indictment in exchange for a guilty plea by Clipper Marine Services to three counts. In addition, all charges against the vessel owner Trojan Shipping and commercial manager Clipper Wonsild Tankers A/S were dismissed.

Clipper Marine Services say that the statutory maximum for all counts as initially charged was $16.5 million.

Clipper Marine Services says that the original Indictment stemmed from allegations by certain crewmembers that the vessel's Chief Engineer instructed them to dump oily water overboard at certain times and thereafter cover up such acts.

The settlement also follows the guilty plea by the vessel's Chief Engineer to charges of making false entries in the vessel's Oil Record Book and obstruction.

In accepting the settlement, Clipper Marine Services stated, "We entered this process with the Department of Justice committed to fighting the allegations to the end, convinced our carefully developed systems and procedures would safeguard the world's marine environment as is our responsibility. We based this confidence not only on our own procedures but upon the fact that the crew joining the Clipper Trojan had to sign a MARPOL affidavit clearly stating that they would follow all international laws protecting the environment as well as adhere to Clipper's environmental policies and procedures, including reporting any violations immediately to the company."

"We discovered to our extreme disappointment that while our procedures allowed for no exceptions to these rules, we should not have relied on the vessel's manning agent to vet crewmembers relative to MARPOL competency and training. In our opinion, the lesson is clear. It is no longer enough to have strict rules and practices regarding running your own ships properly. Ship managers and owners must also take aggressive steps to ensure that their crews as well as third party vendors such as manning agents actually adhere to and put into practice the very steps upon which managers and owners rely, especially those related to environmental protection."

Clipper says that "while shore-side management was completely unaware of any illegal conduct on board the Clipper Trojan and would have taken immediate steps to immediately halt such acts if discovered, under U.S. law a company may be held vicariously criminally responsible even for the unauthorized acts of its crew."

Since June, 2006 Clipper vessels entering the US have been subjected to hundreds of detailed U.S. Coast Guard inspections, all of which have been passed.

"As a responsible ship management company we have comprehensive environmental protection programs, which our shore-side staff and crews must adhere to and diligently observe," says Clipper Marine Services. "We constantly review these policies and practices and have, as a result of the unfortunate incident on the Clipper Trojan, agreed to enhance our environmental protection program with steps including, for example, the replacement of older oily water separators. In lieu of a deferred $1.25 million fine, Clipper Marine Services has also agreed to cooperate with the U.S. Coast Guard in developing innovative and progressive technology for shipboard oily waste remote monitoring to be used on a number of our vessels."

"We, along with the entire Clipper family of companies, are highly committed to protecting the marine environment and maintaining the very highest standards of behavior and respect for law throughout our fleet," Clipper Marine Services said.

Tom Russo and Michael Fernandez of Freehill, Hogan & Mahar represent the Clipper defendants.


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