US Customs and Border Protection announced the creation of the National Jones Act Division of Enforcement (JADE) in July 2016, but tough enforcement of the Jones Act proceeded that development. Experts say that JADE’s advent will likely herald an even tougher enforcement environment.
The Jones Act case that was settled earlier this month actually had its beginnings in 2011, when Furie Operating Alaska wanted to transport a Spartan 151 jack-up oil rig from the Gulf of Mexico to upper Cook Inlet, Alaska, for exploration work at its Kitchen Lights gas field. Furie chartered the Chinese heavy-lift vessel Kang Sheng Kou to carry the rig around South America and up to Vancouver, British Columbia. At that point, US-flagged tug boats brought it the remaining distance to Alaska.
Furie’s managers had obtained a Jones Act waiver for the voyage during the George W. Bush administration, but it had expired, and the Department of Homeland Security during the Obama administration refused to renew it. CBP determined that the move violated the Jones Act and fined the company $15 million.
The company sued CBP in 2012 challenging the assessment of the civil penalty. Three weeks ago, Furie agreed to pay $10 million to satisfy the civil penalty originally assessed against it in 2011. It was the largest Jones Act penalty ever assessed.
DOJ contended that under the terms of US cabotage law, the jack-up should have been transported by a US-flagged, US-crewed vessel. “Resolution of this case demonstrates that the Jones Act will be actively enforced and that an intentional violation will not be rewarded,” the Department of Justice said in a statement. “The settlement also provides closure to Furie and is designed not to undermine its ability to bring natural gas to market in Southcentral Alaska.”
The settlement coincides with a growing debate over the use of foreign-flagged ships in the US offshore oil and gas industry. CBP plans to revoke a series of interpretations that allow the carriage of exploration and production components from US ports to Gulf of Mexico rigs on foreign ships.
Many industries other than oil and gas are affected by the Jones Act, noted David McCullough, a partner in the law firm of Sutherland Asbill & Brennan. “Often the rejection of metals, coal, agricultural products or consumer goods by foreign buyers or the inadvertent return of commodities to the US can ultimately result in a potential Jones Act violation,” he said. “The potential for violations is exacerbated by Customs’ strict interpretation of the Jones Act whereby using a foreign flag vessel to move merchandise from just one dock to another dock within the same port is considered to be a violation.”
McCullough counsels caution by companies over decisions that risk potential noncompliance with the Jones Act or suffering substantial commercial losses through having to find an alternative buyer in another country.
“The creation of JADE,” he said, “will make it more likely that these situations will be investigated by Customs.”