Is it a new day for Jones Act enforcement? Maybe. A practical look at coastwise concerns

by DLA Piper

DLA Piper

The Jones Act (46 U.S.C. § 55102) provides that the transportation of merchandise between coastwise US points is prohibited unless performed by vessels that are US-built, owned, and documented. US Customs and Border Protection (CBP) has consistently ruled that a point in the United States territorial waters is a point within the scope of the US coastwise laws and that territorial waters consist of the territorial sea, defined as the belt, three nautical miles wide and seaward of the territorial sea baseline, and, in cases where the baseline and coastline differ, to points located in internal waters landward of the territorial sea baseline.

In addition to the US territorial waters, pursuant to section 4(a) of the Outer Continental Shelf Lands Act of 1953, as amended (OSCLA), coastwise points also include certain points on the Outer Continental Shelf (OCS).

The OSCLA provides in part that the laws of the United States extend to:

 …the subsoil and seabed of the outer Continental Shelf and to all artificial islands, and all installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources therefrom…to the same extent as if the outer Continental Shelf were an area of exclusive Federal jurisdiction within a state.

Therefore, the coastwise transportation prohibition under the Jones Act also applies to movements between points in the territorial waters of the US and points on the Outer Continental Shelf. That includes mobile oil drilling rigs, drilling platforms and other devices connected to the seabed of the OCS for the purpose of “exploration, development, or production purposes.” 

The decades-long growth of offshore oil rigs on the US Outer Continental Shelf has created ample opportunity for significant coastwise movement between these rigs and the US Gulf States. According to NOAA, there are nearly 4,000 active oil and gas platforms in the northern Gulf of Mexico.  

In light of current activity and in response to concerns expressed for years by the coastwise vessel industry groups over whether CBP was actively enforcing the Jones Act in coastwise transportation involving the OCS, Congress, as part of the 2016 Department of Homeland Security appropriations for border security and trade facilitation, noted: “In addition to the direction provided in the Senate report, CBP is urged to levy penalties, as appropriate, for previously documented violations of the Jones Act; establish specific timeframes for internal review and actions; continue working with the Offshore Marine Service Association to nvestigate potential violations; and dedicate adequate resources to vigorously enforce the Jones Act on the Outer Continental Shelf.” (Emphasis added)

The Offshore Marine Service Association (OMSA), the only industry organization specifically identified in the above Congressional statement, is headquartered in New Orleans. It says of itself that it “represents more than 225 member companies, including approximately 100 firms that own and operate marine service vessels…. [for] providing every pipe, wrench, computer, barrel of fuel, and gallon of drinking water to rigs and platforms, as well as transporting tens of thousands of workers to and from the facilities. … The country draws almost one-fifth of our domestic oil and gas from offshore drilling and production….. OMSA members are an important part of the nation's energy infrastructure and Gulf region's economy.” 

CBP’s response: establishing JADE

Given the statement expressed in the 2016 Appropriations Bill and the concerns expressed by influential trade organizations such as OSMA, it is not surprising that CBP announced in July, in a Notice to the “Area Port of New Orleans Trade Community,” that it has established a national Jones Act Division of Enforcement (JADE) based in the CBP New Orleans Field Office.

According to the JADE Notice:

The mission of the JADE will be to assist CBP and industry partners on issues concerning coastwise trade, with the goal of being a clearinghouse for all coastwise trade issues…[ and] JADE will work in partnership with industry stakeholders in the enforcement of the Jones Act, along with all other coastwise trade laws.

So what do the Congressional and CBP actions − seven months apart − really mean?  If Congressional oversight continues as expected, CBP has every incentive to complete actions on outstanding allegations of Jones Act violations made by industry stakeholders. But such actions by CBP cannot simply rubber-stamp accusations from industry stakeholders.  What the Explanatory Statement referred to as “documented violations of the Jones Act” most likely represents allegations provided by a member of an industry group (such as OSMA), for instance through CBP’s e-Allegation system. Before proceeding with enforcement action, CBP still has to independently investigate and confirm the allegations. After that, if CBP finds reasonable cause to believe that a violation has been committed, then the merchandise transported in violation of the Jones Act is subject to seizure and forfeiture; in the alternative, a penalty equal to the value of the merchandise being transported or the actual cost of the transportation, whichever is higher, may be assessed against any person transporting or causing the transportation of the merchandise in violation of the Jones Act. Most often, the CBP opts for the penalty alternative under the Jones Act.

Once a penalty is assessed through issuance of a penalty notice, however, the pendulum swings to the alleged violator in the Jones Act enforcement process. In addition to describing the alleged violations, the penalty notice informs recipients of their right to file a petition for remission of the penalty under the procedures set forth under 19 CFR Part 171 and 19 U.S.C. 1618.  Often, the receipt of the penalty notice is the first time the alleged violator becomes aware that CBP believes a violation has been committed. As a result, this also is likely the first opportunity the alleged violator has to tell its side of the story, i.e., provide a defense to the allegations (and any factual and legal conclusions) underlying the Jones Act penalty.

Meanwhile, CBP cannot disclose to the public (including the filer of the e-allegation) any information relating to its actions on the allegations from the time the allegation is filed until after any penalty case flowing from such allegation is closed . Therefore, to interested trade groups, such as OSMA, which may have presented the allegation to CBP in the first place, there is no transparency (at least officially) regarding what, if any, actions CBP may take until the case is closed – which may be years later.

But, while there are limitations on the information CBP can provide directly to the public and industry stakeholders on actions actually taken to “levy penalties… for previously documented violations of the Jones Act,” as Congress urged in the 2015 Explanatory Statement, by issuing the JADE Notice, CBP is publicizing its actions to “continue working with OSMA to investigate potential violations” as Congress also urged it to do in the Explanatory Statement. Since OSMA is headquartered in New Orleans, this most likely was the practical reason for the creation of JADE in the CBP Area Port of New Orleans.

What’s next for stakeholders and practitioners?

For an industry stakeholder such as OSMA, which will be more interested in seeing quick results on the allegations they have provided, patience will be a virtue. At the same time, for the alleged violator who is now, or may soon be, the recipient of a Jones Act penalty (or in rare cases − seizure) notice, attention to the CBP petition process and deadlines under 19 CFR Part 171 will be required.

It would appear to practitioners that CBP has shifted its central platform for Jones Act enforcement from its headquarters office to its field office in  New Orleans. This is because while the JADE Notice states that requests for formal rulings should continue to be directed to Regulations and Rulings at CBP Headquarters Office of Trade, it also states that the JADE will be “staffed by a team of subject matter experts (SMEs) to assist the industry stakeholders with questions on issues involving coastwise trade.” 

As a result, practitioners on both sides of the coastwise trade issue will need to engage both CBP Headquarters (Regulations and Rulings) and the JADE on certain Jones Act issues. For example, the alleged Jones Act violation may relate to a legal subject on which CBP previously has issued a binding ruling pursuant to 19 CFR Part 177,  but a later CBP ruling that affects the legal conclusion in the previous ruling may have been issued without knowledge of either the JADE or the alleging party.

It will be up to practitioners to encourage constant coordination between the JADE and Regulations and Rulings in order to ensure consistency in CBP actions and decisions on Jones Act issues (especially related to the OCS).

For general background on CBP’s administration and enforcement of the Jones Act and related laws, see its publication What Every Member of the Trade Community Should Know About Coastwise Trade: Merchandise.”

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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