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Marine Log

June 30, 2006

$1.5 million fines and penalties in magic pipe case

A U.S. based ship operator, Pacific-Gulf Marine, Inc. (PGM), has agreed to plead guilty to criminal charges that it engaged in deliberate acts of pollution involving a fleet of four ships in violation of the Act to Prevent Pollution from Ships, says the Department of Justice.

As part of the plea agreement, PGM will pay a $1 million criminal fine and $500,000 for community service, if approved by the court.

In a related case, a federal grand jury has returned an indictment charging two former Chief Engineers of the M/V Tanabata (one of the ships in the fleet), with various environmental crimes.

According to documents filed in court, including a Joint Factual Statement signed by the company's Chief Executive Officer, PGM has admitted that ship records misrepresented that hundreds of thousands of gallons of oil-contaminated bilge waste were properly discharged overboard through required pollution prevention equipment, when in reality the ships used bypass equipment, sometimes referred to as a magic pipe, to circumvent the device, known as an Oily Water Separator.

In agreeing to plead guilty, PGM admitted that its shore-side management "failed to provide sufficient management resources and support to the ships, and also failed to exercise sufficient supervision and management controls to prevent or detect criminal violations by its employees."

The motive for the criminal conduct was to save money, according to papers filed in court.

After learning of the federal investigation, PGM voluntarily disclosed to the United States the results of an internal investigation comprised of approximately 50 reports of interviews with various current and former employees who had worked aboard four giant car carrier vessels used to transport vehicles.

"The government was previously unaware of PGM's internal investigation and did not request or require the disclosure," according to papers filed in court.

"Many of the interviews contained confessions, admissions or otherwise revealed incriminating information and evidence of illegal conduct relating to environmental violations," according to documents filed in court.

"Companies that voluntarily assist in federal criminal investigations and accept responsibility for their own crimes will receive credit," said U.S. Attorney Rod J. Rosenstein for the District of Maryland. "By waiving privilege claims and disclosing the results of its own internal investigation, PGM helped to ensure that others also will be held accountable. Just as we give consideration to individual criminals who tell us what they know about crimes by other people, so too we reward corporations that voluntarily disclose the results of their internal investigations."

Both the Department of Justice and the EPA have voluntary disclosure programs under which a company can seek non-prosecution if it discovers violations and reports them in a timely manner prior to a government investigation.

"The defendants in this case have openly admitted to committing serious criminal acts over a prolonged period of time, including intentionally bypassing pollution controls to make illegal oil discharges from multiple ships," said Sue Ellen Wooldridge, Assistant Attorney General for the Justice Department's Environment and Natural Resources Division. "We remain committed to working with the Coast Guard and the EPA to prosecute cases of deliberate pollution and to deter others from engaging in similar acts."

The criminal investigation began on September 2, 2003, after U.S. Coast Guard inspections of the M/V Tellus and M/V Tanabata in Baltimore, MD. However, like an earlier inspection on March 29, 2003, in which a bypass pipe laden with oil was found hidden under the engine room floor of the M/V Fidelio, another ship managed by PGM, engineers denied any illegal conduct.

On the M/V Tanabata, the pipe used to bypass the Oily Water Separator was referred to on board as "the Magical Pipe," and it was allegedly thrown overboard by the ship's Chief Engineer after the Coast Guard inspected the vessel in Baltimore.

"The Coast Guard is particularly concerned that those responsible for operation of U.S.-flagged vessel would engage in such systematic and egregious conduct. We are fully committed to fulfilling our mission as a steward of our oceans and will continue to seek punishment for both corporations and individuals that knowingly pollute the marine environment regardless of their nationality," said Rear Admiral Craig E. Bone, U.S. Coast Guard Assistant Commandant for Prevention.

"The laws are to prevent our oceans and waterways from being used as dumping grounds for hazardous materials and waste," said Granta Y. Nakayama, EPA's Assistant Administrator for the Office of Enforcement and Compliance Assurance. "Those who violate these laws for the sake of illegal profits will be prosecuted."

Engine room operations on board large ocean going vessels generate large amounts of waste oil and oil-contaminated bilge waste.

International and U.S. law prohibit the discharge of waste containing more than 15 parts per million oil and without treatment by an Oil Water Separator and oil sensing equipment--a required pollution prevention device.

Under the terms of the proposed plea agreement, which must be approved by the court, $1 million will be paid as a criminal fine and $500,000 will be devoted to community service. The community service projects, to be administered by the National Fish & Wildlife Foundation, include funding of environmental projects in Chesapeake Bay and to provide environmental training to those enrolled in U.S. maritime academies.

PGM must also remain on probation for three years under the terms of a government required environmental compliance plan that includes an outside independent auditor and a court appointed monitor paid for by the defendant.

Stephen Karas and Mark Humphries, former Chief Engineers of the M/V Tanabata, were charged with conspiracy, violation of the Act to Prevent Pollution from Ships for failing to maintain an Oil Record Book, and false statements. Karas was also charged with a count of obstruction of justice for alleged witness tampering while Humphries has been charged with a count of obstruction for the alleged destruction of evidence allegedly throwing the bypass pipe overboard after the Coast Guard inspection in Baltimore.

The investigation is continuing. An indictment represents allegations brought by a grand jury. Defendants are presumed innocent until proven guilty.

This investigation was conducted by the Chesapeake Regional Office of the Coast Guard Investigative Service and the EPA Criminal Investigation Division. Additional assistance was provided by U.S. Coast Guard Sector Baltimore, U.S. Coast Guard Activities Europe, U.S. Coast Guard Fifth District Legal Office, Coast Guard Office of International and Maritime Law, and Coast Guard Headquarters Office of Investigations and Analysis. The case is being prosecuted by the U.S. Department of Justice Environmental Crimes Section and the U.S. Attorney's Office for the District of Maryland.

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