Jones Act patrol

Jones Act patrol    OMSA hires manager to ensure industry compliance with U.S.-flag coastwise rules.

   By Chris Gillis

   Joe Kavanaugh has spent much of his 35-year career on coastal waters unraveling complex schemes to either defraud the government or smuggle contraband into the United States.
   He will now use these investigative skills to track down and expose violations of the country's coastwise maritime regulations. Kavanaugh was hired in November by the Offshore Marine Service Association to serve in the newly created position of manager of Jones Act compliance.
   'When I worked for the Coast Guard and Customs, I put my heart into it,' Kavanaugh told American Shipper. 'Now I am helping the industry.'
   In specific, Kavanaugh will work with OMSA's more than 250 member companies, including 100 firms that own and operate offshore marine service vessels in the U.S. Gulf. His objective is to track the activities of foreign vessels working in the offshore oil and gas industry to determine whether they're cheating the Jones Act, and will work with federal enforcement agencies to punish those violators.
   The Jones Act, also known as the 1936 Merchant Marine Act, is designed to preserve domestic waterborne trades for U.S.-flag vessels built, owned and crewed by Americans. This law becomes trickier to impose when mixed with waterborne transportation regulated by the Outer Continental Shelf Lands Act (OCSLA).
   Under the OCSLA, the Jones Act applies if it involves transporting cargo or people between 'points,' up to 200 miles offshore in an area called the Exclusive Economic Zone. A point offshore must pass a two-part test:
   ' The offshore unit must be attached to the seabed.
   ' It's for the purpose of energy exploration, development and production.
   Since the passage of OCSLA, OMSA claims Customs has interpreted the law in a series of rulings that has further confused the issue.

OMSA's compliance manager will work with the association's more than 250 member companies, including 100 firms that own and operate offshore marine service vessels working in the U.S. Gulf.

   The U.S. offshore fleet of more than 1,000 workboats carries numerous supplies, such as pipe, tools, computer equipment, fuel and drinking water to rigs and platforms, as well as tens of thousands of workers to and from these offshore job sites.
   'Foreign vessels are allowed to do a number of jobs offshore legally, but they can cross the line and violate the Jones Act fairly easily,' said OMSA President Ken Wells.
   For example, if a foreign-flag vessel delivers cargo or people to an offshore rig that is anchored away from the drilling site, called 'stacked,' it is allowable. However, if the foreign-flag vessel delivers cargo or people to a rig that is on station and drilling, it is a violation.
   In another instance, if a foreign-flag vessel delivers cargo or people to a dive support or seismic vessel that is not attached to the seabed, or 'free floating,' it is legal. If those vessels are anchored, it is likely to be a violation.
   Likewise, if a foreign-flag vessel is used for a construction job where it stays in one location, such as working on a platform, and a U.S. vessel carries cargo out to it, it is legal. If that foreign-flag construction vessel goes back to shore to pick up cargo and carries it offshore for installation, it is violating the Jones Act.
   In 2006, Congress passed the Mobile Offshore Drilling Units Amendment. As drilling projects become more complex, Congress noted that it was becoming increasingly difficult for offshore companies to determine when a U.S.-flag vessel must be used to provide supplies or set anchors and mooring lines for mobile offshore drilling units. The amendment states that foreign-flag vessels are excluded from this activity when one of these units operates in U.S. waters.

Ken Wells president, Offshore Marine Service Association
'Foreign vessels are allowed to do a number of jobs offshore legally, but they can cross the line and violate the Jones Act fairly easily.'

   Despite the laws and regulations, the Gulf is vast and it's relatively easy for foreign-flag vessels to operate unnoticed. 'The range of areas foreign vessels can work legally tends to obscure violations of the Jones Act,' Wells said.
   'It's particularly important that we have compliance,' he added. 'We're operating with finite supply and demand curves. Foreign vessels can damage healthy rate levels.'
   OMSA estimates the total income taxes paid by the crew of an average workboat are $105,000 per year, compared to foreign sailors who pay no U.S. income tax, even if the money is earned in U.S. waters. In addition, U.S.-flag offshore vessels pay local, state and federal taxes, whereas foreign-flag vessels pay none. The average annual property tax paid to local governments is $39,000 per U.S.-flag vessel, the association said.
   Michael Roberts, senior vice president and general counsel to Crowley Maritime Corp. and a noted expert on marine cabotage law, said OMSA's appointment of a Jones Act compliance manager is 'a good move.' (Crowley is not a member of OMSA.)
   'We have a law that sets aside work for vessels manned by American workers and built in American shipyards,' Roberts said. 'Allowing that work to be done by foreign workers and foreign-flag vessels is not fair to the American workers, who especially need good jobs these days.
   'It's also not fair to the American vessel owners, who are making very large investments building ships in American yards based on the assumption that the work would be there,' he said. OMSA estimates during the next five years its members plan to build at least 150 new vessels at a cost of $10 million to $20 million each.
   Through the appointment of its Jones Act compliance officer, OMSA plans to step up its efforts to educate the Department of Homeland Security's Coast Guard and Customs and Border Protection about the importance of coastwise regulations to national security and the U.S. economy.
   'While a number of associations have launched similar initiatives to enforce copyright and product piracy laws, this is the first time that we are aware of a maritime group taking this step to ensure enforcement of the Jones Act, still a critically important maritime law,' Wells said. 'Creating this position sends a strong signal that our country will not allow new offshore energy exploration jobs to go to foreign entities illegally.'
   'The violations usually happen away from the coast,' Roberts said. 'This puts greater demands on government enforcement resources, which are already stretched thin. Adding a Jones Act compliance officer to assist in the compliance and enforcement effort probably makes sense in those circumstances.'
   Kavanaugh's area of coverage is quite large, stretching from Alabama's Port of Mobile across to the Texas ports, such as Port Arthur, Houston and Galveston. 'I'm not chained to a desk. I can work out of my truck, if necessary,' he said.
   Kavanaugh said the bulk of his work will probably take place in Louisiana's Port Fourchon, the main hub for the Gulf workboat fleet, and will count on strong contacts among the U.S.-flag vessel operators to help point up potential violations.
   'Investigating Jones Act violations is a meticulous process,' Kavanaugh said. 'I'm not going out with a shotgun approach.'