Criminal Enforcement under the Biden Administration

Kierstan L. Carlson

We are nearly six months into the Biden administration and its civil and criminal enforcement policies are taking shape. Under the Trump administration, the government’s enforcement focus shifted away from white collar crimes and violations towards immigration, violent crimes, opioids, and the like. Environmental enforcement in particular dipped dramatically. Although the Biden administration has not formally announced enforcement priorities, it is expected to shift back and renew the government’s focus on corporations and certain white collar crimes. This likely will be true for the Department of Justice (“DOJ”) as well as at the agency level, as agency heads are expected to be given a high degree of independence and agencies to be empowered to pursue enforcement actions and refer serious cases to the DOJ. 

The Biden administration also has made some major policy changes with respect to environmental enforcement. Earlier this year, the Deputy Assistant Attorney General sent a memorandum to the heads of each section in the DOJ’s Environmental and Natural Resources Division, which includes the sections that bring civil and criminal maritime environmental cases referred to the DOJ by the U.S. Coast Guard (“USCG”) and the Environmental Protection Agency (“EPA”). The memorandum revoked nine policy directives that had been in place under the Trump administration. It also stated that the Biden administration will be focusing on climate change and environmental justice.

What does all of this mean for the maritime industry? There are a few key takeaways: 1) enforcement of MARPOL Annex I cases will continue and we may see an increased focus on MARPOL Annex VI and EPA emissions standards, as well as on ballast water; and 2) we also expect a continued focus on non-environmental enforcement areas that have long posed significant risks to the industry: sanctions, anti-corruption, anti-money laundering, and antitrust. This is not a complete list of the risks facing our very heavily regulated industry, but it captures the enforcement trends and what are, in our view, the most critical risks. 

Environmental Enforcement Trends

The maritime industry knows the great extent of MARPOL Annex I enforcement in the United States. The DOJ has actively prosecuted so-called “magic pipe” cases for decades. Its efforts are aided by a whistleblower provision in the U.S. statute that implemented MARPOL, which states that anyone providing information that leads to a conviction may be awarded up to 50 percent of the criminal penalty imposed. This provides a massive incentive for seafarers to call out improper conduct—and such misconduct poses a grave risk to ship owners and operators alike. Indeed, MARPOL Annex I cases did not stop under the Trump administration, despite its lax approach to environmental enforcement, and they are not expected to stop now.

Aside from Annex I cases, the Biden administration’s focus on climate change suggests that the USCG and DOJ may be more focused on compliance with Annex VI and EPA emissions standards, as well as associated risks, such as scrubber waste discharges. Annex VI compliance already is a routine part of port state control inspections and the DOJ brought its first Annex VI criminal case in 2019. This upward trend in enforcement likely will continue, particularly because the same incentives for whistleblowers apply for Annex VI violations.

Enforcement of U.S. ballast water regulations also may rise. The USCG has been increasingly aggressive in bringing civil and administrative actions against violators. And, the relatively new and complex regulatory scheme, plus confusion between U.S. and international ballast water requirements, only enhance the risks of non-compliance. Comparably, with the Biden administration’s emphasis on environmental justice and commitment to pursue polluters, the DOJ may utilize the Clean Water Act to bring charges against ship owners or operators for improper discharges within U.S. waters. 

Other Enforcement Trends

As noted above, there are several non-environmental enforcement trends that have impacted the maritime industry and are likely to continue during the Biden administration.

Foreign Corrupt Practices Act (“FCPA”)

The FCPA is an anti-corruption law that, in essence, prohibits bribing foreign officials. Both foreign and domestic shipping companies have been prosecuted for FCPA violations, and such violations carry high monetary penalties. The FCPA remains a risk area for the industry, largely because 1) shipping companies frequently use third parties, such as customs brokers, freight forwarders, and local agents, and can be liable for bribes and other improper conduct by those third parties; and 2) vessels trade in locations with high levels of corruption, thus increasing the risk.

Sanctions

The United States regularly utilizes economic sanctions for political purposes. The Trump administration expanded the breadth of the U.S. sanctions program, but took a unilateralist and somewhat unprecedented approach, including targeting European maritime and offshore companies. The Biden administration has already signaled that it will continue utilizing the sanctions program in ways that impact the shipping and energy industries, and its emphasis likely will be on China, Iran, and Russia. This continued use of sanctions underscores the need for shipping companies calling on the United States to be diligent about with whom they do business and to ensure that no business is done with individuals or entities that are on the U.S. Department of Treasury’s list of “specially designated nationals” and “blocked persons.” 

Anti-Money Laundering (“AML”)

U.S. AML laws are often utilized in conjunction with prosecutions for violations of other laws, including sanctions or customs violations. In 2020, Congress passed the Anti-Money Laundering Act of 2020, which was a major revision to the prior regime. The new law increased penalties, expanded the DOJ’s authority to get documents from foreign banks, and enhanced the whistleblower program. While the Biden administration has indicated that its AML efforts will focus on cybersecurity and cryptocurrency, it is likely that the government will continue to use enforcement tools under AML laws in more traditional cases—including some of the other risk areas discussed here.

Antitrust

The transportation sector has long been a focal point for the DOJ’s antitrust division. The DOJ has targeted cartels in international shipping, including by exercising jurisdiction over foreign companies for conduct by a U.S. subsidiary or harm felt in the United States. In the last 10 years, there were two major criminal antitrust cases involving maritime companies and corporate executives: a coastal freight price-fixing case in the District of Puerto Rico, and a cartel involving ro-ro cargo shippers in the District of Maryland. Although there have been few cases of this magnitude against shipping companies, the DOJ has not shied away from bringing them. And, the DOJ also has the ability to pursue civil enforcement actions for antitrust violations. 

Avoid Becoming Part of an Enforcement Trend

Regardless of the trends or priorities of the administration in charge, companies should develop compliance programs targeted to the areas where their business has the most risk. Such programs should be practical and should be put into action—in fact, a “paper only” policy will be viewed negatively by U.S. enforcement authorities. We also recommend that companies seek to have a culture of compliance and a commitment to compliance from the top down. For example, companies should implement internal reporting systems, act promptly when a report is made, and even reward employees for submitting reports. Such a system could be the difference between an internal investigation and a DOJ investigation based on a whistleblower tip. Finally, a compliance program should be a “living document”—i.e., something that is audited and adjusted over time based on lessons learned. Together, all of these things will help keep your company from becoming part of an enforcement trend.

For more on this topic, please view our April 2021 Mainbrace Live webinar, co-presented by Kierstan L. Carlson, at Prepare for the Biden Administration’s Maritime & Foreign Policy.