Issues for carriers involved in U.S. drug trafficking or other criminal investigations outlined.
This article is a blog post that originally appeared on the website of the law firm Montgomery McCracken Walker & Rhoads, reproduced here with its permission.
On June 17, at the Port of Philadelphia, U.S. federal law enforcement seized more than 16 tons of cocaine from containers onboard the MSC Gayane containership. The estimated value of this cocaine is approximately $1 billion. To date, six crew members of the MSC Gayane (pictured) have been arrested and charged with violations of the federal maritime drug trafficking laws.
This was the second major drug seizure on a containership by the U.S. government at the Port of Philadelphia in recent months and reportedly the largest such seizure in the port’s history.
Similarly, in March of this year, more than 3,000 pounds (1.5 tons) of cocaine were seized on a containership at the Port of New York/New Jersey in what was reportedly the largest cocaine seizure in that port in approximately 25 years.
In a press conference regarding the June 17 cocaine seizure, U.S. Attorney for the Eastern District of Pennsylvania William McSwain announced that the government would “employ the fullest measure of the law possible” in the prosecution of this case, including the possible forfeiture of the ship itself.
On July 4, U.S. Attorney McSwain followed through with his statements and, based upon an application by McSwain’s office, the U.S. Customs and Border Patrol executed a warrant and seized the MSC Gayane.
The forfeiture of the MSC Gayane will have significant financial implications for its owners and owners of cargo aboard the ships. The owner of the MSC Gayane reports it has been told that it is not the target of the government’s criminal investigation, is cooperating with the government and is seeking to regain the certification of its C-TPAT status.
Oftentimes illegal drugs are smuggled onto containerships in a clandestine manner unbeknownst to the masters of the ship — and certainly unknown to ship owners. We would like to shed some insight to our clients regarding the relevant perspective of the government involved in cases like this — namely the possible exposure of your vessels to forfeiture by the U.S. government should they be found to contain large quantities of illegal narcotics or in violation of other U.S. laws.
The Maritime Drug Law Enforcement Act (MDLEA) makes it illegal to possess with the intent to distribute illegal narcotics on a vessel covered under the act. Any vessel, regardless of where it is registered, is subject to the U.S. drug laws once the vessel is in the territorial waters of the United States.
While there is no suggestion that the MSC Gayane owners knew of the illegal drugs that had been smuggled aboard the ship, when a cargo ship is found to contain large quantities of illegal drugs, U.S. law deems that vessel to have been used to facilitate this crime, therefore, making it subject to possible forfeiture by the U.S. government.
The Comprehensive Drug Abuse Prevention & Control Act provides that “all conveyances, including aircraft, vehicles or vessels, which are used, or intended for use, to transport, or in any manner to facilitate the transportation, sale, receipt, possession or concealment” of controlled substances are subject to forfeiture to the United States and may be seized by the attorney general. The vessel could be forfeited civilly or criminally through the judicial process. The vessel could then be sold and the proceeds used to pay for expenses associated with the legal proceedings.
Is an “innocent owner” defense available? Possibly. If the government is seeking civil forfeiture of the vessel, the law states that “an innocent owner’s interest in property shall not be forfeited under any civil forfeiture statute.” The claimant has the burden to prove that they are indeed an “innocent owner” and had no knowledge of the illegal conduct on the vessel or that upon learning of the illegal conduct, the “innocent owner” did everything reasonably possible under the circumstances to stop the illegal conduct. Thus, this defense may not work if the court determines the owner to be “willfully blind” to the illegal conduct occurring on the ship.
The circumstances are different in a criminal case. Criminal forfeiture is possible when the government files charges against one or more persons (certain individuals or the company itself) involved in the criminal activity. When charges are filed, usually in an indictment, a Notice of Forfeiture is attached to the charging document.
The issue of actual forfeiture only becomes viable after a criminal conviction (by way of guilty plea or jury verdict after trial). Forfeiture becomes part of a defendant’s sentence, thus only the defendant’s interest in the property can be forfeited. After a conviction, the government has the burden to prove the connection between the offense and the property to be forfeited. If the government is successful, then an ancillary hearing would be conducted to address the interests of third parties in the property in order to determine what, if any, portion of the property is forfeitable.
While the outcome of a civil or criminal forfeiture action by the U.S. government may ultimately be favorable for ship owners, owners should still keep in mind that their vessel may be seized and held by the government until the phases of the processes are complete.
Notably, on May 9, for the first time, the U.S. government actually seized a North Korean shipping vessel, the Wise Honest, for violating U.S. law and international sanctions. Likewise, there are thoughts that the U.S. government may also be involved in the July 4 seizure of the Grace 1 off the coast of Gibraltar, which was seized by the U.K. after it was found to be carrying Iranian crude oil to Syria in violation of European Union sanctions. If the Grace 1 is found to be in breach of sanctions, the U.S. may seek civil forfeiture of this vessel as well.
We will be following the development of these cases as they proceed through their respective legal processes.
A. Nicole Phillips is a partner in Montgomery McCracken’s litigation department and a member of the firm’s white collar and government investigations group. She focuses her practice on complex commercial litigation, white collar crime and government investigations. Prior to joining Montgomery McCracken, Phillips served as an Assistant U.S. Attorney in the Criminal Division of the United States Attorney’s Office for the Eastern District of Pennsylvania. Associate Eric Chang is a member of the firm’s maritime and transportation practice group. Wook Chung is of counsel to Montgomery McCracken’s maritime and transportation practice.
