RICO ACT EMPLOYED TO FIGHT MARITIME WHITE-COLLAR CRIME

On March 28, 1990 New York maritime arbitrators awarded a charterer treble (triple) damages of $368,496 and legal fees of $111,545 as a result of a vessel owner converting charterer’s oil cargo for fuel to run a ship.

The landmark Triumph award (SMA No. 2642) is the first arbitration in the United States to use the federal Racketeer Influenced Corrupt Organizations Act, also know as RICO, to fight maritime white-collar crime.

The award is considered by many to be the most important maritime arbitration decision in many years. Because of it’s importance in future charter party disputes, the award has admiralty lawyers researching law books to familiarize themselves with the 1970 RICO act and its treble damage provision.

The arbitration involved an oil cargo shortage on a voyage of the tanker Triumph. The arbitrators found that at some unknown time, prior to the voyage in question, a modification had been made in a cargo tank that could divert cargo to the vessel’s bunker fuel tanks. The panel had to consider whether the owner knew, or should have known about the modification, and whether the owner took cargo on the subject voyage.

The chief officer and chief engineer testified that they could not recall the modification. The panel’s majority found their testimony to be unbelievable. The engine log indicated that bunker consumption entries had been tampered with. The chief engineer testified that he whited-out (covered over) entries to cover smudges. Later he stated that he whited-out to correct errors. Thereafter the chief engineer claimed that he was uncertain why the changes were made

Additional evidence showed four other shortages were sustained to cargoes carried on other voyages. Furthermore, the Triumph’s managing company had at least three other vessels that sustained cargo losses and were found with cargo in their bunker tanks.

The panel’s majority concluded that the owner of the Triumph converted cargo for its own benefit in violation of the RICO act. The majority held it was appropriate to apply RICO, together with its treble damage and legal fee provisions, which should act as a deterrent to this type of crime.

In response to a growing awareness of the impact of organized crime on the American economy, Congress passed RICO in 1970. In addition to the provisions for criminal prosecution, the act authorizes civil suits against RICO violators by private citizens injured by racketeering activities. To recover a civil claim under RICO, the claimant must have suffered injury to its business because the defendant, while involved in certain enumerated relationships with an enterprise, engaged in a pattern of racketeering activity. The activity may effect interstate commerce, i.e. shipping.

A “pattern of racketeering” consists of two or more acts of racketeering committed within a ten-year period. Acts comprising racketeering activity include certain state law crimes such as mail fraud, wire fraud and embezzlement. Also included is stealing from a vessel with an intent to convert goods moving in interstate commerce, i.e. oil cargoes.

In 1985, the Supreme Court (473 US 479) noted that RICO actions were being brought almost solely against non-mobster type defendants. Certainly maritime white collar criminals fit this description.

In late 1987, the Octonia Sun arbitration (SMA No. 2424) was rendered and broke new ground. A sole arbitrator awarded punitive damages in a maritime non-RICO arbitration. The facts were similar to those in the Triumph case, where a vessel’s cargo was converted in an ongoing scheme and used as fuel for the vessel.

Until recently, RICO claims were not believed to be appropriate for maritime arbitrations. In 1987 the Supreme Court in the McMahon case (107 S. Ct. 2332) changed this perception. It unanimously held that RICO claims for treble damages and reasonable attorney fees (punitive) were arbitrable.

The maritime community has been waiting for the Triumph decision since Sept. 7, 1988. That is when a partial award was rendered for the actual cargo loss.

At the time, the panel specifically left the RICO issue unresolved. As of March 28, 1990, the jury is in. It appears RICO arbitrations may become the wave of the future in certain maritime white-collar crime cases. Hopefully, RICO will have a deterring effect on maritime crime.

Those interested in obtaining information on this award, with its 23-page dissent, should telephone the Society of Maritime Arbitrators at (212) 483-0616.


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