Historic Jones Act Fine Levied

Federal law, generally known as the Jones Act and a part of the Merchant Marine Act, 1920, restrict U.S. maritime coastwise trade to qualified U.S.-flag vessels. On April 4, 2017, the U.S. Department of Justice levied the largest known fine in the long history of the Jones Act, namely a $10 million assessment against Furie Operating Alaska LLC.

Furie had shipped the Spartan 151, a jack-up drill rig, from the U.S. Gulf of Mexico to Cook Inlet in Alaska via a foreign-flag heavy lift vessel in 2011. Specifically, the foreign vessel transported the Spartan 151 to Esquimalt, Canada and it was towed from there to Cook Inlet via U.S. coastwise qualified tugs.

Furie had anticipated the renewal of a Jones Act waiver which it had received in 2006. That renewal did not occur, and Furie was sent a Notice of Penalty in the amount of $15 million in October 2011. The various issues associated with the Notice have been before the U.S. District Court for the District of Alaska since 2012.

The Jones Act provides, among other things, that “merchandise” transported in violation of the Act “is liable to seizure by and forfeiture to the Government,” or, in the alternative, a fine may be assessed for the greater of the cost of transportation or the “value of the merchandise” unlawfully transported.

One of the issues in the Furie case was the meaning of the phrase “value of the merchandise.” The value could have been either the book value or insured value of the rig. However, CBP was persuaded to utilize the fair market value of the jack-up drill rig which was the basis for the $15 million Notice of Penalty. CBP did not accept arguments that the fine should be mitigated entirely due to procedural and other defects and ultimately the amount was compromised to $10 million.