U.S. CITIZENSHIP REQUIREMENTS FOR THE COASTWISE TRADE

Captain Patrick J. McGuireOffice of Maritime & International Law

U.S. Coast Guard

100 Hundred Years of the Jones Act

• The Shipping Act of 1916 (39 Stat 728 (1916)) established a standard for U.S. entity citizenship in section 2 of the Act.

• Section 2, as modified subsequently by the Merchant Marine Act, 1920 (41 Stat 988 (1920)) – established the 75% U.S. citizen equity ownership

requirement– remains the standard today– Codified, as amended, at 46 U.S.C. § 50501

Statutory Framework

• 46 U.S.C. § 50501a corporation, partnership, or association is

deemed a US citizen operating a vessel in the coastwise trade, at least

75 percent of the interest must be owned by U.S. citizens

Additional corporate requirementsDetermining Controlling corporate interestDetermining 75% interest by U.S. citizens

Statutory Framework• 46 U.S.C. § 12103

a vessel COD may be issued only if the vessel is:Wholly owned by one or more eligible individuals or entities; At least 5 net tons as measured under part J; andNot documented under the laws of a foreign country.

Eligible Ownersa U.S. citizen;An association, trust, joint venture, or other entity if—

A partnership if— each general partner is a U.S. citizen controlling interest in the partnership is owned by U.S. citizens

A corporation if— incorporated under U.S. laws or State law; CEO and Board Chairman are U.S. citizens; and No more of its directors are noncitizens than a minority of the number necessary to

constitute a quorum

Statutory Framework

• 46 U.S.C. § 12112 A coastwise endorsement may be issued

for a vessel that-Satisfies the requirements of section 12103 Built in the U.S.

Limited exceptions for vessels not built in the U.S.

Otherwise qualifies under the laws of the United States to engage in the coastwise trade.

Statutory Framework

• 46 U.S.C. § 12139 For vessels engaged in the coastwise trade

Owners, masters, charterers, and mortgagees of documented vessels may be required to submit reports to the Coast Guard to ensure compliance with The Jones Act.

46 C.F.R. Part 67

Statutory Framework

• 46 U.S.C. § 12140 Authority to conduct investigations and

inspections to ensure compliance Subpoenas may be issued

For witnesses For the production of documents or other

evidence Subpoenas enforced through the District

Court

Regulatory Framework

• 46 C.F.R. § 67.31 Stock or equity interest requirements to

support U.S. citizenship requirements For an entity comprised, in whole or in part, of

other entities which are not individuals each entity contributing to the stock or equity interest

qualifications of the entity holding title must be a U.S. citizen eligible to document vessels in its own right with the trade endorsement sought.

Regulatory Framework

• 46 C.F.R. § 67.39 A corporation meets U.S. citizenship

requirements if –incorporated under U.S. laws or State law;CEO, by whatever title, is a U.S. citizen;Chairman of the Board is a U.S. citizen; andNo more of its directors are non-citizens than a minority

of the number necessary to constitute a quorum. 75 percent of the stock interest in the corporation is

owned by U.S. citizens

Regulatory Framework

• 46 C.F.R. § 67.43 a properly completed original Application for

Initial Issue, Exchange, or Replacement of Certificate of Documentation; or Re-documentation (form CG-1258)

establishes a rebuttable presumption that the applicant is a U.S. citizen.

Publicly Traded Corporations

• Burden on the company to employ and administer mechanisms to establish and demonstrate compliance with the law

• Positive consideration given to a company’s diligent and good faith efforts

See NVDC Federal Register notice Nov 26, 2012 (77 FR 70452)

Publicly Traded Corporations Mechanisms used to monitor and determine compliance:• Use of the Depository Trust Company segregated account (or

‘‘SEG–100’’) system;• Monitoring SEC filings re: 5% holders (Schedules 13D, 13G, Form

13F) and follow-up requests for information from filers;• Use of protective provisions in organizational documents in order

to guard against and rectify the possibility of what are referred to as excess shares;

• Communications with Non-Objecting Beneficial Owners (or‘‘NOBOs’’)

• Analysis of registered stockholders; and• Use of dual stock certificates.

See NVDC Federal Register notice Nov 26, 2012 (77 FR 70452)

Questions?

Point of ContactNational Vessel Documentation Center

Doug Cameron (304) 271-2506