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A weakness in the agreements is that the words "violation," "breach," and "offense" are used, but their meanings are not always clearly stated. A violation or breach should be defined in the agreement as the entire transaction between a carrier and shipper on one voyage. As the transaction is perpetuated in subsequent voyages, the number of breaches or violations increases. The number of shippers for each voyage multiplies the violations.

Additionally, consideration should be given to having the agreements reflect the criteria to be used in arriving at the amounts of the fines. For example, the following criteria could be stated in the agreements: (1) whether the violation was substantial or merely technical; (2) whether the violation was willful; (3) the financial advantage or gain from the transaction; (4) the impact on the trade, e.g., was an atmosphere conducive to malpractices created; (5) the number of breaches or violations involved; (6) the number of previous warnings to and violations by the line; and (7) in mitigation, whether the line has been subject to criminal or civil penalties. Any repetition of the violation after settling of the initial violation should result in an automatic doubling of the prior fine. In this connection, any line found guilty of a second malpractice within a twelve-month period should be liable for a minimum fine of ten or twenty thousand dollars, irrespective of the criteria.

Further, the agreement should cite a specific percentage reduction of the fine if the line promptly admits to the violation. This provision can only be made if the amount of fine for a violation is fairly well established. Then the line could be granted a 25 percent reduction in the assessed fine if it accepts the charge and pays the fine promptly. This technique encourages settlement and expedites the resolving of the charges. The latter brings about quick justice which is essential for deterring malpractices.

As just mentioned, the amount of fines due for malpractices should be related to some sort of fixed schedule. With such a fixed schedule, there will be no plea bargaining, with the only condition for a reduction in the fine being a prompt admission by the line of wrongdoing.

By using established criteria in arriving at a fine, the charged party can readily recognize and understand the

amount of the fine levied. If the malpractice was
substantial, then, as the added criteria are met,
the amount of the fine is increased above the suspected
financial gain.

In the letter to the line charging the malpractice (presumably the line has responded to the allegations) and setting the amount of the fine, the mentioned criteria can be set forth as the basis for the amount of the fine. For example, in those instances where the charging letter established that the violation was substantial and willful, or if the violation was technical but there was a trade advantage and the line received prior warnings, then the fine shall be a minimum of ten or twenty thousand dollars. As conference members understand and recognize the criteria, they will more readily accept the fines, and quicker resolution of the charges will result.

As will be discussed in Part VII (A), below, cash rebates present a difficult problem insofar as proof is concerned. Given that cash rebates are most serious and disruptive, what should be set out in the agreement is that a line found guilty of paying a cash rebate shall be subject to a minimum fine of two hundred thousand dollars. The establishment of the predetermined minimum fine not only removes the amount of the fine from the subject of discussion but is, more importantly, a strong deterrent, provided the neutral body is geared towards proving this type of malpractice.

The agreement files reviewed also are lacking in policy statements. Specifically, there should be spelled out the authority of the neutral body to fine a member who has been found guilty of violation of the Shipping Act by the Commission.

The term "double jeopardy" is used loosely by shipping officials, but there is a clear and present problem for those cases developed by the Commission. The Freedom of Information Act gives the neutral body access to the Bureau of Enforcement's investigatory files, with certain enumerated exceptions, once the investigations are completed. The information obtained could be the bases for fining action against the accused line.

There should be a stated policy as to what a neutral body's ground rules are when the neutral body and the

Commission are investigating the same violation.
There should be a policy for those situations when
the neutral body begins its investigation before the
Commission does. In this instance, it should be stated
whether the neutral body would be authorized by the
conference to levy the Freedom of Information request
to obtain and use the Commission's files. Conversely,
if the Commission begins its investigation first, what
should the neutral body's position be? To delay its
own work and eventually have the Bureau of Enforcement
be unsuccessful in its investigation could possibly
allow the accused line to escape any sanction.

"Double jeopardy," as the shipping officials envision it, with the Commission interjecting in neutral body investigations, historically has not been a problem. Commission personnel have recognized and respected the neutral body's jurisdiction as well as the confidentiality of the investigative files. However, the above related double liability situation is a definite problem area which should be resolved in the self-policing agreement.

Another problem area relates to lines which are repeat offenders and obviously are continually violating the agreements for their own business ends. Most officials disliked the concept I offered of referring the violations of repeat offenders to the Commission.

Rejecting this proposal, the conferences still must come to grips with the repeat violators to whom heavy fines are not a deterrent. The benefits to be gained from suspension or expulsion from the conference as opposed to the appearance of token self-policing should be weighed. If a line is making a mockery of the agreement, conference policy should be stated clearly in the selfpolicing agreement that, upon so many violations being proven and fines levied over a twelve-month period, the line is suspended automatically from the conference for a set period. The notoriety of this action or a series of actions should be considered as a distinct deterrent and, if this does not work, alternatives should be considered. What the conferences must weigh is whether the line is a more disruptive force inside or outside of the conference. Whatever the decision, there should be a policy statement by the conferences so that all concerned recognize the problem has been addressed. On the issue of policing an expelled member, see Part VII(C).




Testimonies received reflect the broad allegation that to some extent the self-policing systems have become partially involved in catching minor misdeclarations and questionable interpretations of tariff rules and regulations. The enforcement staffs are bothered with "Mickey Mouse" situations which do not lend themselves to a reputation for deterring or uncovering sophisticated malpractices. Conference members state that they want a strong neutral body which would give the assurance that their associates are not deviating from their espoused principle of no malpractices.

Satisfaction has been expressed that the obvious methods of committing certain malpractices are being detected and stopped. A degree of the advantage obtained from misdeclarations, absorptions and drayage malpractices is being taken away from the lines. However, concern has been expressed that conditions are coming about for the occurrence of those types of rebates which may not be within the investigative expertise of the present staffs, and which officials claim may be impossible to detect. The neutral bodies should be asking themselves what they would have done to catch those cash rebates now being disclosed and how they could acquire the requisite expertise.

There is now one basic approach towards self-policing, but using different methods. One neutral body advocates a compliance audit which is a detailed office review of a line's records by the neutral body's investigators spending two weeks on the assignment. Visitations by this body's enforcement personnel in pursuing self-initiated leads and responding to complaints increase the visibility of the neutral body officials with the lines.

Some of the other neutral bodies use the ongoing spot audit of the lines' records every two weeks. This audit involves one investigator spending up to one day checking various files. The bodies also conduct self-initiated investigations and respond to carrier complaints. For each, cargo inspection is an integral part of their policing programs. The effectiveness and merits of each of these methods should be analyzed. Another matter to be pursued is misrating programs. One neutral body has delegated this to

the conference chairman, while others have this responsibility as part of their self-policing function.

The second half of this study will pursue the feasibility of a new approach to self-policing in addition to analysis of the above-mentioned present methods. From observation to date, the present system is not geared to uncover cash rebates. Accordingly, consideration should be given to installing another level of personnel with high-level auditing/investigative experience. As a result, the policing techniques now used would be complemented by analyses and audits of steamship lines' financial records directed towards cash rebates.

The new approach suggested would require trained investigators with financially related experience to inquire in-depth into the areas of cash rebate malpractices uncovered by neutral bodies and the Commission, as well as those previously tabled. They would explore new methodology which would analyze shipping corporations' and their subsidiaries' financial records to search out those areas from which funds for malpractices could be sourced. They would also be valuable by giving to the neutral bodies the benefits of their experiences in developing investigative techniques and in the administration of an investigative organization.

No investigative program analyzes the revenues a line receives from each voyage or each trade. The expenditures by agents should be the subject of analyses and there should be a strict accountability of their funds. An insight to the financial operations of the lines should be obtained so that a program of verification of corporate incomes and expenditures can be devised. The financial records of the home offices of the lines should be within these investigators' exclusive jurisdiction. In this connection, after completing their above analysis and the analysis of those rebates now coming to light and those which were committed previously and were tabled, they would apply auditing/investigative techniques geared solely to uncover such cash rebates in the future.

The reluctance of corporate executives to make available to outsiders financial secrets is recognized. However, the type of personnel envisioned for the project are those law enforcement types whose careers have been in areas where confidentiality and neutrality are absolute requirements. Their working conditions are such that, if ever a breach of confidentiality or neutrality were proven, they would be

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