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Recommendation 3 (Restated)

A conference chairman, secretary, or committee of members shall perform no self-policing function other than liaison. This limitation does not apply to those conferences eligible for the exception under Recommendation 2. The suggested specific functions of a chairman under both the part-time and full-time concepts of neutral body self-policing are set forth in the model self-policing agreement (see Appendix, Articles VII (A) and XVI; also, Volume I, Part IV(B)).

Discussion

It has been argued that, before the Commission could require implementation of provisions such as Recommendations i through 3, individual findings would have to be made, pursuant to Section 15 of the Shipping Act, 1916, that self-policing of the conferences is "inadequate. This requirement, if it were necessary, should be applied pro forma for those conferences still using the conference chairman system of selfpolicing, when one considers the overwhelming industry testimony against the system (see Volume I, Part IV, pp. 14-17, incl.), and the indictment of the negative self-policing reports (see Volume I, Part V).

The above facts constitute prima facie evidence of the inadequacy of every conference policed by a chairman, or using a comparable approach. clearly, the burden would shift to the conferences to show what ongoing inspection and auditing procedures are in place, how a malpractice investigation would be conducted, and the adjudication procedures used in order to rebut the presumption of inadequacy Intelligence data available at this time, coupled with present rebate case histories, should be sufficient basis for surrebuttal to any conference offering a pretext of self-policing under the guise of the chairman system. Finally, the system has never addressed itself to the cash rebate problem. It has been found wanting; to require a case-by-case approach would only delay the inevitable. Recommendation 4 (Restated)

Each neutral body, including those bodies on retainer, shall have the authority to begin investigations on its

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own initiative (see Appendix, Article IV(A) (2); also, Volume I, Part VI, Recommendation 4, p. 45).

Discussion

There has been some objection to this authority as it applies to conferences policed by part-time neutral bodies on retainer. The complaint is that the neutral body would build up its revenue by initiating baseless complaints. The rejoinder to this complaint is that a professional organization would not indulge in such a practice because to do so would redound upon its reputation. Secondly, if a complaint were valid, a conference has complete freedom of choice in hiring another neutral body.

Recommendation 5

There shall be confidentiality for the complainants and sources of information (see Appendix, Article V(A) (1) and (2); also, Volume I, Part VI, Recommendation 5, pp. 45-46).

Revision

A neutral body's records shall be made available for private inspection by the Federal Maritime Commission and other governmental authorities. Inspection by the Commission shall be for the purpose of evaluating the adequacy of the self-policing, but in no event should any of the confidential record information be placed in files of the Commission or other governmental authorities.

Information in the neutral body's records may be disclosed to others on a confidential basis, provided the disclosure is deemed necessary and prudent by the neutral body in furtherance of its intelligence-gathering responsibilities (see Appendix, Article v(A) (3) and (4)).

Discussion

During the course of this study, the confidentiality of some neutral bodies' files was a major obstacle. Initially, neutral body officials were reluctant to have an open dialogue for fear of breaching their confidentiality clauses. Only one neutral body was able to discuss candidly its records. The above revision is modeled in part after this neutral body's confidentiality clause.

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At the present time, I can recall details of some of the mentioned neutral body's cases; however, I am unable to relate individual carriers to specific cases. I have no notes matching details to lines. However, I do have notes on methods and procedures of self-policing investigations. No breach of confidentiality of records has occurred. An evaluation of the adequacy of the neutral body's selfpolicing could be made if such were my mission.

It should be recognized that the rumors and gossip of the marketplace are useful commodities in the shipping industry. But the industry should recognize that ability to maintain confidence is a cornerstone of the investigative profession. Furthermore, confidentiality is as zealously guarded in the investigative business as in any other profession where sharing confidences is an integral part of working relationships.

In self-policing agreements, the confidentiality issue is not a bar to arbitration proceedings, nor should it be a bar to other necessary functions. Specifically, the inability of a neutral body to share confidences with other investigative entities is inefficient (as explained below in Part XI (C) on Intelligence Gathering). The prohibition on disclosure of records also precludes the Commission from evaluating the adequacy of the neutral body's self-policing, (as discussed in Part XII dealing with Commission Oversight) and the necessary review in determining investigative standards (see Part X(D)). Confidentiality of records under the above circumstances is an artificial barrier (see Part XI (C) (2), "Double Jeopardy") which defeats the purposes of both the neutral bodies and the Commission, deterring them from meeting their respective obligations. Simply stated, the Commission shall and must exert its regulatory oversight responsibilities, and the neutral bodies must become more effective, or the adversaries of the conference system will bring about the withdrawal of the industry's antitrust exemption.

Recommendation 6 (Restated)

The investigatory body may compel production of records and testimony as well as investigate in any area it deems necessary so long as it can demonstrate a reasonable basis therefor" (see Appendix, Article IV(B), and Volume I, Part VI, p. 46).

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Revision

A conference shall not prohibit its neutral body from conducting an inspection or investigation in any area which is covered by the conference's tariff, rules and regulations (see Appendix, Article IX(A) (1)).

Discussion

Some conferences have attempted to limit a neutral body's authority to investigate possible malpractices involving specific connodities or modes of transport, claiming they are not included in the self-policing agreements. This type of action, or any action which limits the areas of inquiry by a neutral body by asserting that certain areas of the tariff or regulations are not potential violations, clearly violates the spirit of self-policing and should be prohibited.

Recommendation 7 (Restated)

Conference decisions initiating or modifying existing self-policing systems shall be made on a basis other than unanimity (see Volume I, Part VI, Recommendation 7, pp. 46-47; also, Appendix, Article I).

Recommendation 8 (Restated)

Conferences shall set out the burden of proof for establishing a violation. Reasonable proof or common sense is suggested (see Volume I, Part VI, Recommendation 8, pp. 47-48; also, Appendix, Article IX(B)).

Recommendation 9 (Restated)

An investigatory body may initiate an investigation of a malpractice up to two years after its commission, and a charge of wrongdoing must be presented to the line within two years after the initiation of the investigation (see Volume I, Part VI, Recommendation 9, pp. 48-49; also, Appendix, Article VI).

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Recommendation 10

Revision 1

Assessment

Liquidated damages assessed shall be computed by taking into consideration the impairment of the stability of the conference rate structure. The presumable and possible damages include the destruction of the financial stability of the member lines and the consequent loss of their entire capital investments (see Appendix, Article XI (A)). Accordingly, the initial damages against a member line can be assessed at any amount up to one hundred thousand dollars and, in the event of a cash rebate malpractice, up to two hundred thousand dollars for each violation (see Appendix, Article XI (B) (1), (2) and (4)).

Criteria to be applied in assessing damages should be stated in the agreement and should include the following information:

a. whether the violation was substantial or merely technical;

b. whether the violation was willful;

c. the financial advantage or gain realized as a result of the transaction;

d. the impact on the trade, e.g., was an atmosphere conducive to malpractices created;

e. the number of breaches or violations involved (see Appendix, Article IX(A) (1) for definition of "violation");

f. the number of previous warnings to and violations by the line;

g. in mitigation, whether the line has been subject to criminal or civil penalties; and

h. whether false or misleading statements were made to the neutral body investigators during the course of the subject investigation (see Volume I, Part VI, Recommendation 10, pp. 49-53, incl.; also, Appendix, Article XI (B) (3)).

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