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a question, and the bill envisions no procedure for allowing a complainant to be heard prior to such a decision.

Moreover, the right of a complainant to seek reparation for rebating violations is one more deterrent to such rebating activity. For all of these reasons, we strongly urge that the existing rights of a complainant be retained under section 22.

The procedures outlined in H.R. 9518 would require that, in any proceeding involving an issue of rebating, a decision be rendered by the Commission within 180 days. In the alternative, the Commission could issue an interim order, stating in full why it could not issue a final order. While I am very much in favor of shortening the time now consumed in completing adjudicative proceedings, and do not oppose the imposition of specific deadlines to accomplish this purpose, the deadline specified here may be unnecessary and potentially too restrictive. I say unnecessary, because during the past 10 years, there has been only one adjudicative proceeding involving rebates before the Commission.

The primary reason for this is that most rebating violations, like other violations of the Shipping Act involving civil penalties, are best handled informally, by the Commission's investigative staff. In instances when the Commission receives some initial information to trigger an investigation, this procedure generally produces sufficient evidence to follow up with an enforcement claim, and ultimately, imposition of the civil penalty by the Commission or enforcement of the claim in a Federal district court.

When successfully pursued this procedure is expeditious, and we intend to continue to utilize it whenever possible, as was the case in the Sea-Land and recent Sony settlements. Since 1971, this procedure has been utilized over 100 times for all types of Shipping Act violations, and has resulted in the collection of approximately $5.4 million in penalties. With your permission, Mr. Chairman, I would like to submit for the record a list detailing these penalty payments.

The CHAIRMAN. That will be in the record at this point, [The material was not received at time of printing. ]

Mr. DASCHBACH. The second method which the Commission is utilizing effectively for pursuing rebating violations is its fact-finding investigation No. 9. This is a nonadjudicatory investigation conducted by a fact-finding officer, under delegated authority from the Commission. In this instance, the designated officer is Mr. James Cooper, who is sitting behind me should you have questions to ask of him. Mr. Cooper has the authority to issue subpoenes when necessary to obtain information.

As I have previously indicated, this investigation has produced evidence concerning 27 carriers and some 215 shippers and consignees. If our mission to pursue past violations remains unchanged, we anticipate that most or all of this evidence will be used in bringing enforcement claims against the offending parties.

Since the Commission cannot assess penalties on its own at present, a formal hearing before the agency into rebating allegations can achieve little more than a general finding of a violation of certain sections of the Shipping Act. In order to impose penalties for such violations, the Commission must follow the same enforcement claim procedure described above.

Thus, where the evidence can be obtained by our investigative staff, substantial time and effort can be saved. In the few instances where formal adjudicatory proceedings involving rebating have been conducted, they have involved extensive discovery and multiple parties. The most recent one, involving malpractices in the Brazilian trade, took over three years to complete.

Quite frankly, there is little likelihood that any such adjudicatory proceeding could be completed within 180 days, as provided in the bill.

The second major area

The CHAIRMAN. Excuse me for interrupting you. We have a vote on fair labor standards. It will take me 5 minutes to get back, so we will stand in recess for that time.

[Short recess.]
The CHAIRMAN. The committee will come to order.

Mr. DASCHBACH. The second major area involves penalties for failure to comply with discovery.

We fully support the concept of more severe penalties for rebating and for failure to comply with subpoenas or discovery in rebating investigations, and suggest that the provisions set forth in H.R. 9518 be strengthened as follows.

First: The penalties prescribed are applicable only for failure to comply with discovery or subpoenas. We would suggest that similar, severe penalties should be inserted into applicable sections of the Shipping Act for any person who is found to have given or received a rebate or aided in its accomplishment.

Second: The penalties are directed almost entirely at carriers. Severe monetary penalties should be provided as a deterrent to shippers, consignees, or other persons who receive rebates.

Third: We question whether Congress intends that U.S.-flag carriers be denied entry to U.S. ports. Moreover, there is no mechanism prescribed in the bill for imposing this sanction, and certainly, such action is heyond the enforcement mechanism of the Commission.

While the imposition of this penalty against foreign-flag carriers may be appropriate in severe circumstances, we would suggest that tariff suspension, coupled with severe monetary penalties for operating without a tariff, should be one of the alternatives available against carriers who are found to have rebated. These alternative sanctions are discussed in greater detail in the next section of this testimony.

Fourth: The adjudicatory proceeding is not often used for rebate investigations. The bill is unclear as to whether the new section 22(c) would encompass fact-finding investigations, and thus bring the penalty provisions to bear on failure to comply with subpoenas issued in connection therewith. We think that it should. This should be clarified so as to make the same penalties available for failure to comply with any subpoena directed toward rebating violations.

Fifth: We would suggest that any penalty for, or presumption arising from, failure to comply with discovery or subpoenas be invoked only after the opportunity is given to the respondent to show cause why such a penalty or presumption is inappropriate. We believe this would prevent any sanction from being imposed for improper discovery and afford due process to the parties involved.

Sixth: The immediate suspension of all of a carrier's tariffs would have ramifications far beyond the trade in which the rebating is found to have occurred. As an example, suspension of all of the tariffs of a carrier which happened to be the sole carrier in a trade far removed from the rebating activity would severely penalize the shipping public in that other trade. We therefore would recommend that the Commission have the flexibility to limit any tariff suspension to the trade in which the rebating has occured.

The third major area of this bill concerns amnesty.

H.R. 9518 would exempt a person from all penalties under section's 16 initial paragraph, 16 second and 18(b) of the Shipping Act for any act which may violate those sections, if such act occurred before enactment of the bill and if, within 1 year after enactment, the person who committed such act made a good faith disclosure to the Commission.

Moreover, such disclosure would convey immunity from criminal prosecution under any other law, so long as such disclosure were made prior to the time such person had actual notice that it was the subject of an investigation relating to such act by any Federal agency.

While we can see both advantages and disadvantages to amnesty from Shipping Act penalties for a person who makes a full disclosure of his rebating activities to the Commission, we question whether it is appropirate for carriers or shippers to be able to obtain, by such disclosure, immunity from criminal prosecution under all other laws of the United States. This could include immunity from prosecution under laws beyond this Commission's jurisdiction, such as those administered by the Internal Revenue Service, the Securities and Exchange Commission and the Department of Justice.

Thus, the penalties from which the rebating carrier or shipper would become exempt by this grant of immunity could be substantial, even though the agencies administering these other relevant statutes would have no control over whether immunity were granted.

As I indicated earlier, the Commission believes that its current enforcement program is producing positive results. For the first time, we have some solid evidence, which is generating more evidence in the form of disclosure by those carriers and shippers who are confronted with the facts against them. In this manner, the early Sea-Land disclosures have produced a chain reaction.

Carriers have named violating shippers, and those shippers, in turn, have pointed the finger at other carriers. In view of these developments, the Commission is optimistic about the successes of its current program, and is not ready to concede that it is unable to police past rebating activity.

Should an amnesty provision be enacted into law, we would urge that it focus only on rebating activities, and not on the other categories of violations which may be encompassed by sections 16 initial paragraph, 16 Second and 18(b) of the Shipping Act, 1916. We further recommend that any such amnesty be conditioned upon full

disclosure of all of the names of the persons receiving or paying the rebates in question.

Many of the provisions of H.R. 9518 would inject considerable clout into the Commission's current enforcement program. In addition to the proposals set forth there, we have several suggestions to offer for the committees' consideration that we believe would increase the Commission effectiveness in combating rebating.

In the long run, if the Commission's enforcement program is to prove successful, both shippers and carriers must be confronted by two primary deterrents to rebating. The first is a vigorous and organized attack against rebating by the Commission to the full extent of its abilities and authorities. This includes active pursuit of shipper and carrier violations, regardless of the liner trades involved, and regardless of the nationality of the carrier of shipper.

What I am suggesting, of course, is that the Commission itself must accept the responsibility for promoting a public awareness that rebating is no longer to be thought of as part of the business; that it will no longer be overlooked; and that the statutes enacted to prevent it will be strictly enforced.

Second, directly coupled with this approach is the requirement that the Commission be vested with the statutory authority to invoke far more severe economic penalties than are now possible under the Shipping Act against parties found to be either giving or receiving rebates or aiding in their accomplishment. As with most other legal infractions, until such time as violators realize that the risks outweigh the benefits, rebating will continue to exist.

In order to convince the shipping public that rebating just is not worth the effort, we recommend that the Congress give serious consideration to the following proposals for strengthening the Commission's penalty authority.

Under existing section 18(b)(3) of the Shipping Act, the maximum penalty for rebating is $1,000 per day for each day the violation continues. This penalty is monetarily insufficient and difficult to interpret in the context of rebating violations, which tend to be specific instances and not ongoing violations, such as operating without a tariff might be. Ultimately, the penalty can only be imposed by a court.

The Commission does have the authority to comprise civil penal. ties under Public Law 92-416, 86 Stat. 653, but upon refusal of a party to settle a claim for an amount the Commission deems fair, the matter must be litigated in a Federal District Court.

We believe that the Commission should have a more potent arsenal of sanctions available to cope with rebating violations, and that, similar to other Government agencies, it should have the authority to impose those sanctions itself, without burdening the Federal Courts. Accordingly, we would suggest the following:

(A) The penalties for rebating violations should be modified so as to make the following penalties available to the Commission, either alternatively or in combination:

(1) Suspension of a carrier's tariff(s) for a period not in excess of 12 months, in the trade in question or in all of the trades served by that carrier, depending upon the circumstances of each case;

(2) Monetary civil penalties of up to $25,000 for each shipment on which a rebate was paid, or received in violation of sections 16 initial paragraph, 16 Second, and/or 18(b) (3).

(B) The penalties under section 18(b) (1) for operating without a tariff subsequent to any suspension order issued in connection with rebating should be increased from the present $1,000 per day to maximum of $50,000 per day.

(C) Section 32 of the Shipping Act should be amended to give this Commission the authority to impose the penalties for violation of sections 16 and 18 as set forth above. This delegation of authority to an administrative agency has been accomplished in statutes administered by other Federal agencies, including the National Labor Relations Board and the Occupational Safety and Health Administration (OSHA). In a recent decision, the Supreme Court upheld this delegation of penalty assessment power to OSHA. That case is cited in my statement.

Should such authority be granted to the Commission, we envision that it would be implemented in much the same fashion as rebating enforcement procedures are currently handled. The Commission would still have the authority to compromise the amount of the penalty. Failure to arrive at a compromise, however, would result in some form of expedited hearing before the Commission or its administrative law judges instead of the now required court litigation. As with the OSHA statute, the Commission's final decision would be reviewable by the courts.

With respect to the discovery provisions of section 2(2) of H.R. 9518, an array of penalties similar to those I have described above for an ultimate finding of a rebating violation should be available to the Commission in event of failure to provide documents or comply with subpenas in a rebating investigation.

Again, the particular penalty involved would be dependent upon the seriousness of the noncompliance. I should point out that due process requires that before any penalty for noncompliance could attach in such cases, some form of proceeding, such as the show cause proceeding suggested earlier, would be necessary to provide a forum for arguing the merits and relevance of the information sought.

Finally, in this same connection, we believe that the enforcement powers of the Commission could be greatly enhanced if each foreignflag carrier seeking to engage in U.S. ocean commerce were required, as a condition precedent to its tariffs becoming effective, to establish a resident agent in this country who would be a citizen of the United States in control of orginal or duplicate original business records of the carrier.

As this committee is well aware, many foreign nations have laws which prohibit their citizens from furnishing business records to the governments of other countries, including the United States. While these laws would apply to corporations as well as individuals, we believe that the existence of the records in this country under the control of U.S. citizens would make them accessible to the Commission regardless of the consequences to the foreign carrier in its own country.

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