Standard Club International Group has amended the Pooling Agreement so that as of 20 February 2021, P&I cover in respect of fines for smuggling and breach of customs regulations will no longer provided as of right, but only on a discretionary basis.
Smuggling fines and discretionary cover
Prior to 20 February 2021, P&I cover was available as of right for fines in respect of ‘smuggling or breach of any customs or immigration law or regulation.’
Fines falling within this category can be imposed in respect of relatively minor items such as small quantities of cigarettes or alcohol, or undeclared medical supplies. However, fines also arise out of the smuggling of narcotics for which the potential penalties can be extremely high.
Following an amendment to the 2021 Pooling Agreement, P&I cover for all such fines is now discretionary. Large scale smuggling is in the hands of organised crime, which is reported to be increasingly targeting global supply chains and shipping in particular. Increased levels of fines are being imposed on members whose ships are found to be involved.
In part, the fines are intended as a punishment, and, in part, are intended to have a corrective effect by incentivising shipowners and the industry as a whole to maximise efforts to increase security and prevent smuggling.
It is rare for a shipowner and the crew to have knowledge or be involved in the smuggling activities, but the authorities or courts may conclude that shipowners are culpable in having failed to take adequate preventive measures.
In some jurisdictions, anyone accused of drugs-related offences must remain in prison for the duration of the pre-trial and trial detention, even if ostensibly innocent (see the IG’s circular of 12 May 2020).
Club cover
As with other discretionary claims, a member can seek reimbursement from the club on a discretionary basis provided they can satisfy the board that it had taken all such steps as appear to the board to have been reasonable to avoid the event giving rise to the fine. This can be a difficult test to meet and involves detailed scrutiny of the circumstances of the offence, as well as an assessment of the policies and procedures in place.
There will be no recovery in the event of any personal act or default on the part of a member (or its managers) or where there has been wilful misconduct. Because cover for smuggling fines is discretionary, the club will only provide security as a last resort and a member will need to provide adequate counter-security, usually by way of a bank guarantee.
In terms of claims handling, the club is always here to assist, but a member would be expected to act as a ‘prudent uninsured’ in responding to proceedings, with the often considerable costs and expenses incurred falling to the member in the first instance.
In urgent cases, the club will be able to front some of the initial investigation fees against suitable counter-security from the member ensuring there is no delay to assistance. Any claim for reimbursement could then be submitted for the board’s consideration on conclusion of the matter.
Operational best practice
The club’s recent publication outlines the loss prevention measures shipowners should be taking in order to mitigate the risk of smuggling. Such matters will be looked at by the board when deciding whether the shipowner took all such steps as appear reasonable to the board in order to avoid the event giving rise to the fine. Some of the main loss prevention measures being:
- The ship should take into account the severity of the threat posed at the specific port. A comprehensive port update should be obtained from the local agent or correspondent prior to the ship’s arrival.
- In known drug smuggling areas, members should consider hiring additional security watchmen and arranging an underwater hull inspection before departure (some ports may enforce official drugs and underwater hull inspection before ship’s sailing).
- The master and the Ship Security Officer (SSO) should arrange crew training sessions regarding the International Ship and Port Facility Security (ISPS) Code, Ship’s Security Plan (SSP), security duties, port operations and overall general awareness to reduce the security threats.
- Awareness against the use and possession of drugs on board ships is necessary among crewmembers. Crew should be briefed in advance of a port call that any such co-operation with the drug traffickers/smugglers may not only violate company policy but also result in severe consequences by local authorities.
- Rudder trunk spaces, overboard openings, exposed thrusters/propeller regions are some of the accessible areas likely to be used by the drug traffickers for storing illegal substances. It is recommended to install physical barriers to prevent any unauthorised access in these spaces.
- Vigilance should be maintained while in port or at anchor, including enhanced security patrols on deck and continuous monitoring of all restricted areas (especially during hours of darkness or poor visibility). Additional lighting across all areas on exposed decks should be arranged to illuminate all possible shadow areas. Any suspicious activity observed close to the vessel (divers or small boats) should be immediately communicated to the master and, in turn, the master should report this situation to the local authorities.
- A thorough search of all compartments shall be carried out prior to the ship’s departure and again after disembarking the pilot (but before commencement of the sea passage). All events and searches shall be duly recorded in the ship’s logbook as well as in the security log by the SSO.
Conclusion
The IG continues to see a rise in the number of investigations and severity of fines connected with smuggling and breach of customs regulations. Given the changes to the Pooling Agreement, it is important that members exercise due diligence to ensure that all preventative and deterrent steps are taken in order to mitigate the risks of smuggling and breaches of customs regulations.
In reviewing such discretionary claims, the board will be mindful of the pressures members are facing, but will also need to consider the preventative measures taken by members.
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Source: Standard Club
