Furie Operating Alaska, LLC, an oil and natural gas exploration and production company, just agreed to pay $10 million for violations of the Jones Act, also known as the Merchant Marine Act of 1920. The company was originally assessed a civil penalty and has finally agreed to pay the full amount for using a foreign-flagged vessel to move a drill rig from the Gulf of Mexico to Alaska.
The Jones Act Requirements for Transporting Goods between U.S. Ports
There are many different components of the Jones Act, which were put in place both to protect seamen and also to maintain a thriving and modern U.S. maritime industry. One part of the Jones Act is a requirement that any goods being transported from one U.S. port to another must be done by a U.S.-flagged vessel. A foreign-flagged vessel may not move merchandise from one U.S. port to another.
Violating this requirement incurs a civil penalty that is equal to the value of the merchandise that was transported. The U.S.-flagged vessels moving goods must also have a crew that is at least three-quarters U.S. citizens. It is possible to get a waiver through the Department of Homeland Security to use a foreign-flagged vessel for situations in which a U.S. vessel is unavailable or the action is in the interest of national defense.
Largest Ever Jones Act Penalty
The $10 million assessed penalty on Furie is the largest ever associated with violations of the Jones Act. The violation occurred when the predecessor company of Furie, Escopeta Oil and Gas, used a Chinese-flagged heavy-lift vessel to move an offshore oil rig, the Spartan 151 jack-up drill rig, from the Gulf of Mexico to Vancouver, British Columbia, and then on to Alaska. The Department of Homeland Security concluded that this was still a violation of the Jones Act, even though the ship stopped in a foreign port before continuing to Alaska.
The fine was originally set to be $15 million, and Furie acknowledged that in making the move with the Chinese vessel, that it was violating the Jones Act and proceeded anyway. Furie file a lawsuit to contest the $15 million penalty and argued that although they knew they were violating the Jones Act, there were no U.S.-flagged ships available to make the journey. The rig was too big to be taken through the Panama Canal, so the company needed a vessel that was capable of the trip around the southern tip of South America.
Another complication in the case was the fact that Escopeta originally had a waiver to make the trip with a foreign-flagged vessel, but it was acquired during George W. Bush’s presidency. After a number of delays, the rig was not ready to be moved until much later. By this time the administration was different and the Department of Homeland Security had changed its position and did not recognize the waiver.
Because of the controversy over the Jones Act violation and fine, Escopeta’s president was replaced and the company was renamed Furie Operating Alaska. Settling on a $10 million penalty, the amount is still larger than any other assessed in the history of the Jones Act.