Whistleblower Awards: Time for Standards

Maritime Professional

According to the Department of Justice (“DOJ”), over 50 percent of its oily water separator (“OWS”) prosecutions arise from whistleblower reports.  This could lead some to conclude that the whistleblower award provision in the Act to Prevent Pollution from Ships (“APPS”) is working.  It could lead others to conclude that prospective whistleblowers are now sophisticated enough to “game the system” and, rather than reporting improprieties to the “designated person ashore” under the International Safety Management (“ISM”) Code or to some other shoreside official so that the impropriety can be promptly addressed, they are waiting for a U.S. port call to cash in.  In a few recent cases, we have seen whistleblowers gathering information for months and then packaging that information, which commonly includes photos, videos, diagrams, and memoranda containing dates, times, and locations of alleged improper discharges, for delivery to the U.S. Coast Guard upon arrival in a U.S. port, often times allowing pollution to continue for months.

The reality is that whistleblowers are becoming more and more common, and awards are increasing, in large part because criminal fines in OWS cases are increasing.  And, unlike other federal whistleblower programs, there are no standards applied to the government's request for an award or to the court's exercise of its discretion to grant such an award under the APPS, which states simply:  “In the discretion of the Court, an amount equal to not more than ½ of such fine may be paid to the person giving information leading to a conviction.”  In the vast majority of the more than 40 cases in which awards have been granted, the courts have agreed to the government’s award recommendation without articulating the factors that led to or supported those decisions.

Without clear standards or guidance dictating when an award is warranted other than “giving information leading to a conviction,” the granting of an award can actually undermine the purposes of the ISM Code and a company's ability to effectively implement its environmental compliance program.  This is because, if whistleblowers simply gather information, hide it from shoreside management, and then give it to the Coast Guard, operators and technical managers do not have the ability to correct problems that may arise despite their best efforts to prevent them.  Because they are concerned with the apparent ongoing pollution and the blatant disregard of MARPOL compliance policies, some companies are encouraging the government not to request awards or challenging the government's request for awards on principle grounds and have been successful in arguing that an award is not warranted or should be reduced under the circumstances.

For example, in one case in Maryland where a plea agreement resulted in a penalty of almost $2.5 million, the company explained to the government that it did not believe an award was warranted because the whistleblower had ample opportunity and the means to report his concerns to shoreside management, but failed to do so, and, as a result, the pollution continued for months.  The company also informed the court that it wanted to be heard if the government requested an award.  Ultimately, the government chose not to request an award.

In another similar case in Texas where the criminal fine was $3 million, the government requested an award of $500,000 and the vessel operator objected on similar grounds, i.e., while the whistleblower alleged wrongdoing, he did not report the wrongdoing to a shoreside superintendent, but rather provided a memorandum with hundreds of photographs to the Coast Guard just days after signing the company’s MARPOL Declaration certifying that he was not aware of any MARPOL violations aboard the ship.  In this case, the court exercised its discretion and reduced the award to $200,000, or 40% of that requested by the government.

In a current case in Maryland where both the vessel owner and operator were fined over $1 million each, the government requested the maximum award of $462,500 from each company for one whistleblower.  The vessel owner did not challenge the government’s award request and the court awarded the whistleblower $462,500.  The operator did challenge the government’s request and all parties, i.e., the operator, the government, and the whistleblower, submitted briefs.  The company’s rationale was that the vessel called on 16 different ports and there were four superintendent visits and two classification society inspections of the vessel over an eight month period, but the whistleblower never alerted anyone to the problems, but rather decided to await for a U.S. port call where he could turn in all his “evidence” to the Coast Guard.  The judge asked the parties to provide information on past awards, what standards have been applied, and when courts have deviated from government requests.  That decision is still pending.

And, in a recent case in Alabama, the owner/operator is challenging a $500,000 award request, which is recommended to be split amongst five crewmembers.  This company challenge is also based on the crewmembers’ violations of company policies and failure to report internally.

Awarding whistleblowers in circumstances when they violate company policy, fail to follow internal reporting requirements, and allow pollution to continue, sometimes for months, is contrary to international law, public policy, and, often, a company’s environmental policies.  Providing substantial financial rewards for such conduct not only incentivizes non-compliance, but undermines the effectiveness of international conventions to which the United States is party, such as the ISM Code, that seek to eliminate pollution.

Because of these challenges, some companies are redoubling their efforts to persuade and incentivize crewmembers to report MARPOL problems internally so they can be promptly remedied.  They are then addressing any such deficiencies with the vessel's Flag state and making corrective entries in the Oil Record Book before the improprieties develop into an enforcement action by the U.S. Coast Guard.

The government and the courts should ask a number of questions in evaluating the information provided by a whistleblower before requesting or granting a financial award to a whistleblower, including:

  1. How long did the whistleblower delay in reporting the information and was the delay justified by specific conditions that can be corroborated?
  2. Did the whistleblower report the misconduct internally, without corrective action being taken?
  3. Did the company have in place credible policies and procedures for reporting misconduct to shoreside management and did the whistleblower ignore those policies and procedures?
  4. Where a whistleblower claims that his failure to report the misconduct to the vessel owner or operator was based on an absence of internal reporting procedures or a fear of retaliation, did the whistleblower ignore other opportunities to report the misconduct to, for example, port state control officials in other countries prior to the U.S. port visit?
  5. Does it otherwise appear that the actions of the whistleblower unreasonably delayed or thwarted an effective response to the environmental deficiency?
  6. Did the whistleblower allow pollution to continue?

The answers to these questions should be weighed carefully in evaluating an appropriate enforcement response by the government and whether a whistleblower award should be requested or granted.  It is imperative that U.S. government officials support the systems set forth in international conventions, such as the ISM Code, and not issue awards to whistleblowers that, in many cases, allow illegal discharges to continue, and further incentivize other whistleblowers to undermine the environmental compliance programs that vessel operators have taken pains to develop.

Simply put, behavior that undermines an international compliance regime such as that set forth in the ISM Code should not be rewarded.  In those instances where shoreside management has not addressed problems that have been identified, whistleblower awards may be warranted.  What is clear is that it is high time for DOJ, in conjunction with the U.S. Coast Guard and the maritime industry, to develop standards that guide whistleblower awards, such as those outlined above, so that the purposes of international conventions such as the ISM Code can be furthered rather than compromised.

"Whistleblower Awards: Time for Standards," by Jeanne M. Grasso and Gregory F. Linsin was published in the 4Q 2012 edition of Maritime