Requirements to Document U.S. Flag Fishing Industry Vessels of
100 Feet or Greater in Registered Length and To Hold a Preferred
Mortgage on Such Vessels
[Federal Register: February 4, 2003 (Volume 68, Number 23)]
[Rules and Regulations]
[Page 5564-5583]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04fe03-9]
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DEPARTMENT OF TRANSPORTATION
Maritime Administration
46 CFR Part 356
[Docket No. MARAD-2002-11984]
RIN 2133-AB46
Requirements to Document U.S. Flag Fishing Industry Vessels of
100 Feet or Greater in Registered Length and To Hold a Preferred
Mortgage on Such Vessels
AGENCY: Maritime Administration, Department of Transportation.
ACTION: Final rule.
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SUMMARY: The Maritime Administration (``MARAD, we, our, or us'') is
amending its regulations that implement the U.S. citizenship
requirements and mortgage requirements set forth in the American
Fisheries Act of 1998 (``AFA'') for vessels of 100 feet or greater in
registered length for which a fishery endorsement to the vessel's
documentation is sought.
Section 2202 of the Supplemental Appropriations Act, 2001, amended
the AFA on July 24, 2001. This rule implements the new statutory
requirements for the owners of fishing vessels, fish processing vessels
and fish tender vessels of 100 feet or greater in registered length
(collectively referred to as ``fishing industry vessels''), amends the
requirements to hold a preferred mortgage on such fishing industry
vessels, and makes other minor amendments to the regulations to address
issues that arose during the early stages of MARAD's implementation of
the new AFA regulations.
DATES: Effective Date: March 6, 2003.
Compliance Date: Mortgagees and mortgage trustees will not be required
to comply with the new requirements of this final rule until April 1,
2003.
ADDRESSES: The complete file for this rule is available for inspection
with the Docket Clerk, U.S. DOT Dockets, Room PL-401, Department of
Transportation, 400 7th St., SW., Washington, DC 20590-0001, between 10
a.m. and 5 p.m., e.t., Monday through Friday, except federal holidays.
You may also view the comments submitted to the
[[Page 5565]]
docket via the Internet at http://dms.dot.gov 
by using the
search function and entering the docket number 11984.
FOR FURTHER INFORMATION CONTACT: John T. Marquez, Jr. of the Office of
Chief Counsel at (202) 366-5320. You may send mail to John T. Marquez,
Jr., Maritime Administration, Office of Chief Counsel, Room 7228, MAR-
222, 400 Seventh St., SW., Washington, DC 20590-0001, or you may send
e-mail to John.Marquez@marad.dot.gov.
SUPPLEMENTARY INFORMATION:
Background
The AFA imposed new citizenship requirements for both the owners of
fishing industry vessels of 100 feet or greater in registered length as
well as entities that hold a preferred mortgage on such vessels. The
AFA raised the U.S. citizen ownership and control standard for U.S.
flag fishing industry vessels operating in U.S. waters from a
controlling interest standard (greater than 50%) to a 75 percent
interest requirement as set forth in section 2(c) of the Shipping Act,
1916, as amended (``1916 Act''). In addition to the requirements of
section 2(c) of the 1916 Act, the AFA specifically delineated certain
criteria for purposes of determining whether ``control'' of the owner
of a fishing industry vessel is vested in citizens of the United
States.
Section 202(b) of the AFA also imposed new requirements to hold a
preferred mortgage on fishing industry vessels of 100 feet or greater
by amending the definition of ``preferred mortgage'' at 46 U.S.C.
31322(a)(4) with respect to such vessels. Section 31322(a)(4) of title
46, United States Code, as amended by the AFA on October 21, 1998,
defined a preferred mortgage with respect to a fishing industry vessel
of 100 feet or greater as one that is held by a mortgagee that: (1) Is
a person that meets the 75% U.S. citizen ownership and control standard
for fishing industry vessels under 46 U.S.C. 12102(c); (2) is a State
or Federally chartered financial institution that satisfies the
controlling interest criteria of section 2(b) of the Shipping Act,
1916, 46 U.S.C. 802(b); or (c) is a person that complies with the
mortgage trustee provisions of 46 U.S.C. 12102(c)(4).
As the October 1, 2001, effective date of the AFA approached, it
became apparent that many traditional lenders in the fishing industry
were having difficulty either complying with or demonstrating that they
complied with the new standards to hold a preferred mortgage.
Therefore, Congress amended the requirements to broaden the category of
lenders that will qualify to hold a preferred mortgage on fishing
industry vessels of 100 feet or greater and to limit the extent to
which a demonstration of U.S. citizenship would be required.
Section 2202(b) of the Supplemental Appropriations Act, 2001, Pub.
L. 107-20, amended the definition of ``preferred mortgage'' at 46
U.S.C. 31322(a)(4) with respect to fishing industry vessels of 100 feet
or greater. As amended, 46 U.S.C. 31322(a)(4), defines a preferred
mortgage with respect to such vessels as a mortgage that has as its
mortgagee:
(1) A person eligible to own a vessel with a fishery endorsement
under 46 U.S.C. 12102(c);
(2) A State or Federally chartered financial institution that is
insured by the Federal Deposit Insurance Corporation;
(3) A farm credit lender established under title 12, chapter 23, of
the United States Code (12 U.S.C. 2001 et seq.);
(4) A commercial fishing and agriculture bank established pursuant
to State law;
(5) A commercial lender organized under the laws of the United
States or of a State and eligible to own a vessel under 46 U.S.C.
12102(a) of this title; or
(6) A mortgage trustee that complies with the requirements of 46
U.S.C. 31322(f).
In addition, the amendments to the AFA defined the terms
``commercial lender'' and ``lending syndicate'' and relocated the
mortgage trustee provisions from 46 U.S.C. 12102(c)(4) to 46 U.S.C.
31322(f).
In order to ensure that MARAD would have time to implement new
regulations related to the eligibility of lenders to hold a preferred
mortgage on fishing industry vessels, Congress delayed the effective
date of 46 U.S.C. 31322(a), as amended by section 202(b) of the AFA and
section 2202 of the Supplemental Appropriations Act, 2001, until April
1, 2003. MARAD was also directed not to consider the citizenship status
of a lender, in its capacity as a lender, when determining whether a
vessel's owner complies with the requirements of 46 U.S.C. 12102(c)
prior to April 1, 2003. Accordingly, we suspended our review of loan
transactions in determining whether a vessel owner qualifies as a U.S.
citizen until April 1, 2003, when the new requirements become
effective.
Finally, section 2202(e) of the Supplemental Appropriations Act,
2001, included changes to section 213(g) of the AFA. As originally
enacted, section 213(g) of the AFA stated that if the requirements of
46 U.S.C. 12102(c) or 46 U.S.C. 31322(a), as amended by the AFA, were
determined to be inconsistent with the provisions of an international
investment agreement to which the United States was a party with
respect to the owner or mortgagee of a fishing industry vessel on
October 1, 2001, the requirements of the AFA would not apply to the
owner or mortgagee of that specific vessel to the extent of the
inconsistency. Congress amended section 213(g) of the AFA to change the
date upon which an ownership or mortgage interest was required to be in
place in order for an owner or mortgagee to claim the protection of an
international investment agreement. The date was changed from October
1, 2001, to July 24, 2001.
We issued a notice of proposed rulemaking on April 16, 2002, 67 FR
18547, that proposed amendments to our regulations at 46 CFR part 356
and requested comments from the public. Seven commenters responded to
the NPRM.
Comments on the Proposed Rule
Subpart A--General Provisions
Section 356.3 Definitions
Section 356.3 has been amended by adding several new terms to the
definitions, amending several existing definitions and renumbering the
definitions accordingly. The three new terms that have been added to
the definitions are ``commercial lender,'' ``fishing industry vessel,''
and ``lender syndicate.'' The term ``fishing industry vessel'' is a new
term that is being added to the regulation to refer to a fishing
vessel, fish tender vessel or fish processing vessel as defined in
Sec. 356.3. In the NPRM, we proposed to replace the phrase ``fishing
vessel, fish processing vessel, or fish tender vessel'' with the term
``fishing industry vessel'' in sections and paragraphs that we were
amending. One commenter suggested that we make this change throughout
part 356 in order to avoid confusion. We agree with the commenter that
use of the term ``fishing industry vessel'' throughout part 356 would
be preferred; therefore, we have amended part 356 to replace the
phrases ``fishing vessel, fish processing vessel, or fish tender
vessel'' and ``fishing vessel, fish tender vessel, or fish processing
vessel'' in each place that either phrase appears with the term
``fishing industry vessel''.
The proposed definitions of ``commercial lender'' and ``lender
syndicate'' mirrored the definitions provided by Congress in sections
2202(g) and (h), respectively, of the Supplemental Appropriations Act,
2001. Although the proposed definition
[[Page 5566]]
of lender syndicate tracked the language of the statute, two commenters
urged that we provide some amplification in the definition to indicate
what powers may be exercised under a trust arrangement without the
concurrence of more than one beneficiary. The definition of lender
syndicate states that it must be made up of four or more entities with
a beneficial interest, held through an agent, under a trust
arrangement, established pursuant to 46 U.S.C. 31322(f), ``no one of
which may exercise powers thereunder without the concurrence of at
least one other unaffiliated beneficiary.'' The commenters suggested
that the definition be amended to clarify that an agent can exercise
routine administrative functions associated with the day-to-day
administration of the loan without the consent of multiple
beneficiaries, and that consent of more than one beneficiary should
only be required to exercise substantive powers such as decisions on
how to proceed in the event of default or bankruptcy, release of
collateral or guarantors, and amendment or removal of loan covenants.
We agree with the commenter that the purpose of an agent is to
handle routine administrative matters for the lender syndicate
associated with the extension of credit. Therefore, we have amended the
regulatory definition of lender syndicate to clarify that ``other than
the exercise by the agent of powers related to routine administrative
matters, none of the entities in a lender syndicate may exercise powers
related to the lender syndicate's extension of credit without the
concurrence of at lease one other unaffiliated beneficiary.'' In
addition, we have stated in the definition that the routine
administrative powers include those matters concerning the day-to-day
management of the extension of credit such as monitoring compliance
with loan covenants, collateral inspections and similar matters;
however, more substantive powers such as amending loan and mortgage
documents, releasing guarantors or collateral, or administering the
loan in the event of a default are not considered routine.
The definition of lender syndicate does not define who may qualify
as a beneficiary; however, entities that plan to form a lender
syndicate are advised that if they are engaged in the fishing industry
and have contractual relationships with the vessel owner, such as to
purchase, process or market the vessel's catch, they may not use the
formation of a lender syndicate as a means of avoiding MARAD review of
the mortgage trustee transaction and the loan and mortgage covenants.
Therefore, if the beneficiaries of a lender syndicate have such
contractual relationships with the vessel owner, we will review the
mortgage trustee arrangement, including the loan and mortgage
covenants, to determine whether it constitutes an impermissible
transfer of control.
Paragraph (3) under the definition of ``controlling interest'' has
been deleted because a State or Federally chartered financial
institution no longer has to qualify as a U.S. citizen under the
controlling interest standard in order to hold a preferred mortgage on
a fishing industry vessel.
The definition of the term ``mortgage trustee'' has been amended by
removing the requirement in paragraph (2) that a mortgage trustee
qualify as a U.S. citizen and replacing that paragraph with language
requiring the mortgage trustee to be eligible to hold a preferred
mortgage pursuant to 46 CFR 356.19(a)(1)-(4). This change expands the
definition of mortgage trustee to encompass the broader range of
parties that are now eligible to serve as a mortgage trustee.
The term ``preferred mortgage'' is amended to track the definition
of 46 U.S.C. 31322(a)(4), as amended. Part of the definition states
that a preferred mortgage is one where the mortgagee is a mortgage
trustee that qualifies under 46 U.S.C. 31322(f) and 46 CFR 356.27-31.
One commenter suggested that this definition could cause uncertainty
with respect to the use of mortgage trustees because a violation of the
regulations by the mortgage trustee could endanger the preferred status
of the mortgage. The commenter suggested that we amend the definition
to eliminate reference to the statute and regulations and simply state
that a preferred mortgage is one where the mortgagee is an approved
mortgage trustee. We intend for the preferred status of the mortgage to
be at risk if a mortgage trustee fails to be in compliance with the
regulations; however, we have addressed the concerns of the commenter
by clarifying in Sec. 356.27 that a mortgage trustee will have an
opportunity to cure a defect in its approved status and by including a
provision for MARAD notification of beneficiaries where there is a
problem with the mortgage trustee's approved status. The preferred
status of the mortgage will not be at risk until 30 days after
notification of the beneficiary that there is a problem with the
mortgage trustee's approval.
The second sentence in the definition of ``non-citizen'' has been
deleted because there is no longer any special citizenship status for a
State or Federally chartered financial institution that satisfies the
controlling interest requirements of section 2(b) of the Shipping Act,
1916. Finally, the definition of ``trust'' is amended to conform the
definition of a mortgage trust to the new requirements for mortgage
trustees.
Section 356.5 Affidavit of U.S. Citizenship
Paragraph 356.5(d) provides the form of the affidavit of U.S.
citizenship to be used by a corporation. The form is amended to add a
new paragraph 6 which indicates that the vessel owner has submitted the
documents required by 46 CFR 356.13 of MARAD's regulations. The
existing paragraph 6 is renumbered as paragraph 7. The inclusion of
this new paragraph in the affidavit of U.S. citizenship was deemed to
be necessary to help ensure that vessel owners have reviewed the
requirements and have submitted the required documentation.
Section 356.7 Methods of Establishing Ownership by United States
Citizens
Paragraph 356.7(c)(1)(ii) has been amended by removing the language
that applies the fair inference method to a State or Federally
chartered financial institution that is acting as a preferred
mortgagee. The amendments to the AFA deleted this standard for
qualification as a preferred mortgagee, so it was not longer needed in
the regulation.
Section 356.11 Impermissible Control by a Non-Citizen
The NPRM proposed an amendment to paragraph 356.11(a)(7) to clarify
that we would not consider impermissible control to exist if the sale
of a vessel is caused through the exercise of loan or mortgage
covenants that are exercised either (i) by an entity that has not been
approved as a U.S. citizen, but which is otherwise eligible to hold a
preferred mortgage pursuant to 46 CFR 356.19(a)(2) through (5) or (ii)
by an approved mortgage trustee that is exercising the loan or mortgage
covenants for a non-citizen or an entity that does not qualify under
Sec. 356.19(a)(2) through (5), provided that the Citizenship Approval
Officer has approved the use of such loan or mortgage covenants.
Several commenters noted that this amendment implies that review of
loan documents would be required in a mortgage trustee arrangement
where the beneficiary is a commercial lender or lender syndicate,
contrary to the intent of the statutory amendments to 46 U.S.C.
31322(f). We did not intend to require mortgage and loan documents
related to loans from lender syndicates and commercial
[[Page 5567]]
lenders to be subject to MARAD review where a mortgage trustee is being
utilized; therefore, we have specifically excluded such review in other
parts of the regulations. We have also amended paragraph 356.11(a)(7)
to clarify that loan and mortgage documents will not be subject to
review where a mortgage trustee is holding a preferred mortgage for the
benefit of a commercial lender or lender syndicate.
Section 356.13 Information Required To Be Submitted by Vessel Owners
The NPRM proposed an amendment to Sec. 356.13(a) by clarifying in
paragraph (5) that financing documents will only be required from
entities that have not been approved to hold a preferred mortgage on
fishing industry vessels or that have not received general approval for
their loan documents pursuant to Sec. 356.21. Several commenters noted
that this section implies that review of loan documents may be required
from commercial lenders or lender syndicates that are using an approved
mortgage trustee. Again, we did not intend to include a review of
financing documents where a mortgage trustee is holding a preferred
mortgage for the benefit of a commercial lender or lender syndicate.
Accordingly, we have added language to paragraph 356.13(a)(5) to
specify that financing documents are not required to be submitted if
the transaction is specifically exempted under paragraph 356.19(d),
which specifically sets forth those preferred mortgage transactions for
which no review of the loan or mortgage documents is required.
A new element has also been added to the list of material that
vessel owners are required to submit with their affidavit of U.S.
citizenship. For vessels that exceed 165 feet in registered length, 750
gross registered tons (as measured under 46 U.S.C. chapter 145) or 1900
gross registered tons (as measured under the International Tonnage
Convention, 46 U.S.C. chapter 143) or that have engines capable of
producing more than 3,000 horsepower, the vessel owner is required to
provide a statement indicating whether the vessel meets certain
requirements set forth in Sec. 356.47 in order to be eligible for
documentation with a fishery endorsement. While this information can be
obtained by researching Coast Guard files on specific vessels, it was
determined that we would not be able to research the information in a
timely manner for all of the vessels that are subject to these new
restrictions.
Section 356.15 Filing of Affidavit of U.S. Citizenship
Section 356.15 has been amended by deleting paragraphs 356.15(a),
(b), and (c) that dealt with filing requirements prior to October 1,
2001. It is no longer necessary to maintain these requirements in the
regulations now that the October 1, 2001, date has passed. The
remaining paragraphs have been reordered in order to present the
requirements for filing an affidavit of U.S. citizenship in a logical
order.
A more significant amendment to Sec. 356.15 is the addition of a
new paragraph (d) that allows vessel owners or prospective vessel
owners to request a letter ruling to determine whether a proposed
ownership structure will meet the requirements of the regulations and
allow the owner to document a vessel with a fishery endorsement. In the
preamble to the final regulations (65 FR 44860, 44865-66 (July 19,
2000)), we stated that we would issue letter rulings for vessel owners
prior to June 1, 2001, but that we did not plan to issue letter rulings
after October 1, 2001, because letter rulings necessarily involve
hypothetical transactions and can absorb an inordinate amount of time
and resources. While we continue to be concerned about the burden on
limited resources that may be presented by requests for letter rulings,
we recognize that the ability to obtain a letter ruling before a
transaction is finalized is extremely useful to vessel owners and other
parties that are required to qualify as U.S. citizens. Therefore, we
have amended the regulations to indicate that we will continue to issue
letter rulings after October 1, 2001, to vessel owners and other
entities that are required to qualify as U.S. citizens under these
regulations. If the process of issuing letter rulings becomes too
burdensome, it may be necessary to reconsider this position in the
future.
Section 356.17 Annual Requirements for Vessel Owners
The NPRM included a proposed amendment to Sec. 356.17 that would
delete the requirement for owners of multiple fishing industry vessels
to file a certification prior to the renewal date for the certificate
of documentation for each vessel. Therefore, a vessel owner would be
allowed to file one consolidated affidavit of U.S. citizenship on an
annual basis for all of its fishing industry vessels. One commenter
supported this amendment, but suggested that we broaden the language to
clarify that if vessel owners have the same ultimate common ownership
they may file a consolidated affidavit. The commenter noted that such
an amendment would better address the common practice in the maritime
industry where companies set up separate subsidiaries to own individual
vessels. We agree with the commenter and have amended paragraph
356.17(b) to clarify that one affidavit may be filed for multiple
vessels that have the same owner or where the owners ultimately have
the same common ownership.
Section 356.19 Requirements To Hold a Preferred Mortgage
Section 2202(b) of the Supplemental Appropriations Act, 2001,
amended 46 U.S.C. 31322(a)(4) by deleting from the definition of a
preferred mortgage for fishing industry vessels of 100 feet or greater
a mortgage that is held by a mortgagee that is a State or Federally
chartered financial institution that meets the controlling interest
requirement of the 1916 Act. Section 2202(b) of the Supplemental
Appropriations Act also expanded the definition of preferred mortgage
for fishing industry vessels by increasing the universe of entities
that can act as the mortgagee. Accordingly, Sec. 356.19 has been
amended by deleting the requirements to hold a preferred mortgage in
Sec. Sec. 356.19(a)(2) through (d) and by adding new language to
incorporate the new entities that will qualify to hold a preferred
mortgage. The list of entities that will now qualify to hold a
preferred mortgage includes: (1) Citizens of the United States who are
eligible under 46 U.S.C. 12102(c) to own a vessel with a fishery
endorsement; (2) State or Federally chartered financial institutions
that are insured by the Federal Deposit Insurance Corporation; (3) farm
credit lenders established under title 12, chapter 23, of the United
States Code (12 U.S.C. 2001 et seq.); (4) commercial fishing and
agriculture banks established pursuant to State law; (5) commercial
lenders organized under the laws of the United States or of a State and
eligible to own a vessel under 46 U.S.C. 12102(a); and (6) mortgage
trustees that comply with the requirements of 46 U.S.C. 31322(f) and 46
CFR 356.27-356.31.
A new paragraph (b) has been added to the section to describe the
information that the various entities must submit to the Citizenship
Approval Officer so that a determination can be made as to whether the
entities are qualified to hold a preferred mortgage on a fishing
industry vessel. Several commenters suggested that the proposed
paragraph (b)(5) be amended to clarify that there are different
requirements for a commercial lender to
[[Page 5568]]
hold a preferred mortgage depending on whether it is holding the
mortgage directly as a mortgagee or through a mortgage trustee. We
agree with the commenters and have amended paragraph (b) to clarify
that a commercial lender must demonstrate that it is in the business of
financing and that it has a loan portfolio in excess of $100 million,
not more than 50 percent of which is to borrowers in the commercial
fishing industry. This requirement applies whether the commercial
lender is holding the preferred mortgage directly or is using a
mortgage trustee to hold the preferred mortgage for its benefit. If a
commercial lender is holding a preferred mortgage directly, it must
also file an affidavit of U.S. citizenship to demonstrate that it
qualifies as a documentation citizen pursuant to 46 U.S.C. 12102(a).
We have also amended proposed paragraph 356.19(b) to address the
required timing of submissions for a mortgagee. A mortgagee, including
a mortgage trustee, that is holding a preferred mortgage on a fishing
industry vessel prior to April 1, 2003, will be required to demonstrate
that it meets the requirements of Sec. 356.19(a) before the next
renewal date after April 1, 2003, for the vessel's certificate of
documentation. However, if a mortgagee wishes to confirm that it is in
compliance with the requirements to hold a preferred mortgage before
the certificate of documentation renewal date for the vessel, the
mortgagee may request a letter ruling from the Citizenship Approval
Officer pursuant to paragraph 356.19(e) at any time after the
publication of this regulation. A mortgagee that wishes to enter into a
new preferred mortgage after April 1, 2003, will be required to
demonstrate that it meets the requirements of Sec. 356.19(a) before it
will be eligible to obtain a preferred mortgage on a fishing industry
vessel.
Finally, several commenters noted that more guidance is needed
regarding the form in which information must be submitted in order for
a mortgagee to demonstrate that it is qualified to hold a preferred
mortgage directly and for a lender syndicate or commercial lender to
demonstrate that it qualifies as such an entity when it is using a
mortgage trustee to hold a preferred mortgage for its benefit. We have
set forth the requirements in the regulations that each entity must
meet, and we have amended paragraph 356.19(b) to state that we will
provide sample formats on MARAD's website the can be used for the
various entities to submit the required information.
One commenter argued that the requirements of proposed Sec.
356.19(b) are inconsistent with the Ship Mortgage Act because the
regulation requires MARAD approval before a mortgage will qualify as a
preferred mortgage. The commenter stated that the Ship Mortgage Act, 46
U.S.C. 31322(a)(4) does not require a mortgagee to demonstrate its
eligibility to hold a preferred mortgage; therefore, the requirements
of Sec. 356.19(b) are inconsistent with the statute. Further, the
commenter stated that the mortgagee has the most to lose by the loss of
the preferred status of its mortgage. Consequently, the commenter
believes that self regulation by mortgagees would be sufficient to
ensure compliance with the statute.
We do not agree with the commenter. Requiring mortgagees to
demonstrate that they meet the requirements of the statute is not
inconsistent with statutory requirements. The certification that
mortgagees would be required to submit under Sec. 356.19 is not
complicated and should not present a substantive or administrative
burden that would hinder the ability of vessel owners to obtain
financing or that would restrict the ability of a lender to obtain
adequate security for its loans. Therefore, we are finalizing our
proposed amendments to Sec. 356.19 to require mortgagees to submit
certain information to the Citizenship Approval Officer before they may
obtain a new preferred mortgage or in order to maintain an existing
preferred mortgage on a fishing industry vessel.
A new paragraph (c) has also been added to the regulations to
require the certification from paragraph (b) to be submitted for each
entity on an annual basis for as long as the entity holds a preferred
mortgage on a fishing industry vessel. The annual certification must be
filed at least 30 days prior to the annual anniversary date of the
original approval. In order to address concerns of some commenters
regarding the loss of the preferred status of a mortgage if the
mortgagee fails to file the annual certification, we have amended
paragraph (c) to require the Citizenship Approval Officer to notify a
mortgagee if it fails to submit the required annual certification. The
preferred status of the mortgage will be maintained for 30 days
following the mailing date of the delinquency notice.
A new paragraph (d) was also proposed in the NPRM to make clear
that an entity, other than a mortgage trustee, that is eligible to hold
a preferred mortgage on a fishing industry vessel may exercise rights
and covenants under loan or mortgage agreements and is not required to
obtain approval from MARAD. Several commenters noted that this
paragraph was too narrow because it did not state that a mortgage
trustee may exercise loan or mortgage covenants without obtaining prior
MARAD approval when it is holding a preferred mortgage for the benefit
of an entity that is otherwise qualified to hold a preferred mortgage
or for the benefit of a commercial lender or lender syndicate. We agree
with the commenter and have revised paragraph (d) to specifically set
forth which entities may exercise rights under loan or mortgage
covenants without obtaining MARAD approval.
Several commenters suggested that lenders should be allowed to
request a letter ruling in the same way that vessel owners may request
a letter ruling from the Citizenship Approval Officer under Sec.
356.15. We agree with the commenter that letter rulings should be
available to lenders and mortgage trustees and have added a new
paragraph 356.19(e) that will allow entities to request a letter ruling
from the Citizenship Approval Officer to determine whether a mortgage
or mortgage trust arrangement will comply with the requirements of 46
CFR part 356. If a letter ruling is issued, the date of the letter
ruling may be deemed to be the approval date of the transaction and to
be the required date for the annual approval.
Section 356.21 General Approval of Non-Citizen Lender's Standard Loan
or Mortgage Agreements
Section 356.21 allowed non-citizen lenders that were using a
mortgage trustee to get MARAD approval of their standard loan or
mortgage covenants. The amendments to the AFA expanded the class of
lenders that may hold a preferred mortgage directly to allow various
entities that do not qualify as U.S. citizens to hold a preferred
mortgage directly. If the beneficiary under a mortgage trust
arrangement is allowed to hold a preferred mortgage directly, or
qualifies as a commercial lender or lender syndicate, no review of the
loan or mortgage covenants is required, notwithstanding the fact that
the beneficiary may not qualify as a U.S. citizen. Accordingly, the
term ``non-citizen lender'' is replaced with the term ``lender''
throughout the section.
Several commenters noted that paragraph 356.21(a) could be
interpreted to require review of standard loan or mortgage agreements
involving a mortgage trustee and a beneficiary that is either a
commercial lender or lender syndicate. We did not intend to imply that
MARAD review of such loan or mortgage documents would be mandated;
therefore, we have amended
[[Page 5569]]
paragraph 356.21(a) to clarify that the approval of standard loan and
mortgage covenants is available for entities that are not eligible to
hold a preferred mortgage directly and that do not otherwise qualify as
a commercial lender or lender syndicate.
Finally, we amended paragraph (d) by deleting the penalty imposed
on the owner of a fishing industry vessel if a lender uses loan or
mortgage covenants that were not approved by the Citizenship Approval
Officer. Instead, we have added language to indicate that the
Citizenship Approval Officer may determine that the transaction results
in an impermissible transfer of control to a non-citizen and that
therefore, the arrangement does not satisfy the requirements to qualify
as a preferred mortgage. Furthermore, the lender will lose its general
approval and will be required to obtain approval of its loan and
mortgage covenants on a case-by-case basis in the future.
Section 356.23 Restrictive Loan Covenants Approved for Use by Lenders
Section 356.23 has been amended by deleting the term ``non-citizen
lender'' in the title and the body of the section and substituting the
term ``lenders'' in its place. As noted above, the amendments to the
AFA have created a class of lenders that may or may not qualify as U.S.
citizens, but who are nevertheless eligible to hold a preferred
mortgage directly and to exercise restrictive loan and mortgage
covenants without requiring approval from MARAD. Accordingly, the term
``lender'' has been substituted for ``non-citizen lender'' throughout
the section because the approval of these restrictive loan covenants is
not required for all ``non-citizen lenders'' but rather only for those
who do not meet the requirements to hold a preferred mortgage directly.
Several commenters noted that as proposed in the NPRM, the
amendments to paragraph 356.23(a) could be interpreted to require MARAD
review of loan or mortgage covenants where a commercial lender or
lender syndicate is using a mortgage trustee to hold the preferred
mortgage for its benefit. We have therefore amended paragraph 356.23(a)
to clarify that this section is intended to apply to lenders that are
not otherwise exempt from MARAD review of their loan or mortgage
covenants pursuant to paragraph 356.19(d).
Section 356.25 Operation of Fishing Industry Vessels by Mortgagees
Paragraph 356.25(c) provides that a mortgagee that is not eligible
to own a fishing industry vessel may operate the vessel for a non-
commercial purpose to the extent necessary for the immediate safety of
the vessel or for repairs, drydocking or berthing changes; provided,
that the vessel is operated under the command of a citizen of the
United States and for no longer than 15 calendar days. One commenter
suggested that there is no need for an iron-clad 15 day limit and that
the regulations should be amended to allow a non-citizen mortgage
trustee to operate a vessel for longer than 15 days if the Citizenship
Approval Officer grants approval. There is no need to amend paragraph
356.25(c) because paragraph 356.25(b) already provides leeway for the
Citizenship Approval Officer to grant written authorization for
operation of a vessel beyond what is specifically allowed in paragraph
356.25(c). Paragraph 356.25(b) states that, except as provided in
paragraph 356.25(c), the vessel may not be operated for any purpose
without the prior written approval of the Citizenship Approval Officer.
Therefore, if a mortgagee that is not eligible to own a fishing
industry vessel wishes to operate such a vessel for the purposes
enumerated in 356.25(c) for a period in excess of 15 days, it may do so
with written authorization of the Citizenship Approval Officer.
Section 356.27 Mortgage Trustee Requirements
The mortgage trustee requirements were amended to delete references
to a requirement that the mortgage trustee demonstrate that it
qualifies as a U.S. citizen because mortgage trustees are no longer
required to qualify as a U.S. citizen if they otherwise meet one of the
requirements of 46 U.S.C. 31322(a)(4)(A)-(E). Where references to
proving citizenship were included in Sec. 356.27, we have substituted
a requirement that the mortgage trustee supply the appropriate
information to demonstrate that it complies with the requirements of 46
CFR 356.19(b)(1)-(5) to be eligible to hold a preferred mortgage on
fishing industry vessels.
A new paragraph (4) was also added to the trustee application which
requires the mortgage trustee to agree to furnish the Citizenship
Approval Officer with copies of the trust agreement as well as any
other issuance, assignment or transfer of an interest related to the
transaction if the beneficiary under the trust arrangement is not a
commercial lender, a lender syndicate or an entity eligible to hold a
preferred mortgage under 46 CFR 356.19(a)(1)-(5). This submission is
necessary so that the Citizenship Approval Officer can make a
determination that the trust arrangement does not result in an
impermissible transfer of control.
Several commenters noted that some entities may be reluctant to
qualify as a mortgage trustee because of the risk of liability that is
imposed by paragraph (d) of the mortgage trustee application, which
states that a mortgage trustee ``shall not assume any fiduciary duty in
favor of non-citizen beneficiaries that is in conflict with any
restrictions as requirements of the regulation.'' The commenters
suggested that paragraph (d) be deleted. However, paragraph 356.27(e)
provides for review by the Citizenship Approval Officer of the form of
trust agreement to be used, and the Citizenship Approval Officer will
review and approve the loan and mortgage documents where the
beneficiary is not a commercial lender, a lender syndicate or an entity
otherwise qualified to hold a preferred mortgage. This review should
limit the liability exposure of a mortgage trustee; therefore, we have
decided to retain paragraph (d) in the mortgage trustee application.
One commenter suggested that the requirement in paragraphs
356.27(c)(3) and (g) to submit a copy of the mortgage trustee's
articles of incorporation and bylaws should be deleted as there is no
need to examine these documents unless the mortgage trustee is seeking
to qualify as a U.S. citizen. The requirement for a mortgage trustee
that is seeking to qualify as a U.S. citizen to submit its articles of
incorporation and bylaws is addressed by reference to the need to
comply with Sec. 356.19; therefore, we have deleted paragraph
356.27(c)(3) and paragraphs (a)(2) and (a)(3)(ii) of the mortgage
trustee application in Sec. 356.27(g).
Several commenters remarked that the beneficiaries under a trust
agreement have the most to lose if a mortgage trustee fails to continue
to qualify as a mortgage trustee. Consequently, the beneficiaries
should be notified of the mortgage trustee's failure to qualify. We
agree with the commenters and have added a new paragraph (a)(3)(iv) to
the mortgage trustee application at Sec. 356.27(g). The new paragraph
requires mortgage trustees to provide the identity and address of all
beneficiaries for which it is acting as mortgage trustee, so that the
Citizenship Approval Officer can notify the beneficiaries if the
mortgage trustee fails to qualify under the regulations.
Finally, one commenter suggested that the proposed requirements of
Sec. 356.27 serve no apparent purpose and that the requirements of the
statute should be self executing. The commenter stated that there
should be
[[Page 5570]]
no requirement for MARAD approval of mortgage trustees except in cases
where the mortgage trustee is holding a preferred mortgage for the
benefit of a lender that is not qualified to hold a preferred mortgage
directly or that does not qualify as a commercial lender or lender
syndicate. We disagree with the commenter that the statutory
requirements for an entity to qualify as a mortgage trustee must be
self executing. The AFA placed restrictions on the entities that can
hold a preferred mortgage on fishing industry vessels in order to
insure that non-citizen entities cannot use loan or mortgage covenants
to control fishing industry vessels that they are otherwise not
eligible to own. While the amendments to the Ship Mortgage Act were
intended to broaden the universe of entities that could hold a
preferred mortgage directly and that could act as a mortgage trustee,
the statute does not restrict MARAD from determining whether or not an
entity is eligible to qualify as a mortgage trustee. In fact, the
statute sets forth specific criteria that must be met and states that a
mortgage trustee must also satisfy any other requirements that the
Secretary of Transportation may require. Therefore, we do not agree
with the commenter, and we will continue to require mortgage trustees
to demonstrate that they meet certain requirements.
Section 356.31 Maintenance of Mortgage Trustee Approval
Section 356.31 was amended by deleting the requirement in paragraph
(a)(1) that a mortgage trustee provide an affidavit of U.S. citizenship
on an annual basis. A mortgage trustee is no longer required to qualify
as a U.S. citizen, provided that it is otherwise qualified to hold a
preferred mortgage on a fishing industry vessel. Accordingly, mortgage
trustees will be required to submit the appropriate documentation
required under Sec. 356.19(b)(1)-(5) to demonstrate that they are
qualified to hold a preferred mortgage on fishing industry vessels.
One commenter suggested that the requirement in paragraph
356.31(a)(2) to submit a copy of the mortgage trustee's articles of
incorporation and bylaws on an annual basis should also be deleted as
there is no need to examine these documents unless the mortgage trustee
is seeking to qualify as a U.S. citizen. We agree with the commenter
since the requirement for U.S. citizens to submit any changes to these
documents is covered under the Sec. 356.19; therefore, paragraph
356.31(a)(2) has been deleted and the section has been renumbered
accordingly.
Paragraph 356.31(b) has also been amended by deleting any reference
to the requirement for a mortgage trustee to make an annual filing
within 30 days of its annual stockholders meeting. Several commenters
noted that the correlation of the filing date to the annual
stockholders meeting is a carryover from when the mortgage trustee was
required to file an affidavit of U.S. citizenship. Accordingly, the
annual filing date will be tied to the date of the mortgage trustee
approval by the Citizenship Approval Officer.
Several commenters stated that paragraph 356.31(c) should be
amended to provide a mortgage trustee with an opportunity to cure a
deficiency in its approval within 30 days and to require the
Citizenship Approval Officer to notify the beneficiaries when a
mortgage trustee fails to comply with the regulations and is no longer
qualified to act as a mortgage trustee. The commenters also suggested
that the preferred status of the mortgage remain intact until 30 days
after the beneficiaries are notified, rather than 30 days after
publication of the disapproval of the mortgage trustee in the Federal
Register.
We agree with the commenter that the beneficiaries should be
notified because the beneficiaries under a mortgage trust arrangement
are the entities that would suffer the greatest harm from the loss of
the preferred status of a mortgage held by a mortgage trustee.
Therefore, we have added a new paragraph 356.31(a)(4) that requires a
mortgage trustee to provide the identity and address of all
beneficiaries for which it is acting as mortgage trustee. We have also
amended paragraph 356.31(c) to require the Citizenship Approval Officer
to notify the beneficiaries if the mortgage trustee fails to qualify
under the regulations. Such notice will be provided by mailing a copy
of the Federal Register notice through standard U.S. mail to the
beneficiary at the address provided by the mortgage trustee. During the
30 day period following publication of the disapproval notice in the
Federal Register, the mortgage trustee must either transfer its
responsibilities to an approved mortgage trustee or cure the defect in
its approval or the mortgage will no longer be qualified as a preferred
mortgage. While we have amended paragraph 356.31(c) to require the
Citizenship Approval Officer to notify the beneficiary of a mortgage
trustee's failure to qualify, we will continue to use the date that the
disapproval notice is published in the Federal Register as the date
from which the 30 day period for the mortgage trustee to cure the
defect or transfer its responsibilities will begin to run in order to
minimize confusion over multiple compliance dates and to provide an
absolute date with which to work.
Section 356.37 Operation of a Fishing Industry Vessel by a Mortgage
Trustee
Section 356.37 provides that a mortgage trustee may only operate a
fishing industry vessel where such operation is necessary for the
immediate safety of the vessel. One commenter suggested that section
356.37 should be amended to provide mortgage trustees with the same
flexibility to operate a fishing industry vessel as that which is
granted to preferred mortgagees in paragraph 356.25(c). We agree with
the commenter that these sections could be more closely aligned;
therefore, we have amended section 356.37 to clarify that a mortgage
trustee may operate a fishing industry vessel where non-commercial
operation is necessary for the immediate safety of the vessel, as well
as for repairs, drydocking or berthing changes; provided, that the
vessel is operated under the command of a citizen of the United States
for a period of no more than 15 calendar days.
Section 356.45 Advance of Funds
Section 356.45(a)(2)(iv) does not currently allow non-citizens to
advance funds to a vessel owner and to obtain a security interest in
property of the vessel owner in order to secure the debt. Because non-
citizens will now be allowed to utilize a mortgage trustee to hold a
preferred mortgage on a vessel for the benefit of the non-citizen
lender, we propose to amend paragraph 356.45(a)(2)(iv) by inserting
language at the end that would allow a non-citizen to advance funds to
a vessel owner and to have a security interest in the vessel or other
collateral, provided that the non-citizen uses a qualified mortgage
trustee to hold the mortgage and debt instrument for the benefit of the
non-citizen.
Section 356.47 Special Requirements for Large Vessels
Section 356.47 implements special requirements for certain large
vessels. Vessels that exceed 165 feet in registered length, 750 gross
registered tons or that have engines capable of producing in excess of
3000 horsepower are ineligible for documentation with a fishery
endorsement pursuant to 46 U.S.C. 12102(c)(5), as redesignated by
section 2202(a)(2) of the Supplemental Appropriations Act, 2001. A
vessel that meets any of the above criteria can be exempted from the
prohibition on obtaining a fishery endorsement if it
[[Page 5571]]
meets all of the following requirements: (1) A certificate of
documentation was issued for the vessel and endorsed with a fishery
endorsement that was effective on September 25, 1997; (2) the vessel is
not placed under foreign registry after October 21, 1998; and (3) in
the event of the invalidation of the fishery endorsement after October
21, 1998, application is made for a new fishery endorsement within 15
business days of the invalidation.
There are a number of events that can render a vessel's
documentation and fishery endorsement immediately invalid under Coast
Guard regulations. If one of these events occurs, such as the death of
one of the owners in a tenancy by the entirety ownership arrangement,
and the remaining owners do not apply for a new fishery endorsement
within 15 business days, the vessel could potentially suffer a
permanent loss of its eligibility to be documented with a fishery
endorsement. Because of the harsh result that could occur if one of
these events occurred and the vessel owner did not address the issue
within the prescribed time period, MARAD's regulations state that the
15 day period will not begin to run until the vessel owner receives
written notification from MARAD or the Coast Guard identifying the
reason for such invalidation. In other words, the vessel's fishery
endorsement will not be deemed invalid for purposes of complying with
paragraph 356.47(b)(3) until notice is given. This requirement ensures
that a vessel owner is aware of the consequences of failing to apply
for a new fishery endorsement within the specified period of time in
the event of an invalidation.
We believe that the sale in bankruptcy of a fishing industry vessel
that meets the criteria of paragraph 356.47(a) can also lead to an
unintended and harsh result if the vessel is purchased by a mortgagee
that is not qualified to own a vessel with a fishery endorsement. A
mortgagee is permitted under 46 U.S.C. 31329 to purchase a vessel on
which it holds a preferred mortgage, even though the mortgagee may not
be qualified to own a documented vessel. The Coast Guard's regulations
at 46 CFR 67.161 provide that such a sale to a mortgagee is not deemed
to be a foreign sale or to invalidate the vessel's documentation for
purposes of complying with certain specified statutory provisions;
however, the endorsement on the vessel is not deemed to remain valid.
Therefore, as a practical matter, a mortgagee that is not qualified to
own a fishing industry vessel is restricted from purchasing such a
vessel on which it holds a mortgage and subsequently holding the vessel
for resale to a qualified buyer, as permitted by 46 U.S.C. 31329(b),
because the vessel would lose its eligibility to be documented with a
fishery endorsement if an application for a new fishery endorsement is
not submitted within 15 business days by a qualified owner.
Consequently, a mortgagee would be deprived of using a statutorily
permitted means of protecting the value of its collateral by purchasing
the vessel and subsequently selling the vessel to a qualified buyer.
Furthermore, this could adversely impact the ability of vessel owners
to obtain financing from entities that are eligible to hold a preferred
mortgage on fishing industry vessels, but which are not eligible to own
fishing industry vessels. Accordingly, we have amended paragraph
356.47(b)(3) to clarify that a fishing industry vessel's fishery
endorsement will not be deemed invalid for purposes of complying with
this paragraph, if the vessel is purchased pursuant to 46 U.S.C. 31329
by a mortgagee that is not eligible to own a vessel with a fishery
endorsement, provided that the mortgagee is eligible to hold a
preferred mortgage on such vessel at the time of the purchase.
Following the publication of the NPRM, the AFA was amended by
section 1103 of Public Law 107-206 by striking the phrase ``of more
than 750 gross registered tons'' in each place it appears, and
inserting in lieu thereof, ``of more than 750 gross registered tons (as
measured under chapter 145 of title 46) or 1,900 gross registered tons
(as measured under chapter 143 of that title)''. This change was deemed
to be necessary because newly constructed fishing industry vessels
would not be eligible for documentation with a fishery endorsement if
the vessel was over approximately 60 feet in registered length. Newly
constructed fishing industry vessels are required to be measured
pursuant to 46 U.S.C. chapter 143 for purposes of complying with the
AFA. The tonnage measurement of a vessel measured under chapter 145 is
much higher than that which would be obtained for a vessel of
comparable length that was measured under chapter 143; therefore, newly
constructed vessels that are much smaller than 165 feet would not be
eligible for documentation with a fishery endorsement prior to the
amendment to the AFA. The amendment allows vessels of up to 165 feet to
be eligible for documentation if the vessel meets the corresponding
tonnage threshold under the tonnage measurement system that applies to
the particular vessel. We have amended Sec. 356.47 to incorporate this
technical change.
We are also amending Sec. 356.47 by adding a new paragraph (e)
that will require the owners of vessels that are greater than 165 feet
in registered length, 750 gross tons (as measured under 46 U.S.C.
chapter 145) or 1,900 gross registered tons (as measured under the
International Tonnage Convention, 46 U.S.C. chapter 143), or that have
engines capable of producing in excess of 3,000 shaft horsepower to
submit with their annual affidavit of U.S. citizenship a certification
that the vessel is eligible to be documented with a fishery endorsement
because it complies with Sec. 356.47(b), (c) or (d) of these
regulations. While this information can be obtained by researching
Coast Guard files on specific vessels, we have determined that we would
not be able to research the information in a timely manner for all of
the vessels that are subject to these new restrictions. Therefore, the
vessel owner will be required to certify that the vessel is eligible
for documentation pursuant to one of the exceptions in Sec. 356.47.
Section 356.51 Exemptions for Specific Vessels
Paragraph (a) states that certain vessels will be exempt from the
requirements of 46 U.S.C. 12102(c) ``until such time as 50% of the
interest owned and controlled in the vessel changes.'' We added the
phrase ``after October 1, 2001,'' after ``such time'' in paragraph (a)
in order to clarify that the ownership structure on October 1, 2001, is
the baseline from which we will measure any change in ownership of a
vessel that is exempt from the requirements of 46 U.S.C. 12102(c)
pursuant to this section.
In addition, there were several technical amendments to Sec.
356.51 to correct typographical errors in the regulation. The official
number for the vessel EXCELLENCE was corrected in paragraphs
356.51(a)(1) and (c). Paragraph 356.51(e) was deleted and a reworded
version of the paragraph was inserted as a new paragraph (d).
The current paragraph (d) relates to the exemption from the
ownership and control requirements for fishing industry vessels engaged
in fisheries in the exclusive economic zone under the authority of the
Western Pacific Fishery Management Council and for purse seine vessels
that are engaged in tuna fishing in the Pacific Ocean outside of the
exclusive economic zone of the United States or pursuant to the South
Pacific Regional Fisheries Treaty. Such vessels are exempted, pursuant
to 46 U.S.C. 12102(c)(4), as redesignated by
[[Page 5572]]
section 2202 of the Supplemental Appropriations Act, 2001, from
complying with the new ownership and control requirements of the AFA.
Our current regulations exempt the vessels from the requirement to meet
the higher ownership and control standard of the AFA; however, the
regulations require the owners of such vessels to file an affidavit of
U.S. citizenship with MARAD to demonstrate that the vessel complies
with the ownership and control standard that existed prior to the
passage of the AFA. Because many of these vessels and the vessel owners
are located in remote areas, the requirement to file an affidavit of
U.S. citizenship with MARAD has proven to be a difficult requirement
for many vessel owners to satisfy. After further consideration, we have
determined that the intent of the statutory exemption was to allow the
owners of such vessels to forgo the requirement to file an affidavit of
U.S. citizenship with MARAD. Accordingly, we have deleted the
requirement to file an affidavit of U.S. citizenship with MARAD, and we
are adding a new paragraph (f) that will require the vessel owner to
notify both MARAD's Citizenship Approval Officer and the Coast Guard's
National Vessel Documentation Center that it is claiming the exemption
available to the vessel under 46 CFR 356.51(e). Vessel owners will then
be required to follow the Coast Guard's regulatory procedures that were
in effect prior to the passage of the AFA to document the vessel with a
fishery endorsement. Furthermore, vessels covered by 46 CFR 356.51(e)
are not subject to the restrictions of Sec. 356.47 during the time
that the vessel is engaged in the fisheries as outlined in paragraph
356.51(e).
Only one party provided comments on the amendments to Sec. 356.51.
The commenter supported the proposed changes and noted that the changes
would relieve an administrative burden that has complicated efforts for
the owners of such vessels to raise capital for their operations.
Section 356.53 Conflicts with International Agreements
Section 213(g) of the AFA states that if the requirements of 46
U.S.C. 12102(c) or 46 U.S.C. 31322(a), as amended by the AFA, are
determined to be inconsistent with the provisions of an international
investment agreement to which the United States was a party with
respect to the owner or mortgagee of a fishing industry vessel on
October 1, 2001, the requirements of the AFA will not apply to the
owner or mortgagee of that specific vessel to the extent of the
inconsistency. Section 2202(e) of the Supplemental Appropriations Act,
2001, amends section 213(g) of the AFA to change the date upon which an
ownership or mortgage interest must be in place in order for an owner
or mortgagee to claim the protection of an international investment
agreement. The date was changed from October 1, 2001, to July 24, 2001.
Accordingly, we have amended Sec. 356.53 by substituting the July 24,
2001 date for ``October 1, 2001'' and ``September 30, 2001'' where
those dates appear in the section.
We have also amended paragraph (d) to give the Chief Counsel the
discretion as to whether a petition under this section should be
published in the Federal Register. The decision as to whether a
petition should be published in the Federal Register will hinge on
whether the petition contains new and unique arguments on which the
Chief Counsel believes that the public should be given an opportunity
to comment. Because of the expense and time involved in publishing
these petitions in the Federal Register and the fact that no comments
were received in response to any of the petitions that were published
in the last year, we determined that it would be best to provide
discretion to the Chief Counsel to determine whether a petition
warrants publication and public comment.
Paragraph (b)(5), which addresses the timing of submissions prior
to October 1, 2001, has also been removed. This section is no longer
necessary now that October 1, 2001, has passed.
Finally, section 213(g) of the AFA provides that a vessel owner is
not subject to the requirements of the AFA with respect to a particular
vessel to the extent that those requirements are found to be
inconsistent with an international agreement relating to foreign
investment to which the United States is a party. However, section
213(g) also states that the requirements of the AFA shall apply to the
owner if any ownership interest in the vessel owner is transferred to
or otherwise acquired by a foreign individual or entity after the
effective date of the AFA. Section 2002(e) of the Supplemental
Appropriations Act, 2001, further amended section 213(g) to require
that the provisions of 46 U.S.C. 12102(c) and 46 U.S.C. 31322, as
amended by the AFA, shall apply to a vessel owner or mortgagee that is
subject to an exemption under section 213(g) if the percentage of
foreign ownership in the vessel is increased after the effective date
of this subsection.
Section 356.53(g) sets forth the requirement that the provisions of
the AFA will apply to all owners and mortgagees that acquire an
interest after the effective date of the AFA in a fishing industry
vessel that is subject to a section 213(g) exemption. Paragraph
356.53(g)(2) states that the requirements of the AFA will apply to all
owners and mortgagees in a fishing industry vessel that is subject to a
section 213(g) exemption if any ownership interest in that vessel owner
is transferred to or otherwise acquired by a non-citizen after the
effective date of the AFA. The existing paragraph 356.53(g)(2) provides
that an ownership interest in a vessel would be considered to be
transferred under this subsection when an interest in the primary
vessel owner is transferred. However, we stated that we would not
consider a transfer in the primary vessel owner to occur where: (1) The
transfer is of disparately held shares of a publicly traded company
that equal less than 5 percent of the shares in any class of stock; (2)
the transfer is between subsidiary companies under one parent; or (3)
the transfer is pursuant to a divorce or death.
We proposed several changes to paragraph 356.53(g) in the NPRM in
order to incorporate the new statutory amendments that dictate that the
requirements of the AFA should be applied to a vessel owner or
mortgagee if the percentage of foreign ownership in the vessel is
increased after the effective date of section 213(g), as amended. We
also proposed an amendment to tighten our interpretation of what
constitutes a change in ownership interest. Specifically, we proposed
to add a new paragraph (g)(3) to clarify that an ownership interest is
deemed to be transferred if: (1) There is a transfer of direct
ownership interest in the primary vessel owning entity or the parent of
the primary vessel owning entity where the primary vessel owning entity
is a wholly owned subsidiary; or (2) there is a transfer of ownership
at any tier that results in a transfer of five percent or more of the
ownership interest in the primary entity. A new paragraph (g)(4) was
also proposed and the provisions of paragraph (g)(2) relating to
transfers of disparately held shares in a publicly traded vessel owning
entity and transfers made pursuant to divorce or death were moved
there.
One party submitted comments on the proposed changes to Sec.
356.53. The commenter objected to our proposed amendments in paragraph
356.53(g)(3)(ii) to further restrict our interpretation of what
constitutes a transfer of ownership. The commenter stated that
transfers of ownership should be limited to transfers of the
[[Page 5573]]
primary vessel owning entity and that we should not and could not
restrict transfers of ownership in entities that are farther up the
ownership chain. The commenter objected to our proposal for the
following reasons: (1) That the plain language of section 213(g)
provides that the treaty exemption will be lost only if there is a
transfer of interest in the primary vessel owning entity; (2) that
section 213(g) provides that the treaty exemption will be lost if there
is a transfer of ``any'' interest in the vessel owner; (3) that the
proposed rule would adopt an insupportable interpretation of the words
``foreign individual or entity;'' (4) that the 2001 amendment to
section 213(g) does not provide support for proposed paragraph
356.53(g)(3)(ii); and (5) that MARAD proposes to take inconsistent
positions in evaluating the percentage of ``foreign ownership'' under
46 U.S.C. 12102(c) and AFA section 213(g).
We disagree with the commenter regarding our authority to regulate
transfers of ownership beyond the first tier of vessel ownership. The
increase in U.S. citizen ownership and control of fishing industry
vessels that is mandated by the AFA was intended to increase the U.S.
citizen ownership and control of fishing industry vessels and to
address a loophole that was created in 1987 by the Commercial Fishing
Industry Vessel Anti Reflagging Act of 1987 (``Anti-Reflagging Act''),
Pub. L. 100-239. The Anti-Reflagging Act raised the U.S. citizen
ownership and control requirement for fishing industry vessels from a
``documentation citizen'' standard to a ``controlling interest''
standard. However, section 7(b) of the Anti-Reflagging Act provided a
savings clause for the owners of vessels that were documented with a
fishery endorsement prior to the passage of the Anti-Reflagging Act.
The savings clause allowed the vessel owner to continue to document a
particular vessel with a fishery endorsement if the vessel had been
documented with a fishery endorsement prior to the passage of the Act.
This grandfather provision was subsequently determined in Southeast
Shipyard Ass'n v. United States, 979 F.2d 1541 (D.C. Cir. 1992), to run
with the vessel rather than the vessel owner. Therefore, the increased
U.S. ownership and control in these vessels could not be assured as
U.S. entities continued to buy into the grandfathered vessels over time
because a grandfathered vessel could always be sold back to an entity
that could be wholly owned by non-citizens, provided that the entity
qualified as a documentation citizen.
Section 204 of the AFA repealed the ownership savings clause of the
Anti-Reflagging Act and required vessel owners to comply with the new
75 percent U.S. citizen ownership and control standard imposed by the
AFA. Vessel owners and mortgagees are exempted from complying with the
new requirements of the AFA if the requirements are inconsistent with
the provisions of an international investment agreement to which the
United States is a party. However, the exemption provided for in
section 213(g) is limited in several ways. First, the exemption is
limited to the ownership or mortgage interest of a particular owner or
mortgagee with respect to a particular vessel, and it applies only to
the extent of the inconsistency with the international agreement.
Secondly, the exemption will be lost if any ownership interest in the
vessel owner is transferred to or otherwise acquired by a foreign
individual or entity or if the percentage of foreign ownership in the
vessel is increased after July 24, 2001, the effective date of section
213(g), as amended.
The purpose of the exemption under section 213(g) is twofold.
First, the exemption for specific vessels ensures that the AFA cannot
be deemed unenforceable in its entirety because it is in conflict with
U.S. obligations under an international investment agreement. Secondly,
it provides an exemption for the owners and mortgagees of vessels that
do not meet the new ownership and control requirements, provided that
when any interest is sold or transferred, it is sold or transferred to
U.S. citizens so that, over time the U.S. citizen ownership and control
of the vessel comes into compliance with the requirements of the AFA.
The commenter states that the plain language of section 213(g)
provides that the treaty exemption will be lost only if there is a
transfer of an interest in the primary vessel owning entity.
Furthermore, the commenter asserts that section 213(g) does not provide
statutory authority for MARAD to regulate transfers of ownership
interest above the first tier of vessel ownership. We disagree with the
commenter.
Section 213(g) refers to the ``vessel owner'' and in no way
specifically addresses the primary vessel owner or limits our authority
to govern transfers of ownership at various levels of the ownership
structure. The term ``owner'' as used in the context of the AFA
implicitly applies to the complete ownership structure and therefore
covers the owners at each tier. The fact that section 213(g) does not
explicitly refer to the owner ``at each tier and in the aggregate'' as
is done in 46 U.S.C. 12102(c) does not mean that we are prohibited from
looking beyond the first tier owner in evaluating the ownership
structure of a vessel subject to a section 213(g) exemption. Acceptance
of the commenter's interpretation that the term ``owner'' applies only
to the first tier vessel owner would allow a vessel owner to easily
circumvent the restrictions in section 213(g) on transfers of interest
to foreign individuals or entities by simply having a tiered ownership
structure and selling an interest in the vessel ownership structure
above the first tier. For example, a vessel that is subject to a 213(g)
exemption and that was grandfathered under the Anti-Reflagging Act
could be owned by a U.S. corporation that is wholly owned by a foreign
entity, provided that the U.S. corporation qualifies as a documentation
citizen. Under the commenter's interpretation, all or part of the
interest in the non-citizen parent of the documentation citizen could
be freely transferred to another non-citizen entity because the non-
citizen parent is not the primary vessel owner. The restrictions on
transfers of sale in section 213(g) were designed to ensure that any
transfers of ownership in a vessel subject to a section 213(g)
exemption would be to U.S. citizens until such time as the entire
ownership structure came into compliance with the new ownership and
control requirements of the AFA. The commenter's interpretation would
completely frustrate this intended result.
The commenter also argues that the proposed regulation would adopt
an insupportable interpretation of the words ``foreign individual or
entity.'' Section 213(g) provides that the exemption will be lost if
there is a transfer of an ownership interest in the vessel owner ``to a
foreign individual or entity.'' The commenter suggests that our
proposed regulations essentially substitute the term non-citizen for
the terms ``foreign individual or entity'' and that this cannot be
supported by the statute. The commenter states that a corporation or
partnership formed under the laws of the United States does not become
a ``foreign * * * entity'' because more than 25 percent of the
ownership of the entity is owned by persons who do not meet the AFA
test of citizenship. Therefore, the commenter suggests that we are
incorrect in determining that a transfer of an ownership interest in a
vessel to an entity that does not qualify as a U.S. citizen under the
AFA should be treated
[[Page 5574]]
in the same manner as a transfer to a foreign entity.
We disagree with the commenter on this interpretation of what is
covered by the term ``foreign individual or entity'' as used in section
213(g). As noted above, section 213(g) clearly contemplates that
transfers of ownership in a vessel subject to a section 213(g)
exemption must be to U.S. citizens that comply with the AFA citizenship
standard until such time as the entire vessel ownership structure
complies with the new ownership and control standard of the AFA.
Following the commenter's reading of the statute could lead to results
that would actually increase the foreign participation in the ownership
structure. For example, an entity within the ownership structure that
has 100 percent U.S. citizen ownership and control would be permitted
to sell its interest under the commenter's interpretation to a
documentation citizen that is wholly owned by a foreign corporation.
Although the documentation citizen is a U.S. company with U.S.
management, it is a foreign-owned entity and should be treated
accordingly for purposes of complying with section 213(g). The
commenter's suggested interpretation is inconsistent with the objective
of section 213(g) to ratchet up the U.S. citizen participation in the
ownership structure when a vessel owner transfers its ownership
interests.
The commenter also suggests that proposed paragraph
356.53(g)(3)(ii) should not become part of the final rule because it is
inconsistent with the standard that is applied to determining the
aggregate U.S. citizen ownership when applying 46 U.S.C. 12102(c). The
commenter notes that when we determine the percentage of non-citizen
ownership in applying 46 U.S.C. 12102(c), we determine that any entity
that does not qualify as a U.S. citizen under the AFA is a non-citizen.
We do not look into the percentage of non-citizen ownership within that
entity in order to determine the aggregate non-citizen participation.
For example, an entity that is owned 74 percent by U.S. citizens and 26
percent by non-citizens would be deemed to be a non-citizen and would
be treated the same as an entity that was owned 100% by a non-citizen
for purposes of determining the aggregate U.S. citizen participation.
In other words, no credit would be given for the U.S. ownership in an
entity that does not qualify independently as a U.S. citizen. However,
when applying section 213(g), we do not treat all non-citizen entities
in the ownership chain equally because we continue to monitor the
transfer of ownership in those non-citizen entities. The commenter
argues that we should treat non-citizens the same way in determining
the amount of non-citizen ownership under section 213(g) and that once
an entity is determined to be a non-citizen we should not be concerned
with transfers of ownership in that entity.
We do not agree with the commenter that there is a requirement to
apply the same standard when determining the level of non-citizen
participation under section 213(g) as when we determine the level of
aggregate non-citizen participation under 46 U.S.C. 12102(c). As noted
above, the purpose of the restrictions on transfer of ownership
interest in section 213(g) is to ensure that U.S. participation in the
ownership structure is increased at any time that a non-citizen
participant decides to exit the ownership structure and transfer its
interest. Consequently, we believe that it is appropriate to apply a
different standard under section 213(g) with respect to transfers of
ownership interest.
Finally, the commenter states that the standard that we have
applied in paragraph 356.53(g)(3)(ii) regarding transfers of indirect
ownership is too liberal and exceeds the scope of our authority. The
commenter notes that we have stated in proposed paragraph
356.53(g)(3)(ii) that we will deem a transfer of ownership interest to
occur where there is a transfer of indirect ownership at any tier that
results in a transfer of five percent or more of the interest in the
primary vessel owning entity. The commenter points out that section
213(g) provides that the exemption will be lost if ``any ownership
interest in [the vessel]
owner'' is transferred to or otherwise
acquired by a foreign individual or entity.'' Therefore, the commenter
contends that if a transfer of an indirect ownership interest is deemed
to be a constructive transfer of an ownership interest in the vessel
owner, MARAD's proposal to permit transfers of less than five percent
is flatly inconsistent with the statute. The only instance in which the
commenter believes that the use of a five percent threshold is
supportable is where a publicly traded entity holds an interest in the
vessel, as currently provided for in the regulations.
We attempted to build some flexibility into the regulations
regarding transfers of indirect interests, so that every transfer of an
interest in the ownership chain, regardless of how small the interest
is or how far removed it is from the primary vessel owner, would not
potentially result in a loss of the exemption. However, we agree with
the commenter's assertion that section 213(g) is intended to cover all
transfers of ownership interest to another party. Therefore, we are
amending our proposed language in paragraphs 356.53(g)(3)(i) and (ii)
to address the commenter's objection and to clarify that an ownership
interest is deemed to be transferred if: (i) There is a transfer of
direct ownership interest in the primary vessel owning entity; or (ii)
there is a transfer of indirect ownership interest at any tier. We
will, however, continue to implement our policy with regard to
transfers of disparately held shares in publicly traded companies as
outlined in paragraph 356.53(g)(4).
Rulemaking Analyses and Notices
Executive Order 12866 and DOT Regulatory Policies and Procedures
We have reviewed this rule under Executive Order 12866 and have
determined that this is not a significant regulatory action.
Additionally, this rule is not likely to result in an annual effect on
the economy of $100 million or more. The purpose of this rule is: To
implement amendments to the requirements to hold a preferred mortgage
on fishing industry vessels of 100 feet or greater in registered
length; to implement statutory changes to section 213(g) of the AFA,
which allows vessel owners and mortgagees to petition MARAD for a
determination that the AFA does not apply to them because it is
inconsistent with an international investment agreement; and to make
other technical changes and revisions to MARAD's regulations regarding
the ownership and control of fishing industry vessels by U.S. citizens.
This rule is also not significant under the regulatory policies and
procedures of the Department of Transportation (44 FR 11034, February
26, 1979). The costs and benefits associated with this rulemaking are
so minimal that no further analysis is necessary. Because the economic
impact should be minimal, further regulatory evaluation is not
necessary.
Federalism
We analyzed this rulemaking in accordance with the principles and
criteria contained in E.O. 13132 (``Federalism'') and have determined
that it does not have sufficient federalism implications to warrant the
preparation of a federalism summary impact statement. The regulations
have no substantial effects on the States, or on the current Federal-
State relationship, or on the current distribution of power and
responsibilities among the various local officials. Therefore,
consultation with
[[Page 5575]]
State and local officials was not necessary.
Regulatory Flexibility Act
This rulemaking will not have a significant economic impact on a
substantial number of small entities. The amendments to the regulations
relating to vessel owners are of a technical nature that will not
result in a significant economic impact. Furthermore, this rule will
make it easier for owners of fishing industry vessels to obtain
financing for their vessels by expanding the universe of lenders that
are eligible to hold a preferred mortgage on a fishing industry vessel
as security for a loan. Therefore, we certify that this rule will not
have a significant economic impact on a substantial number of small
business entities.
Environmental Impact Statement
We have analyzed this rule for purposes of compliance with the
National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.) and
have concluded that under the categorical exclusions provision in
section 4.05 of Maritime Administrative Order (``MAO'') 600-1,
``Procedures for Considering Environmental Impacts,'' 50 FR 11606
(March 22, 1985), the preparation of an Environmental Assessment, and
an Environmental Impact Statement, or a Finding of No Significant
Impact for this rulemaking is not required. This rulemaking involves
administrative and procedural regulations which clearly have no
environmental impact.
Paperwork Reduction Act
The Office of Management and Budget (``OMB'') previously reviewed
the information collection requirements under 46 CFR part 356 and
assigned OMB control number 2133-0530. This rule establishes a new
requirement for the collection of information. OMB has been requested
to review and approve the information collection requirements under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq.). We request
that commenters address in their comments whether the information
collection in this proposal is necessary for the agency to properly
perform its functions and will have practical utility, the accuracy of
the burden estimates, ways to minimize this burden, and ways to enhance
quality, utility, and clarity of the information to be collected.
Comments should be sent not later than 30 days following publication of
this notice in the Federal Register. Comments should refer to the
docket number that appears at the top of this document. Written
comments may be submitted to the Docket Clerk, U.S. DOT Dockets, Room
PL-401, 400 Seventh Street, SW., Washington, DC 20590. Comments may
also be submitted by electronic means via the Internet at
http://dmses.dot.gov/gov/submit. All comments received will be available
for examination at the above referenced address between 10 a.m. and 5 p.m.
e.d.t. (or e.s.t.), Monday through Friday, except Federal holidays. An
electronic version of this document is available on the World Wide Web
at http://dms.dot.gov.
In accordance with the Paperwork Reduction Act, this notice
announces MARAD's intentions to request an amendment to its approval
for the subject information collection to allow processing of
applications to determine the eligibility of owners of vessels of 100
feet or greater in registered length to obtain a fishery endorsement to
the vessel's documentation, to determine the eligibility of lending
institutions to hold a preferred mortgage on a fishing vessel, a fish
processing vessel, or a fish tender vessel of 100 feet or greater in
registered length and to determine the eligibility of mortgage trustees
to hold a preferred mortgage on such vessels for the benefit of a non-
citizen lender. Copies of this request may be obtained from the Office
of Chief Counsel at the address given above under ADDRESSES.
Title of Collection: (Eligibility of U.S.-Flag Vessels of 100 Feet
or Greater In Registered Length to Obtain a Fishery Endorsement to the
Vessel's Documentation) 46 CFR part 356.
Type of Request: Modification of existing information collection.
OMB Control Number: 2133-0530.
Form Number: None.
Expiration Date of Approval: Three years following approval by OMB.
Summary of the Collection of Information: Owners of vessels of 100
feet or greater in registered length who wish to obtain a fishery
endorsement to the vessel's documentation are currently required to
file an affidavit of United States citizenship demonstrating that they
comply with the requirements of section 2(c) of the 1916 Act, 46 App.
U.S.C. 802(c) and with the requirements of 46 U.S.C. 12102(c). Other
documentation that must be submitted with the affidavit includes a copy
of the articles of incorporation, bylaws or other comparable documents,
a description of any management agreements entered into with non-
citizens, a certification that any management contracts with non-
citizens do not convey control in a fishing industry vessel to a non-
citizen, and a copy of any time charters or voyage charters with non-
citizens.
Mortgagees who plan to finance vessels of 100 feet or greater in
registered length that have a fishery endorsement or for which a
fishery endorsement to the vessel's documentation is sought must submit
a certification to demonstrate that they meet the statutory definition
of a ``preferred mortgagee'' at 46 U.S.C. 31322(a)(4). Prior to this
rulemaking a preferred mortgagee was required to submit an affidavit of
United States citizenship to demonstrate that it complies with the
United States citizen ownership and control requirements of section
2(c) of the 1916 Act, 46 App. U.S.C. 802(c), or in the case of a State
or Federally chartered financial institution, the controlling interest
requirements of section 2(b) of the 1916 Act. If a mortgagee does not
comply with the definition of a ``preferred mortgagee,'' it must use a
mortgage trustee that qualifies as a citizen of the United States to
hold the preferred mortgage for the benefit of the non-citizen lender.
The mortgage trustee must file an application for approval as a
mortgage trustee that includes evidence that it is eligible to hold a
preferred mortgage and that it complies with the requirements of 46
U.S.C. 31322. In addition to the affidavit of United States
citizenship, corporations and other entities must submit documents
which demonstrate that the entity is organized and existing under the
laws of the United States, such as articles of incorporation and
bylaws, or other comparable documents. Annually, owners of vessels,
mortgagees and applicable mortgage trustees must submit prescribed
citizenship or other qualifying information to MARAD's Citizenship
Approval Officer.
Need and Use of the Information: The information collection will be
used to verify statutory compliance with the United States citizen
ownership and control requirements under section 2(b) and section 2(c)
of the 1916 Act and 46 U.S.C. 12102(c) for owners, charterers,
mortgagees, and mortgage trustees of vessels of 100 feet or greater in
registered length for which a fishery endorsement to the vessel's
documentation is being sought. The information collection is being
modified to require owners of vessels that are greater than 165 feet or
750 gross tons or that have engines capable of producing more than 3000
horsepower to submit a certification indicating that the vessel was
documented with a fishery endorsement on September 25, 1997 and that
the fishery endorsement has remained valid, therefore the vessel
[[Page 5576]]
is eligible for continued documentation with a fishery endorsement. In
addition, rather than demonstrate that they meet specific U.S.
citizenship standards, most preferred mortgagees will now be required
to submit information to demonstrate that they comply with the new
statutory definition of a preferred mortgagee at 46 U.S.C. 31322(a)(4).
Without the information it would be impossible to know whether certain
vessels are eligible for documentation with a fishery endorsement and
whether a preferred mortgagee is eligible to hold a preferred mortgage
on a fishing industry vessel. This amendment to the collection of
information does not result in an increased burden, but it does result
in a change in the type of information that is being collected.
One commenter suggested that the requirements under section 356.19
are inconsistent with the Paperwork Reduction Act and the Ship Mortgage
Act. The regulations require a lender to file a certification with
MARAD to demonstrate that the lender complies with the statutory
requirements to hold a preferred mortgage on a fishing industry vessel
before the mortgage will qualify as a preferred mortgage. The commenter
states that a lender has the most to lose if it does not comply with
the statutory requirements; therefore, self regulation by the industry
should be sufficient. In addition, the commenter states that the Ship
Mortgage Act, as amended, does not give MARAD specific authority to
require such a certification from preferred mortgagees, so the
certification requirement is inconsistent with the requirements of both
the Ship Mortgage Act and the Paperwork Reduction Act.
While we agree with the commenter that a lender has the most to
lose if a determination is made that it does not qualify as a preferred
mortgagee, self regulation of preferred mortgagees is not adequate to
satisfy the spirit of the law and MARAD's mandate to ensure that non-
citizens do not acquire impermissible control of fishing industry
vessels. Because a preferred mortgagee can exercise control over a
fishing industry vessel, it is important that MARAD establish that the
mortgagee complies with the requirements of the statute and that it is
not an entity that is prohibited from exercising control over the
vessel. There is no language in the statute to indicate that MARAD is
limited in any way regarding the information that it can or should
require from preferred mortgagees. Furthermore, as discussed in the
preamble to section 356.19, we have created a simple certification that
should not be burdensome to lenders that wish to file a preferred
mortgage.
Description of Respondents: Owners, bareboat charterers,
mortgagees, and mortgage trustees of vessels of 100 feet or greater in
registered length for which a fishery endorsement to the vessel's
documentation is being sought.
Annual Responses: Responses will be required on an occasional and
an annual basis. Updates will be required during the year if there are
changes to the ownership or financing of the vessel. There are
approximately 550 vessels and 400 vessel owners that are subject to
this regulation. Approximately 450 responses are expected from owners
and bareboat charterers and less than 50 responses are expected from
mortgagees and mortgage trustees.
Annual Burden: 2950 hours.
Unfunded Mandates Reform Act of 1995
This rule would not impose an unfunded mandate under the Unfunded
Mandates Reform Act of 1995. It would not result in costs of $100
million or more, in the aggregate, to any of the following: State,
local, or Native American tribal governments, or the private sector.
This rule is the least burdensome alternative that achieves the
objective of the rule.
Regulatory Identification Number (RIN)
The Department of Transportation assigns a regulation identifier
number (RIN) to each regulatory action listed in the Unified Agenda of
Federal Regulations. The Regulatory Information Service Center
publishes the Unified Agenda in April and October of each year. The RIN
number is contained in the heading of this document to cross-reference
this action with the Unified Agenda.
List of Subjects in 46 CFR Part 356
Citizenship and naturalization, Fishery endorsement, Fishing
vessels, International investment agreements, Mortgages, Penalties,
Reporting and recordkeeping requirements.
Accordingly, 46 CFR part 356 is amended as follows:
PART 356--REQUIREMENTS FOR VESSELS OF 100 FEET OR GREATER IN
REGISTERED LENGTH TO OBTAIN A FISHERY ENDORSEMENT TO THE VESSEL'S
DOCUMENTATION
1. The authority citation for part 356 is revised to read as
follows:
Authority: 46 U.S.C. 12102; 46 U.S.C. 31322; Pub. L. 105-277,
division C, title II, subtitle I, section 203 (46 U.S.C. 12102
note), section 210(e), and section 213(g), 112 Stat. 2681; Pub. L.
107-20, section 2202, 115 Stat. 168-170; 49 CFR 1.66.
2. Part 356 is amended by revising the phrases ``Fishing Vessel,
Fish Processing Vessel, or Fish Tender Vessel'' and ``Fishing Vessel,
Fish Tender Vessel, or Fish Processing Vessel'' to read ``Fishing
Industry Vessel'' in every place that either phrase appears in part 356
except as used in newly added Sec. 356.3( j).
Subpart A--General Provisions
356.3 [Amended]
3. Section 356.3 is amended as follows:
a. Paragraphs (l) through (x) are redesignated as paragraphs (o)
through (aa).
b. Paragraphs (i) through (k) are redesignated as paragraphs (k)
thorugh (m).
c. Paragraphs (g) and (h) are redesignated as paragraphs (h) and
(i).
d. New paragraphs (g), (j) amd (n) are added.
e. Paragraph (e)(2) and newly designated paragraphs (h)(2), (u) and
(y)(2) are revised.
f. In newly designated paragraph (q), paragraph (q)(2) is removed,
paragraph (q)(3) is redesignated as paragraph (q)(2), and new paragraph
(q)(3) is added.
g. In newly designated paragraphs (p) and (q), add the word
``Industry'' following the word ``Fishing''.
h. Newly designated paragraph (s) is revised.
The additions and revisions read as follows:
356.3 Definitions
* * * * *
(e) Citizen of the United States, Citizen or U.S. Citizen:
* * * * *
(2) Other criteria that must be met by entities other than
individuals include:
(i) In the case of a corporation:
(A) The chief executive officer, by whatever title, and chairman of
the board of directors and all officers authorized to act in the
absence or disability of such persons must be Citizens of the United
States; and
(B) No more of its directors than a minority of the number
necessary to constitute a quorum are Non-Citizens;
(ii) In the case of a partnership all general partners are Citizens
of the United States;
(iii) In the case of an association:
(A) All of the members are Citizens of the United States;
(B) The chief executive officer, by whatever title, and the
chairman of the board of directors (or equivalent committee or body)
and all officers authorized to act in their absence or
[[Page 5577]]
disability are Citizens of the United States; and,
(C) No more than a minority of the number of its directors, or
equivalent, necessary to constitute a quorum are Non-Citizens;
(iv) In the case of a joint venture:
(A) It is not determined by the Citizenship Approval Officer to be
in effect an association or a partnership; and,
(B) Each co-venturer is a Citizen of the United States;
(v) In the case of a Trust that owns a Fishing Industry Vessel:
(A) The Trust is domiciled in the United States or a State;
(B) The Trustee is a Citizen of the United States; and
(C) All beneficiaries of the trust are persons eligible to document
vessels pursuant to the requirements of 46 U.S.C. 12102(c);
(vi) In the case of a Limited Liability Company (LLC) that is not
found to be in effect a general partnership requiring all of the
general partners to be Citizens of the United States:
(A) Any Person elected to manage the LLC or who is authorized to
bind the LLC, and any Person who holds a position equivalent to a Chief
Executive Officer, by whatever title, and the Chairman of the Board of
Directors in a corporation are Citizens of the United States; and,
(B) Non-Citizens do not have authority within a management group,
whether through veto power, combined voting, or otherwise, to exercise
control over the LLC.
* * * * *
(g) Commercial Lender means an entity that is primarily engaged in
the business of lending and other financing transactions and that has a
loan portfolio in excess of $100,000,000, of which not more than 50 per
centum in dollar amount consists of loans to borrowers in the
commercial fishing industry, as certified by the Commercial Lender to
the Citizenship Approval Officer.
* * * * *
(h) Controlling Interest:
* * * * *
(2) Other criteria that must be met by entities other than an
individual include:
(i) In the case of a corporation:
(A) The Chief Executive Officer, by whatever title, and the
Chairman of the Board of Directors (or equivalent committee or body)
and all officers authorized to act in their absence or disability are
Citizens of the United States; and,
(B) No more than a minority of the number of its directors, or
equivalent, necessary to constitute a quorum are Non-Citizens;
(ii) In the case of a partnership all general partners are Citizens
of the United States;
(iii) In the case of an association:
(A) The Chief Executive Officer, by whatever title, and the
Chairman of the Board of Directors (or equivalent committee or body)
and all officers authorized to act in their absence or disability are
Citizens of the United States; and,
(B) No more than a minority of the number of its directors, or
equivalent, necessary to constitute a quorum are Non-Citizens;
(iv) In the case of a joint venture:
(A) It is not determined by the Citizenship Approval Officer to be
in effect an association or partnership; and
(B) A majority of the equity is owned by and vested in Citizens of
the United States free and clear of any trust or fiduciary obligation
in favor of any Non-Citizen;
(v) In the case of a Limited Liability Company (LLC) that is not
found to be in effect a general partnership requiring all of the
general partners to be Citizens of the United States:
(A) Any Person elected to manage the LLC or who is authorized to
bind the LLC, and any Person who holds a position equivalent to the
Chief Executive Officer, by whatever title, and the Chairman of the
Board of Directors in a corporation and any Persons authorized to act
in their absence are Citizens of the United States; and,
(B) Non-Citizens do not have authority within a management group,
whether through veto power, combined voting, or otherwise, to exercise
control over the LLC;
* * * * *
(j) Fishing Industry Vessel means a Fishing Vessel, Fish Processing
Vessel, or Fish Tender Vessel;
* * * * *
(n) Lender Syndicate means an arrangement established for the
combined extension of credit of not less than $20,000,000 made up of
four or more entities that each have a beneficial interest, held
through an agent, under a trust arrangement established pursuant to 46
U.S.C. 31322(f). Other than the exercise by the agent of powers related
to routine administrative matters, none of the entities in a Lender
Syndicate may exercise powers related to the Lender Syndicate's
extension of credit without the concurrence of at least one other
unaffiliated beneficiary. Powers related to routine administrative
matters include those concerning the day-to-day management of the
extension of credit such as monitoring compliance with loan covenants,
collateral inspections and similar matters; however, more substantive
powers such as amending loan and mortgage documents, releasing
guarantors or collateral, or administering the loan in the event of a
default are not considered routine.
* * * * *
(q) Mortgage Trustee, * * *
* * * * *
(2) Is authorized under those laws to exercise corporate trust
powers;
(3) Is eligible to hold a Preferred Mortgage under 46 U.S.C.
31322(a)(4)(A)-(E);
* * * * *
(s) Non-Citizen Lender means a lender that does not qualify as a
Citizen of the United States.
* * * * *
(u) Preferred Mortgage means a mortgage on a Fishing Industry
Vessel that has as the Mortgagee:
(1) A person eligible to own a vessel with a fishery endorsement
under 46 U.S.C. 12102(c);
(2) A state or federally chartered financial institution that is
insured by the Federal Deposit Insurance Corporation;
(3) A farm credit lender established under title 12, chapter 23, of
the United States Code [12 U.S.C. 2001 et seq.];
(4) A commercial fishing and agriculture bank established pursuant
to State law;
(5) A commercial lender organized under the laws of the United
States or of a State and eligible to own a vessel under 46 U.S.C.
12102(a); or
(6) A Mortgage Trustee that complies with the requirements of 46
U.S.C. 31322(f) and 46 CFR 356.27 through 356.31.
* * * * *
(y) Trust means:
* * * * *
(2) In the case of a mortgage trust, a trust that is domiciled in
and existing under the laws of the United States, or of a State, that
has as its trustee a Mortgage Trustee as defined in this section, and
that is authorized to act on behalf of a beneficiary in accordance with
the requirements of Sec. Sec. 356.27 through 356.31.
* * * * *
Subpart B--Ownership and Control
4. In Sec. 356.5, revise paragraph (d) to read as follows:
Sec. 356.5 Affidavit of U.S. Citizenship.
* * * * *
(d) The prescribed form of the Affidavit of U.S. Citizenship is as
follows:
[[Page 5578]]
State of -------- County of -------- Social Security Number: ------
------I, ------------, (Name) of ------------, (Residence address)
being duly sworn, depose and say:
1. That I am the -------- (Title of office(s) held) of --------,
(Name of corporation) a corporation organized and existing under the
laws of the State of-------- (hereinafter called the
``Corporation''), with offices at ------------, (Business address)
in evidence of which incorporation a certified copy of the Articles
or Certificate of Incorporation (or Association) is filed herewith
(or has been filed) together with a certified copy of the corporate
Bylaws. [Evidence of continuing U.S. citizenship status, including
amendments to said Articles or Certificate and Bylaws, should be
filed within 45 days of the annual documentation renewal date for
vessel owners. Other parties required to provide evidence of U.S.
citizenship status must file within 30 days after the annual meeting
of the stockholders or annually, within 30 days after the original
affidavit if there has been no meeting of the stockholders prior to
that time.];
2. That I am authorized by and in behalf of the Corporation to
execute and deliver this Affidavit of U.S. Citizenship;
3. That the names of the Chief Executive Officer, by whatever
title, the Chairman of the Board of Directors, all Vice Presidents
or other individuals who are authorized to act in the absence or
disability of the Chief Executive Officer or Chairman of the Board
of Directors, and the Directors of the Corporation are as
follows:\1\
-----------------------------------------------------------------------
\1\ Offices that are currently vacant should be noted when
listing Ofifcers and Directors in the Affidavit.
-----------------------------------------------------------------------
Name Title
-----------------------------------------------------------------------
Date and Place of Birth
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(The foregoing list should include the officers, whether or not they
are also directors, and all directors, whether or not they are also
officers.) Each of said individuals is a Citizen of the United
States by virtue of birth in the United States, birth abroad of U.S.
citizen parents, by naturalization, by naturalization during
minority through the naturalization of a parent, by marriage (if a
woman) to a U.S. citizen prior to September 22, 1922, or as
otherwise authorized by law, except (give name and nationality of
all Non-Citizen officers and directors, if any). The By-laws of the
Corporation provide that ---- (Number) of the directors are
necessary to constitute a quorum; therefore, the Non-Citizen
directors named represent no more than a minority of the number
necessary to constitute a quorum.
4. Information as to stock, where Corporation has 30 or more
stockholders:
-----------------------------------------------------------------------
That I have access to the stock books and records of the
Corporation; that said stock books and records have been examined
and disclose (a) that, as of ----, (Date) the Corporation had issued
and outstanding -------- (Number) shares of --------, (Class) the
only class of stock of the Corporation issued and outstanding [if
such is the case], owned of record by -------- (Number)
stockholders, said number of stockholders representing the ownership
of the entire issued and outstanding stock of the Corporation, and
(b) that no stockholder owned of record as of said date five per
centum (5%) or more of the issued and outstanding stock of the
Corporation of any class. [If different classes of stock exist, give
the same information for each class issued and outstanding, showing
the monetary value and voting rights per share in each class. If
there is an exception to the statement in clause (b), the name,
address, and citizenship of the stockholder and the amount and class
of stock owned should be stated and the required citizenship
information on such stockholder must be submitted.]
That the
registered addresses of -------- owners of record of -------- shares
of the issued and outstanding -------- (Class) stock of the
Corporation are shown on the stock books and records of the
Corporation as being within the United States, said -------- shares
being -------- per centum ----(%) of the total number of shares of
said stock (each class). [The exact figure as disclosed by the stock
books of the corporation must be given and the per centum figure
must not be less than 65 per centum for a corporation that must
satisfy the controlling interest requirements of section 2(b) of the
Shipping Act, 1916, 46 App. U.S.C. Sec. 802(b), or not less than 95
per centum for an entity that is demonstrating ownership in a vessel
for which a fishery endorsement is sought. These per centum figures
apply to corporate stockholders as well as to the primary
corporation.]
(The same statement should be made with reference to
each class of stock, if there is more than one class.)
or
[Note: An entity that has less than 30 stockholders should use the
following alternate paragraph (4) and strike the inapplicable
paragraph (4).]
4. Information as to stock, where Corporation has less than 30
stockholders: That the information as to stock ownership, upon which
the Corporation relies to establish that 75% of the stock ownership
is vested in Citizens of the United States, is as follows:
-----------------------------------------------------------------------------------------------
Number of shares owned Percentage of shares
Name of stockholder Date and place of birth (each class) owned (each class)
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
and that each of said individual stockholders is a Citizen of the
United States by virtue of birth in the United States, birth abroad
of U.S. citizen parents, by naturalization during minority through
the naturalization of a parent, by marriage (if a woman) to a U.S.
citizen prior to September 22, 1922, or as otherwise authorized by
law. Note: If a corporate stockholder, give information with respect
to State of incorporation, the names of the officers, directors, and
stockholders and the appropriate percentage of shares held, with
statement that they are all U.S. citizens. Nominee holders of record
of 5% or more of any class of stock and the beneficial owners
thereof should be named and their U.S. citizenship information
submitted to MARAD.
5. That 75% of the interest in (each) said Corporation, as
established by the information hereinbefore set forth, is owned by
Citizens of the United States; that the title to 75% of the stock of
(each) class of the stock of (each) said Corporation is vested in
Citizens of the United States free from any trust or fiduciary
obligation in favor of any person not a Citizen of the United
States; that such proportion of the voting power of (each) said
Corporation is vested in Citizens of the United States; that through
no contract or understanding is it so arranged that more than 25%
the voting power of (each) said Corporation may be exercised,
directly or indirectly, in behalf of any person who is not a Citizen
of the United States; and that by no means whatsoever, is any
interest in said Corporation in excess of 25% conferred upon or
permitted to be exercised by any person who is not a Citizen of the
United States; and
or
[Note: An entity that is required to comply with the controlling
interest requirements of section 2(b) of the Shipping Act, 1916, 46
App. U.S.C. Sec. 802(b), should use the following alternate
paragraph (5) and strike the inapplicable paragraph (5).]
5. That the Controlling Interest in (each) said Corporation, as
established by the information hereinbefore set forth, is owned by
Citizens of the United States; that the title to a majority of the
stock of (each) said Corporation is vested in Citizens of the United
States free from any trust or fiduciary obligation in favor of any
person not a Citizen of the United States; that such proportion of
the voting power of (each) said Corporation is vested in Citizens of
the United States; that through no contract or understanding is it
so arranged that the majority of the voting power of (each) said
Corporation may be exercised, directly or indirectly, in behalf of
any person who is not a Citizen of the United States; and that by no
means whatsoever, is control of (each) said Corporation conferred
upon or permitted to
[[Page 5579]]
be exercised by any person who is not a Citizen of the United
States; and
6. That the affiant has submitted all of the necessary
documentation required under 46 CFR Sec. 356.13 in connection with
this Affidavit of U.S. Citizenship for the vessels herein
identified.
------------------------------------------------------------------------
Vessel Name Official Number
------------------------------------------------------------------------
1......................................... ............................
2......................................... ............................
------------------------------------------------------------------------
[Note: Paragraph 6 should be included in the Affidavit of U.S.
Citizenship submitted by an entity that owns a Fishing Industry
Vessel.]
7. That affiant has carefully examined this affidavit and
asserts that all of the statements and representations contained
therein are true to the best of his knowledge, information, and
belief.
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(Name and title of affiant)
-----------------------------------------------------------------------
(Signature of affiant)
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Date
Penalty for False Statement: A fine or imprisonment, or both,
are provided for violation of the proscriptions contained in 18
U.S.C. Sec. 1001 (see also, 18 U.S.C. Sec. Sec. 286, 287).
* * * * *
Sec. 356.7 [Amended]
5. Section 356.7(c)(1)(ii) is revised to read as follows:
Sec. 356.7 Methods of establishing ownership by United States
Citizens.
* * * * *
(c) * * *
(1)(i) * * *
(ii) At least 65% of the stock (each class) of the corporation be
held by Persons having a registered U.S. address in order to infer at
least 51% ownership by U.S. Citizens; and
* * * * *
Sec. 356.11 [Amended]
6. Section 356.11(a)(7) is revised to read as follows:
Sec. 356.11 Impermissible control by a Non-Citizen.
(a) * * *
(7) Has the right to cause the sale of a Fishing Industry Vessel
other than:
(i) By an entity that is eligible to hold a Preferred Mortgage on
the vessel pursuant to Sec. 356.19(a)(2) through (a)(5);
(ii) By an approved Mortgage Trustee that is exercising loan and
mortgage covenants on behalf of a beneficiary that qualifies as a
Commercial Lender, a Lender Syndicate or an entity eligible to hold a
Preferred Mortgage under Sec. 356.19(a)(2) through (a)(5);
(iii) By an approved Mortgage Trustee that is exercising loan or
mortgage covenants for a beneficiary that is not qualified to hold a
Preferred Mortgage, provided that the loan or mortgage covenants have
been approved by the Citizenship Approval Officer; or
(iv) Where it is necessary in order to allow a Non-Citizen to
dissolve its interest in the entity;
* * * * *
Subpart C--Requirements for Vessel Owners
Sec. 356.13 [Amended]
7. Section 356.13 is amended as follows:
a. By removing the word ``and'' at the end of paragraph (a)(11);
b. By removing the period at the end of paragraph (a)(12) and
inserting in lieu thereof a semicolon followed by the word ``and'';
c. By revising paragraph (a)(5); and
d. By adding a new paragraph (a)(13).
The additions read as follows:
Sec. 356.13 Information required to be submitted by vessel owners.
(a) * * *
(5) Any loan agreements or other financing documents applicable to
a Fishing Industry Vessel where the lender has not been approved by
MARAD to hold a Preferred Mortgage on Fishing Industry Vessels,
excepting financing documents that are exempted from review pursuant to
Sec. 356.19(d) and loan documents that have received general approval
from the Citizenship Approval Officer pursuant to Sec. 356.21 for use
with an approved Mortgage Trustee.
* * * * *
(13) A copy of the Large Vessel Certification required by Sec.
356.47.
* * * * *
Sec. 356.15 [Amended]
8. Section 356.15 is amended as follows:
a. By removing paragraphs (a), (b), and (c);
b. By redesignating paragraphs (e) and (f) as paragraphs (a) and
(b);
c. By redesignating paragraph (d) as paragraph (c) and by removing
the words ``will necessarily'' from the third sentence and inserting in
lieu thereof the word ``may''; and
d. By adding a new paragraph (d) to read as follows:
Sec. 356.15 Filing of Affidavit of U.S. Citizenship.
* * * * *
(d) The owner of a Fishing Industry Vessel or a prospective owner
of such a vessel may request a letter ruling from the Citizenship
Approval Officer in order to determine whether the owner under a
proposed ownership structure will qualify as a U.S. Citizen that is
eligible to document the vessel with a fishery endorsement. A complete
request for a letter ruling must be accompanied by an Affidavit of U.S.
Citizenship and all other documentation required by `` 356.13. The
Citizenship Approval Officer will issue a letter ruling based on the
ownership structure that is proposed; however, the Citizenship Approval
Officer reserves the right to reverse the determination if any of the
elements of the ownership structure, contractual arrangements, or other
material relationships are altered when the vessel owner submits the
executed Affidavits and supporting documentation.
Sec. 356.17 [Amended]
9. Section 356.17(b) is revised to read as follows:
Sec. 356.17 Annual requirements for vessel owners.
* * * * *
(b) The annual certification required by paragraph (a) of this
section must be filed at least 45 days prior to the renewal date for
the vessel's documentation and fishery endorsement. Where multiple
Fishing Industry Vessels are owned by the same entity or by entities
that ultimately have common ownership, an Affidavit of U.S. Citizenship
and supporting documentation may be filed for all of the vessels in
conjunction with the first vessel documentation renewal during each
calendar year. Any information or supporting documentation unique to a
particular vessel that would normally be required to be submitted under
Sec. 356.13 or any other provision of this part 356 such as charters,
management agreements, loans or financing agreements, sales, purchase
or marketing agreements, or exemptions claimed under this part must be
submitted with the annual filing for that vessel if the documents are
not already on file with the Citizenship Approval Officer.
* * * * *
Subpart D--Mortgages
10. Section 356.19 is revised to read as follows:
Sec. 356.19 Requirements to hold a Preferred Mortgage.
(a) In order for a Mortgagee to be eligible to obtain a Preferred
Mortgage on a Fishing Industry Vessel, it must be:
(1) A Citizen of the United States;
(2) A state or federally chartered financial institution that is
insured by
[[Page 5580]]
the Federal Deposit Insurance Corporation;
(3) A farm credit lender established under title 12, chapter 23, of
the United States Code (12 U.S.C. 2001 et seq.);
(4) A commercial fishing and agriculture bank established pursuant
to State law;
(5) A Commercial Lender organized under the laws of the United
States or of a State and eligible to own a vessel under 46 U.S.C.
12102(a); or
(6) A Mortgage Trustee that complies with the requirements of 46
U.S.C. 31322(f) and 46 CFR 356.27 through 356.37.
(b) A Mortgagee must demonstrate to the Citizenship Approval
Officer that it satisfies one of the requirements set forth in
paragraph (a) of this section before it will be qualified to obtain a
Preferred Mortgage on a Fishing Industry Vessel after April 1, 2003. A
Mortgagee that has an existing Preferred Mortgage on a Fishing Industry
Vessel prior to April 1, 2003, will be required to demonstrate that it
satisfies one of the requirements set forth in paragraph (a) of this
section before the vessel's next certificate of documentation renewal
date after April 1, 2003. Failure to submit the required information
may result in the loss of the preferred status for the mortgage. A
sample format that may be used to submit the required information for
Mortgagees, Commercial Lenders and Lender Syndicates is available on
the MARAD website at http://www.marad.dot.gov/afa.html.
The required information that must be submitted in order to make such a
demonstration for each category in paragraph (a) is as follows:
(1) If a Mortgagee plans to qualify as a United States Citizen
under paragraph (a)(1) of this section, the Mortgagee must file an
Affidavit of United States Citizenship demonstrating that it complies
with the citizenship requirements of 46 U.S.C. 12102(c) and section
2(c) of the 1916 Act, which require that 75% of the ownership and
control in the Mortgagee be vested in U.S. Citizens at each tier and in
the aggregate. In addition to the Affidavit of U.S. Citizenship, a
certified copy of the Articles of Incorporation and Bylaws, or other
comparable corporate documents must be submitted to the Citizenship
Approval Officer.
(2) A state or federally chartered financial institution must
provide a certification that indicates whether it is a state chartered
or federally chartered financial institution and that certifies that it
is insured by the Federal Deposit Insurance Corporation (``FDIC''). The
certification must include the FDIC Certification Number assigned to
the institution.
(3) A farm credit lender must provide a certification indicating
that it qualifies as a farm credit lender established under title 12,
chapter 23, of the United States Code (12 U.S.C. 2001 et seq.);
(4) A commercial fishing and agriculture bank must provide a
certification indicating that it has been lawfully established as a
commercial fishing and agriculture bank pursuant to State law and that
it is in good standing;
(5) A Commercial Lender that seeks to be qualified to hold a
Preferred Mortgage directly or through a Mortgage Trustee must provide
evidence that it is engaged primarily in the business of lending and
other financing transactions and a certification that it has a loan
portfolio in excess of $100 million, of which no more than 50 percent
of the dollar amount of the loan portfolio consists of loans to
borrowers in the commercial fishing industry. The certification must
include information regarding the approximate size of the loan
portfolio and the percentage of the portfolio that consists of loans to
borrowers in the commercial fishing industry. A Commercial Lender that
seeks to be qualified to hold a Preferred Mortgage directly must also
submit an Affidavit of U.S. Citizenship to the Citizenship Approval
Officer to demonstrate that it qualifies as one of the following:
(i) An individual who is a citizen of the United States;
(ii) An association, trust, joint venture, or other entity--
(A) All of whose members are citizens of the United States; and
(B) That is capable of holding title to a vessel under the laws of
the United States or of a State;
(iii) A partnership whose general partners are citizens of the
United States, and the controlling interest in the partnership is owned
by citizens of the United States;
(iv) A corporation established under the laws of the United States
or of a State, whose chief executive officer, by whatever title, and
chairman of its board of directors are citizens of the United States
and no more of its directors are Non-citizens than a minority of the
number necessary to constitute a quorum;
(v) The United States Government; or
(vi) The government of a State.
(6) A Mortgage Trustee must submit the Mortgage Trustee Application
and other documents required in Sec. 356.27. If the beneficiary under
the trust arrangement has not demonstrated to the Citizenship Approval
Officer that it qualifies as a Commercial Lender, a Lender Syndicate or
an entity eligible to hold a preferred mortgage under paragraphs (a)(1)
through (5) of this section, the Mortgage Trustee must submit to the
Citizenship Approval Officer copies of the trust agreement, security
agreement, loan documents, preferred mortgage, and any issuance,
assignment or transfer of interest so that a determination can be made
as to whether any of the arrangements results in an impermissible
transfer of control of the vessel to a person not eligible to own a
vessel with a fishery endorsement under 46 U.S.C. 12102(c).
(c) A Mortgagee is required to provide the certification required
by paragraph (b) of this section to the Citizenship Approval Officer on
an annual basis during the time in which it holds a preferred mortgage
on a Fishing Industry Vessel. The annual certification must be
submitted at least 30 calendar days prior to the annual anniversary
date of the original approval. The Citizenship Approval Officer will
notify a Mortgagee if the Mortgagee fails to submit the required annual
certification. If the Mortgagee does not provide the certification
within 30 calendar days of the mailing date of the delinquency notice,
the mortgage will no longer qualify as a Preferred Mortgage.
(d) The following entities may exercise rights under loan or
mortgage covenants with respect to a Fishing Industry Vessel without
obtaining MARAD approval:
(1) An entity that is deemed qualified to hold a Preferred Mortgage
under paragraphs (a)(1) through (5) of this section and that has
submitted the appropriate certification to the Citizenship Approval
Officer under paragraph (b) of this section; and
(2) An approved Mortgage Trustee that is holding a Preferred
Mortgage for a beneficiary that is qualified to hold a Preferred
Mortgage under paragraphs (a)(1) through (a)(5) of this section or for
a beneficiary that qualifies as a Commercial Lender or a Lender
Syndicate and that has made an appropriate certification to the
Citizenship Approval Officer that it meets the requirements of either
Sec. 356.3(g) or Sec. 356.3(n).
(e) An entity that holds a Preferred Mortgage on a Fishing Industry
Vessel or that is using a Mortgage Trustee to hold a Preferred Mortgage
for its benefit may request a letter ruling from the Citizenship
Approval Officer in order to determine whether a mortgage or mortgage
trust arrangement is in compliance with the regulations in this part.
The Citizenship Approval Officer reserves the right to reverse any
advice
[[Page 5581]]
given under a letter ruling if any of the elements of the proposed loan
or mortgage are materially altered or if the entity requesting the
letter ruling has failed to fully disclose all relevant information.
Sec. 356.21 [Amended]
11. Section 356.21 is amended as follows:
a. By revising the heading of the section;
b. By removing the term ``Non-Citizen Lender'' everywhere that it
appears in the section and adding in its place the term ``lender''; and
c. By revising paragraphs (a) introductory text and (e) to read as
follows:
Sec. 356.21 General approval of standard loan or mortgage agreements.
(a) A lender that is engaged in the business of financing Fishing
Industry Vessels and that is not a Commercial Lender or Lender
Syndicate using a Mortgage Trustee to hold a Preferred Mortgage for its
benefit or an entity that is otherwise qualified to hold a Preferred
Mortgage on Fishing Industry Vessels pursuant to Sec. 356.19(a)(2)
through (a)(5), may apply to the Citizenship Approval Officer for
general approval of its standard loan and mortgage agreements for such
vessels. In order to obtain general approval for its standard loan and
mortgage agreements, a lender using an approved Mortgage Trustee must
submit to the Citizenship Approval Officer:
* * * * *
(e) A lender that has received general approval for its lending
program and that uses covenants in a loan or mortgage on a Fishing
Industry Vessel that have not been approved by the Citizenship Approval
Officer will be subject to loss of its general approval and the
Citizenship Approval Officer may review and approve all of the lender's
mortgage and loan covenants on a case-by-case basis. The Citizenship
Approval Officer may also determine that the arrangement results in an
impermissible transfer of control to a Non-Citizen and therefore does
not meet the requirements to qualify as a Preferred Mortgage. If the
lender knowingly files a false certification with the Citizenship
Approval Officer or has used covenants in a loan or mortgage on a
Fishing Industry Vessel that are materially different from the approved
covenants, it may also be subject to civil and criminal penalties
pursuant to 18 U.S.C. 1001.
Sec. 356.23 [Amended]
12. Section 356.23 is amended as follows:
a. By revising the section heading; and
b. By revising paragraph (a) introductory text to read as follows:
Sec. 356.23 Restrictive loan covenants approved for use by lenders.
(a) We approve the following standard loan covenants, which may
restrict the activities of the borrower without the lender's consent
and which may be included in loan agreements or other documents between
an owner of a Fishing Industry Vessel and an unrelated lender that is
using an approved Mortgage Trustee to hold the mortgage and debt
instrument for the benefit of the lender and that is not exempted under
Sec. 356.19(d) from MARAD review of its loan and mortgage covenants,
so long as the lender's consent is not unreasonably withheld:
* * * * *
Subpart E--Mortgage Trustees
Sec. 356.27 [Amended]
13. Section 356.27 is amended by revising paragraphs (a), (b)(1),
(c)(2), (c)(3), (c)(4) and (g) to read as follows:
Sec. 356.27 Mortgage Trustee requirements.
(a) A lender who is not qualified under Sec. 356.19(a)(1) through
(5) to hold a Preferred Mortgage directly on a Fishing Industry Vessel
may use a qualified Mortgage Trustee to hold, for the benefit of the
lender, the Preferred Mortgage and the debt instrument for which the
Preferred Mortgage is providing security.
(b) * * *
(1) Be eligible to hold a Preferred Mortgage on a Fishing Industry
Vessel under Sec. 356.19(a)(1) through (a)(5);
* * * * *
(c) * * *
(2) The appropriate certification and documentation required under
Sec. 356.19(b)(1) through (5) to demonstrate that it is qualified to
hold a Preferred Mortgage on Fishing Industry Vessels;
(3) A copy of the most recent published report of condition of the
Mortgage Trustee; and,
(4) A certification that the Mortgage Trustee is authorized under
the laws of the United States or of a State to exercise corporate trust
powers and is subject to supervision or examination by an official of
the United States or of a State;
* * * * *
(g) An application to be approved as a Mortgage Trustee should
include the following:
The undersigned (the ``Mortgage Trustee'') hereby applies for
approval as Mortgage Trustee pursuant to 46 U.S.C. 31322(f) and the
Regulation (46 CFR part 356), prescribed by the Maritime
Administration (``MARAD''). All terms used in this application have
the meaning given in the Regulation. In support of this application,
the Mortgage Trustee certifies to and agrees with MARAD as
hereinafter set forth:
The Mortgage Trustee certifies:
(a) That it is acting or proposing to act as Mortgage Trustee on
a Fishing Industry Vessel documented, or to be documented under the
U.S. registry;
(b) That it--
(1) Is organized as a corporation under the laws of the United
States or of a State and is doing business in the United States;
(2) Is authorized under those laws to exercise corporate trust
powers;
(3) Is qualified to hold a Preferred Mortgage on Fishing
Industry Vessels pursuant to 46 CFR 356.19(a);
(4) Is subject to supervision or examination by an official of
the United States Government or a State; and
(5) Has a combined capital and surplus of at least $3,000,000 as
set forth in its most recent published report of condition, a copy
of which, dated --------, is attached.
The Mortgage Trustee agrees:
(a) That it will, so long as it shall continue to be on the List
of Approved Mortgage Trustees referred to in the Regulation:
(1) Notify the Citizenship Approval Officer in writing, within
20 days, if it shall cease to be a corporation which:
(i) Is organized under the laws of the United States or of a
State, and is doing business under the laws of the United States or
of a State;
(ii) Is authorized under those laws to exercise corporate trust
powers;
(iii) Is qualified under 46 CFR. 356.19(a) to hold a Preferred
Mortgage on Fishing Industry Vessels;
(iv) Is subject to supervision or examination by an authority of
the U.S. Government or of a State; and
(v) Has a combined capital and surplus (as set forth in its most
recent published report of condition) of at least $3,000,000.
(2) Furnish to the Citizenship Approval Officer on an annual
basis:
(i) The appropriate certification and documentation required
under Sec. 356.19(b)(1)-(5) to demonstrate that it is qualified to
hold a Preferred Mortgage on Fishing Industry Vessels;
(ii) A copy of the most recent published report of condition of
the Mortgage Trustee;
(iii) A list of the Fishing Industry Vessels for which it is
acting as Mortgage Trustee; and,
(iv) The identity and address of all beneficiaries for which it
is acting as a Mortgage Trustee.
(3) Furnish to the Citizenship Approval Officer copies of each
Trust Agreement as well as any other issuance, assignment or
transfer of an interest related to each transaction where the
beneficiary under a trust arrangement is not a Commercial Lender, a
Lender Syndicate or an entity that is eligible to hold a Preferred
Mortgage under 46 CFR 356.19(a)(1)-(5);
[[Page 5582]]
(4) Furnish to the Citizenship Approval Officer any further
relevant and material information concerning its qualifications as
Mortgage Trustee under which it is acting or proposing to act as
Mortgage Trustee, as the Citizenship Approval Officer may from time
to time request; and,
(5) Permit representatives of the Maritime Administration, upon
request, to examine its books and records relating to the matters
referred to herein;
(b) That it will not issue, assign, or in any manner transfer to
a person not eligible to own a documented vessel, any right under a
mortgage of a Fishing Industry Vessel, or operate such vessel
without the approval of the Citizenship Approval Officer; except
that it may operate the vessel to the extent necessary for the
immediate safety of the vessel, for its direct return to the United
States or for its movement within the United States for repairs,
drydocking or berthing changes, but only under the command of a
Citizen of the United States for a period not to exceed 15 calendar
days;
(c) That after a responsible official of such Mortgage Trustee
obtains knowledge of a foreclosure proceeding, including a
proceeding in a foreign jurisdiction, that involves a documented
Fishing Industry Vessel on which it holds a mortgage pursuant to
approval under the Regulation and to which 46 App. U.S.C. 802(c), 46
U.S.C. 31322(a)(4) or 46 U.S.C. 12102(c) is applicable, it shall
promptly notify the Citizenship Approval Officer with respect
thereto, and shall ensure that the court or other tribunal has
proper notice of those provisions; and
(d) That it shall not assume any fiduciary obligation in favor
of Non-Citizen beneficiaries that is in conflict with any
restrictions or requirements of the Regulation.
This application is made in order to induce the Maritime
Administration to grant approval of the undersigned as Mortgage
Trustee pursuant to 46 U.S.C. 31322 and the Regulation, and may be
relied on by the Citizenship Approval Officer for such purposes.
False statements in this application may subject the applicant to
fine or imprisonment, or both, as provided for violation of the
proscriptions contained in 18 U.S.C. 286, 287, and 1001.
Dated this -------- day of --------, 20----.
ATTEST:
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(Print or type name below)
(SEAL)
MORTGAGE TRUSTEE'S NAME & ADDRESS
-----------------------------------------------------------------------
By:
(Print or type name below)
TITLE
Sec. 356.31 [Amended]
14. Section 356.31 is revised to read as follows:
Sec. 356.31 Maintenance of Mortgage Trustee approval.
(a) A Mortgage Trustee that holds a Preferred Mortgage on a Fishing
Industry Vessel must submit the following information to the
Citizenship Approval Officer during each calendar year that it is
acting as a Mortgage Trustee:
(1) The appropriate certification and documentation required under
Sec. 356.19(b)(1) through (b)(5) to demonstrate that it is qualified
to hold a Preferred Mortgage on Fishing Industry Vessels;
(2) A copy of the most recent published report of condition of the
Mortgage Trustee;
(3) A list of the Fishing Industry Vessels for which it is acting
as Mortgage Trustee; and
(4) The identity and address of all beneficiaries for which it is
acting as a Mortgage Trustee.
(b) The Mortgage Trustee must file the documents required in
paragraph (a) of this section within 30 calendar days prior to the
anniversary date of the original approval from the Citizenship Approval
Officer.
(c) If at any time the Mortgage Trustee fails to meet the statutory
requirements set forth in the AFA, the Mortgage Trustee must notify the
Citizenship Approval Officer of such failure to qualify as a Mortgage
Trustee not later than 20 calendar days after the event causing such
failure. Upon learning that a Mortgage Trustee fails to meet the
statutory or regulatory requirements to qualify as a Mortgage Trustee,
we will publish a disapproval notice in the Federal Register and will
notify the U.S. Coast Guard, the Mortgage Trustee, and the beneficiary
of each Preferred Mortgage of such disapproval by providing them a copy
of the disapproval notice. The notice to beneficiaries will be provided
by standard U.S. mail to the address supplied to the Citizenship
Approval Officer by the Mortgage Trustee. Within 30 calendar days of
publication in the Federal Register of the disapproval notice, the
disapproved Mortgage Trustee must either transfer its fiduciary
responsibilities to a successor Mortgage Trustee that has been approved
by the Citizenship Approval Officer or cure the defect in its approval.
The preferred status of the mortgage will be maintained during the 30
day period following publication of the notice in the Federal Register
and pending transfer of the Mortgage Trustee's fiduciary
responsibilities to a successor Mortgage Trustee or cure of the defect.
Sec. 356.37 [Amended]
15. Section 356.31 is revised to read as follows:
Sec. 356.37 Operation of a Fishing Industry Vessel by a Mortgage
Trustee.
An approved Mortgage Trustee cannot operate a Fishing Industry
Vessel without the approval of the Citizenship Approval Officer, except
where non-commercial operation is necessary for the immediate safety of
the vessel, or for repairs, drydocking or berthing changes; provided,
that the vessel is operated under the command of a Citizen of the
United States for a period of no more than 15 calendar days.
Subpart F--Charters, Management Agreements and Exclusive or Long-
Term Contracts
Sec. 356.45 [Amended]
16. Section 356.45(a)(2)(iv) is amended by adding the following
after the word ``funds'': ``, unless a qualified Mortgage Trustee is
used to hold the debt instrument for the benefit of the Non-Citizen''.
Subpart G--Special Requirements for Certain Vessels
Sec. 356.47 [Amended]
17. Section 356.47 is amended by revising paragraphs (a)(2) and
(b)(3) and by adding a new paragraph (e) to read as follows:
Sec. 356.47 Special requirements for large vessels.
(a) * * *
(2) It is more than 750 gross registered tons (as measured pursuant
to 46 U.S.C. Chapter 145) or 1900 gross registered tons (as measured
pursuant to 46 U.S.C. Chapter 143); or
* * * * *
(b) * * *
(3) In the event of the invalidation of the fishery endorsement
after October 21, 1998, application is made for a new fishery
endorsement within 15 business days of the receipt of written
notification from MARAD or the Coast Guard identifying the reason for
such invalidation. The fishery endorsement of a Fishing Industry Vessel
that meets the criteria of paragraph (a) of this section is not deemed
to be invalid for purposes of complying with this paragraph (a)(3), if
the vessel is purchased pursuant to 46 U.S.C. 31329 by a Mortgagee that
is not eligible to own a vessel with a fishery endorsement, provided
that the Mortgagee is eligible to hold a preferred mortgage on such
vessel at the time of the purchase;
* * * * *
(e) The owner of a vessel that meets any of the criteria in
paragraph (a) of this section is required to submit a
[[Page 5583]]
certification each year in conjunction with its Affidavit of U.S.
Citizenship in order to document that the vessel is eligible for
documentation with a fishery endorsement. The certification should
indicate that the vessel meets the criteria of paragraph (a) of this
section; however, it is eligible to be documented with a fishery
endorsement because it complies with the requirements of either
paragraph (b), (c), or (d) of this section. A sample form for the
certification is available on the MARAD Web site at
http://www.marad.dot.gov/afa.html or may be obtained by contacting the
Citizenship Approval Officer.
Sec. 356.51 [Amended]
18. Section 356.51 is amended as follows:
a. By adding ``after October 1, 2001,'' after ``such time'' in
paragraph (a) introductory text;
b. By removing the number ``296779'' following the vessel name
``EXCELLENCE'' in paragraphs (a)(1) and (c) and adding in its place the
number ``967502'';
c. By removing paragraph (e).
d. By redesignating paragraph (d) as paragraphs (e);
e. By adding paragraphs (d) and (f); and
f. By removing the phrase ``Fishing Vessels, Fish Processing
Vessels, or Fish Tender Vessels'' from newly designated paragraphs (e)
introductory text and (e)(1) and adding in its place the term ``Fishing
Industry Vessels''.
The additions read as follows:
Sec. 356.51 Exemptions for specific vessels.
* * * * *
(d) Owners of vessels that are exempt from the new ownership and
control requirements of the AFA and this part 356 pursuant to paragraph
(a) of this section must still comply with the requirements for a
fishery endorsement under the federal law that was in effect on October
21, 1998. The owners must submit to the Citizenship Approval Officer on
an annual basis:
(1) An Affidavit of United States Citizenship in accordance with
Sec. 356.15 demonstrating that they comply with the Controlling
Interest requirements of section 2(b) of the 1916 Act. The Affidavit
must note that the owner is claiming an exemption from the requirements
of this part 356 pursuant to paragraph (e) of this section; and
(2) A description of the current ownership structure, a list of any
changes in the ownership structure that have occurred since the filing
of the last Affidavit, and a chronology of all changes in the ownership
structure that have occurred since October 21, 1998.
* * * * *
(f) Fishing Industry Vessels that are claiming the exemption
provided for in paragraph (e) of this section must certify to the
Citizenship Approval Officer that the vessel is exempt from the
ownership and control requirements of this part 356 pursuant to the
exemption in paragraph (e) of this section. The vessel owner will be
required to follow the U.S. Coast Guard's procedures for documenting a
vessel with a fishery endorsement, as in effect prior to the passage of
the AFA. The vessel owner must also notify the Coast Guard's National
Vessel Documentation Center that it is claiming an exemption from the
ownership and control requirements of this part 356 pursuant to
paragraph (e) of this section.
Subpart H--International Agreements
Sec. 356.53 [Amended]
19. Section 356.53 is amended as follows:
a. By revising ``October 1, 2001'' to read ``July 24, 2001'' in
both places where it appears in paragraph (a) and by removing the last
sentence of paragraph (a);
b. By revising ``October 1, 2001'' to read ``July 24, 2001'' in
both places where it appears in paragraph (b)(1);
c. By adding the word ``and'' at the end of paragraph (b)(3);
d. By revising ``October 1, 2001'' and ``September 30, 2001'' to
read ``July 24, 2001'' in paragraph (b)(4);
e. By removing the semicolon and the word ``and,'' at the end of
paragraph (b)(4) and adding a period in its place;
f. By removing paragraph (b)(5);
g. By removing the word ``will'' in the first sentence of paragraph
(d) and adding the word ``may'' in lieu thereof; by adding ``if the
petition presents unique issues that have not been addressed in
previous determinations'' after the word ``comment'' in the first
sentence of paragraph (d); and by inserting ``,if any,'' after the word
``comments'' in the third sentence of paragraph (d);
h. By revising ``September 30, 2001'' to read ``July 24, 2001'' in
paragraph (f)(4);
i. By revising ``October 1, 2001'' to read ``July 24, 2001'' in
paragraph (g)(1);
j. By revising paragraph (g)(2); and
k. By adding new paragraphs (g)(3) and (g)(4).
The revisions and additions read as follows:
Sec. 356.53 Conflicts with international agreements.
* * * * *
(g) * * *
(2) To the owner of a Fishing Industry Vessel on July 24, 2001, if
any ownership interest in that owner is transferred to or otherwise
acquired by a Non-Citizen or if the percentage of foreign ownership in
the vessel is increased after such date.
(3) An ownership interest is deemed to be transferred under this
paragraph (g) if:
(i) There is a transfer of direct ownership interest in the primary
vessel owning entity. If the primary vessel owning entity is wholly
owned by another entity, the parent entity will be considered the
primary vessel owning entity; or
(ii) There is a transfer of indirect ownership at any tier.
(4) A transfer of interest in a vessel owner does not include:
(i) Transfers of disparately held shares of a vessel-owning entity
if it is a publicly traded company and the total of the shares
transferred in a particular transaction equals less than 5% of the
shares in that class. An interest in a vessel owning entity that
exceeds 5% of the shares in a class can not be sold to the same Non-
Citizen through multiple transactions involving less than 5% of the
shares of that class of stock in order to maintain the exemption for
the vessel owner; or
(ii) Transfers pursuant to a divorce or death.
Dated: January 28, 2003.
By Order of the Maritime Administrator
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 03-2312 Filed 2-3-03; 8:45 am]
BILLING CODE 4910-81-P
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