The Problem’s in the Proof: How Public Companies Can Prove Compliance with the Jones Act Vessel Citizenship Requirements for Eligibility in U.S. Coastwise Trade

Katherine Wiarda | Comment

In order to engage in U.S. coastwise trade, a vessel must, among other things, be owned by a U.S. citizen. The Jones Act sets forth the requirements that must be satisfied in order for a person or entity to be deemed a “citizen” of the United States. While the statute deals with several categories of citizens, of particular importance for coastwise trade are corporations. Under the Jones Act, a corporation is deemed a “citizen” of the United States, and therefore eligible to engage in coastwise trade, if (1) “it is incorporated under the laws of the United States,” (2) the chairman of the board of directors and CEO are U.S. citizens, (3) no more than a minority of the number of directors necessary to constitute a quorum are noncitizens, and (4) at least 75% of the shares of the corporation are owned by U.S. citizens. In addition, where title to a vessel is held, in whole or in part, by other entities, each entity contributing to the ownership interest must itself be eligible to document vessels with a coastwise endorsement. Although the first three of these requirements are fairly straightforward, fulfilling the final obligation–the 75% ownership interest requirement–has become an increasing source of concern for publicly traded corporations. Over the years, establishing how publicly traded corporations can comply with the Jones Act requirements to own and operate a vessel in coastwise trade has become an increasing source of debate.

On November 3, 2011, the United States Coast Guard issued a public notice requesting comments and information on the “various mechanisms that publicly traded companies have chosen to employ in order to assure compliance” with the Jones Act U.S. citizenship requirements for vessels eligible to engage in coastwise trade. As the agency responsible for reviewing applications and administering certificates of documentation with coastwise endorsements, the Coast Guard has maintained a long-standing position that the documentation laws are meant to be restrictive. However, because of the importance of coastwise trade and the problems faced by public corporations in accurately ascertaining citizenship of shareholders, over the past few years the Coast Guard has been forced to reassess this position. This Comment discusses the history and statutory requirements of vessel documentation and U.S. coastwise trade laws. Additionally, it analyzes the most recent legal developments relating to U.S. citizenship requirements for vessels operating in coastwise trade and how public corporations can overcome those strict burdens of proof and accurately ascertain the citizenship of its shareholders in order to assure compliance with the Jones Act and participation in coastwise trade.