Crimes and punishment

The crackdown has begun: The U.S. DOT is stepping up prosecution of shippers and carriers who are aware of hazmat regulations but fail to comply with them.

By -- Logistics Management, 6/1/2000

All too often we hear stories about hazmat shippers who believe that because they only ship small packages or an occasional package of hazardous materials, the federal hazmat regulations do not really apply to their business. Or we hear tell of freight forwarders who argue that the regulations don't apply to them because they merely broker transportation and prepare the documentation for the shipper to present to the carrier. These are the people who bury their heads in the sand and hope they will get by for a while longer. But they're also the ones most at risk for hefty criminal penalties.

Why are they at risk? The crux is that they are operating without regard for the rules even though they know that there are regulations that would logically apply to them. Or in the words of one Department of Transportation (DOT) prosecutor, they have "an awareness of the requirements and fail to comply" and therefore, "knowingly and willingly commit [a] violation." Today, this is construed as criminal behavior, and the DOT's Office of Inspector General (OIG) is cracking down on hazmat criminals.

The crackdown is of fairly recent origin. Last year, the U.S. Department of Transportation announced that its two top strategic goals for the 21st century were to "work toward the elimination of transportation-related deaths, injuries, and property damage" and to "protect and enhance communities and the natural environment affected by transportation." In support of these goals, DOT's Office of Inspector General has made the illegal transportation of hazardous materials one of its highest criminal investigative priorities. As a result, the OIG is now stepping in on investigations where criminal conduct is most evident and prosecutorial success virtually guaranteed.

Because the easiest cases to spot and to prosecute are those involving fraud, deliberate deception has become a target of the OIG's investigations. Prosecutions in the recent past include cases involving falsified shipping documents, misrepresentation of hazardous cargoes, and false statements to investigators. If false documents are mailed or electronically transmitted, the OIG may bring charges of mail or wire fraud. Often, investigators say, conspiracy charges can be leveled against those who plot to deceive.

Clearly, that tactic has worked. Investigative statistics for the past three years indicate a success rate of almost 75 percent, with 83 convictions resulting from 112 criminal indictments. During that same period, the office levied a total of $25.3 million in fines, recoveries, and restitution.

High-Profile Cases

OIG agents are not called in to investigate every violation of the hazardous-materials regulations, of course. Nor do they go out seeking infractions. Usually, violations are discovered through an ordinary inspection during transportation or at a facility where hazardous materials are prepared, stored, or offered for transportation. Other times violations are discovered as a result of an incident investigation by the appropriate modal administration-the Federal Motor Carrier Safety Administration, the Federal Railroad Administration (FRA), the U.S. Coast Guard, or the Federal Aviation Administration (FAA). Typically, these violations are pursued through the appropriate modal agency's own enforcement system.

Only if the investigation or inspection starts to take on a more sinister appearance does an inspector contact an OIG special agent for assistance. High-profile accident cases that draw media scrutiny can also lead to OIG intervention. Another trigger is a reoccurrence of a previously cited violation for which no corrective action has been taken, indicating that the party has willfully committed the continuing violation.

Once the OIG becomes involved in the case, it acts as the coordinator between the DOT and the Department of Justice. The OIG may also involve the FBI, the Environmental Protection Agency, and the Department of Justice's Environmental Crimes Section as well as state and local authorities.

Cases in which OIG agents are called in usually involve an attempt to cover up an action by lying to an inspector or falsifying records, says Michelle T. McVicker, assistant special agent in charge of OIG Investigations in Los Angeles. When this happens, the OIG agent may obtain a search warrant to gather evidence that information has been altered or concealed. Agents may interview employees, take photographs, seize documents, and subpoena witnesses for court appearances. If necessary, state or local police may be summoned to assist in the execution of warrants.

To illustrate, McVicker points to a recent case in Oakland, Calif. The case began when an ocean carrier noticed that a container it had received for export had hazard placards on the outside, but shipping documents made no mention of hazardous cargo. The carrier then called in the U.S. Coast Guard to conduct an inspection. Because the inspector found evidence that the freight forwarder was trying to conceal the identity of the hazardous cargo, the Coast Guard notified the OIG. The investigation soon led to the discovery that the forwarder had been involved in previous enforcement cases with similar circumstances, and the OIG obtained search warrants for facilities in California and New Jersey that were operated by the same company.

Once the search warrants were executed, the floodgates opened: Investigators discovered incompatible cargoes intentionally hidden in freight containers with incriminating statements on the accompanying shipping papers. In one instance, the cargo included hazardous materials; however, the statement "Do not declare hazardous" was prominently printed across the face of the shipping document. In another instance, investigators found in the forwarder's possession a hazmat shipping paper that said "Hide in the nose of container." On still another, "Buried per Charlie in NY" was scribbled across the page. How does one possibly present a defense against such damning evidence?

Ignorance Is No Defense

Damning evidence like this, of course, is just what the law enforcement agents want. What prosecutors are looking to prove is the defendant's awareness that hazmat regulations exist and would logically apply to its cargo. 49 USC,5124 provides criminal penalties, including prison time for any shipper, carrier, handler, or other person who knowingly violates the code, says Herbert G. Johnson, who serves as senior counsel in the U.S. Department of Justice's Environmental Crimes Section for the Northern District of California.

"Knowingly," Johnson says, means a person has "a factual knowledge of the acts" that cause the violation of the law. He defines "willfully" as "having knowledge of the act and doing it voluntarily and intentionally." In a criminal prosecution, says Johnson, the simple fact that a person was aware that some requirements would apply but failed to comply may be used to prove that he knowingly and willfully committed the violation. The mere "act of offering" that shipment substantiates dereliction.

Johnson adds that a prosecutor also would not hesitate to use past history of violations to show culpability on the defendant's part. In other words, if something has been brought to your attention in the past, you should now know it is wrong. Therefore, to repeat that violation may be construed to imply intent to commit the violation. Further, any carrier that becomes aware of a shipper's past regulatory transgressions may now be duty-bound to look more closely at that shipper's hazardous-materials cargoes before accepting them to avoid implied liability.

High Price to Pay

When awareness can be proved, criminal charges can-and do-ensue, and costly penalties may be imposed. Edward W. Pritchard, former chief of the Office of Safety Assurance and Compliance, Hazardous Materials Division at FRA and now executive assistant to the FRA administrator, recounts the story of an interstate motor carrier in the Midwest that was notified in 1992 that it would need to register with DOT's Research and Special Programs Administration (RSPA) as a hazmat carrier. The drayage company failed to file the registration forms as required. In October 1996, Missouri state inspectors audited the company and failed to find any regulatory discrepancies because the company had no records on file to demonstrate that it was a hazmat carrier. However, former employees volunteered information that hazmat records had been purged from the files and had been replaced with false documents showing the shipments as "Freight All Kinds" (FAK).

The company subsequently registered with the DOT in February 1997. The FRA and the Missouri DOT again inspected the carrier in December 1997 and January 1998, and the carrier continued to deny that it had handled hazardous materials during the period before it registered with the DOT. But the tenacious inspectors soon began uncovering evidence that the carrier had indeed transported hazardous materials during that period. The picture began to look more and more like deliberate deceit.

Based on the inspectors' conclusions that the carrier had attempted to defraud the hazardous-materials program, the OIG and the U.S. Attorney's Office were called in to assist with the investigation. Their investigation soon revealed that the carrier had intentionally defrauded the program by falsifying business records and uttering false statements to the original state and federal inspectors. Criminal charges followed.

Ultimately, the carrier was allowed to plead guilty to one felony count of violating 49 U.S.C.5108 and 5124-willfully failing to file a registration statement with the U.S. DOT. The conditions of the plea agreement included three years' probation, filing and implementing an approved hazmat-compliance program within the company, and paying a $100,000 fine. The company further agreed to cooperate in any derivative investigation of this case. But the OIG and the FRA were not about to stop there: For his part in the proceedings, the vice president of the company also pled guilty to one felony count of violating 49 U.S.C.1001, was placed on two years'probation, and paid a fine.

The bottom line in this case was that the carrier knew it was operating illegally by hauling hazardous materials without registering and to further exacerbate the crime, it set out to obstruct the government's monitoring of its business through deceptive and fraudulent activities after the fact. The FRA says that the criminal convictions publicly manifest its "institutional commitment to fully enforce the hazardous-materials transportation laws."

And this is unlikely to be the last of these cases. "The 450 FRA inspectors, including 47 of whom are designated as hazardous-materials inspectors, will be focusing their efforts on undeclared hazardous-materials shipments by rail," Pritchard reports. "In cases of intentional dereliction by those acting knowingly or willfully," he adds, "we will not hesitate to lodge criminal charges."

All Modes Under Scrutiny

As the examples cited here indicate, indictments and convictions recorded in the OIG's investigative reports cover all modes of transport, with illegal activities taking place on airliners generating the highest penalties. The FAA has historically assessed stiff fines for violations of the hazmat regulations applicable to air transport. The reasons are obvious given that hazmat incidents aboard aircraft are extremely unforgiving. We're all familiar by now with the criminal convictions and penalties meted out as a result of the ValuJet crash that was caused by the mishandling of hazardous materials. Still another Florida-based shipping firm and its president pled guilty to criminal charges for fraudulent declaration of an attempted shipment of flammable toner fluid aboard an aircraft. And an airline holding company recently entered a guilty plea for mishandling hazardous wastes at the Miami International Airport, resulting in an $8 million penalty.

Ocean carriers are not immune from prosecution either. A cruise line, for example, recently paid $18 million to settle criminal charges brought by the OIG for illegally dumping wastes from a ship.

From all this, it's clear that when conducting transportation-related activities, a person is duty-bound to find out what the applicable regulatory requirements are and to adhere to them without compromise. And if through some human error or oversight a deviation from such regulations occurs and is brought to your attention, the best policy is to address the problem immediately and initiate whatever corrective action is needed. To err is human and to make a mistake may result in a violation ... but to cover it up is a crime!

Logistics columnist John V. Currie is a specialist in hazardous-materials regulatory compliance. He conducts public and in-house seminars and compliance audits, and has written several hazmat-transportation compliance training manuals.