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Coast Guard Revises Vessel Documentation Regulation

The U.S. Coast Guard issued a final rule on September 20, 2017 amending its U.S.-flag vessel documentation regulations. The final rule responds, in part, to an October 18, 2013 petition for rulemaking submitted by the U.S. Maritime Law Association (MLA) seeking to make both technical and substantive clarifying changes to existing regulations. According to the Federal Register notice, the Coast Guard’s final rule makes many of the MLA’s suggested technical changes. In addition, the notice suggested that “significant substantive changes may be the subject of future regulatory action.”

One example of a substantive change not made was the MLA suggestion that the Coast Guard adopt a regulation governing the vessel documentation eligibility of limited liability companies. Currently, there is no Coast Guard regulation covering such entities, although the Coast Guard treats U.S. organized LLCs as being eligible to document a U.S.-flag vessel provided they are organized in a certain way and have mostly U.S. citizen management.

Among other things, the final rule makes a number of changes to account for the elimination of citizenship requirements for mortgagees holding a mortgage on a U.S.-flag vessel. Prior to 1996, non-U.S. citizen banks could be U.S.-flag mortgagees only via a U.S. citizen trust arrangement referred to as a “Westhampton Trust.” The Coast Guard Authorization Act of 1996 eliminated the need for an intervening trust by permitting foreign mortgagees to hold mortgages on U.S.-flag vessels directly. The rights of such non-U.S. citizen mortgagees in foreclosure situations were not, however, clarified in 1996 or since and remain ambiguous.

The final rule also eliminated the provisions requiring the use of renewal decals and address labels for Certificates of Documentation or CODs. All U.S. Coast Guard registered vessels are issued a Certificate of Documentation, which, in most instances, must be aboard the vessel. Changes in 2001 to the Coast Guard’s information technology system made the use of decals and labels unnecessary and so the final rule eliminates those decal/label requirements.

Other technical changes were made in the final rule to account for the codification in 2006 of subtitle II of Title 46 of the U.S. Code dealing with shipping. Previously, there had been a Title 46 appendix that had accumulated many shipping law changes over a long period of time, which resulted in substantial confusion.
Source: Winston & Strawn LLP

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