Eligibility of U.S.-Flag Vessels of 100 Feet or Greater In Registered Length to Obtain a Fishery Endorsement to the Vessel's Documentation

SUMMARY: The Maritime Administration (``MARAD, we, our, or us'') is

soliciting public comments on implementation of the new U.S.

citizenship requirements set forth in the American Fisheries Act of

1998 (``AFA''), Title II, Division C, Public Law 105-277, for vessels

of 100 feet or greater in registered length for which a fishery

endorsement to the vessel's documentation is sought.

The NPRM implements new statutory requirements of the AFA by

raising the U.S. ownership and control standards for U.S.-flag fishing

vessels of 100 feet or greater in registered length that are operating

in U.S. waters, by eliminating exemptions for fishing vessels that can

not meet current citizenship standards, by phasing out of operation

many of the largest fishing vessels, and by establishing new criteria

to be eligible to hold a preferred mortgage on such vessels. The

regulations set out which transactions are permissible, which

transactions will require prior approval, and which transactions are

impermissible and, to the extent practicable, minimize disruptions to

the commercial fishing industry, to the traditional financing

arrangements of such industry, and to the opportunity to form fishery

cooperatives.

DATES: You should submit your comments early enough to ensure that

Docket Management receives them not later than February 22, 2000. In

order to meet the statutory deadline for publishing final rules in the

Federal Register by April 1, 2000, we are using a shortened 45 day

comment period. However, comments on the information collection

requirements of the NPRM will be accepted until March 6, 2000. In

addition, public meetings at which oral and written comments may be

presented have been scheduled for the dates and locations listed under

SUPPLEMENTARY INFORMATION.

ADDRESSES: Comments should refer to docket number MARAD-99-5609.

Written comments may be submitted by mail to the Docket Clerk, U.S. DOT

Dockets, Room PL-401, Department of Transportation, 400 7th St., S.W.,

Washington, D.C. 20590-0001. You may also send comments electronically

via the Internet at http://smses.dot.gov/submit/. All comments will

become part of this docket and will be available for inspection and

copying at the above address between 10 a.m. and 5 p.m., E.T., Monday

through Friday, except federal holidays. An electronic version of this

document and all documents entered into this docket is available on the

World Wide Web at http://dms.dot.gov.

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., S.W., Washington, D.C., 20590-0001, or you may

send e-mail to John.M[email protected].

SUPPLEMENTARY INFORMATION:

Will There Be Public Meetings on the NPRM?

Public meetings have been scheduled for the following dates and

locations:

1. January 25, 2000, 9:30 a.m. to 3 p.m.--South Auditorium, Jackson

Federal Building, 915 Second Avenue, Seattle, WA;

2. January 27, 2000, 9:30 a.m. to 3 p.m.--Assembly Room, Z.J. Loussac

Library, 3600 Denali St., Anchorage, AK; and,

3. January 31, 2000, 9:30 a.m. to 3 p.m.--Room 6200, Nassif Building,

400 7th Street, S.W., Washington, DC.

Meeting facilities have been arranged for the entire day to ensure

that all interested parties have an opportunity to comment on the NPRM.

However, if there is not sufficient interest to necessitate an

afternoon session, the public meetings will be adjourned after all

participants have had an opportunity to comment in the morning.

Accordingly, interested parties are advised to attend in the morning

since the meeting will be adjourned after the conclusion of

presentations and will not be reconvened in the afternoon if all

parties present in the morning have had an opportunity to comment.

If you would like to provide oral comments at one of the public

meetings, all that is required is that you be present and offer your

comments. In order for us to have an idea of the level of participation

that can be expected at these meetings, we request, but do not require,

that you notify us at least five working days prior to the meeting that

you plan to attend. You may notify John T. Marquez, Jr. by phone at

(202) 366-5320, by fax at (202) 366-7485, or by e-mail at

John.M[email protected].

Who May File Comments?

Anyone may file written comments about proposals made in any

rulemaking document that requests public comments, including any state

government agency, any political subdivision of a State, or any

interested person.

How Do I Prepare and Submit Comments?

Your comments must be written in English. To ensure that your

comments are correctly filed in the Docket, please include the docket

number of this NPRM in your comments.

We encourage you to write your primary comments in a concise

fashion. However, you may attach necessary additional documents to your

comments. There is no limit on the length of the attachments. Please

submit two copies of your comments, including the attachments, to

Docket Management at the address given above under ADDRESSES. If

possible, one copy should be in an unbound format to facilitate copying

and electronic filing.

In addition to comments on the proposed rule, we specifically

request that you address in your 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.

How Can I Be Sure That My Comments Were Received?

If you want Docket Management to notify you upon its receipt of

your comments, enclose a self-addressed, stamped postcard in the

envelope containing your comments. Upon receiving your comments, Docket

Management will return the postcard by mail. If you send comments by e-

mail, you will receive a message by e-mail confirming receipt of your

comments. Your e-mail address should be noted with your comments.

Is Information That I Submit to MARAD Made Available to the Public?

When you submit information to us as part of this NPRM, during any

rulemaking proceeding, or for any other reason, we may make that

information publicly available unless you ask that we keep the

information confidential. If you wish to submit any information

[[Page 647]]

under a claim of confidentiality, you should submit three copies of

your complete submission, including the information you claim to be

confidential business information, to the Chief Counsel, Maritime

Administration, at the address given above under FOR FURTHER

INFORMATION CONTACT. You should mark ``CONFIDENTIAL'' on each page of

the original document that you would like to keep confidential.

In addition, you should submit two copies, from which you have

deleted the claimed confidential business information, to Docket

Management at the address given above under ADDRESSES. When you send

comments containing information claimed to be confidential business

information, you should also include a cover letter setting forth with

specificity the basis for any such claim (for example, it is exempt

from mandatory public disclosure under the Freedom of Information Act,

5 U.S.C. 552).

We will decide whether or not to treat your information as

confidential. You will be notified in writing of our decision to grant

or deny confidentiality before the information is publicly disclosed

and you will be given an opportunity to respond.

How Can I Read the Comments Submitted by Other People?

You may read the comments received by Docket Management at the

address and during the hours provided above under ADDRESSES.

Comments may also be viewed on the Internet. To read the comments

on the Internet, take the following steps: Go to the Docket Management

System (``DMS'') Web page of the Department of Transportation (http://

dms.dot.gov/). On that page, click on ``search.'' On the next page

(http://dms.dot.gov/search/), type in the four-digit docket number

shown on the first page of this document. The docket number for this

NPRM is 5609. After typing the docket number, click on ``search.'' On

the next page, which contains docket summary information for the docket

you selected, click on the desired comments. You may download the

comments.

Please note that even after the comment closing date, we will

continue to file relevant information in the Docket as it becomes

available. Accordingly, we recommend that you periodically check the

Docket for new material.

Background

The AFA imposes new citizenship requirements for the owners of

vessels of 100 feet or greater in registered length for which a fishery

endorsement to the vessel's documentation is sought. The AFA, among

other things:

(1) Raises, with some exceptions, the U.S. citizen ownership and

control standards for U.S.-flag Fishing Vessels, Fish Processing

Vessels, and Fish Tender Vessels operating in U.S. waters from a

controlling interest to a 75 percent interest requirement as set forth

in Sec. 2(c) of the Shipping Act, 1916, as amended (``1916 Act'');

(2) Sets forth certain criteria for purposes of determining whether

``control'' of the owner of Fishing Vessels, Fish Processing Vessels,

and Fish Tender Vessels is vested in Citizens of the United States;

(3) Requires state or federally chartered financial institutions to

comply with the Controlling Interest (51%) requirements of Sec. 2(b) of

the 1916 Act in order to hold a preferred mortgage on a Fishing Vessel,

Fish Processing Vessel, or Fish Tender Vessel of 100 feet or more in

registered length;

(4) Requires preferred mortgagees of vessels of 100 feet or more in

registered length that are not state or federally chartered financial

institutions to comply with the requirements of Sec. 2(c) of the 1916

Act which provides that 75% of the interest in the entity must be owned

and controlled by Citizens of the United States, or use an approved

Mortgage Trustee that complies with the citizenship requirements of

Sec. 2(c) of the 1916 Act and other requirements of the AFA;

(5) Prohibits certain foreign-built factory trawlers from

participating in the fisheries of the United States; and,

(6) Prohibits, with some exceptions, vessels above 165 feet or 750

gross tons or with engines of 3,000 horsepower or more from obtaining a

fishery endorsement to the vessel's documentation.

We are required by Sec. 203(c) of the AFA to ``rigorously''

scrutinize any transfers of ownership and control over Fishing Vessels,

Fish Processing Vessels, and Fish Tender Vessels and to pay particular

attention to leases, charters, financings, mortgages, and other

arrangements to determine if they constitute an impermissible

conveyance of control to persons not eligible to own a vessel with a

fishery endorsement. These regulations are to set out which

transactions are permissible, which transactions will require prior

approval, and which transactions are impermissible. Pursuant to

Sec. 203(b) of the AFA, these regulations will also ``to the extent

practicable, minimize disruptions to the commercial fishing industry,

to the traditional financing arrangements of such industry, and to the

opportunity to form fishery cooperatives.''

We are required to promulgate final regulations by April 1, 2000,

regarding the U.S. citizenship requirements for ownership and control

of vessels, unless otherwise exempted, that are 100 feet or greater in

registered length and for which the owner wishes to obtain a fishery

endorsement to the vessel's documentation. The regulations will become

effective on October 1, 2001. Until the final regulations are

published, we may not, pursuant to Sec. 203(b) of the AFA, issue letter

rulings or interim interpretations as to the effect of the AFA on

Fishing Vessels.

We published an Advance Notice of Proposed Rulemaking (``ANPRM'')

in the Federal Register, 64 FR 24311 (May 6, 1999), to solicit comments

from the public and held five public hearings. We have received and

evaluated the comments and are now publishing this NPRM with a request

for comments from the public, as well as providing notice of upcoming

public meetings.

Public Comments on the ANPRM

As the first step in this rulemaking process, we issued an ANPRM

entitled Eligibility of U.S.-Flag Vessels of 100 Feet or Greater To

Obtain Commercial Fisheries Documents, 64 FR 24311 (May 6, 1999). The

ANPRM provided an explanation of the changes in the law and requested

comments, suggestions, and information from the public relating to the

development of regulations necessary to implement the new statutory

requirements to obtain a fishery endorsement for a documented vessel of

100 feet or greater in registered length. In response to this request,

we received 19 written comments. In addition, we held five public

meetings in Seattle, WA, Anchorage, AK, Boston, MA, New Orleans, LA,

and Washington, DC, and met with several interested parties who

requested meetings with us. The written comments, transcripts of the

public meetings, and memoranda summarizing the meetings with interested

parties are available for review in the rulemaking docket. Following is

a summary of those comments and our response.

Several commenters requested that we provide clear guidance to the

fishing industry in the regulations regarding the ownership and control

requirements and that we articulate those fundamental elements of

control and types of agreements with Non-Citizens that are either

acceptable or impermissible. One commenter stated, however, that we

should not attempt to issue regulations which define in advance all

transactions which could

[[Page 648]]

theoretically violate the statutory standards. The commenter suggested

that we should simply recite the statutory standards and make the AFA

prohibitions specific through case-by-case application.

We agree with the commenters that the industry needs clear guidance

regarding how United States Citizen ownership and control will be

determined. For example, in Secs. 356.3-11 of the NPRM, we have defined

the requirements for ownership and control by Citizens of the United

States, spelled out the requirements for filing an Affidavit of United

States Citizenship, identified the methods for demonstrating ownership,

and established factors that we will evaluate for purposes of

determining whether impermissible control over a vessel or vessel-

owning entity has been transferred to a Non-Citizen. In many cases,

control may be the most difficult aspect of demonstrating citizenship.

Accordingly, we have set forth factors that will be deemed an

impermissible transfer of control to a Non-Citizen and therefore

prohibited. We have also identified certain criteria that, while not

prohibited by themselves, may be deemed an impermissible transfer of

control to a Non-Citizen if other indicia of control are also present

in the transaction. Certain types of agreements such as loans,

mortgages, charters, sales agreements, and management agreements are

specifically addressed in the NPRM; however, the factors of foreign

control could conceivably apply to any agreement between a Citizen of

the United States and a Non-Citizen. Finally, while the NPRM does

identify certain parameters and criteria that we will use in

determining ownership and control by Citizens of the United States, we

note that the lists of criteria are not exhaustive and that, depending

on the facts involved, evaluations may be made on a case-by-case basis.

We received many comments relating to the regulation of financing

agreements and mortgages. Commenters noted typical loan covenants that

a lender may impose on the borrower in order to protect its interest

which may involve some degree of control over the vessel's owner and

the vessel. Accordingly, commenters were particularly concerned that a

lack of certainty regarding allowable covenants or overly restrictive

requirements could deter foreign lenders from participating in the

fishing industry. Such uncertainty could potentially limit sources of

financing for vessel owners.

Commenters suggested different approaches regarding how we should

regulate the financing of vessels. The majority of commenters suggested

that we approve, in advance, certain typical loan covenants used by all

lenders who are not affiliated with the vessel owner. This would

minimize disruptions to the commercial fishing industry and to the

traditional financing arrangements of the industry. However, several

commenters expressed concern that if MARAD published a list of loan

covenants that are permissible, it would still leave open the question

whether other restrictive provisions of a loan package would, in the

aggregate, create an impermissible degree of control by Non-Citizens.

One commenter recommended drafting a ``safe harbor'' provision that

achieves certainty by turning on the identity of the lender involved,

thus allowing lenders that are financial institutions to make loans

without having the regulations deal with specific loan covenants. The

commenter noted ramifications for a lender that strays in controlling a

borrower including: (1) Being sued by its borrower for any lost

profits, and (2) being deemed a vessel operator and potentially

becoming subject to strict liability for violations under CERCLA, the

Oil Pollution Act, and various state environmental pollution laws.

Another commenter suggested that we should focus on differentiating

between lenders on the basis of their loan portfolios and whether more

than 50% of the lender's portfolio is in the fishing industry. For such

lenders, the commenter suggested that we should require a signed

affidavit by an officer of the lender stating that 51% of the lender's

outstanding shares are owned by U.S. citizens as a documentation

requirement during the issuance of a preferred ship mortgage. We should

then place these lenders on a list of lenders presumed to be U.S.

citizen lenders, thus creating an irrebuttable presumption that the

lender meets applicable U.S. citizenship requirements. The commenter

continued by stating that all standard categories of covenant

provisions should be approved of in advance for all conventional

lending institutions that are not directly affiliated with a vessel

owner and that are not a fishing company.

One commenter put a slightly different spin on the above approach

and suggested that we grant a blanket lender exemption to domestic and

foreign banks who are (1) publicly traded, (2) under the supervision of

national or state banking authorities, (3) not affiliated with the

vessel owner, and (4) in the case of foreign banks only, who make use

of an approved Mortgage Trustee. According to the commenter, such an

exemption should allow the lender to include in the financing documents

any covenant which it is able to negotiate with the vessel owner.

We agree that certainty is needed in the financing sector in order

to provide a stable financing regime and to ensure that ample financing

exists for vessel owners. Accordingly, we have proposed in Sec. 356.23

a list of loan covenants that are expressly authorized. In addition, we

are proposing in Sec. 356.21 to give general approval to the standard

loan and mortgage agreements of Non-Citizen Lenders that are using an

approved Mortgage Trustee, provided that they meet certain criteria. A

Non-Citizen Lender would be permitted to submit its standard loan

provisions to us for approval. Once these standard loan covenants are

approved, the lender would be able to enter into loan agreements

without obtaining approval from us on a transactional basis. If the

lender later wishes to use additional covenants that were not included

in the general approval, it must submit those covenants to us for

approval. Failure to receive such approval would void the general

approval.

With respect to the use by Non-Citizen Lenders of an approved

Mortgage Trustee, referred to in the ANPRM as a Westhampton Trustee,

several commenters asserted that Congress intended that we resurrect

our prior regulations for trustees to enable a Non-Citizen Lender to

secure its loan with a Preferred Mortgage on a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel. One commenter stated that he

did not believe Congress intended any further regulation of those

mortgages and that any state or federally regulated U.S. bank, whether

U.S. or foreign owned, should be eligible to serve as a Trustee.

We agree that the regulations found in 46 CFR Part 221 should serve

as a model for the NPRM and have patterned our proposed regulations in

Secs. 356.27-37 after the old ``Westhampton Trustee'' regulations.

However, we note that the AFA is quite specific about the requirements

to be a qualified Trustee (referred to as a ``Mortgage Trustee'' in the

NPRM) and does not provide flexibility to allow a state or federally

regulated U.S. bank that does not meet the Controlling Interest

requirements of Sec. 2(b) of the 1916 Act, 46 App. U.S.C. 802(b), or

any other foreign entity, to be a Mortgage Trustee.

A number of commenters focused on management agreements, exclusive

sales or marketing agreements, and other arrangements that may be

considered normal in the day-to-day operations in

[[Page 649]]

the fishing industry, but that may be viewed by us as conveying

impermissible control to a Non-Citizen. One commenter suggested that we

should limit our regulation of the 75% ownership and control

requirement to Persons or entities that have the right to replace or

limit the actions of the chief executive officer, a majority of the

board of directors, any general partner or any person serving in a

management capacity of the entity which owns the vessel. Several

commenters suggested that exclusive sales agreements and management

contracts are common place in the fishing industry and are entered into

on a daily basis. Consequently, the commenters contended that requiring

prior approval or case-by-case review of such traditional agreements or

review of companies that do not own fishing vessels to determine their

citizenship would pose an unreasonable burden on the industry and would

not be a workable business practice.

One commenter noted that if all officers and stockholders of the

companies involved are United States Citizens and are not controlled by

foreign citizens, it should not be necessary for us to scrutinize

management or charter agreements between the United States Citizen

owned and controlled companies. The commenter contended that scrutiny

of management and operating companies should be focused on whether (1)

a catcher vessel's logistics, maintenance, or personnel hiring

operations are controlled by a shore plant or mothership that is owned

or controlled by Non-Citizens, (2) the catcher vessel is obligated to

sell its harvest to a foreign owned or controlled processing plant, or

(3) short-term loan agreements convey management prerogatives to a Non-

Citizen Lender.

Another commenter noted that enforcement of AFA regulations which

preclude the participation of Non-Citizens in the operation of its

companies would erode its ability to compete in international markets

and may ultimately result in the demise of its industry sector. The

commenter indicated that many management companies rely on foreign

advisors to perform many of their functions of providing support in

engineering, repair and maintenance, crew hiring, claims management,

strategic planning, accounting, cash management, banking relationships,

insurance management, marketing, product traffic management, credit

management, quality control, production management, record keeping and

reporting, and government relations.

Several commenters contended that we should not preclude using

contracts for the purchase of all or a significant portion of a

vessel's catch as security for financing various transactions relating

to a specific vessel. Typical long-term contracts for the sale of all

or a large portion of the vessel's catch were suggested by the

commenter to generally involve a mutually beneficial agreement between

the vessel owner and the processor or purchaser of the vessel's catch,

and do not give the purchaser any control over the actual operation of

the vessel or the vessel owner. According to the commenter, preclusion

of these types of sales agreements would: (1) Deny fishing vessel

owners access to traditional sources for marketing their catch; (2)

prejudice U.S. processors and purchasers who happen to be non-section 2

citizens in favor of processors who happen to be section 2 citizens;

and, (3) make the formation of fishery cooperatives in the pollock

fishery virtually impossible as the majority of pollock processors and

purchasers are non-section 2 citizens. The commenter emphasized that

nothing in the AFA attempts to distinguish the sale of a vessel's catch

to a foreign processor or to prohibit a foreign processor from

purchasing the catch of U.S. fishing vessels.

We generally agree with the commenters that case-by-case review of

management contracts, charters or exclusive or long-term sales or

marketing contracts would pose an unreasonable burden. Therefore, we

propose in Sec. 356.41 and Sec. 356.43 to allow owners or bareboat

charterers of vessels to enter into exclusive sales agreements with

Non-Citizens without prior approval from us, provided that these

agreements meet certain criteria. For example, the agreements cannot

contain provisions that would transfer control over the vessel or

vessel-owning entity to a Non-Citizen, including the ability to control

the hiring, management, and disciplining of crew, and the ability to

direct the vessel's operations and harvesting activities. Similarly,

management agreements that are solely administrative in nature and do

not convey control over the vessel's owner or the vessel to a Non-

Citizen are permitted. The owner or bareboat charterer would be

required to identify and provide a summary of the terms of management

agreements within 30 days of execution and to certify to the

Citizenship Approval Officer that the agreement does not convey control

over the vessel or vessel-owning entity to a Non-Citizen.

Long-term or exclusive sales or marketing contracts are authorized

in the proposed rule, provided that they do not convey control over the

vessel or vessel owner to a Non-Citizen. Section 356.43 sets out

certain provisions that are expressly authorized for use in long-term

or exclusive sales or marketing agreements that might otherwise be

construed to convey control over the vessel or vessel owner to a Non-

Citizen. If an owner or bareboat charterer wishes to enter into a long-

term or exclusive sales or marketing agreement that contains other

provisions, the owner or charterer must first obtain approval from the

Citizenship Approval Officer that such provisions do not convey control

to a Non-Citizen.

With respect to charters, we agree that a review of all charters

would be impractical and overly burdensome. Therefore, we propose in

Sec. 356.39 to allow time charters and voyage charters to Non-Citizens

of Fish Processing Vessels and Fish Tender Vessels, provided that the

vessel is not used for harvesting. The time charter or voyage charter

must be a true time charter or voyage charter and may not include

provisions that would transfer control to the charterer, such as the

right to hire or discipline the crew. We will not require review of

charter agreements prior to execution. However, we propose to require a

copy of the charter to be submitted within 30 days of execution in

order to confirm that the charter is not a bareboat charter and that

there is not an impermissible transfer of control. Time charters and

voyage charters of Fishing Vessels, Fish Processing Vessels, or Fish

Tender Vessels used to harvest fish are prohibited. Bareboat charters

to Non-Citizens are also prohibited because a bareboat charter, by

definition, results in a transfer of control to the charterer. Any

charter to a Citizen of the United States is allowed and review of the

charter will not be required. However, because a bareboat charterer

will have possession and control of the vessel, the charterer must

demonstrate that it is a Citizen of the United States.

A number of commenters also noted that loans to owners of Fishing

Vessels may be made by Non-Citizens who have a contractual relationship

with the owner. These loans may be for vessel construction and

modification, as well as for working capital to fund the vessel's

operation and the transportation and sale of the vessel's catch. Many

times these loans are based on a contractual relationship that a vessel

owner or bareboat charterer has with a fish processor, such as an

exclusive sales agreement or some other agreement. On occasion, a

lender may receive a preferred ship mortgage as

[[Page 650]]

security for the financing. The commenters suggested that these loans

are traditional financing arrangements and thus should not be regulated

by us. We recognize that such financing arrangements may be commonplace

in the fishing industry and wish to minimize our involvement, to the

extent practicable. Therefore, we propose in Sec. 356.45 to allow

vessel owners and bareboat charterers who have an exclusive or long-

term sales or marketing agreement with a Non-Citizen to enter into an

agreement with the Non-Citizen for an advance of funds. This approval

is conditioned on the requirements that the funds must be used for

working capital, the agreement may not contain provisions that would

give the Non-Citizen control over the vessel, vessel owner, or bareboat

charterer, and the amount of the advancement cannot exceed the annual

value of the contract. The regulations do not permit a Non-Citizen with

whom a vessel owner or bareboat charterer is conducting business to

loan money to the vessel owner or bareboat charterer where the loan is

for capital improvements to a Fishing Vessel, Fish Processing Vessel,

or Fish Tender Vessel. Such financing from Non-Citizens with whom the

owner or bareboat charterer has an ongoing relationship would convey an

impermissible degree of control to the Non-Citizen. Accordingly,

consistent with our past practice in other programs, such financing for

capital improvements must be obtained from an unrelated third party.

A commenter representing fishery cooperatives stated that the AFA's

ownership and control requirements have no relevance to the

establishment and operation of cooperatives of the catcher/processor

sector for pollock and Pacific whiting fisheries. Other commenters

suggested that: (1) MARAD should not interfere with a Non-Citizen

agreement with the pollock cooperatives, (2) MARAD should not establish

disparate treatment of Non-Citizen processors and Citizen processors,

and (3) the AFA does not require such treatment because it is concerned

with vessel ownership and control and not processing or purchasing.

We do not propose to specifically regulate or interfere with the

formation of fishery cooperatives. However, an owner or bareboat

charterer is prohibited from entering into any agreement that conveys

control over the vessel, vessel-owning entity, or bareboat charterer to

a Non-Citizen. Consequently, a fishery cooperative agreement cannot

contain terms that would convey control to a Non-Citizen such as the

right to select the management company for a vessel, to hire or

discipline crew, or to direct the harvesting operations of a vessel. If

an owner or bareboat charterer enters into an agreement that conveys

control over the vessel, vessel-owning entity, or bareboat charterer,

the Citizenship Approval Officer may determine that the owner is not

eligible to document the vessel with a fishery endorsement.

Several commenters noted that Sec. 213(g) of the AFA provides that

if provisions of the AFA or the regulations are inconsistent with the

obligations of existing international treaties or agreements, the

regulations will not apply to vessel owners or mortgagees that are

nationals of the country with which we have an agreement. The

commenters pointed out that they believe that the Treaty of Friendship,

Commerce and Navigation between the Republic of Korea and the United

States of America, which was signed on November 28, 1956, and entered

into force on November 7, 1957, and the Treaty and Protocol between the

United States of America and Japan Regarding Friendship, Commerce and

Navigation, which was signed on April 2, 1953, and entered into force

on October 30, 1953, are in conflict with the ownership and mortgage

provisions of the AFA. The commenters contend that the regulations

should not apply to vessels owned by nationals of Japan and Korea by

virtue of Sec. 213(g) of the AFA. Accordingly, they request that we

identify which international treaties we deem to be inconsistent with

the provisions of the AFA. Because the exemption applies only to the

particular owner or Mortgagee of a specific vessel, we propose in

Sec. 356.53 to establish a procedural mechanism whereby owners and

Mortgagees of Fishing Vessels, Fish Processing Vessels, or Fish Tender

Vessels can petition us for a decision that they are exempt from the

provisions of the proposed rule. The owner of a vessel that may be

exempt due to an existing Treaty is not required to sell its ownership

interest in order to be in compliance with the United States Citizen

ownership and control requirements of the AFA. However, if the owner

sells part of its ownership interest to another foreign entity the

exemption no longer applies. In addition, if the owner sells part of

its interest to another entity, the requirements of the AFA apply to

the new owner.

One commenter noted that the new provisions of 46 U.S.C.

12102(c)(6), created by Sec. 202(a) of the AFA, will prohibit certain

larger vessels from being eligible for a fishery endorsement unless

they meet certain conditions. These conditions include, among other

things, that a certificate of documentation was issued to the vessel

with a fishery endorsement that was effective on September 25, 1997,

and that in the event of the invalidation of the fishery endorsement

after the date of the enactment of the AFA, application is made for a

new fishery endorsement within 15 business days. The commenter noted

that there are many ``technical violations'' that could cause a

vessel's documentation to lapse. For example, if the vessel owner fails

to notify the Coast Guard of a change in the vessel's home port or if a

change in ownership has occurred, the documentation status of the

vessel is invalid, and therefore the fishery endorsement is invalid. If

the owner does not apply to redocument the vessel within 15 business

days it could permanently lose its right to participate in the fishing

industry. The commenter explained that some violations invalidate a

vessel's documentation for some purposes but not for others, such as

for purposes of a Preferred Mortgage. The commenter suggested that we

take a similar approach for these larger vessels and identify the

specific violations that would cause a vessel to lose its fishery

endorsement.

Violations that would render a vessel's documentation, and

therefore its fishery endorsement, invalid are outlined in the Coast

Guard's regulations at 46 CFR Part 67. We do not intend for the 15-day

period to act as a permanent bar to a vessel's eligibility for a

fishery endorsement where the owner did not have written notice that

the fishery endorsement was invalidated and on what grounds.

Accordingly, we will provide notice to the vessel owner of a violation

of the requirements of part 356 that would cause a vessel owner to lose

the fishery endorsement to a vessel's documentation. The ultimate

determination as to when a violation of the Coast Guard regulations has

occurred and rendered the vessel's documentation and fishery

endorsement invalid remains with the Coast Guard; however, for purposes

of this NPRM the 15-day period will not begin to run until written

notice has been received by the vessel owner.

Discussion of Proposed Rule

The AFA requires us to promulgate regulations implementing the new

United States citizenship and control requirements for certain vessels

of 100 feet or greater in registered length. In order for a vessel of

100 feet or greater in registered length to be eligible for a

[[Page 651]]

fishery endorsement, 75% of the interest in the owner, at each tier of

ownership and in the aggregate, must be owned and controlled by

Citizens of the United States. The AFA also specifies criteria for

mortgagees to be eligible to hold a Preferred Mortgage on a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel, prescribes

requirements for Non-Citizen Lenders to use an approved Mortgage

Trustee to hold a Preferred Mortgage, and prohibits Charters of Fishing

Vessels to Non-Citizens where the vessel is used to harvest fishery

resources. In determining whether a Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel is controlled by Citizens of the United

States, we are required to rigorously scrutinize contracts and

agreements that could result in a conveyance of impermissible control

over the vessel or vessel-owning entity to a Non-Citizen. Accordingly,

the NPRM addresses not only the requirements for an entity to be

eligible to own a vessel with a fishery endorsement, but also

requirements that must be met by Preferred Mortgagees, Mortgage

Trustees, Non-Citizen Lenders, management companies, charterers, and

other entities that engage in contractual or other arrangements with

the owner of a Fishing Vessel, Fish Processing Vessel, or Fish Tender

Vessel and that could result in a transfer of control to a Non-Citizen.

Ownership

In order for an owner of a vessel of 100 feet or greater in

registered length to be eligible to obtain a fishery endorsement to the

vessel's documentation, it must demonstrate that: (1) 75% of the

interest in the entity that owns the vessel is owned by Citizens of the

United States, and (2) 75% of the control of the entity that owns the

vessel is owned by and vested in Citizens of the United States.

Evidence of United States Citizen ownership of a vessel-owning entity

is demonstrated through the filing of an Affidavit of United States

Citizenship as provided for in Sec. 356.5. The Affidavit of U.S.

Citizenship requires the owner to provide relevant information to

demonstrate that it qualifies as a Citizen of the United States within

the meaning of 46 U.S.C. 12102(c), Sec. 2(c) of the 1916 Act, 46 App.

U.S.C. 802(c), and 46 CFR 356.3. The form of this Affidavit is

substantially the same as the one set forth at 46 CFR Part 355, which

is used by applicants and others who must be Citizens of the United

States in order to qualify for various programs administered by MARAD.

There are two methods that an entity required to file an Affidavit

of U.S. citizenship can use to demonstrate that it is owned by Citizens

of the United States. The two methods, direct proof and fair inference,

are described in Sec. 356.7 and have been used since the 1940's as a

means of establishing citizenship. The direct proof method is used for

individuals or entities that have 30 or fewer stockholders, partners,

or members. Under the direct proof method, the owner of a vessel or any

other entity that is required to demonstrate its citizenship must

provide evidence of the citizenship of stockholders, partners and

members owning at least 75% of the interest. The amount of interest,

including the number of shares and the percentage, that is owned by

each stockholder, partner or member must be provided. In addition, the

entity must provide citizenship information for officers and directors

of a corporation or the equivalent persons in a partnership, Limited

Liability Company, or other entity.

The fair inference method provided for in Sec. 356.7(c) stems from

the case Collier Advertising Service, Inc. v. Hudson River Day Line, 14

F. Supp. 335 (S.D.N.Y. 1936). The fair inference method is intended to

be used by corporations that are publicly traded or that have more than

30 stockholders. This method was recognized by the court in the Collier

case as a means for a publicly traded corporation to establish its U.S.

citizenship within the meaning of Sec. 2 of the 1916 Act without

verifying the actual citizenship of each stockholder. The fair

inference method allows a company to ``infer'' United States

Citizenship based on a certain percentage of the stock in each class

being held by persons with a registered U.S. address. Owners of

Vessels, Mortgage Trustees, and bareboat charterers must comply with

the requirement that 75% of the interest in the entity is owned by

Citizens of the United States. Using the fair inference method, they

would have to demonstrate that 95% or more of the stock for each class

is held by stockholders with a registered U.S. address in order to

infer that 75% of the interest in the corporation is owned by Citizens

of the United States. Mortgagees of vessels that must meet the

Controlling Interest requirements of Sec. 2(b) of the 1916 Act, 46 App.

U.S.C. Sec. 802(b), would be required to demonstrate that 65% or more

of the stock for each class of stock is held by stockholders that have

a registered U.S. address in order to infer that at least 51% of the

interest in the corporation is owned by Citizens of the United States.

The stockholder-address information can be supplied through the stock

books and records of the corporation. In addition to the citizenship of

certain officers and directors of the corporation, owners of 5% or more

of the stock in each class must be specifically identified and their

citizenship must be established.

The AFA requires that 75% of the interest in a vessel owner ``at

each tier and in the aggregate'' be owned and controlled by Citizens of

the United States. Therefore, the owner must submit a composite

Affidavit of United States Citizenship demonstrating United States

citizenship for all entities that are being relied upon to establish

the required percentage of U.S. ownership and control, including

entities at subsequent tiers, such as parent corporations.

We have construed the phrase ``in the aggregate'' to mean that a

particular Non-Citizen may not own or control more than 25% of the

vessel or vessel-owning entity through its combined ownership at

multiple tiers. We recognize that this term could be interpreted much

more restrictively to prohibit total foreign interest in the vessel or

vessel-owning entity by all owners from exceeding 25%. However, we

believe that such a restrictive reading would limit the participation

in the fishing industry of publicly traded companies and the ability of

vessel owners to obtain equity participation from other entities that

are Citizens of the United States, but which may have some minor

foreign ownership.

In order for an owner of a Fishing Vessel, Fish Processing Vessel,

or Fish Tender Vessel to qualify for a fishery endorsement by the

effective date of the new ownership requirements of the AFA, an

Affidavit of United States Citizenship must be submitted to the

Citizenship Approval Officer no later than June 1, 2001. An owner may

get a letter ruling from the Citizenship Approval Officer prior to June

1, 2001, by filing an Affidavit of United States Citizenship at any

time after October 1, 2000, accompanied by the other applicable

documentation required to demonstrate U.S. citizenship. An owner that

receives a letter ruling will be required to notify the Citizenship

Approval Officer of any changes before October 1, 2001, and to submit a

certification to the Citizenship Approval Officer within 10 days prior

to October 1, 2001, stating that the information in the Affidavit of

United States Citizenship remains true and accurate, or if any

information has changed, a description of the changes.

[[Page 652]]

Control

As noted above, control is also a factor in our determinations

regarding whether an entity is a Citizen of the United States or meets

the Controlling Interest requirements of Sec. 2(b) of the 1916 Act.

Control is a difficult term to define because control can be exerted

over a vessel or vessel-owning entity through a wide variety of typical

financing and operational arrangements in the fishing industry to which

a Non-Citizen may be a party. For example, where a Non-Citizen owns 25%

of the interest in a vessel or vessel-owning entity, and the other 75%

is owned by Citizens of the United States, control could still be

conveyed to the Non-Citizen through rights granted in the Articles of

Incorporation, By-Laws, or other comparable organizing or operating

documents. Similarly, other contractual arrangements with Non-Citizens,

such as mortgage and financing agreements, management agreements, and

exclusive or long-term sales or marketing agreements, can potentially

result in a conveyance of control to Non-Citizens.

We are required to determine whether control has been transferred

to a Non-Citizen in several contexts. In the case of an owner of a

Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel, 75% of

the control over the vessel and the vessel-owning entity must be owned

by and vested in Citizens of the United States. In the case of a

Mortgagee that holds a Preferred Mortgage on a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel, the Mortgagee must comply

with the 75% ownership and control requirement unless it is a state or

federally chartered financial institution, in which case it must comply

with the Controlling Interest criteria that generally require at least

51% of the ownership and control to be vested in Citizens of the United

States. In the case of a Mortgage Trustee that is holding a mortgage on

a Fishing Vessel for the benefit of a Non-Citizen Lender, 75% of the

control over the Fishing Vessel must be vested in Citizens of the

United States.

The AFA sets forth certain factors that are to be deemed control.

Section 356.11 spells out these elements of control, as well as other

criteria that we consider in making our determination as to whether

there has been an impermissible transfer of control to a Non-Citizen.

Paragraph (a) lists indicia of control that would be considered

impermissible. Paragraph (b) lists other indicia of control that we may

consider, but that may not be deemed impermissible by themselves. While

we have attempted to list indicia of control that we may consider

permissible or impermissible, the list is not all inclusive, and in

many cases control will be determined on a case-by-case basis.

Mortgages

Mortgages are one of the key agreements in which control over a

vessel could potentially be conveyed to a Non-Citizen. Section 203(b)

of the AFA dictates that a Preferred Mortgage on a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel of 100 feet or more in

registered length can only be held by: (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 satisfies the

Controlling Interest criteria of Sec. 2(b) of the Shipping Act, 1916,

46 App. U.S.C. 802(b); or (3) a Mortgage Trustee that complies with the

requirements of 46 U.S.C. 12102(c)(4), Sec. 2(c) of the 1916 Act, 46

App. U.S.C. 802(c), and Secs. 356.27-37 of this proposal.

A Preferred Mortgage is the primary instrument in the maritime

industry for lenders to secure a vessel as collateral. In order for a

lender to be given ``preferred status'' for its mortgage, it must meet

the requisite citizenship requirements and otherwise qualify to hold a

preferred mortgage filed with the Coast Guard. If a lender is deemed to

be qualified to hold a preferred mortgage, a mortgage filed with the

Coast Guard will be given a preferred status which entitles the

Mortgagee's security interest to a priority over certain types of liens

against the vessel.

In order to provide some certainty for lenders so that they will

know what loan covenants will be allowed, we have proposed in

Sec. 356.23 to authorize Non-Citizen Lenders to use certain restrictive

loan covenants that we have determined do not covey impermissible

control. In addition, we propose to allow Non-Citizen Lenders that will

be using a Mortgage Trustee to get general approval of their standard

loan documents and covenants. If the lender limits its loan agreements

to those covenants for which it has received general approval, it will

not be required to obtain transactional approval from us for its loans.

However, use of restrictive loan covenants that have not been approved

by the Citizenship Approval Officer will render the general approval

void. This could result in a loss of the owner's eligibility to

document the vessel with a fishery endorsement.

Mortgage Trustees

Section 202 of the AFA also revives in principle what was commonly

referred to as a Westhampton Trust arrangement. Under this trust

arrangement, a Non-Citizen Lender that is not eligible to hold a

Preferred Mortgage on a Fishing Vessel, Fish Processing Vessel, or Fish

Tender Vessel may still receive a Preferred Mortgage if it uses an

approved trustee, referred to in the NPRM as a Mortgage Trustee, to

hold the Preferred Mortgage and the debt instrument. The criteria for

an entity to qualify as a Mortgage Trustee are spelled out in

Sec. 356.27 of the NPRM and require that the entity:

(1) Qualify as a Citizen of the United States eligible to own a

Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel;

(2) Be organized as a corporation and doing business under the laws

of the United States or of a State;

(3) Be authorized under the laws of the United States or of the

State under which it is organized to exercise corporate trust powers;

(4) Be subject to supervision or examination by an official of the

United States Government, or of a State;

(5) Have a combined capital and surplus (as stated in its most

recent published report of condition) of at least $3,000,000; and

(6) Meet any other requirements prescribed by the Maritime

Administrator.

To become a qualified Mortgage Trustee, an entity must submit an

application to the Citizenship Approval Officer accompanied by an

Affidavit of United States Citizenship and other required documentation

to demonstrate that it is a Citizen of the United States. Once

approved, the Mortgage Trustee is required to advise the Citizenship

Approval Officer of any changes to its citizenship information as they

occur throughout the year. The Mortgage Trustee must also submit, on an

annual basis, an Affidavit of United States Citizenship, a current

version of its Articles of Incorporation and Bylaws, a copy of its most

recent published report of condition, and a list of the vessels and

lenders for which it is acting as Mortgage Trustee.

Charters

Section 202(a) of the AFA amends 46 U.S.C. 12102(c) by adding a new

paragraph (c) that specifically prohibits charters to Non-Citizens of

Fishing Vessel, Fish Processing Vessel, and Fish Tender Vessels that

are used for fishing. The prohibition on charters to Non-Citizens is,

however, limited to charters

[[Page 653]]

of vessels used for fishing or harvesting of fishery resources.

The position of a bareboat charterer is quite different from that

of a time charterer. It has long been recognized in the law of

admiralty that a bareboat charterer is to be treated as the owner of

the vessel, generally called the owner pro hac vice. Therefore, a

bareboat charter to a Non-Citizen would result in an impermissible

transfer of control over the vessel. A time or voyage charterer has use

of the vessel; however, the charterer merely rents cargo space. Under a

typical time or voyage charter, the owner of the vessel retains

possession of and maintains the vessel, employs and pays the crew and

is responsible for the expenses of running the vessel. The charterer

pays for bunkers, pilots, tugs wharfage, and other port charges arising

at the places to which he directs the vessel, but he would not be

considered to have impermissible control over the vessel.

Accordingly, we propose in Sec. 356.45 to permit time charters and

voyage charters of Fish Processing Vessels and Fish Tender Vessels to

Non-Citizens for purposes other than the harvesting fish or fishery

resources. However, because charters of Fish Processing Vessels and

Fish Tender Vessels to Non-Citizens must still comply with the

requirement that impermissible control over the vessel not be conveyed

to a Non-Citizen, we propose to require submission of time charters and

voyage charters to Non-Citizens within 30 days of execution to confirm

that there is not an impermissible transfer of control. Bareboat

charters of Fishing Vessels, Fish Processing Vessels, and Fish Tender

Vessels to Non-Citizens for any use are prohibited because a bareboat

charter by its very nature results in a transfer of possession and

control over the vessel.

Management Agreements

Section 203(c) of the AFA requires us to scrutinize any agreements

that may convey control over a Fishing Vessel, Fish Processing Vessel,

Fish Tender Vessel, or the vessel's owner to a Non-Citizen. We realize

that owners and bareboat charterers may enter into a variety of

management agreements to provide different services for the vessel

without transferring control over the vessel or vessel-owning entity to

a Non-Citizen. In order to permit owners and bareboat charterers of

Fishing Vessels, Fish Processing Vessels, and Fish Tender Vessels to

conduct business in a timely fashion and with a reasonable degree of

certainty, we propose in Sec. 356.41 to allow them to enter into

certain management contracts and agreements without prior approval from

us. Such contracts must be solely advisory in nature and may not convey

impermissible control over the vessel or the owner of the vessel.

Accordingly, we expressly authorize management contracts in which the

management company solely provides for marketing, technical services,

quality control assurance, and other ministerial services that do not

involve the actual operation of the Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel and do not convey any right to the

management company to control the operation of the vessel or the vessel

owner. However, an owner or bareboat charterer of a Fishing Vessel,

Fish Processing Vessel, or Fish Tender Vessel is prohibited from

entering into management contracts with Non-Citizens that would

effectively convey control over the vessel to the Non-Citizen

management company by allowing the Non-Citizen management company to

discipline or replace the crew or the master, direct the operations of

the vessel or to effectively gain control by any other means over the

operation and management of the vessel or vessel owner. The owner or

bareboat charterer is required to provide a description of any

management agreements into which it has entered and to provide a

written declaration and warranty that the management agreement is a

technical services type agreement authorized by us and does not contain

provisions that transfer control over the vessel or the vessel owner to

a Non-Citizen.

Exclusive or Long-Term Sales or Marketing Agreements

Long-term or exclusive sales or marketing contracts for all or a

portion of the catch of a Fishing Vessel or Fish Processing Vessel are

currently entered into between Non-Citizens and owners or bareboat

charterers of the vessels. These contracts may potentially provide a

mechanism under which control over a vessel or vessel-owning entity

could be transferred to a Non-Citizen. Section 203(c) of the AFA

requires that we scrutinize such agreements to ensure that there is not

an impermissible transfer of control to a Non-Citizen. Commenters have

suggested that these contracts are common place in the fishing industry

and generally do not convey any rights to the buyer or marketer to

control the vessel or vessel-owning entity and that too much regulation

by us would be overly burdensome and would prevent owners from entering

into necessary sales and marketing agreements in a timely manner.

Accordingly, we are proposing in Sec. 356.43 to allow owners and

bareboat charterers to enter into such agreements or contracts with

Non-Citizens, without requiring our prior approval, if the contract

does not contain provisions that convey control over the vessel or

vessel-owning entity to the Non-Citizen. Section 356.43(b) specifically

lists provisions which may be included in such agreements that are

expressly authorized and that will not be deemed an impermissible

transfer of control. If an owner or bareboat charterer wishes to enter

into such an agreement that contains provisions other than those listed

in subparagraph 356.43(b), it must obtain the approval of the

Citizenship Approval Officer prior to entering into the agreement.

Financing Arrangements Other Than Vessel Mortgages

Financing of Fishing Vessel, Fish Processing Vessel, and Fish

Tender Vessel operations is not limited to the mortgage of the vessel.

We recognize that owners and bareboat charterers may enter into other

financing arrangements for working capital or to finance improvements

to such vessels. Section 203(c) of the AFA requires that we scrutinize

financing arrangements that could potentially convey control over a

Fishing Vessel, Fish Processing Vessel, Fish Tender Vessel, or a

vessel-owning entity to a Non-Citizen. We do not consider an advance of

funds by a purchaser to whom fish has been sold but not yet delivered,

or by a consignee to whom fish has been delivered for sale under a

consignment agreement but has not yet been sold, to constitute an

impermissible transfer of control and do not restrict such

transactions. We will, however, regulate certain other financing

arrangements, and propose in Sec. 356.45 to allow owners and bareboat

charterers of Fishing Vessels, Fish Processing Vessels, and Fish Tender

Vessels to enter into financing arrangements that are not secured by a

mortgage on the vessel, such as an advance of funds owed under a long-

term or exclusive sales contract that is consistent with Sec. 356.43,

provided that the Non-Citizen Lender is not granted any rights

whatsoever to control the ownership, operation, management, or

harvesting activities of the vessel or its owner. The owner or bareboat

charterer must submit a description of the financing agreement to the

Citizenship Approval Officer within 30 days of execution, accompanied

by a declaration and warranty signed by the owner or bareboat charterer

that the contract or agreement does not contain any covenants that

convey control over the vessel, vessel owner, or bareboat charterer to

a Non-Citizen. The owner is

[[Page 654]]

not authorized in this section or elsewhere in the NPRM to enter into a

financing arrangement for a capital improvement of the vessel with a

related Non-Citizen. An owner may only obtain financing of capital

improvements on the vessel through financing from an unrelated third

party.

Exemptions for Certain Vessels

Section 202(a) of the AFA creates a new paragraph (6) in

Sec. 12102(c) of Title 46 United States Code. The amended 46 U.S.C.

12102(c)(6) prevents large Fishing Vessels, Fish Processing Vessels,

and Fish Tender Vessels from entering U.S. fisheries, including former

U.S.-flag vessels that have reflagged in recent years to fish in waters

outside of the U.S. exclusive economic zone. Section 356.47 implements

the requirement that, unless otherwise exempted, a vessel is not

eligible for a fishery endorsement to its documentation if: (1) it is

greater than 165 feet in registered length, (2) is more than 750 gross

registered tons, or (3) possesses an engine or engines capable of

producing a total of more than 3,000 shaft horsepower.

A Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel

that meets the above criteria will still be eligible for a fishery

endorsement if: (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 6, 1998, (3) in the event of the invalidation of the

fishery endorsement after October 6, 1998, application is made for a

new fishery endorsement within fifteen (15) business days of such

invalidation, or (4) the vessel is engaged exclusively in the menhaden

fishery in the geographic region governed by the South Atlantic

Fisheries Council or the Gulf of Mexico Fisheries Council.

With regard to the third requirement, Part 356 identifies ways in

which a vessel owner may be deemed ineligible to document a vessel with

a fishery endorsement because of excessive ownership or control of the

vessel or vessel owner by a Non-Citizen. If we determine that these

regulations have been violated and that the owner is no longer eligible

to document the vessel, the owner will be notified by us in writing

that it has 15 days to cure the problem or that it will no longer be

eligible to document the vessel with a fishery endorsement. Other

reasons for which a vessel's documentation will be invalidated, thus

causing the fishery endorsement to be invalid, are found in the Coast

Guard regulations at 46 CFR Part 67. We do not believe that failure to

apply to redocument the vessel within the 15-day period is intended to

act as a permanent bar to the vessel being documented with a fishery

endorsement where the owner did not receive written notice that the

vessel's documentation, and therefore the fishery endorsement, was

invalidated. The Coast Guard is the appropriate agency to determine

whether a violation of its regulations has caused the fishery

endorsement to be invalid thus triggering the 15-day period for the

owner to reapply. However, the 15-day period will not begin to run

until the owner has received written notice of the violation.

International Agreements

Section 213(g) of the AFA provides that where there is a conflict

between an international agreement or treaty and the provisions of the

AFA, the provisions of the AFA that are in conflict with the

international agreement will not apply to specific vessels covered by

the agreement. The NPRM establishes a procedural mechanism by which an

owner or Mortgagee can petition for an exemption from the requirements

of the NPRM if it believes that there is a conflict between the AFA and

an international agreement to which a particular vessel is subject.

Violation of Harvesting or Processing Caps

Section 210(e)(3) of the AFA requires MARAD, upon the request of

the North Pacific Fishery Council or the Secretary of Commerce, to

review any allegation that an individual or entity has exceeded the

percentage of its harvesting or processing cap as provided for in

Sec. 203(e)(1) or (2) of the AFA. Section 356.55 of the NPRM sets forth

a process whereby the Citizenship Approval Officer, upon such a

request, will review the allegations and submit a decision to the North

Pacific Fishery Council and the Secretary of Commerce.

Plain Language

This NPRM is one of our first rulemaking documents to be published

under the new plain language directive. We welcome any comments and

suggestions on the use and effectiveness of plain language techniques

in this document or other suggestions to improve our use of plain

language in future rulemakings.

Rulemaking Analysis and Notices

Executive Order 12866 (Regulatory Planning and Review)

This proposed rule is a significant regulatory action under

Sec. 3(f) of Executive Order 12866 and was reviewed by the Office of

Management and Budget. The rule is not economically significant under

Sec. 3(f)(1) of the Executive Order. However, the rule is significant

under the Regulatory Policies and Procedures of the Department of

Transportation (44 FR 11034) because of significant public and

congressional interest.

This NPRM proposes regulations pursuant to the AFA. The AFA raises

the U.S. citizen ownership and control requirements for U.S.-flag

Fishing Vessels, Fish Processing Vessels, and Fish Tender Vessels

operating in U.S. waters from 51% to 75%. The AFA also eliminates

exemptions for vessels that cannot meet current citizenship standards

and phases out of operation many of the largest vessels. Section 203 of

the AFA requires that we promulgate regulations that: (1) prohibit

impermissible transfers of ownership or control, (2) identify

transactions that will require our prior approval, and (3) identify

transactions that will not require our prior approval. To the extent

practicable, the regulations are required to minimize disruptions to

the commercial fishing industry, to the traditional financing

arrangements of such industry, and to the formation of fishery

cooperatives. The statutory changes are intended to give U.S. interests

a priority in the harvest of U.S. fishery resources. The regulations

are required to be issued in final form by April 1, 2000, and will

become effective on October 1, 2001.

The new statutory requirement that 75% of the ownership and control

of an entity owning a documented vessel of 100 feet or greater in

registered length be vested in Citizens of the United States in order

for the vessel to be eligible for a fishery endorsement is expected to

impact a relatively small segment of the fishing industry. There are

over 36,000 vessels that currently have a fishery endorsement. Based on

information from the Coast Guard Vessel Documentation Center, we

believe that less than 550 of these vessels are 100 feet or greater in

registered length and thus subject to these proposed regulations. These

approximately 550 vessels are owned by roughly 400 different entities.

We estimate that less than 6% of the nearly 550 vessels are currently

owned by entities that do not meet the 75% ownership requirement and

that may be required to increase the level of United States Citizen

participation in their ownership structure so as to comply with the

requirements of the AFA.

The AFA also requires that 75% of the control over a vessel or

vessel-owning entity be vested in Citizens of the

[[Page 655]]

United States. Therefore, owners that comply with the ownership

requirements may still be impacted by this NPRM if they have entered

into contracts or agreements that would convey impermissible control to

Non-Citizens. Agreements that convey impermissible control over a

vessel or vessel-owning entity are prohibited by the AFA. However, we

have attempted in this rulemaking to minimize the review of certain

contracts and agreements so as not to unduly interfere with the

operation of Fishing Vessels, Fish Processing Vessels, and Fish Tender

Vessels.

Some lenders financing Fishing Vessels, Fish Processing Vessels, or

Fish Tender Vessels could also be impacted by this NPRM if they do not

meet the requisite United States Citizenship requirements to hold a

Preferred Mortgage on such vessels. A Non-Citizen Lender that does not

qualify to hold a Preferred Mortgage on a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel in its own right may receive a

Preferred Mortgage through the use of an approved Mortgage Trustee that

qualifies as a Citizen of the United States. It has been our experience

that the use of a Mortgage Trustee imposes minimal cost and burden

compared to the overall benefits of receiving a Preferred Mortgage or

security for a loan. Therefore, while the Non-Citizen Lender may incur

some cost associated with using a qualified Mortgage Trustee to hold

the Preferred Mortgage, the burden will be minimal; the Non-Citizen

lender will not be prohibited from financing Fishing Vessels, Fish

Processing Vessels, or Fish Tender Vessels; and, minimal costs should

be passed on to vessel owners.

We do not have estimates of the total cost of the requirements of

the statute or this NPRM at this time because little cost information

was submitted by the industry in response to the ANPRM. The preliminary

regulatory analysis reflects the comments that were received in

response to the ANPRM.

Discussion of Alternatives

The AFA specifically requires that we issue regulations that set

out the requirements for owners of vessels to file, on an annual basis,

a statement of citizenship setting forth all relevant facts regarding

vessel ownership and control that are necessary to demonstrate

compliance with Sec. 2(c) of the Shipping Act of 1916, 46 App. U.S.C.

802(c), and with 46 U.S.C. 12102(c). Section 203(b) of the AFA requires

that the regulations conform, to the extent practicable, with our

regulations establishing the form of citizenship affidavit set forth in

46 CFR part 355, as in effect on September 25, 1997. The form of the

statement is also required to be written in a manner that will allow

the owner of each vessel to satisfy any annual renewal requirements for

a certificate of documentation. Section 203(c) requires transfers of

ownership and control of vessels after October 1, 2001, to be

rigorously scrutinized for violations of the ownership and control

requirements, with particular attention given to leases, charters,

mortgages, financing, contracts for the purchase over time of all or

substantially all of a Fishing Vessel's catch, and other arrangements

that may convey control over the management, sales, financing, or other

operations of an entity. In contrast to the specific requirement of

Sec. 203(c) that we rigorously scrutinize certain transactions, is the

more general mandate of Sec. 203(b) that the regulations, to the extent

practicable, minimize disruptions of the commercial fishing industry,

to the traditional financing arrangements of such industry, and to the

opportunity to form fishery cooperatives.

We have considered various alternatives to implement the AFA and

the impact of these alternatives on the regulated community and on

small business entities in the fishing industry. Although the AFA

grants broad authority to us to regulate transactions related to the

ownership and control of Fishing Vessels, Fish Processing Vessels, and

Fish Tender Vessels, we have attempted to promulgate requirements that

pose the least possible burden on the regulated public, while still

providing us with the information necessary to implement our

responsibilities under the AFA.

The requirements in the NPRM for an entity owning a Fishing Vessel,

Fish Processing Vessel, or Fish Tender Vessel to provide evidence of

United States citizenship are modeled after our existing regulations in

46 CFR part 355. However, the AFA specifically requires that 75% of the

interest in an entity be owned and controlled by Citizens of the United

States ``at each tier of ownership in such entity and in the

aggregate.'' In interpreting the new requirement that 75% of the

interest be owned and controlled ``in the aggregate'' by Citizens of

the United States, we considered two alternatives. The phrase could be

given a very strict construction to prohibit more than 25% of the

ownership structure from being owned or controlled by Non-Citizens.

However, such an interpretation would make it very difficult for

publicly traded companies to participate in the fishing industry or for

companies to enter into partnering arrangements. For example, a

publicly traded company could not enter into a partnership with a Non-

Citizen to own a Fishing Vessel whereby the Non-Citizen would own 25%

of the vessel unless 100% of the publicly traded company was owned by

Citizens of the United States. Under such an arrangement the purchase

of one share of stock in the publicly traded company by a Non-Citizen

could render the owners of the vessel ineligible to obtain a fishery

endorsement to the vessels documentation.

We believe that a more reasonable alternative is to require that no

more than 25% of the interest in a vessel owner must be owned ``in the

aggregate'' by a particular Non-Citizen. This requirement, which is set

forth in Sec. 356.11, would eliminate control of a vessel owned by a

particular Non-Citizen while at the same time permitting more foreign

investment in the fishing industry thus increasing the options for

vessel owners to raise capital.

We have also reviewed alternatives with respect to the approval and

oversight of mortgages and Mortgage Trustees. While Sec. 203(c) of the

AFA requires us to rigorously scrutinize mortgages and financing

agreements, we do not believe that it will be necessary to require

transactional approval of each financing and mortgage transaction.

Accordingly, we propose to allow Non-Citizens, who are in the business

of financing vessels, to obtain general approval of their standard loan

agreement, provided that the standard loan covenants are acceptable to

us. Section 356.21 allows a Non-Citizen Lender to get general approval

for its standard loan documents if it does not include covenants that

would convey impermissible control to the Non-Citizen. Once a Non-

Citizen Lender has received approval for its standard loan agreements,

it may enter into loans for Fishing Vessels, Fish Processing Vessels,

and Fish Tender Vessels without having to obtain the approval of the

Citizenship Approval Officer for each loan agreement. The general

approval should reduce the paperwork required for lenders and owners,

provide certainty regarding the loan covenants that will be considered

permissible, streamline the process for financing Fishing Vessels, Fish

Processing Vessels, and Fish Tender Vessels, and increase the range of

financing options for vessel owners, including small business entities.

A Non-Citizen Lender is required to use an approved Mortgage

Trustee in order to hold a Preferred Mortgage on

[[Page 656]]

the vessel. As with the above general approval for Non-Citizen Lenders,

a Mortgage Trustee may obtain approval from the Citizenship Approval

Officer on an annual basis to act as a Mortgage Trustee and will not be

required to obtain transactional approval. The Mortgage Trustee will be

required to simply provide an annual certification in the form of an

Affidavit of United States Citizenship to demonstrate that it is still

a Citizen of the United States, a current copy of its Articles of

Incorporation and Bylaws, a copy of it most recent published report of

condition, and a list of the vessels and lenders for which it is acting

as Mortgage Trustee. The freedom for Mortgage Trustees to enter into

agreements without being required to get transactional approval will

minimize the burden of using a Mortgage Trustee, will provide certainty

for vessel owners and foreign lenders regarding qualified Mortgage

Trustees, and will simplify the process for owners to obtain foreign-

financing.

We have also sought to minimize regulation of those vessel charters

that the AFA allows. The AFA allows charters of Fish Processing Vessels

and Fish Tender Vessels to Citizens and time charters and voyage

charters to Non-Citizens of Fish Processing and Fish Tender Vessels

that are not used for fishing, provided that such charters to Non-

Citizens comply with the requirement that there not be an impermissible

transfer of ownership and control to a Non-Citizen. While we considered

requiring that all charters to Non-Citizens be submitted to us for

review before being executed in order to ensure that there is not an

impermissible transfer of control, we believe that it will impose less

of a burden on vessel owners and charterers to authorize time charters

and voyage charters to Non-Citizens without our prior approval. This is

consistent with our present practice concerning non-fishing vessels.

Our approval is conditioned upon the requirement that the charter

agreement not include provisions that would convey an impermissible

transfer of ownership or control to the Non-Citizen charterer and that

a copy of the charter be sent to us within 30 days after execution to

confirm that the charter is not in fact a demise of the vessel.

With regard to long-term or exclusive contracts for the sale of all

or a significant portion of a vessel's catch, we again considered

requiring that these agreements be approved on a transactional basis.

However, because we do not wish to impose requirements on owners of

Fishing Vessels that will interfere with their ability to enter into

such agreements in a timely manner, we have elected to authorize such

standard agreements, provided that they do not convey impermissible

control to a Non-Citizen. We have determined that certain standard

provisions do not convey impermissible control to Non-Citizens and may

be included in these agreements. The NPRM will thus permit owners and

bareboat charterers of Fishing Vessels to enter into these agreements

with Non-Citizens in a timely manner without imposing additional costs

or time consuming regulatory requirements.

Finally, with respect to management agreements, rather than

requiring approval of each agreement to determine whether there is an

impermissible transfer of ownership or control over the vessel to a

Non-Citizen, we opted to establish a set of criteria for such

agreements and to generally approve certain management agreements,

provided that they are for technical and administrative services and

are advisory in nature.

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 State and local officials was not necessary.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires us

to consider whether our proposals will have a significant economic

impact on a substantial number of small entities. ``Small entities''

include independently owned and operated small businesses that are not

dominant in their field and that otherwise qualify as ``small business

concerns'' under Sec. 3 of the Small Business Act (15 U.S.C. 632). We

believe that the cost of complying with these proposed regulations

would be minimal. Therefore, MARAD certifies that this proposed rule

will not have a significant impact on a substantial number of small

businesses.

In our effort to determine whether there are a substantial number

of small entities that may be impacted by this proposed rule, we issued

an ANPRM entitled Eligibility of U.S.-Flag Vessels of 100 Feet or

Greater to Obtain Fisheries Documents, 64 FR 24311 (May 6, 1999), and

requested input from the public regarding the potential economic impact

of the new citizenship and control requirements of the AFA. We

specifically requested information regarding: (1) any unique issues

within the fishing industry regarding the ownership, operation,

management, control, financing, or mortgaging of Fishing Vessels; and,

(2) costs relating to the new citizenship and control requirements that

would likely be incurred by vessel owners, operators, lending

institutions, Mortgagees, and other participants in the fishing

industry. We conducted five public meetings during the sixty day

comment period to obtain oral and written comments from the public.

Although the comments in response to the ANPRM provided us with some

valuable information, we only received three comments from entities

that identified themselves as small entities, and we did not receive

specific information regarding the economic impact to small entities

that may result from this rulemaking.

This notice of proposed rulemaking may reasonably be expected to

affect small businesses or entities that currently own documented

Fishing Vessels, Fish Processing Vessels, or Fish Tender Vessels, that

have financed such vessels or that are engaging in the fisheries of the

United States with such vessels. The Small Business Administration

defines businesses within the fishing industry that have annual

receipts of $3 million or less as small businesses, 13 CFR 121.201.

While we recognize that a number of vessel owners may be classified

under the Small Business Administration regulations as small entities,

at the present time we do not know whether this proposed rulemaking

will have a significant economic impact on a substantial number of

small entities. We estimate that of the nearly 33,000 vessels that have

a fishery endorsement, less than 550 are 100 feet or greater in

registered length and thus subject to this proposed rule. We further

estimate that there are approximately 400 vessel owners within this

group of 550; however, we have not been able to determine which owners

might be classified as small businesses.

We estimate that less than 6 percent of the 550 vessels potentially

subject to this proposed rule have less than the 75% United States

Citizen ownership required by the AFA. It is possible that some of

these vessel owners, who otherwise meet the 75% United States

[[Page 657]]

citizen ownership requirement, may still be impacted by the proposed

rule if the vessel is mortgaged to an entity that does not qualify to

hold a Preferred Mortgage on the vessel or if the owner does not meet

the requirement that control over 75% of the interest in the entity

owning the vessel be vested in Citizens of the United States. However,

even if the mortgage on the vessel is held by a lender that does not

qualify, the lender will still be able to secure a Preferred Mortgage

on the vessel through the use of an approved Mortgage Trustee. Based on

our 30 years of experience using Mortgage Trustees in other programs,

the use of a Mortgage Trustee imposes minimal cost and burden compared

to the overall benefit of receiving a Preferred Mortgage as security

for a loan. The use of a Mortgage Trustee will allow the Non-Citizen

Lender to continue to receive a First Preferred Mortgage on a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel. Therefore, the

new citizenship requirements for Mortgagees will have minimal economic

impact.

In our regulatory analysis, we considered a variety of alternatives

in order to find ways to minimize the regulatory burden on the affected

public, specifically on small business entities, and to foster the

ability of vessel owners to obtain financing for their vessels. A

discussion of these alternatives is contained under the above section

marked ``Executive Order 12866 (Regulatory Planning and Review)''.

If you believe that this rulemaking will have a significant

economic impact on your business, please submit a comment (see

ADDRESSES) explaining in what way and to what degree this proposal will

economically affect your business. In addition, if you think that your

business qualifies as a small entity, and that further rulemaking will

have a significant economic impact on your business, please submit a

comment explaining how your business qualifies as a small entity, how

this rulemaking may economically affect your business, and whether you

are aware of other small entities that are similarly situated.

Environmental Impact Statement

We have analyzed this NPRM 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

This NPRM establishes a new requirement for the collection of

information. The Office of Management and Budget (``OMB'') will be

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.

In accordance with the Paperwork Reduction Act, this notice

announces MARAD's intentions to request approval for three years of 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: New request for information.

OMB Control Number:

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 will be required to file an

Affidavit of United States Citizenship demonstrating that they comply

with the requirements of Sec. 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 to 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 Vessel, Fish Processing

Vessel, or Fish Tender 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

an Affidavit of United States Citizenship to demonstrate that they

comply with the United States Citizen ownership and control

requirements of Sec. 2(c) of the 1916 Act, 46 App. U.S.C. Sec. 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 U.S. citizen ownership and

control requirements set forth above and is deemed a Non-Citizen, 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 an Affidavit of United

States Citizenship demonstrating compliance with the United States

Citizen ownership and control requirements of Sec. 2(c) of the 1916

Act. 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

information to MARAD's Citizenship Approval Officer.

A Person(s) alleged to have exceeded the authorized harvesting or

processing caps provided for in Sec. 210(e)(1) or (2) of the AFA will

be required to submit to the Citizenship Approval Officer any

information deemed relevant in determining whether such Person(s) have

exceeded the cap.

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 Sec. 2(b) and Sec. 2(c) of the

1916 Act and 46 U.S.C. 12102(c) for owners, charterers,

[[Page 658]]

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. Section 203(c) of the AFA requires that

we ``rigorously scrutinize'' transfers of ownership and control of

vessels subject to 46 U.S.C. 12102(c) and that we pay particular

attention to leases, charters, mortgages, financing and similar

arrangements that may result in a transfer of control over an entity

that owns a Fishing Vessel, Fish Processing Vessel, or Fish Tender

Vessel. Without the information it would be impossible to know whether

the vessels and vessel-owning entities are owned and controlled by

Citizens of the United States as required by the AFA.

The information collected from Mortgagees and Mortgage Trustees

will be used to verify that they qualify as United States Citizens as

required by the AFA. A Mortgagee of Fishing Vessels, Fish Processing

Vessels, and Fish Tender Vessels must either be a Citizen of the United

States that complies with section 2(c) of the 1916 Act, or a state or

federally chartered financial institution that complies with the

Controlling Interest requirements of Sec. 2(b) of the 1916 Act. A

Mortgage Trustee, holding a mortgage for an entity that does not

qualify as a Mortgagee under these requirements, must be a Citizen of

the United States that meets the requirements of 46 U.S.C. 12102(c) and

Sec. 2(c) of the 1916 Act, 46 App. U.S.C. 802(c), and that is eligible

to own a vessel with a fishery endorsement. Without the information it

would be impossible to know whether the Mortgagees and Mortgage

Trustees of these vessels are Citizens of the United States as required

by the AFA.

The information collected from Person(s) alleged to have exceeded

the percentage caps for harvesting or processing as provided in

Sec. 203(e)(1) or (2) of the AFA will be used to make a determination

whether the Person(s) has violated section Sec. 210(e) of the AFA.

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. Person(s) alleged to have exceeded their

percentage cap for harvesting or processing as provided in

Sec. 210(e)(1) or (2) of the AFA.

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. We estimate that one request per year

might be received alleging that Person(s) have exceeded their

harvesting or processing caps.

Annual Burden: 1000 hours.

Unfunded Mandates Reform Act of 1995

This proposed 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 proposed rule is the least burdensome alternative that achieves

the objective of the rule.

Impact on Business Processes and Computer Systems

Many computers that use two digits to keep track of dates will, on

January 1, 2000, recognize ``double zero'' not as 2000 but as 1900.

This glitch, the Year 2000 problem, could cause computers to stop

running or to start generating erroneous data. The Year 2000 problem

poses a threat to the global economy in which Americans live and work.

With the help of the President's Council on Year 2000 Conversion,

Federal agencies are reaching out to increase awareness of the problem

and to offer support. We do not want to impose new requirements that

would mandate business process changes when the resources necessary to

implement those requirements would otherwise be applied to the Year

2000 problem. Because this NPRM would not affect the ability of

organizations to respond to the Year 2000 problem, we do not intend to

delay the effectiveness of the proposed requirements in this NPRM.

List of Subjects in 46 CFR Part 356

Citizenship, Fishery endorsement, Fishing vessels, Mortgages,

Mortgage trustee, Penalties, Preferred mortgages.

Accordingly, we propose to add a new 46 CFR Part 356 to read 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

Subpart A--General Provisions

Sec.

356.1 Purpose.

356.3 Definitions.

Subpart B--Ownership and Control

356.5 Affidavit of U.S. Citizenship.

356.7 Methods of establishing ownership by United States Citizens.

356.9 Tiered ownership structures.

356.11 Impermissible control by a Non-Citizen.

Subpart C--Requirements for Vessel Owners

356.13 Information required to be submitted by vessel owners.

356.15 Filing of Affidavit of U.S. Citizenship.

356.17 Annual requirements for vessel owners.

Subpart D--Mortgages

356.19 Requirements to hold a Preferred Mortgage.

356.21 General approval of Non-Citizen lender's standard loan or

mortgage agreements.

356.23 Restrictive loan covenants approved for use by Non-Citizen

lenders.

356.25 Operation of Fishing Vessels, Fish Processing Vessels, or

Fish Tender Vessels by Mortgagees.

Subpart E--Mortgage Trustees

356.27 Mortgage Trustee requirements.

356.31 Maintenance of Mortgage Trustee approval.

356.37 Operation of a Fishing Vessel, Fish Processing Vessel, or

Fish Tender Vessel by a Mortgage Trustee.

Subpart F--Charters, Management Agreements and Exclusive or Long-Term

Contracts

356.39 Charters.

356.41 Management agreements.

356.43 Long-term or exclusive sales and/or marketing contracts.

356.45 Advance of funds.

Subpart G--Special Requirements for Certain Vessels

356.47 Special requirements for large vessels.

356.49 Penalties.

356.51 Exemptions for specific vessels.

Subpart H--International Agreements

356.53 Conflicts with International Agreements.

Subpart I--Review of Harvesting and Processing Compliance

356.55 Review of compliance with harvesting and processing quotas.

Authority: 46 App. U.S.C. 12102; Public Law 105-277, Division C,

Title II, Subtitle I, section 203 (46 App. U.S.C. 12102 note),

section 210(e), and section 213(g), 112 Stat. 2681; 46 CFR section

1.66.

Subpart A--General Provisions

Sec. 356.1 Purpose.

Part 356 implements U.S. Citizenship requirements of the American

Fisheries Act of 1998, as amended, Title II, Division C, Pub. L. 105-

277, for owners, Mortgage Trustees, and Mortgagees of

[[Page 659]]

vessels of 100 feet or greater in registered length that have a fishery

endorsement to the vessel's documentation or where a fishery

endorsement to the vessel's documentation is being sought. This part

also addresses ancillary matters of charters, management agreements,

exclusive sales or marketing contracts, conflicts with international

agreements, determinations regarding violations of harvesting or

processing limits, and exceptions for certain vessels, vessel owners

and Mortgagees from the general requirements of the rule.

Sec. 356.3 Definitions.

For the purpose of this part, when used in capitalized form:

(a) 1916 Act refers to section 2 of the Shipping Act of 1916, as

amended, 46 App. U.S.C. 802. The Controlling Interest requirements of

the Shipping Act are found in section 2(b), 46 App. U.S.C. section

802(b). The citizenship requirements for eligibility to own a vessel

with a fisheries endorsement are found in section 2(c), 46 App. U.S.C.

section 802(c), and 46 U.S.C. section 12102(c).

(b) AFA means the American Fisheries Act of 1998, as amended, Title

II, Division C, of Pub. L. 105-277;

(c) Charter means any agreement or commitment by which the

possession or services of a Fishing Vessel, Fish Processing Vessel, or

Fish Tender Vessel are secured for a period of time, or for one or more

voyages, whether or not a bareboat charter of the vessel. A long-term

or exclusive contract for the sale of all or a portion of a Fishing

Vessel's catch is not considered a Charter.

(d) Citizen of the United States, Citizen or U.S. Citizen:

(1) Means an individual who is a Citizen of the United States, by

birth, naturalization or as otherwise authorized by law, or an entity

that in both form and substance, at each tier of ownership and in the

aggregate, satisfies the requirements of 46 U.S.C. 12102(c) and 2(c) of

the 1916 Act, 46 App. U.S.C. 802(c). In order to satisfy the statutory

requirements an entity other than an individual must meet the

requirements of paragraph (2) of this definition and the following

criteria:

(i) The entity must be organized under the laws of the United

States or of a State;

(ii) Seventy five percent (75%) of the ownership and control in the

entity must be owned by and vested in Citizens of the United States

free from any trust or fiduciary obligation in favor of any Non-

Citizen;

(iii) No arrangement may exist, whether through contract or any

understanding, that would allow more than 25% of the voting power of

the entity to be exercised, directly or indirectly, in behalf of any

Non-Citizen; and

(iv) Control of the entity, by any other means whatsoever, may not

be conferred upon or permitted to be exercised by a Non-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 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 coventurer is a Citizen of the United States;

(v) In the case of a Trust that owns a Fishing Vessel, Fish

Processing Vessel, or Fish Tender 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;

(vi) In the case of a mortgage Trust:

(A) The Trust is domiciled in the United States or a State;

(B) The Mortgage Trustee is a Citizen of the United States; and,

(C) The Mortgage Trustee is authorized to act on behalf of Non-

Citizen beneficiaries pursuant to Sec. 356.5.

(vii) 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.

(e) Citizenship Approval Officer means MARAD's Citizenship Approval

Officer within the Office of Chief Counsel. The Citizenship Approval

Officer's address is: Maritime Administration, United States Department

of Transportation, Citizenship Approval Officer, MAR-220, Room 7232,

400 7th Street, S.W., Washington, DC 20590.

(f) Controlling Interest:

(1) Means an entity that in both form and substance, at each tier

of ownership and in the aggregate, satisfies the requirements of

section 2(b) of the 1916 Act, 46 App. U.S.C. section 802(b). In order

to satisfy the statutory requirements, an entity other than an

individual must meet the requirements of paragraph (2) of this

definition and the following criteria:

(i) The entity must be organized under the laws of the United

States or of a State;

(ii) A majority of the ownership and control in the entity must be

owned by and vested in Citizens of the United States free from any

trust or fiduciary obligation in favor of any Non-Citizen;

(iii) No arrangement may exist, whether through contract or any

understanding, that would allow a majority of the voting power of the

entity to be exercised, directly or indirectly, in behalf of any Non-

Citizen; and

(iv) Control of the entity, by any other means whatsoever, may not

be conferred upon or permitted to be exercised by a Non-Citizen.

(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;

[[Page 660]]

(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 mortgage trust:

(A) The Trust is domiciled in the United States or a State;

(B) The Mortgage Trustee is a Citizen of the United States;

(C) The Mortgage Trustee is authorized to act on behalf of Non-

Citizen beneficiaries pursuant Sec. 356.5;

(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 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;

(g) Fishing Vessel means a vessel of 100 feet or greater in

registered length that has or for which the owner is seeking a fishery

endorsement to the vessel's documentation and that commercially engages

in the planting, cultivating, catching, taking, or harvesting of fish,

shellfish, marine animals, pearls, shells, or marine vegetation or an

activity that can reasonably be expected to result in the planting,

cultivating, catching, taking, or harvesting of fish, shellfish, marine

animals, pearls, shells, or marine vegetation;

(h) Fish Processing Vessel means a vessel of 100 feet or greater in

registered length that has or for which the owner is seeking a fishery

endorsement to the vessel's documentation and that commercially

prepares fish or fish products other than by gutting, decapitating,

gilling, skinning, shucking, icing, freezing, or brine chilling;

(i) Fish Tender Vessel means a vessel of 100 feet or greater in

registered length that has or for which the owner is seeking a fishery

endorsement to the vessel's documentation and that commercially

supplies, stores, refrigerates, or transports (except in foreign

commerce) fish, fish products, or materials directly related to fishing

or the preparation of fish to or from a Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel or a fish processing facility;

(j) Harvest means to commercially engage in the catching, taking,

or harvesting of fish or fishery resources or any activity that can

reasonably be expected to result in the catching, taking or harvesting

of fish or fishery resources;

(k) MARAD means the Maritime Administration within the United

States Department of Transportation. The terms ``we, our, and us'' may

also be used to refer to the Maritime Administration;

(l) Mortgagee means a Person to whom a Fishing Vessel or other

property is mortgaged. (See the definition of Non-Citizen Lender and

Preferred Mortgage in this section)

(m) Mortgage Trustee, for purposes of holding a Preferred Mortgage

on a Fishing Vessel, means a corporation that:

(1) Is organized and doing business under the laws of the United

States or of a State;

(2) Is a Citizen of the United States;

(3) Is authorized under those laws to exercise corporate trust

powers;

(4) Is subject to supervision or examination by an official of the

United States Government, or of a State;

(5) Has a combined capital and surplus (as stated in its most

recent published report of condition) of at least $3,000,000; and

(6) Meets any other requirements prescribed by the Citizenship

Approval Officer.

(n) Non-Citizen means a Person who is not a Citizen of the United

States within the meaning of paragraph (d) of this section, 46 U.S.C.

12102(c) and section 2(c) of the 1916 Act, 46 App. U.S.C. 802(c).

(o) Non-Citizen Lender means a lender that does not qualify as a

Citizen of the United States.

(p) Person includes individuals, corporations, partnerships, joint

ventures, associations, limited liability companies, Trusts, and other

entities existing under or authorized by the laws of the United States

or of a State or, unless the context indicates otherwise, of any

foreign country.

(q) Preferred Mortgage means a mortgage on a Fishing 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

satisfies the Controlling Interest criteria of section 2(b) of the 1916

Act (46 App. U.S.C. 802(b)) and paragraph (f) of this section; or

(3) A person that complies with the provisions of section

12102(c)(4) of title 46, United States Code.

(r) State means a State of the United States, Guam, Puerto Rico,

the Virgin Islands, American Samoa, the District of Columbia, the

Commonwealth of the Northern Mariana Islands, and any other territory

or possession of the United States.

(s) Submitted means sent by mail and postmarked on that date, or

sent by another delivery service or by electronic means, including E-

mail and facsimile, and marked with an indication of the date

equivalent to a postmark;

(t) Trust means:

(1) In the case of ownership of a Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel, a trust that is domiciled in and

existing under the laws of the United States or of a State, of which

the Trustee is a Citizen of the United States, and 100% of the interest

in the Trust is held for the benefit of a Citizen of the United States;

or

(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, of

which the Mortgage Trustee is a Citizen of the United States and for

which the Mortgage Trustee is authorized to act on behalf of Non-

Citizen beneficiaries pursuant to Secs. 356.27-356.37.

(u) United States, when used in the geographic sense, means the

States of the United States, Guam, Puerto Rico, the Virgin Islands,

American Samoa, the District of Columbia, the Commonwealth of the

Northern Mariana Islands, and any other territory or possession of the

United States; when used in other than the geographic sense, it means

the United States Government.

(v) United States Government means the Federal Government acting by

or through any of its departments or agencies.

[[Page 661]]

Subpart B--Ownership and Control

Sec. 356.5 Affidavit of U.S. Citizenship.

(a) In order to establish that a corporation or other entity is a

Citizen of the United States within the meaning of section 2(c) of the

1916 Act, or where applicable, section 2(b) of the 1916 Act, the form

of Affidavit is hereby prescribed for execution in behalf of the owner,

charterer, Mortgagee, or Mortgage Trustee of a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel. Such Affidavit must include

information required of parent corporations and other stockholders

whose stock ownership is being relied upon to establish that the

requisite ownership in the entity is owned by and vested in Citizens of

the United States. A certified copy of the Articles of Incorporation

and Bylaws, or comparable corporate documents, must be submitted along

with the executed Affidavit.

(b) This Affidavit form set forth in paragraph (d) of this section

may be modified to conform to the requirements of vessel owners,

Mortgagees, or Mortgage Trustees in various forms such as partnerships,

limited liability companies, etc. A copy of an Affidavit of U.S.

Citizenship modified appropriately, for limited liability companies,

partnerships (limited and general), and other entities is available on

MARAD's internet home page at http://marad.dot.gov.

(c) As indicated in Sec. 356.17, in order to renew annually the

fishery endorsement on a Fishing Vessel, Fish Processing Vessel, or

Fish Tender Vessel, the owner must submit annually to the Citizenship

Approval Officer evidence of U.S. Citizenship within the meaning of

section 2(c) of the 1916 Act and 46 App. U.S.C. 12102(c).

(d) The prescribed form of the Affidavit of U.S. Citizenship is as

follows:

State of ______ County of ______ SS:

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 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 Officers 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, 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: 2

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\2\ Strike inapplicable paragraph 4.

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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

state or federally chartered financial institution holding a

Preferred Mortgage, or not less than 95 per centum for an entity

that is demonstrating ownership in a vessel for which a fishery

endorsement is sought or a Mortgage Trustee. 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

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:

----------------------------------------------------------------------

Name of Stockholder

----------------------------------------------------------------------

Number of shares owned (each class)

----------------------------------------------------------------------

Percentage of shares 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 percent 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 3 information hereinbefore set forth,

is owned by Citizens of the United States; that the title to 75% of

the stock of (each) 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

\3\ Strike inappropriate Paragraph 5.

---------------------------------------------------------------------------

Note: For state or federally chartered financial institutions

acting as Mortgagees, the Controlling Interest language, which is

set forth below, is applicable.

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

[[Page 662]]

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

be exercised by any person who is not a Citizen of the United

States; and

6. 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.

----------------------------------------------------------------------

----------------------------------------------------------------------

(Name and title of affiant)

----------------------------------------------------------------------

(Signature of affiant)

----------------------------------------------------------------------

Date

Penalty for False Statement: A fine or imprisonment, or both, are

provided for violation of the proscriptions contained in 18 U.S.C.

1001 (see also 18 U.S.C. 286, 287).

(e) The format for an Affidavit of United States Citizenship,

modified appropriately for limited liability companies, partnerships,

etc., will be available from the Citizenship Approval Officer and on

MARAD's internet web site at http://www.marad.dot.gov.

(f) The same criteria should be observed in obtaining information

to be furnished for stockholders named (direct ownership of required

percentage of shares of stock of each class) in the Affidavit as those

observed for the owner of the Fishing Vessel, Fish Processing Vessel,

or Fish Tender Vessel. If, on the other hand, the ``fair inference

rule'' is applied with respect to stock ownership as outlined in 46 CFR

356.7(c), the extent of U.S. Citizen ownership of stock should be

ascertained in the requisite percentage (65 percent for state or

federally chartered financial institutions and 95 percent for Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel owners, bareboat

charterers, trustees, as well as entities owning 5 percent or more of

the stock of owners, bareboat charterers. Any entity that must

establish its U.S. citizenship has to submit proof of U.S. citizenship

of any five percent stockholder of each class of stock in order that

the veracity of the statutory statements made in the Affidavit

(paragraph 5) may be relied upon by MARAD.

(g) It shall be incumbent upon the parties filing affidavits under

this part to notify the Citizenship Approval Officer in writing within

30 calendar days of any changes in information last furnished with

respect to the officers, directors, and stockholders, including 5

percent or more stockholders of the issued and outstanding stock of

each class, together with information concerning their citizenship

status. If other than a corporation, comparable information must be

filed by other entities owning Fishing Vessels, Fish Processing

Vessels, or Fish Tender Vessels, including any entity whose ownership

interest is being relied upon to establish 75 percent ownership by

Citizens of the United States.

(h) If additional material is determined to be essential to clarify

or support the evidence of U.S. citizenship, such material shall be

furnished by the owner of the Fishing Vessel, Fish Processing Vessel,

or Fish Tender Vessel upon request by the Citizenship Approval Officer.

Sec. 356.7 Methods of establishing ownership by United States

Citizens.

(a) An entity may demonstrate that the interest in the entity (75%

for Citizens of the United States or 51% for entities meeting the

Controlling Interest requirements) is owned by Citizens of the United

States either by direct proof or through the fair inference method

depending on the size of the entity.

(b) The ``direct proof'' method is used for closely held companies

that have 30 or fewer stockholders. Under the direct proof method, the

following information must be set forth in paragraph four of the

Affidavit of U.S. Citizenship:

(1) The identity of the holders of stock or other equitable

interests;

(2) The amount of stock or interest that each stockholder owns;

(3) A representation as to the citizenship of the stockholder; and,

(4) If the stockholder is a corporation or other entity, the names

and citizenship of officers, directors, stockholders, etc. must be set

out in the Affidavit of U.S. Citizenship.

(c) The ``fair inference method'' is used by corporations whose

stock is publicly traded (more than 30 stockholders). Use of the fair

inference method requires that:

(1)(i) At least 95% of the stock (each class) of the corporation be

held by Persons having a registered U.S. address in order to infer at

least 75% ownership by U.S. Citizens, or

(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 in the case of a state or

federally chartered financial institution acting as a Mortgagee; and,

(2) Disclosure be made in the Affidavit of U.S. Citizenship of the

names and citizenship of any stockholders who holds five percent or

more of the corporation's stock (including all classes of stock, voting

and non-voting), officers, and directors.

(d) If the owner of a Fishing Vessel, Fish Processing Vessel, or

Fish Tender Vessel is consecutively owned by several ``parent''

corporations, the facts revealing the stock ownership of each entity

must be set forth in the Affidavit of U.S. Citizenship.

Sec. 356.9 Tiered ownership structures.

(a) A Non-Citizen may not own or control, either directly through

the first tier of ownership or in the aggregate through an interest in

other entities at various tiers, more than 25% of the interest in an

entity which owns a Fishing Vessel, Fish Processing Vessel, or Fish

Tender Vessel. The prohibition against any Non-Citizen owning or

controlling more than 25%, in the aggregate, of the interest in an

entity that owns a Fishing Vessel, Fish Processing Vessel, or Fish

Tender Vessel means, for example, that:

(1) A Non-Citizen that owns or controls a 25% stake in the

ownership entity of a Fishing Vessel, Fish Processing Vessel, or Fish

Tender Vessel at the first tier may not have any interest whatsoever in

any entity that is being relied upon to establish the required 75% U.S.

Citizen ownership;

(2) A Non-Citizen that owns or controls less than a 25% stake at

the first tier may participate in the ownership and control of other

entities that are being relied upon to establish the required 75% U.S.

Citizen ownership and control at the first tier. However, that Non-

Citizen's total ownership and control of the entity owning a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel may not exceed

25% in the aggregate as computed by MARAD; and,

(3) Where a Non-Citizen owns or controls 25% of the interest in the

entity owning a Fishing Vessel, Fish Processing Vessel, or Fish Tender

Vessel at the first tier and is thus precluded from owning or

controlling any interest in an entity being relied upon to establish

the required 75% U.S. Citizen ownership and control, other unrelated

Non-Citizens may still participate in the ownership structure at

subsequent tiers; provided, that their interest does not exceed 25% in

the aggregate and that each entity meets the 75% U.S. ownership and

control requirement.

(b) The Citizenship Approval Officer may determine that an

ownership structure with a large number of tiers

[[Page 663]]

does not qualify as a Citizen of the United States if through excessive

tier structures, Non-Citizen participation is deemed to dilute the U.S.

ownership and control of the entity owning a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel to an unacceptable level.

Sec. 356.11 Impermissible control by a Non-Citizen.

(a) An impermissible transfer of control exists where a Non-

Citizen, whether by agreement, contract, influence, or any other means

whatsoever:

(1) Has the right to direct the business of the entity which owns

the Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel;

(2) Has the right to limit the actions of or replace the chief

executive officer, a majority of the board of directors, any general

partner or any person serving in a management capacity of the entity

which owns the Fishing Vessel, Fish Processing Vessel, or Fish Tender

Vessel;

(3) Has the right to direct the transfer, operation, or manning of

a Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel;

(4) Has the right to unduly restrict the day to day business

activities and management policies of the entity owning a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel through loan

covenants or other means;

(5) Has the right to derive through a minority shareholder a

disproportionate amount of the economic benefits from the ownership and

operation of the Fishing Vessel, Fish Processing Vessel, or Fish Tender

Vessel;

(6) Has the right to control the management of or to be a

controlling factor in the entity owning a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel;

(7) Has the right to cause the sale of a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel, other than through approved

loan covenants where there is a Preferred Mortgage on the vessel;

(8) Absorbs all of the costs and normal business risks associated

with ownership and operation of the Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel;

(9) Has the responsibility for the procurement of insurance on the

Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel, or

assumes any liability in excess of insurance coverage; or,

(10) Has the ability through any other means whatsoever to control

the entity that owns a Fishing Vessel, Fish Processing Vessel, or Fish

Tender Vessel.

(b) In addition to the actions in paragraph (a) of this section

that are considered absolute indicia of control, we will consider other

factors which, in combination with other elements of foreign

involvement, may be deemed impermissible control. The following factors

may be considered indicia of control:

(1) If a Non-Citizen minority stockholder takes the leading role in

establishing an entity that will own a Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel;

(2) If a Non-Citizen has the right to preclude the owner of a

Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel from

engaging in other business activities;

(3) If a Non-Citizen and owner use the same legal representation,

accounting firm, etc.;

(4) If a Non-Citizen and owner share the same office space, phones,

administrative support, etc.;

(5) If a Non-Citizen absorbs many of the costs and normal business

risks associated with ownership and operation of the Fishing Vessel,

Fish Processing Vessel, or Fish Tender Vessel;

(6) If a Non-Citizen provides the start up capital for the owner or

bareboat charterer on less than an arms-length basis;

(7) If a Non-Citizen has the general right to inspect the books and

records of the owner or bareboat charterer of the Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel; or,

(8) If the owner or bareboat charterer uses the same insurance

agent or broker of any Non-Citizen with whom the owner or a bareboat

charterer has entered into a mortgage, long-term or exclusive sales or

marketing agreement, unsecured loan agreement, or management agreement.

(c) In most cases, any single factor listed in paragraph (b) of

this section will not be sufficient to deem an entity a Non-Citizen.

However, a combination of several factors listed in paragraph (b) of

this section may increase our concern as to whether the entity complies

with the U.S. Citizen ownership and control provisions of the AFA and

any single factor listed in paragraph (b) of this section may be the

basis for a request from us for further information.

(d) If we have a concern regarding control by a Non-Citizen, we

will notify the entity of the concern and work with the entity toward a

satisfactory resolution. Resolution of any control issues may result in

a request by us for additional information to clarify the intent of the

provision or to amend or delete the provision in question.

(e) Information that is specifically required to be submitted for

our consideration is set out in Sec. 356.13. However, in determining

whether an entity has control over a Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel, we may review any contract or agreement

that may, by any means whatsoever, result in a transfer of control to a

Non-Citizen.

Subpart C--Requirements for Vessel Owners

Sec. 356.13 Information required to be submitted by vessel owners.

(a) In order to be eligible to document a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel with a fishery endorsement,

the entity that owns the vessel must submit documentation to

demonstrate that 75 percent (75%) of the interest in such entity is

owned and controlled by Citizens of the United States. Unless otherwise

exempted, the following documents must be submitted to the Citizenship

Approval Officer in support of a request for a determination of U.S.

Citizenship:

(1) An Affidavit of U.S. Citizenship. This affidavit, set out in

Sec. 356.5, must contain all required facts, at all tiers of ownership,

needed for determining the citizenship of the owner of the Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel.

(2) A certified copy of the Articles of Incorporation and Bylaws of

the owner of the Fishing Vessel, Fish Processing Vessel, or Fish Tender

Vessel, and any parent corporation, must be submitted. The

certification must be by the Secretary of State in which the

corporation is incorporated or by the Secretary of the corporation. For

entities other than corporations, comparable certified documents must

be submitted. For example, for a limited liability company, a copy of

the Certificate of Formation filed with a State must be submitted,

along with a certified copy of the Limited Liability Company Operating

Agreement;

(3) An Affidavit of U.S. Citizenship for each charterer of a

Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel, with the

exception of time or voyage charterers of Fish Processing Vessels and

Fish Tender Vessels permitted under Sec. 356.39(b)(2);

(4) A copy of any time charter or voyage charter to a Non-Citizen

of a Fish Tender Vessel or Fish Processing Vessel;

(5) Any loan agreements or other financing documents applicable to

a Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel where

the lender

[[Page 664]]

has not been granted approval from the Citizenship Approval Officer

pursuant to Sec. 356.21 to enter into loans without transactional

approval from MARAD;

(6) A description of any operating and/or management agreements

entered into by the owner or bareboat charterer of a Fishing Vessel,

Fish Processing Vessel, or Fish Tender Vessel accompanied by a

representation and warranty that the agreement does not contain any

provisions that convey control over the vessel or vessel-owning entity

to a Non-Citizen;

(7) Identification of any sales, purchase or marketing agreements,

including the parties to those agreements, that relate to the sale or

purchase of all or a significant portion of a vessel's catch and copies

of such agreements if the agreement contains provisions that could

convey control to a Non-Citizen other than those expressly authorized

in Sec. 356.43;

(8) Any stockholder's agreement, voting trust agreements, or any

other pooling agreements, including any proxy appointment, relating to

the ownership of all classes of stock, whether voting or non-voting of

the owner of the Fishing Vessel, Fish Processing Vessel, or Fish Tender

Vessel, including any parent corporation or other stockholder whose

stock is being relied upon to establish 75 percent U.S. Citizen

ownership;

(9) Any agreements relating to an option to buy or sell stock or

other comparable equity interest in the owner of the Fishing Vessel,

Fish Processing Vessel, or Fish Tender Vessel, or any agreement that

restricts the sale of such stock or equity interests in the owner of

the Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel,

including any parent corporation or other stockholder whose stock is

being relied upon to establish 75 percent U.S. Citizen ownership;

(10) Any documents relating to a merger, consolidation, liquidation

or dissolution of the owner of the Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel, including any parent corporation; and

(11) Disclosure of any interlocking directors or other officials by

and between the owner of a Fishing Vessel, Fish Processing Vessel, or

Fish Tender Vessel (including any parent corporation) and any Non-

Citizen minority stockholder of the owner and any parent corporation.

This requirement is also applicable to any lender, purchaser of fish

catch, or other entity that is a Non-Citizen.

(b) In the event the owner or bareboat charterer of a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel enters into any

agreement reflected in any of the documents set forth in paragraph (a)

of this section after the submission of the Affidavit of U.S.

Citizenship, the owner or bareboat charterer must notify the

Citizenship Approval Officer within 30 calendar days. Failure to notify

the Citizenship Approval Officer of such agreements within the

prescribed time may result in the vessel owner being deemed ineligible

to document the vessel with a fishery endorsement.

Sec. 356.15 Filing of affidavit of U.S. Citizenship.

(a) Between October 1, 2000, and June 1, 2001, the owner of a

Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel may

obtain a letter ruling from the Citizenship Approval Officer prior to

the effective date of the regulations that the owner is a U.S. Citizen

eligible to own a vessel with a fishery endorsement. The owner must

submit to the Citizenship Approval Officer a request for a letter

ruling that includes an Affidavit of U.S. Citizenship and all other

documentation required by Sec. 356.13. The Citizenship Approval Officer

will issue a letter ruling within 120 days of receiving all applicable

documents.

(b) An owner that receives a letter ruling pursuant to paragraph

(a) of this section must submit, within 10 business days prior to

October 1, 2001, a certification that the information contained in the

Affidavit of U.S. Citizenship and in documents submitted in support of

the request for a letter ruling remains true and accurate. If changes

in the information have occurred between the time of the request for

the letter ruling and the time of the certification, the owner must

notify the Citizenship Approval Officer of those changes as required by

Sec. 356.5 and Sec. 356.17. The owner is still required to inform the

Citizenship Approval Officer of any changes as they occur as required

by Sec. 356.17 and not merely at the time of the certification.

(c) An owner of a Fishing Vessel, Fish Processing Vessel, or Fish

Tender Vessel that does not request a letter ruling prior to June 1,

2001, and who wishes to be eligible to obtain a fishery endorsement on

a Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel on

October 1, 2001, must submit the required Affidavit of U.S. Citizenship

and all other documentation required by Sec. 356.13 to the Citizenship

Approval Officer no later than June 1, 2001. If a completed Affidavit

of U.S. Citizenship and all required documentation is not submitted by

June 1, 2001, the owner may not be considered eligible to own a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel on October 1,

2001, and the Vessel may be prohibited from operating in the fisheries

of the United States until an eligibility determination is made by the

Citizenship Approval Officer.

(d) New owners of Fishing Vessels, Fish Processing Vessels, or Fish

Tender Vessels after October 1, 2001, must file the Affidavit of U.S.

Citizenship and other required documentation with the Citizenship

Approval Officer in order for the Citizenship Approval Officer to make

a determination as to whether the owner is eligible for a fishery

endorsement to the vessel's documentation.

Sec. 356.17 Annual requirements for vessel owners.

(a) An owner of a Fishing Vessel, Fish Processing Vessel, or Fish

Tender Vessel must submit a certification in the form of an Affidavit

of United States Citizenship to the Citizenship Approval Officer on an

annual basis as provided in paragraph (b) of this section. This annual

certification requirement does not excuse the owner from the

requirements of Sec. 356.5 to notify the Citizenship Approval Officer

throughout the year when changes in the citizenship information occur.

(b) For owners that hold annual meetings, the annual certification

must be filed within 30 calendar days of the annual meeting. For owners

that do not hold an annual meeting, the annual filing date will be the

date of the original filing of the Affidavit of U.S. Citizenship with

the Citizenship Approval Officer.

(c) Failure to file the annual certification in a timely manner may

result in the expiration of the vessel's fishery endorsement, which

will prohibit the vessel from operating in the fisheries of the United

States.

Subpart D--Mortgages

Sec. 356.19 Requirements to hold a Preferred Mortgage.

(a) In order for Mortgagee to be eligible to obtain a Preferred

Mortgage on a Fishing Vessel, Fish Processing Vessel, or Fish Tender

Vessel, it must be:

(1) A Citizen of the United States;

(2) A state or federally chartered financial institution that

complies with the Controlling Interest requirements of section 2(b) of

the 1916 Act, 46 App. U.S.C. 802(b); or

(3) A Mortgage Trustee that qualifies as a Citizen of the United

States and that has satisfied the requirements of Secs. 356.27-356.31.

[[Page 665]]

(b) The Mortgagee must file an Affidavit of United States

Citizenship demonstrating that it complies with the citizenship

requirements that correspond to the provisions of paragraph (a) of this

section under which the Mortgagee qualifies.

(c) 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.

(d) A Preferred Mortgagee must provide an annual certification to

the Citizenship Approval Officer in the form of an Affidavit of United

States Citizenship evidencing its continued status as a Citizen of the

United States or, if a state or federally chartered financial

institution, that it complies with the Controlling Interest

requirements of section 2(b) of the 1916 Act, 46 App. U.S.C. 802(b),

during the period that it holds a Preferred Mortgage on a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel. The

certification must be submitted within 30 days of the one year

anniversary of the original filing.

Sec. 356.21 General approval of Non-Citizen lender's standard loan or

mortgage agreements.

(a) A Non-Citizen Lender that is a financial institution engaged in

the business of financing Fishing Vessels, Fish Processing Vessels, and

Fish Tender Vessels 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 Non-Citizen Lender using an approved Mortgage

Trustee must submit to the Citizenship Approval Officer:

(1) A copy of its standard loan or mortgage agreement for Fishing

Vessels, Fish Processing Vessels, and Fish Tender Vessels, including

all covenants that may be included in the loan or mortgage agreement;

and,

(2) A certification that it will not use covenants or restrictions

in the loan or mortgage agreement outside of those approved by the

Citizenship Approval Officer without obtaining the prior approval of

the Citizenship Approval Officer.

(b) A Non-Citizen Lender that receives general approval may enter

into loans and mortgages on Fishing Vessels, Fish Processing Vessels,

and Fish Tender Vessels without prior approval from us of each

individual loan or mortgage; provided, that the loan or mortgage

conforms to the standard agreement approved by the Citizenship Approval

Officer and does not include any other covenants that have not been

approved by the Citizenship Approval Officer.

(c) The Non-Citizen Lender must provide an annual certification to

the Citizenship Approval Officer certifying that all loans and

mortgages on Fishing Vessels, Fish Processing Vessels, and Fish Tender

Vessels entered into under this general approval conform to the

standard agreement approved by us and do not contain covenants that

were not reviewed and approved by the Citizenship Approval Officer. The

certification must be submitted within 30 days of the one year

anniversary of the previous approval.

(d) If the Non-Citizen Lender wishes to use covenants that were not

approved pursuant to this section, it must submit the new covenants to

the Citizenship Approval Officer for approval.

(e) A Non-Citizen Lender that has received general approval for its

lending program and that uses covenants in a loan or mortgage on a

Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel that have

not been approved by the Citizenship Approval Officer or that files a

false certification with the Citizenship Approval Officer will be

subject to loss of its general approval and civil and criminal

penalties pursuant to 18 U.S.C. Sec. 1001. In addition, the Citizenship

Approval Officer may determine that there has been an impermissible

transfer of control to a Non-Citizen and the vessel owner is not

eligible to document the vessel with a fishery endorsement.

Sec. 356.23 Restrictive loan covenants approved for use by non-citizen

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 Vessel, Fish Processing Vessel, or Fish

Tender Vessel and an unrelated Non-Citizen Lender that is using an

approved Mortgage Trustee to hold the mortgage and debt instrument for

the benefit of the Non-Citizen Lender, so long as the lender's consent

is not unreasonably withheld:

(1) Borrower cannot sell part or all of its assets;

(2) Borrower cannot merge, consolidate, reorganize, dissolve, or

liquidate;

(3) Borrower cannot undertake new borrowing or contingent

liabilities;

(4) Borrower cannot insure, guaranty or become otherwise liable for

debt obligations of any other entity, Person, etc.;

(5) Borrower cannot Charter or lease a vessel which is collateral

for the loan;

(6) Borrower cannot incur liens, except any permitted liens that

may be set forth in the loan or other financing documents;

(7) Borrower must limit its investments to marketable investments

guaranteed by the United States or a State, or commercial paper with

the highest rating of a generally recognized rating service;

(8) Borrower cannot make structural alterations or any other major

alteration to the vessel;

(9) Borrower, if in arrears in its debt obligations to the lender,

cannot make dividend payments on its capital stock; and,

(10) Borrower, if in arrears in its debt obligations to the lender,

may not make excessive contributions to pension plans, payment of

employee bonuses, or make excessive contributions to stock option

plans, or provide other major fringe benefits in terms of dollar amount

to its employees, officers, and directors, such as loans, etc.

(b) The mortgage may not include covenants that allow the Mortgagee

to operate the vessel except as provided for in Sec. 356.25.

Sec. 356.25 Operation of fishing vessels, fish processing vessels, or

fish tender vessels by mortgagees.

(a) A Mortgagee that has demonstrated to MARAD that it qualifies as

a Citizen of the United States and is eligible to own a vessel with a

fishery endorsement may operate a Fishing Vessel, Fish Processing

Vessel, or Fish Tender Vessel.

(b) A Mortgagee not eligible to own a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel cannot operate, or cause

operation of, the vessel in the fisheries of the United States. Except

as provided in paragraph (c) of this section, the vessel may not be

operated for any purpose without the prior written approval of the

Citizenship Approval Officer.

(c) A Mortgagee not eligible to own a Fishing Vessel, Fish

Processing Vessel, or Fish Tender 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.

(d) A Mortgagee that is holding a Preferred Mortgage on a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel but that is not

eligible to own a Fishing Vessel, Fish Processing Vessel,

[[Page 666]]

or Fish Tender Vessel may take possession of the vessel in the event of

default by the mortgagor other than by foreclosure pursuant to 46

U.S.C. 31329, if provided for in the mortgage or a related financing

document. However, the vessel may not be operated, or caused to be

operated in commerce, except as provided in paragraph (c) of this

section or with the approval of the Citizenship Approval Officer.

(e) A Non-Citizen Lender that has brought a civil action in rem for

enforcement of a Preferred Mortgage lien on a Citizen-owned Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel pursuant to 46

U.S.C. 31325(b)(1) may petition the court pursuant to 46 U.S.C.

31325(e)(1) for appointment of a receiver, and, if the receiver is a

Person eligible to own a Fishing Vessel, Fish Processing Vessel, or

Fish Tender Vessel, to authorize the receiver to operate the mortgaged

vessel pursuant to terms and conditions consistent with 46 CFR part

356. If the receiver is not a Citizen of the United States that meets

the requirements of section 2(c) of the 1916 Act, 46 App. U.S.C.

802(c), and 46 U.S.C. 12102(c), the vessel may not be operated in the

fisheries of the United States.

Subpart E--Mortgage Trustees

Sec. 356.27 Mortgage trustee requirements.

(a) A lender who does not qualify as a Citizen of the United States

or is not a state or federally chartered financial institution that

meets the Controlling Interest requirements of section 2(b) of the 1916

Act and Sec. 356.3(f) can obtain a Preferred Mortgage on a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel by using an

approved Mortgage Trustee to hold the mortgage and the debt instrument

that the mortgage is securing.

(b) In order to qualify as an approved Mortgage Trustee, the

Mortgage Trustee must:

(1) Qualify as a Citizen of the United States eligible to own a

Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel;

(2) Be organized as a corporation and doing business under the laws

of the United States or of a State;

(3) Be authorized under the laws of the United States or of the

State under which it is organized to exercise corporate trust powers;

(4) Be subject to supervision or examination by an official of the

United States Government, or of a State;

(5) Have a combined capital and surplus (as stated in its most

recent published report of condition) of at least $3,000,000; and

(6) Meet any other requirements prescribed by the Citizenship

Approval Officer.

(c) The Mortgage Trustee must submit to the Citizenship Approval

Officer the following documentation in order to be an approved Mortgage

Trustee:

(1) An application for approval as a Mortgage Trustee as set out in

paragraph (g) of this section;

(2) An Affidavit of U.S. Citizenship setting forth the required

information necessary to determine that the applicant qualifies as a

Citizen of the United States;

(3) A certified copy of the Articles of Incorporation and Bylaws,

or other comparable documents;

(4) A copy of the most recent published report of condition of the

Mortgage Trustee; and,

(5) 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;

(d) Any right set forth in a mortgage on a Fishing Vessel, Fish

Processing Vessel, or Fish Tender Vessel cannot be issued, assigned, or

transferred to a person who is not eligible to be a Mortgagee without

the approval of the Citizenship Approval Officer.

(e) Mortgage Trustees approved by the Citizenship Approval Officer

must not assume any fiduciary obligations in favor of Non-Citizen

lenders that are in conflict with the U.S. Citizen ownership and

control requirements set forth in the AFA, without the approval of the

Citizenship Approval Officer.

(f) We will periodically publish a list of Approved Mortgage

Trustees in the Federal Register, but current information as to the

status of any particular Mortgage Trustee must be obtained from the

Citizenship Approval Officer.

(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.

12102(c)(4) 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 Vessel, Fish Processing Vessel, or Fish Tender Vessels

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 a Citizen of the United States eligible to own a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel within the

meaning of 46 U.S.C. 12102(c) and section 2(c) of the 1916 Act, as

amended, (46 App. U.S.C. 802(c)) and is eligible to own a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel;

(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 a Citizen of the United States;

(iv) Is subject to supervision or examination by an authority of

the U.S. Government or of a State;

(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) notify the Citizenship Approval Officer in writing, of any

changes in its name, address, officers, directors, stockholders,

articles of incorporation or bylaws as such changes occur;

(3) furnish to the Citizenship Approval Officer on an annual

basis:

(i) an Affidavit of U.S. Citizenship demonstrating compliance

with the U.S. citizenship requirements of the AFA;

(ii) a current copy of the Articles of Incorporation and Bylaws,

or other comparable corporate documents;

(iii) a copy of the most recent published report of condition of

the Mortgage Trustee; and,

(iv) a list of the Fishing Vessels, Fish Processing Vessels, and

Fish Tender Vessels and the respective lenders for which it is

acting as Mortgage Trustee.

(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

[[Page 667]]

own a documented vessel, any right under a mortgage of a Fishing

Vessel, Fish Processing Vessel, or Fish Tender 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 Vessel, Fish Processing Vessel, or Fish Tender Vessel on

which it holds a mortgage pursuant to approval under the Regulation

and to which 46 App. U.S.C. 802(c) and 46 U.S.C. 12102(c) are

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 App. U.S.C. 802(c) and 46 U.S.C. 12102(c) 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:

MORTGAGE TRUSTEE'S NAME & ADDRESS

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(Print or type name below)

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(SEAL)

By:--------------------------------------------------------------------

(Print or type name below)

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TITLE

Sec. 356.31 Maintenance of Mortgage Trustee approval.

(a) A Mortgage Trustee that holds a Preferred Mortgage on a Fishing

Vessel, Fish Processing Vessel, or Fish Tender Vessel must submit the

following information to the Citizenship Approval Officer during each

year that it is acting as a Mortgage Trustee:

(1) An Affidavit of U.S. Citizenship demonstrating compliance with

the U.S. citizenship requirements of the AFA;

(2) A current copy of the Articles of Incorporation and Bylaws,

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