Schoeller Shipping company fined $10.4 million for illegally dumping tainted water

NEWARK — A pair of subsidiaries of a Cyprus-based shipping and hotel holding company pleaded guilty in federal court this morning to illegally dumping oil-tainted bilge water on four occasions, and then falsifying records for inspections in New Jersey, Delaware and California to cover it up.

The dumping occurred far out at sea, well away from the three states. But investigations were launched by federal authorities in each location after whistle-blowing crew members approached the Coast Guard while the ships were being inspected there. The whistle blowers, who provided photographs and video footage to inspectors, now stand to share $2 million in reward money.

Lawyers for Columbia Shipmanagement Deutschland, based in Hamburg, Germany, and Columbia Shipmanagement Ltd., based in Limassol, Cyprus, entered guilty pleas before Judge Susan Wigenton in U.S. District Court in Newark.

Under a plea agreement with federal prosecutors, the two subsidiaries of Schoeller Holdings, also based in Limassol, will be fined a total of $10.4 million for violations of an international oil-dumping treaty to which the United States is a signatory, and of U.S. Coast Guard record-keeping regulations.

The fines include $2.6 million in “community service” penalties that will be used for environmental restoration efforts in areas of New Jersey and Delaware damaged by Hurricane Sandy, officials said.

“These cases are particularly gratifying because of the community service awards that come out of the penalties,” Paul Fishman, the U.S. Attorney for New Jersey, said during a press conference with fellow prosecutors and Coast Guard officials following the plea hearing.

The companies also agreed to serve four years’ probation, which will include outside audits of its record-keeping.

The incidents related to today’s charges involved four vessels – three oil tankers and a container ship – between May 2012 and this month, said Richard A. Udell, a senior trial attorney in the Environmental Crimes section of the U.S. Department of Justice, who appeared in court with Assistant United States Attorney Kathleen O’Leary of New Jersey.

Wigenton accepted the plea agreement, and scheduled sentencing for June 24.

Fishman said criminal charges related to the same set of investigations have already been filed against one individual, and that the probe is continuing.

Jeff Tittel, executive director of the New Jersey Sierra Club, welcomed the prosecution as a deterrent to overseas shippers accustomed to doing business where enforcement may be lax.

“What they’re used to doing in other places, they try to do here,” Tittel said. “Enforcement not only helps punish those that are responsible, but it acts as a deterrent to others. It sends a message to every other shipper.”

A lawyer for the companies, Thomas Mills, said the dumping and records falsification were the work of rogue employees, in violation of company policy. He said the companies had already taken action against some individuals not directly related to the investigation, whom the companies had deemed insufficiently vigilant.

But prosecutors said the individuals responsible may have been responding, however improperly, to real or perceived pressure from the companies to minimize maintenance or replacement costs or meet schedules and other goals.

“Nobody wants to be the guy who says ‘Stop,’ ” Fishman said.

“It’s a corporate culture problem,” Udell added.

While separate investigations were launched by federal prosecutors in New Jersey, Delaware and San Francisco, Fishman said the companies waved prosecution in California and agreed to answer to charges in the East Coast states.

Prosecutors used a map to indicate some of the dumping locations, including one in the Pacific Ocean, 45 miles off the coast of a Costa Rican national park.

The New Jersey investigation began on May 7 of last year, when crew members from the tanker King Emerald, operated by the German company, approached Coast Guard inspectors with a cell phone photograph of a flexible hose rigged to bypass filtering equipment in order to dump oil-tained water pumped from the bilge directly overboard.

The crew members also showed inspectors how log entries were falsified to indicate that the equipment had filtered oil out of the the bilge water to below the legal limit of 15 parts per million, court documents indicate.

In Delaware, crew of the Nordic Passat presented Coast Guard inspectors with a digital thumb drive containing photographs and video illustrating what happened. Another whistle-blower presented evidence to inspectors in San Francisco, while the fourth incident involved in the case was reported by the company itself.

Under U.S. whistle-lower laws, the crew members stand to share $2 million in reward money culled from the penalties. Prosecutors would not say just how many individuals were involved in the three whistle-blowing incidents. They also declined to say whether it was a coordinated effort by the whistle blowers, all Filipino seamen, to cash in on the oily dumping, or whether they were motivated by altruism.