Wednesday, December 18, 2013

Death Sentences for Shipping Line Bosses puts US Freight Cartel Verdict in the Shade

Ultimate Sanction for Corrupt Executives Contrasts with Jail Terms and Fines in US Conspiracy Cases
Shipping News Feature

VIETNAM – US – In Vietnam, the People’s Court of Hanoi has sentenced two former executives from the country’s national shipping line, Vinalines, to death after they were found guilty of embezzlement. The court passed down the steep judgement in an effort to curb corruption seen in the upper echelons of some of the country’s state owned companies. Meanwhile a US ocean freight bosses and their companies have received jail terms and heavy fines for cartel activity.

Former General Director Mai Xuan Phuc and former Chairman Duong Chi Dung, who fled the country but was later apprehended in Cambodia late last year, were charged with embezzling VND10 billion (approximately $474,000) each during their time at Vinalines, a crime which according to Vietnamese law constitutes 20 years to life imprisonment or the death penalty, an option for offenders found guilty of embezzling more than VND500 million (approx. $23,600). According to the indictment, Phuc and Dung violated regulations by overpaying, by about $5 million, for an old floating dock and falsifying its technical specifications. From this deal, both Phuc and Dung, along with former Vice President of Vinalines Tran Huu Chieu, and former Director of Vinalines Ship Repair, Tran Hai Son, appropriated almost $1.7 million.

Phuc and Dung were ordered to pay back the VND10 billion they had stolen and fined a further VND100 billion ($4.7 million) for damages. They were also sentenced to 18 years in prison for intentionally violating state regulations, along with Son, who was fined VND46 billion ($2.1 million) and is to serve 22 years in prison; Chieu fined VND39 billion ($1.8 million) and sentenced to serve 19 years; Le Van Duong, a former Official at Vietnam Registry, fined VND15 billion ($700,000), and is to serve 7 years; Mai Van Khang, former member of the Vinaline Project Management Board, fined VND12 billion ($560,000) and sentenced to 7 years; Bui Thi Bich Loan, former Chief Accountant Vinalines, fined VND6 billion ($280,000) and serves 4 years in jail; and three customs officers from the Khanh Hoa province, Huynh Huu Duc, Le Van Lung and Le Ngoc Trien, were each fined VND9 billion ($420,000) and each sentenced to 8 years.

In contrast, the US has sentenced the former president of Florida based ocean freight carrier Sea Star Line, Frank Peake, to serve five years in prison and to pay a $25,000 criminal fine for his participation in a conspiracy to fix rates and shipping surcharges between the continental US and Puerto Rico. Peake was convicted earlier this year in January for his part in the collusion which has now seen six individuals and three companies plead guilty for rigging rates between 2002 and 2008. Bill Baer, Assistant Attorney General in charge of Department of Justice’s (DoJ) Antitrust Division said:

“The sentence imposed today [December 6] reflects the serious harm these conspirators inflicted on American consumers, both in the continental United States and in Puerto Rico. The Antitrust Division will continue to vigorously prosecute executives who collude to fix prices at the expense of consumers.”

As a result of the ongoing investigation, the three largest sea freight carriers serving routes between the continental United States and Puerto Rico, including Peake’s former employer Sea Star, have pleaded guilty and been ordered to pay more than $46 million in criminal fines for their roles in the conspiracy. On December 20, 2011, Sea Star Line was sentenced to pay a $14.2 million; on March 22, 2011, Horizon Lines LLC was sentenced to pay a $15 million; and on August 1, 2012, Crowley Liner Services, was sentenced to pay $17 million.

Additionally, five shipping company executives— Senior Vice President and General Manager for the Puerto Rico Division Gabriel Serra, Vice President of Marketing R. Kevin Gill, and Marketing and Pricing Director for Puerto Rico Gregory Glova (Horizon Lines) and Senior Vice President of Yield Management Peter Baci, and Assistant Vice President of Yield Management Alexander G. Chisholm (Sea Star Lines), have pleaded guilty. On January 30, 2009, Baci was sentenced to 48 months in prison and fined $20,000. On May 12, 2009, Chisholm was sentenced to 7 months in prison and fined $4,000; Serra, sentenced to 34 months and fined $20,000; Gill, sentenced to 29 months and fined $20,000; and Glova, sentenced to 20 months and fined $20,000. Thomas Farmer, former Vice President of Price and Yield Management at Crowley Liner Services, was indicted in March 2013 for his role in the conspiracy and is scheduled to go to trial in May 2014.

A class action settlement valued in excess of $50 million was awarded to customers who claimed that they were harmed by the price fixing practices. Horizon paid $20 million into the settlement, with Sea Star paying $18.5 million and Crowley $13.75 million. The worry for the companies now is that their links with Hawaii, a main market for both Horizon and Saltchuk, the company which started Sea Star in 1998 as a joint venture with Matson and now through another subsidiary, TOTE, owns 90% of Sea Star, are now under scrutiny for possible further Sherman Antitrust Act violations when trading with the island state.

Photo: Duong Chi Dung, flanked by accomplices, faces the Court.