Cruise CEO's Cash In Carnival Stock

Caribbean PrincessThree cruise CEO's sold their Carnival (CCL) stock a week ago for a combined total of nearly $9,500,000, according to Market Digest.

On December 29,2016, Stein Kruse, the CEO of Holland America Group, Alan Buckelew, the Chief Operations Officer of Carnival Corporation, and David Bernstein, the Chief Financial Officer and Chief Accounting Officer of Carnival Corporation each sold 60,664 shares of Carnival stock at $52.11 per share for a total value of $3,161,201.00.  

Mr. Bernstein has been the CFO and Senior Vice President of Carnival Corporation since July 2007 with oversight of all finance, accounting, treasury, insurance, tax and investor relations functions. Mr. Buckelew, who was recently appointed to the Chief Information Officer of Carnival Corporation, previously served as the CEO of Princess Cruises from June 2007 to November 2013 and its President from February 2004 to November 2013.

The DOJ recently fined Carnival Corporation $40,000,000 for widespread discharge of oily substances, falsification of log books and lying to the U.S. Coast Guard regarding five cruise ships operated by Princess Cruises over an eight year period from 2005 through 2013. The Carnival owned cruise ship operated by Princess Cruises which were involved in the scandal are the Caribbean Princess, Star Princess, Grand Princess, Coral Princess and Golden Princess.

The issue arises what the cruise executives knew about the long standing "magic pipes" and financial irregularities associated with certain Princess Cruise ships having lower operating costs associated with not having used the vessels' oil-water separators and avoiding the costs associated with offloading and disposing the waste oil in shore-side facilities. Did these executives really have no idea that these Princess ships were engaged in these environmental crimes?

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Princess Cruises Pollution Cover-Up: Are the Greedy Cruise Executives Untouchable?

The DOJ has a history of not arresting cruise executives notwithstanding how widespread the dumping of oil or chemicals in the nations's waters may be. Will the most recent dumping incidents by Carnival's subsidiary, Princess Cruises, culminating in a $40,000,000 fine be any different? 

Throughout the 1990's, Royal Caribbean engaged in repeated dumping of everything from oil to chemicals, including dry-cleaning fluid, printing press solvents and photographic chemicals, into the waters from here in Miami all the way to Glacier Bay in Alaska. The Coast Guard and DOJ caught it using "magic pipes" and falsifying oil logs. The cruise line nonetheless continued to dump oil, lie to the Coast Guard and flaunt the authority of the former head of the DOJ, the late Janet Reno, until the agency leveled increasingly stiff fines of $1,000,000, $8,000,000 and $18,000,000.

Royal Caribbean fought the federal government fiercely back in the late 1990's, arguing that because it was a Liberian corporation, it was not subject to U.S. environmental laws - an argument rejected by Royal Caribbean Pollution - DOJ Most Wantedthe U.S. courts here in Miami. The cruise line's dumping was so pervasive and defiant that many joked back in those years that the executives could see Royal Caribbean cruise ships dumping oil right outside of the executives' windows at their headquarters at the port of Miami.

But the DOJ arrested no one at Royal Caribbean headquarters in Miami; instead, the DOJ focused its prosecution efforts on a Greek engineer who worked on one of the cruise line's ships. But, some say, it was a half-hearted effort by the DOJ. The engineer eventually walked out of a hotel in Miami when the FBI wasn't paying attention and flew out of the jurisdiction back to Greece. (He remains technically on the top ten most wanted list of the U.S. Environmental Protection agency).

The New York Times wrote an article Sovereign Islands: Gaps in the Sea Laws Shield Pollution By Cruise Lines. The Times wrote that each Royal Caribbean ship was spending around $380,000 per year in operating an oil water separator ("OWS") and disposing of the waste ashore. "By saving this money, a ship's officer could receive bigger year's end bonuses. The savings was the government's strongest evidence that senior management may have known of the conspiracy . . . "

If any cruise executives should have been arrested for the environmental crimes, many say that the executives at Royal Caribbean were the most likely culprits. But it didn't happen. 

Carnival Corporation also has a checkered history of widespread use of "magic pipes" and falsifying oil logs on its cruise ships. It was particularly bad in the 80's and 90's and culminated in 2002 when the DOJ announced that Carnival had pled guilty to dumping oil and lying about it.  Carnival's guilty plea revealed that the corporation used the same tricks that the engineers on Princess ships more recently used. Over 15 years ago, the DOJ concluded that on numerous occasions from 1996 through 2001, Carnival's "engineers intentionally flushed clean water past the sensors of the (OWS) meters. By doing this while discharging was in progress, the engineers tricked the meters to register the oil content in the clean water (0 ppm), instead of the oil content in the bilge waste. The control valves thereby remained in overboard positions, and oily waste was dumped into the sea without regard to the 15 ppm oil content legal limit."

This is the same methods as what the DOJ recently found on Carnival's ships operated by Princess Cruises.

Back in 2002 the DOJ stated that "overboard discharges of oily waste while clean water was being flushed past the meter sensors occurred on several ships, including the TROPICALE, Cruise Line PollutionSENSATION, FANTASY, ECSTASY, PARADISE and IMAGINATION. Carnival Corporation also admitted that this conduct, which allowed engineers to knowingly dump oil into the sea in quantities that exceeded the legal limit, was intentionally misrepresented in the oil record books of the ships."

So are we to conclude that the exact same widespread illegal practices used in the late 1990's, including the same "magic pipe" and flushing-the sensors-with-clean-water methods, which occurred as late as 2013, took place without any knowledge by the cruise executives at the helm of Carnival Corporation for almost a fifteen year period of time?

Who were the cruise executives who should have known about the wrongdoing?  Of course, Micky Arison was the CEO of Carnival from 2003 until July 2013. He collected around $75,000,000 in compensation during this period.  In 2012, Arison paid himself $90,000,000 as a bonus.  So, in total compensation and bonuses, Arison received over $165,000,000 while the illegal dumping at Princess Cruises continued. Forbes places Arison's current net worth at $7,800,000,000 (billion). 

Travel Weekly reported that as of the end of 2014, "the five mostly highly paid executives at Carnival Corp. earned a combined $32.7 million (in compensation a year), including $6.5 million for Costa Group CEO, Michael Thamm, $6.1 million for departed Carnival Cruise Lines President and CEO, Gerry Cahill, $6.1 million for Chief Operations Officer Alan Buckelew (who was the former CEO of Princess), and $5.2 million for CFO, David Bernstein."

Carnival generated $134,899,000,000 (billion) in income from 2004 through 2013, and netted $17,202,000,000 (billion), according to its annual statements.  Consider that Carnival and the other cruise lines pay virtually no international, federal, state or local taxes on their cruise ship profits.

So were the cruise executives concerned that their fabulous wealth would be touched? Hardly. This is an industry of fat-cat executives who know that they are untouchable. It is fundamentally different from other industries where racketeers are prosecuted or where the top dogs will eventually do the right thing for the shareholders when the corporation is caught doing something wrong. Consider what Wells Fargo & Co. Chief Executive John Stumpf recently did when his company was caught opening millions of checking, saving and credit card accounts for customers without their knowledge. Stumpf agreed to forfeit compensation worth about $45 million from around 910,000 shares in un-vested stock awards, and agreed to forego his bonus this year. Another executive who was in charge of the division where much of the illegal activity took place, will give up about $19 million worth of stock. Wells Fargo’s board of directors also said that other executives could lose stock awards or even other compensation already paid to them.       

But there is no way the wealthy cruise executives are going to voluntarily let loose of a single dime of their ill-gotten profits. The tax-paying public will just have to pony up a little more to cover the difference, is what they think.

The cruise executives' greed is staggering. The $40,000,000 fine, after all, is just a drop in the ocean Micky Arison Carnivalof wealth enjoyed by Carnival executives. Consider that Caribbean Cruise Line, and related marketing and timeshare development companies, agreed to settle a class-action lawsuit to the tune of up to $76,000,000. This case (involved the nuisance of millions of robocalls in violation of the Telephone Consumer Protection Act) involved nothing comparable to discharging oil around the world. 

Yes, the latest pollution scandal earned Princess Cruises and Carnival a certain amount of bad press, but the cruise industry has always been able to navigate through criticism that it is a dirty industry at its core. The only difference that the environmental fines will make is if it deters the misconduct of those who benefited the most from the deliberate pollution. Unfortunately, a $40,000,000 fine to executives who collected many times that amount in compensation and bonuses is meaningless.

It is well past time that corporate activists demand disgorgement of executive bonuses and resignation of executives who have caused harm to corporate shareholders. Likewise, the DOJ needs to wake up. Cruise lines will continue to pollute unabated, as they have done since the1990's (or earlier), unless and until corporate executive are held personally accountable.

The DOJ and state prosecutors have levied a total of over $90,000,000 in fines against the cruise industry over the last twenty years. The fines are always accompanied with press releases discussing years of probation imposed on the companies which, in the case of Carnival, was quickly violated back in the early 2000's without any real consequence. The magic pipes, rigged OWS sensors and falsified log books from the 1990's continued until the mid-2010's. Carnival and Princess executives have again pointed their crooked fingers at shipboard employees while disavowing any knowledge of what was happening on their ships. With a collective sigh of relief that the DOJ again didn't arrest a single cruise executive for involvement in the scandal, they quickly agreed to pay the fine.  

Have a thought? Please leave a comment below or join the discussion on our Facebook page.

Read our other articles about the Princess Cruises deliberate pollution and cover-up:

Princess Cruises Pollution Cover-Up: What Did the Executives Know?

Deliberate Dumping, Cover-Up and Lies: DOJ Fines Princess Cruises $40,000,000.

Photo Credit:  

Michael Evangelos Psomadakis, Chief Engineer Nordic Empress - Environmental Protection Agency Most Wanted Poster.

Micky Arison - Steve Mitchell - USA TODAY Sports via 7500toholte.sbnation.com/ 

Princess Cruises Pollution Cover-Up: What Did the Executives Know?

The $40,000,000 fine levied against Princess Cruises last week raises the issue of what cruise executives knew about the illegal dumping of oil-contaminated waste from the Caribbean Princess cruise ship and the other illegal practices which took place on the Star Princess, Grand Princess, Coral Princess and Golden Princess.

As the Department of Justice (DOJ) points out, this is not an isolated case involving a rogue ship employee. The criminal misconduct  took place for eight years from 2005 to 2013 (involving the Caribbean Princess) and involved several other cruise ships as well. According to the DOJ, the illegal conduct included not only the "magic pipe" to circumvent the oily water separator on the Caribbean Princess but involved other other illegal practices on the Caribbean Princess as well the Star Princess,Princess Cruises Caribbean Princess Grand Princess, Coral Princess and Golden Princess.

The DOJ suggested that the pollution crimes committed by Princess were motivated by avoiding the costs associated with properly offloading the oily waste in port. The DOJ says that subordinate engineers on the Caribbean Princess nicknamed the chief engineer (responsible for using the "magic pipe" to discharge oily waste in August of 2013) “braccino corto” (a person with short arms), which the DOJ explained is "an Italian expression for a cheap person whose arms are too short to reach his wallet."

According to the DOJ, some Princess engineers expressed the same opinion of the Princess shore-side superintendent.

Princess Cruises' reaction to the DOJ charges seems designed to isolate its shore-side managers and executives from direct responsibility. Although it admitted that its ship employees' conduct was "inexcusable," and that its oversight was "inadequate," it denied that its management in its headquarters knew anything illegal was occurring before August 2013.

Gauging from comments on social media, the public seems skeptical.  

Consider some of the comments to the Miami Herald article Carnival-Owned Ship Caught in Pollution Scheme. Now They’re Paying $40 Million for It:

"Of course management knew. Why would a lowly worker come up with this idea? He could care less because he gets paid the same whether or not they follow regulations. Corporate wanted to save time and money . . . "

"Typical cutting corners to increase profits while exploiting foreign workers who work for paupers wages."

Similar comments were posted by readers of USA TODAY's article Princess Cruises to Plead Guilty to Polluting Ocean:

"Something this significant, all top executives had to have known. It takes money and time to dispose of waste. Were there no questions when time was dramatically saved and cost of waste management decreased drastically? Come on...."

A reader of our Facebook page commented:

"Financial penalties like this are a drop in the ocean for a company the size of Carnival; but does anyone up the chain get jail time? I work in the cruise industry, and I (we) don't need arrogant (executives) who are looking for their next bonus for "cost savings" thinking that international waters are their big dumping ground."

The purpose of an illegal "magic pipe" is to save costs.  Pursuant to international requirements, oily bilge water from a cruise ship must be treated to the point that the oil content is below 15 parts per million before it is can be discharged into the ocean. The oil-water separators (OWS) are expensive to maintain and operate. The oil that is separated from the bilge water must be stored and then offloaded from the ship onto barges or pumped ashore to be incinerated at licensed facilities. But the "magical pipe" avoids the costs associated with maintaining the OWS and removing and disposing of the waste products.  

Like other cruise lines, Carnival Corporation places considerable pressure on all its brands to reduce costs. The costs associated with the operation of a ship are carefully scrutinized and analyzed from ship to ship. A significant variation in costs between a ship offloading and disposing oil compared to a ship dumping oil at sea via a "magic pipe" should be readily observed by any corporation. It is doubtful that the low waste disposal costs of the Caribbean Princess, compared to a ship with a functioning oil water separator (OWS), didn't come to the attention of the shore-side managers as well as those in the company and parent corporation who audit the costs of operating the cruise line's fleet of cruise ships. My opinion is that someone on the corporate side probably knew what was really happening on one of the company's $500 million ships, or perhaps they turned a blind eye toward the monkey business. 

The closest that the DOJ will come to holding the cruise executives responsible is saying that the illegal discharge "was the result of more than just bad actors on one ship. It reflects very poorly on Princess’s culture and management."

This slap on the wrist ignores the fact that when the Caribbean Princess started its eight years of discharging oily wastes into the oceans, Carnival was still on probation following a fine of $18,000,000. In 2002, as part of its felony plea agreement, Carnival and its "subsidiaries and operating companies" were required to undertake a five year court-supervised environmental program involving every "cruise ship and shoreline facility in the U.S. and abroad." Carnival was required to " . . . hire new personnel and managers, whose sole responsibilities . . . [were] to ensure compliance with local, state, federal and international environmental requirements . . . (and) subject their operation to an independent auditor, approved by the government." 

Princess Cruises was not yet owned by Carnival in 2002 but Carnival took ownership and control of Princess Cruises the following year. It is less than clear whether Carnival took steps to ensure that Carnival-owned ships operated by its subsidiary Princess Cruises complied with the 2002 consent agreement with the DOJ after Princess Cruises came under Carnival's control in 2003 when Carnival was beginning the DOJ probation period. Regardless, shortly after it started service, the Caribbean Princess began a course of criminal conduct until 2013 which would make the ship's engineers the poster-children of maritime environmental criminals.   

Is the public really expected to believe that the executives at Carnival or Princess didn't know anything about the cost-saving criminal conduct over the course of nearly a decade?

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Some people people have suggested that president Jan Swartz should resign but she was not the executive at the helm of Princess during the 2005 - 2013 time period. She worked for Princess as a vice president in sales, marketing, business development and customer service for some of the years in question before leaving the cruise line. She returned to Princess as the top CEO in December 2013, replacing President and Chief Executive Officer (CEO) Alan Buckelew who had been the Chief Executive Officer of Princess Cruises from June 2007 to November 2013 and its President from February 2004 to November 2013, as well as the Chief Operating Officer of Carnival since December 1, 2013.  Perhaps Swartz's return to the cruise line was part of the reshuffling that took place after the illegal "magic pipe" was reported to the U.K. Maritime & Coastguard Agency (MCA) a few month earlier?  

Photo Credit: Caribbean Princess in the Caribbean heading for Miami - Cruiser1210 - CC BY-SA 3.0, commons / wikimedia.

You can read our first article about the DOJ fines here: Deliberate Dumping, Cover-Up and Lies: DOJ Fines Princess Cruises $40,000,000.

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Deliberate Dumping, Cover-Up and Lies: DOJ Fines Princess Cruises $40,000,000

Multiple news sources are reporting that the U.S. Department of Justice (DOJ) will fine Princess Cruises a record $40,000,000 for polluting the seas and trying to cover it up. Princess Cruises will plead guilty to seven felony charges of illegally dumping oil-contaminated waste from the Caribbean Princess cruise ship which sailed to numerous U.S. states (Florida, Maine, Massachusetts, New Jersey, New York, Rhode Island, South Carolina, Texas and Virginia) and two territories (U.S. Virgin Islands and Puerto Rico).

According to the DOJ, the Caribbean Princess had been illegally discharging oil since 2005 using bypass equipment, sometimes called a "magic pipe," to circumvent pollution-prevention equipment that separates oil and monitors oil levels in the ship's water. 

We previously mentioned that the DOJ joined an investigation being conducted by the U.K. Maritime & Coastguard Agency (MCA) which had been initiated in August 2013.

You can read the DOJ statement here: Princess Cruise Lines To Pay Largest-Ever Criminal Penalty For Caribbean PrincessDeliberate Vessel Pollution

The DOJ says that "in addition to the use of a magic pipe to circumvent the oily water separator and oil content monitor required pollution prevention equipment, the U.S. investigation uncovered two other illegal practices which were found to have taken place on the Caribbean Princess as well as four other Princess ships – Star Princess, Grand Princess, Coral Princess and Golden Princess. One practice was to open a salt water valve when bilge waste was being processed by the oily water separator and oil content monitor. The purpose was to prevent the oil content monitor from otherwise alarming and stopping the overboard discharge. This was done routinely on the Caribbean Princess in 2012 and 2013. The second practice involved discharges of oily bilge water originating from the overflow of graywater tanks into the machinery space bilges. This waste was pumped back into the graywater system rather than being processed as oily bilge waste. Neither of these practices were truthfully recorded in the oil record book as required. All of the bypassing took place through the graywater system which was discharged when the ship was more than four nautical miles from land. As a result, discharges within U.S. waters were likely."

U.S. investigators began to probe the ship's actions after a newly hired engineer reported an illegal dump of over 4,000 gallons of oily waste off the coast of England in August 2013 to the British MCA. The whistleblowing engineer then quit his job. Two other senior ship engineers then ordered a cover-up, called on other crew members to lie and sought to remove the "magic pipe."

According to the DOJ, following an official investigation, "the chief engineer held a sham meeting in the engine control room to pretend to look into the allegations while holding up a sign stating: “LA is listening.” The engineers present understood that anything said might be heard by those at the company’s headquarters in Los Angeles, California, because the engine control room contained a recording device intended to monitor conversations in the event of an incident."

The DOJ indicated that a perceived motive for the environmental crimes was financial – "the chief engineer that ordered the dumping off the coast of England told subordinate engineers that it cost too much to properly offload the waste in port and that the shore-side superintendent who he reported to would not want to pay the expense."

The DOJ continued: "Princess engineers on the Caribbean Princess indicated that the chief engineer responsible for the discharge on Aug. 26, 2013, was known as “braccino corto” (a person with short arms), an Italian expression for a cheap person whose arms are too short to reach his wallet. Some expressed the same opinion of the shore-side superintendent."

As part of the felony plea agreement, cruise ships from eight Carnival cruise line companies (Carnival Cruise Line, Holland America Line N.V., Seabourn Cruise Line Ltd. and AIDA Cruises) will be placed under a court supervised Environmental Compliance Program (ECP) for five years. An outside entity and a court appointed monitor will independently audit the ECP.

The DOJ statement also says that “the conduct being addressed today is particularly troubling because the Carnival family of companies has a documented history of environmental violations, including in the Southern District of Florida.”  The DOJ stated "the pollution in this case was the result of more than just bad actors on one ship. It reflects very poorly on Princess’s culture and management."

Although $40,000,000 is the largest-ever criminal penalty involving deliberate vessel pollution against a single cruise line, many other other cruise lines have been fined many millions of dollars and forced to plead guilty to felonies including obstruction of justice. The actions of Princess Cruises seem to be déjà vu of the widespread oily discharges and use of by-pass pipes in the late 1990's and early 2000's. 

In 2002, Carnival pled guilty to numerous felonies for discharging oily waste into the sea. Carnival reportedly routinely falsified its oil record books in order to conceal its illegal practices. The U.S. Government leveled a $18,000,000 fine and placed Carnival on probation.

In 2002, Norwegian Cruise Line (NCL) also pled guilty to a felony of routinely circumventing the oily water separator, dumping oily bilge directly into the ocean on a regular basis, and falsifying its record keeping. NCL admitted that it engaged in a practice of "systematically lying to the United States Coast Guard over a period of years." The DOJ issued a fine of only $1,500,000, primarily because NCL admitted its wrongdoing rather than lying and scheming like Carnival.

Starting in the In the late 1990's, the U.S. Coast Guard caught Royal Caribbean engaged in widespread dumping of oil and chemicals. The DOJ fined the cruise line $1,000,000. After Royal Caribbean was caught repeatedly illegally dumping oily discharges and chemicals and lying about it, the DOJ fined it $8,000,000 and then $18,000,000 for a total of $27,000,000

Cruise PollutionIn 1998, Holland America Line was fined $2,000,000 after it was caught discharging oily water without the use of an oil-water separator.  

Despite heavy marketing, the cruise industry has struggled with its environmental image over the years. Carnival-owned lines have battled the state of Alaska over its strict waste water laws and have been fined for exceeding the permitted level of ammonia, copper, nickel and zinc. Princess Cruises was fined, for example, when the Golden Princess dumped 66,000 gallons of chlorinated water into Glacier Bay in Alaska in early 2013. Carnival and Princess Cruises have traditionally fared poorly in environmental practices according to the environmental non-profit organization Friends of the Earth (FOE) which assigned these lines a "D" and a "C" respectively in the last FOE environmental report card (other Carnival brands, Costa Cruises and P&O Cruises, flunked the report card). Whether throwing garbage bags overboard, or dropping anchors on reefs, or belching smoke from high sulfur content bunker fuel into the air, or pulverizing and dredging reefs and filling native mangroves in the Caribbean islands to make way for increasingly gigantic cruise ships, the cruise lines have been viewed by many as enemies of the environment.     

Princess responded to the DOJ statement with a multi-media presentation which can be viewed here, and which includes a YouTube video statement by its president, Jan Swartz (which you can see below).

Interested in this issue? Read the New York Times article from 1999: Sovereign Lands: A Special Report; Gaps in Sea Laws Shield Pollution By Cruise Lines

Top: Caribbean Princess (Bar Harbor, Maine) photo credit: Yankeesman312 - CC BY-SA 3.0, commons / wikimedia.

Middle: Carnival Elation - Stop Polluting Cruise Ships Blogspot

Have a thought?  Please leave a comment below or join the discussion on our Facebook page. 

December 1, 2016 Update: The Miami Herald picks up the news and quotes Cruise Law News: Carnival-owned ship caught in pollution scheme. Now they’re paying $40 million for it

The video of the illegal "magic pipe" which Princess Cruises used to by-pass the oil-water separator device and dump oil into the oceans is at the bottom, credit to McClatchey News Services / Miami Herald. 

December 4, 2016 Update: Princess Cruises Pollution Cover-Up: What Did the Executives Know?