Cruise Law News : Maritime Lawyer & Attorney : James M. Walker : Walker & O'Neill Law Firm : Admiralty Law, Cruise Ship Accidents & Injuries

This week the United States Coast Guard rescued two cruise passengers - one ill young man from the NCL Gem cruise ship sailing off the coast of North Carolina and a second young woman from the Explorer cruise ship who was suffering from an appendicitis attack near Key West Florida. 

When we report on these type of rescues, we sometimes hear from readers of Cruise Law News complaining that the cost of the medical evacuations should be borne by the sick passengers themselves. 

We especially hear these complaints when a passenger inadvertently goes overboard.  Was the passenger acting negligently or was he or she under the influence of alcohol (a major money maker for the cruise lines).  If so, many people protest loudly and angrily that the cruise passenger should bear the extra fuel expenses and other costs incurred by the cruise ship and the Coast Guard searching for the missing passenger.   

Federal agencies are prohibited by law from seeking reimbursement of the costs associated with search and rescue of this type. 

So who bears the expense when the cruise lines act irresponsibly and the cruise goes terribly wrong?

Consider the fire last year aboard the Carnival Splendor which caused the cruise ship to lose power off of the coast of Mexico.  The Carnival ship was disabled due to the negligent design of the cruise ship itself which risked the lives of 4,500 passengers and crew.  As we reported before, the U.S. Coast Guard blasted Carnival for its defective engines and poorly designed safety instructions which caused several thousands of passengers to find themselves helplessly adrift at sea without lighting, air conditioning or hot water on the high seas. 

Carnival quickly considered legal claims against the companies which designed and manufactured the engines which failed.  Carnival did not hesitate making a claim against these companies for the revenues lost while the Splendor sat in dry dock being repaired.

But who paid for the enormous costs associated with the U.S. Navy and U.S. Coast Guard responding to the emergency?  

You will recall that the U.S. Navy sent an aircraft carrier, the U.S.S. Ronald Reagan, to the scene as the mostly U.S. passengers bobbed around on the high seas.  The Navy utilized four aircraft and helicopters to assist the stricken Carnival ship.  The Navy made twenty-four airlifts of food and provisions which its aircrew skilfully dropped onto the Carnival cruise ship to feed the passengers.  

How much did this cost and who was paying for it? 

I inquired around and the only knowledgeable source was the International Cruise Victims ("ICV") organization whose President, Ken Carver, had requested information from the U.S. Navy and the U.S. Coast Guard pursuant to a Freedom of Information Act ("FOIA") request.

The U.S. Navy timely responded to Mr. Carver's FOIA request.  The Navy disclosed that it delivered 60 pallets, weighing over 37,000 pounds, of "bread, luncheon meat, pop tarts, canned crab, water and paper plates." 

Considering the cost of positioning an aircraft carrier, dispatching multiple aircraft and helicopters, and delivering tons of food and water to be dropped onto the cruise ship, the Navy stated that it spent $1,884,376.75 responding to the fire aboard the Carnival Splendor cruise ship.  

This figure does not include the costs incurred by the U.S. Coast Guard in responding to the crisis and towing the cruise ship back to San Diego.  Unfortunately, the Coast Guard has not yet provided any information in response to Mr. Carver's FOIA request dating back to earlier this year.

The Coast Guard's costs were undoubtedly another $2,000,000 or so in personnel and fuel costs for their vessels and helicopters.

There is a certain irony that cruise lines, which structure their businesses to avoid U.S. taxes and U.S. safety regulations, are dependent on the generosity of our Federal agencies in responding to emergencies when they get themselves into a jam.  

Cruise lines incorporate in foreign countries like Liberia and Panama and register their cruise ships in foreign countries like the Bahamas in order to avoid U.S. laws and all U.S. income taxes. The cruise industry collects over $35,000,000,000 (billion) a year in income from mostly income-tax-paying-Americans, yet it avoids U.S. corporate income tax by incorporating itself and registering its ship abroad.

But when the cruise ships catch on fire and are adrift on the high seas, cruise lines like Carnival are the first to make a distress call to the United States and ask for favors from the U.S. Navy and U.S. Coast Guard. 

When cruise passengers were thinking of suing Carnival last year for the inconvenience caused by the cruise fire aboard the Splendor, I was the first one to say don't do it.  Many of the major news networks and newspapers picked up on the my don't-sue-Carnival message, like the Wall Street Journal, USA Today, Fox News,  ABA Journal, Gadling, and the U.K's Mirror.

At the end of the day, it was not the cruise passengers who filed suit.  It was Carnival who made legal claims against the companies which designed and manufactured its engines.  Carnival made millions in the process.

Did Carnival, the only one suing, repay the U.S. government?  

Not a penny.

So who paid for all of the millions of dollars in emergency services expended by our U.S. Navy and Coast Guard arising from the negligence of the tax-avoiding, foreign flagged and incorporated cruise line which stranded thousands of tax-paying Americans on the high seas?

You, the American taxpayers.    

For additional information about the Carnival Splendor fire and cruise ship fires in general, consider reading:

Carnival Splendor CO2 Firefighting System: "A Recipe for Failure"

"Coast Guard Blasts Carnival Splendor for Fire Negligence"

Ten Years of Cruise Ship Fires - Has the Cruise Industry Learned Anything? 

Photo credit:  bottom photo / U.S.S. Ronald Reagan - providencefox.com

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An interesting editorial appears today in the Jamaica Gleaner about a proposal to increase the head tax on visitors who arrive via air to Jamaica from $10 to $20. The writer characterizes this proposed increase as unfair considering the head tax on cruise passengers is only $2 per person.  These taxes help pay the Tourism Enhancement Fund (TEF) which funds projects that enhance Jamaica's tourism industry. 

But the problem, according to the editorial, is that the cruise lines are refusing to pay Jamaica the head taxes collected by the cruise lines from the passengers:   

". . . the tax on cruise-ship passengers is US$2 per passenger, but the cruise lines mostly honour this obligation in the breach. They owe Jamaica more than US$12 million.

And unlike hotels, cruise lines pay little or no taxes in Jamaica and purchase little in the country."

Cruise lines already don't pay U.S. taxes themselves by incorporating their businesses and registering their cruise ships in foreign countries. 

Are the cruise lines charging head taxes on passengers who sail into Jamaica and keeping the money?  I'll ask the cruise industry's trade organization, the Cruise Line International Association ("CLIA"), for an explanation. 

Don't hold your breath waiting for its answer. 

Photo credit:  AOL Travel

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A reader of Cruise Law News (CLN) brought an excellent opinion piece from the New York Times regarding the shipping industry's use of "flags of convenience" to my attention.  Entitled "Flying the Flag, Fleeing the State" and written by Rose George, the article explains how unscrupulous ship owners evade responsibility for environmental damage, exploitative labor and unsafe work conditions, and criminal behavior. 

The article reveals that ships used to fly the flags of their nation which protected the seafarers and passengers and punished the shipping companies when they broke the law.  But this changed when American flagged ships began flying the flags of foreign countries in order in order to avoid U.S. laws and government oversight.   The "foreign registries" were in countries with no government oversight and no real connection to the vessel or its owners in the first place, like Panama (flag above left), Liberia, North Korea and even landlocked Mongolia.  The registries often fail to monitor the safety and working conditions on ships or investigate accidents.    

What are the real consequences to employees working on foreign flagged ships? 

The New York Times article points out that there is a "human cost" which includes long hours, punishing work, and little rest; some international regulations permit 98-hour work weeks.  Cruise line employees are a good example.  Stateroom attendants and cleaners work a minimum of 12 hours a day and often are pushed to 14 to 16 hours when required to handle luggage on embarkation days, ending up with a 90 plus hour work week and no days off.  Cruise ship cleaners earn a maximum of $545 a month working a minimum of 360 hours a month.  Repetitive injuries to these crew members frequently occur, and just as frequently the cruise lines abandon them in countries like Nicaragua or India with inadequate medical care.

No foreign registry in Liberia, which often rages in civil war itself, gives a damn about the working conditions which men and women from Nicaragua or India face daily on Liberian flagged cruise ships.    

Because most ship employees are non U.S. citizens, the U.S. public has been indifferent to their plight.  But the problem inherent in flags of convenience came home to the U.S. last year when the offshore Deepwater Horizon oil rig exploded and 11 American oil and gas workers perished.  

The U.S. Coast Guard just released a preliminary report  about the Deepwater Horizon oil rig. The Coast Guard criticized not only rig owner, Transocean, but the foreign registry in the Marshall Islands (flag below) where Transocean registered the rig.  Just like a cruise ship, the Deepwater Horizon oil rig was considered to be a vessel which had to be registered. 

Why did the rig owners decide to go all of the way to an island in the Pacific to register its oil rig, you may ask?   For the same reason cruise lines like Carnival and Royal Caribbean went to South America and Africa to register their cruise ships in Panama and Liberia - to avoid U.S. taxes, U.S. safety regulations, and U.S. labor laws.  

One of the the Coast Guard's initial conclusions is that the Marshall Islands "abdicated" its safety responsibilities.  Transocean got just what it wanted - lax safety inspections and substandard safety requirements from the little spec of an island in the Pacific.   The owners enjoyed lower operating costs in addition to the substantial tax benefits of flying a flag of convenience.  But the financial benefits came at the expense of poor training, poorly maintained equipment, and even poorer safety procedures which resulted in inoperable alarms and failed shut-down systems.  

The ultimate result of the Marshall Islands flag of convenience?  11 dead men.  And 11 families consumed with grief and suffering.  

For additonal information, read:

Like Cruise Ships, Foreign Flagged Oil Rigs Avoid U.S. Laws

No Taxes - The Cruise Lines' Dirty Little Secret

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Today the Move On organization published an article entitled "Pay Your Taxes?  These Ten Companies Didn't."   The article points out that while most of us U.S. taxpayers struggle to pay our fair share of taxes, there are certain corporations which have tax avoidance down to an art. 

The list is complied by Senator Bernie Sanders, an Independent from the state of Vermont.  His top 10 corporate freeloaders includes cruise giant Carnival corporation, which incorporated itself in Panama in the 1960s.  Ever since then, it has flown the flag of that country to avoid U.S. taxes, as well as to skirt U.S. safety regulations and wage and labor laws.

I have written about Carnival's extraordinary ability to avoid literally billions in U.S. taxes over the years.  Is paying virtually no taxes vital to the survival of the cruise line?  Hardly, considering that its CEO Mickey Arison (photo circa 2000) is worth billions and billions.  Arison is the richest person in Florida today.  So why does he pay his injured and ill crew members slave wages?  He may not be the only cruise executive billionaire - take a moment and read Cruise Line Fat Cat Billionaires - but he certainly is the fattest.

Arison owns the Miami Heat and is paying basketball stars Dwayne Wade and LeBron James hundreds of millions of dollars, but he treats his crew employees like dog crap.

I am hardly Arison's harshest critic.  Ten years ago journalist Jim DeFede of the Miami New Times wrote a series of articles in which he asked the question "Is Mickey A Greedy Corporate Pig?"  DeFede also wrote some of my favorites "The Deep Blue Greed - The Arison Clan Built Carnival into a Money Machine by Cleverly Avoiding Tax Laws" and "Ten Questions for Micky."

DeFede left the Miami New Times long ago, and we don't have his blunt questions to consider today.  Over the past decade Arison's personal worth increased from $1,700,000,000 to over $4,100,000,000 last year, while Arison convinced the city of Miami to build him two basketball arenas in the process.

So I'll ask the same question DeFede asked 10 years ago: Is Mickey a Greedy Corporate Pig?

In arriving at your answer, consider that Carnival pays disabled crew members receiving medical treatment in their home countries a daily stipend of only $12 and expects them to find lodging and pay for their food and living expenses.  You can't buy a beer and a hot dog at the Miami Heat game for $12 . . .  

Photo:  AP/Wide World Photo via Miami New Times
 

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One of the little know facts about the cruise industry is that it pays virtually no U.S. taxes.

The cruise lines take advantage of an obscure provision in the U.S. tax code which permits shipping companies to evade taxes by incorporating overseas and flying the flags of foreign countries.  That's why Carnival is incorporated in Panama, Royal Caribbean is incorporated in Liberia, and Princess Cruises is incorporated in Bermuda. 

The New York Times covered the issue of cruise line taxes today:

"The Carnival Corporation wouldn’t have much of a business without help from various branches of the government.  The United States Coast Guard keeps the seas safe for Carnival’s cruise ships. Customs officers make it possible for Carnival cruises to travel to other countries.  State and local governments have built roads and bridges leading up to the ports where Carnival’s ships dock.  

But Carnival’s biggest government benefit of all may be the price it pays for many of those services.  Over the last five years, the company has paid total corporate taxes — federal, state, local and foreign — equal to only 1.1 percent of its cumulative $11.3 billion in profits.  Thanks to an obscure loophole in the tax code, Carnival can legally avoid most taxes."

I have written about the cruise industry's ability to avoid U.S. taxes since starting this blog.

Carnival was created by Ted Arison (father of current CEO Mickey Arison, photo right).  Senior Arison collected billions of dollars from tax paying U.S. passengers and lived the good life in Miami.  But he registered his Miami-based cruise line and his cruise ships in Panama to avoid U.S. taxes.  In 1990, he abandoned Miami, denounced his U.S. citizenship, and returned to Israel with his billions in a ploy to avoid estate and inheritance taxes.

Whenever I think of cruise tycoons like the Arisons and the foreign cruise lines like Carnival and Royal Caribbean, I can't help but think what a scam they are running.    

The Miami-based cruise lines file papers of incorporation and vessel registration in distant countries where no one will bother them with things like income tax, wage and labor laws, or safety regulations. They then collect billions of dollars a year from hard working saps - the U.S. tax paying public. 

Like this article?  Consider reading: 

Cruise Line Fat Cat Billionaires 

What the Cruise Industry Has to Learn From My Cousins Back in Arkansas

Credits: Mickey Arison - David Adame AP (via Cruise Blog)

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Royal Caribbean is threatening the tiny town of Rockland, Maine after it decided to increase its cruise ship fee to $6 per passenger.  Royal Caribbean wants the fee to stay at $1.

The AP is reporting that Rockland (population 7,000) increased its head tax to help reasonsbly compensate the community for the substantial costs imposed on town's infrastructure by cruise ship visits.

Royal Caribbean told the Maine Public Broadcasting Network that the fee increase "is excessive and ill timed given current economic conditions."

The giant cruise line is threatening that the higher fee will jeopardize a port of call by the Jewel of the Seas, which is scheduled to arrive in October. 

Other ports in Maine charge higher fees, such as Portland, Maine which charges $9 per passenger.  Alaska charges $34.50 per person, down from $50.

Cruise lines like Royal Caribbean pay zero federal taxes on the $6,000,000,000 (billion) in cruise fares from mostly U.S. tax-paying citizens - by flagging their cruise ships in foreign countries.  And there is no doubt that the cruise lines are making money hand over fist.  Forbes announced three cruise tycoons as some of the richest people in the world - "Cruise Line Fat Cat Billionaires."

So just $1 a person?  Or Royal Caribbean will pull its Jewel of the Seas out of Rockland?  

Rockland should call the city managers in Norwich, England whose facilities have been inundated with sick passengers returning from the norovirus contaminated Jewel of the Seas for the past month, and ask them about the real costs associated with entertaining such huge cruise ships. 

Scare tactics.  What a basis for a meaningful relationship.

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The Juneau Empire reports that Alaska just weakened its wastewater regulations at the cruise industry's request.  Cruise ships are now permitted to dump greater amount of ammonia (from fecal matter), copper, nickel and zinc in Alaska's pristine waters.

The newspaper reports that the cruise industry is "pleased" and  and "appreciates" the new wastewater discharge rules.

The cruise industry bullied Alaska, threatening the state with pulling cruise ships from Alaska if the wastewater standards were not relaxed.  Some cruise lines planned to reduce time in the ports in Alaska, so that they could sail outside of state waters and dump wastewater without being subject to Alaska's strict standards.

Cruise lines have been toying with Alaska even since its citizens passed an initiative to increase taxes and enact wastewater regulations to protect Alaskan waters from massively polluting cruise ships.  On Earth Day last week, the New York Times characterized cruise lines as "notorious polluters."  

The cruise industry is having its way with Alaska at this point.

It's agenda was first to wiggle out of Alaska's taxes, but the tax issue was never about whether the $46 head tax was too high.  The cruise lines didn't pay the tax in the first place.  Cruise passengers did.  It is ludicrous to suggest that a family would decide to cruise if the tax were $34 but not cruise at $46.

The real issue has always been the issue of whether the cruise industry would permit a state like Alaska to regulate it.  State of the art pollution technology is expensive.  Cruise lines don't pay any Federal taxes on the $35,000,000,000 they collect on fares each year from tax paying Americans. They don't want to set a precedent of allowing states to impose standards to protect their natural resources.  It's cheaper to pollute.

Earlier this year, the cruise industry twisted the arms of some of the Republican legislators in Alaska and kicked green water scientist Gershon Cohen off of the state's wastewater panel.  This was pay back for Mr. Cohen's work in passing the regulations which strengthened  Alaska's environmental regulations.  With Mr. Cohen removed from the panel, it was easy pickings to gut the pollution standards to benefit the polluters.     

A few weeks ago, Alaska announced it was reducing it's "head tax" on cruise passenger by 25%.  Today, it has relaxed its pollution regulations.  All of this is working exactly as the cruise industry planned after a year of threats and lawsuits. 

The Juneau Empire printed a letter from an Alaskan reader "Beaten Up By Bullies."

It's amazing to see how a "notorious polluting" Miami-based industry which collects $35 billion a year tax-free can threaten and bully Alaska to get exactly what it wants - reduced state taxes, relaxed pollution laws, and more profits . . .

For additional information, consider reading:

Polluting Cruise Industry Tries Again to Avoid Alaskan Regulations

Credits:

Royal Caribbean's Vision of the Seas cruise ship    AlaskanLibrarian's Flickr photostream

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Earlier this week, I attended the "Cruise Shipping Miami" convention here in Miami and reported on the threats against Alaska's Governor Parnell leveled by Holland American Lines' CEO Stein Kruse to pull HAL cruise ships from Alaska. (photo courtesy Travel Agent Central)

As we all know, HAL is wholly owned by Carnival and Kruse reports directly to Carnival CEO and multi-billionaire Mickey Arison.  Mickey has been threatening Alaska ever since the state's voters passed legislation to protect its waters from major polluters like HAL, Princess Cruises and other subsidiaries of Carnival who cruise to Alaska.       

But the issue is not the $50 head tax, as Carnival's lackeys argue.  Its the fact that Alaska has serious environmental regulations which the cruise industry wants to avoid. 

Did the cruise industry's tongue lashing and finger pointing work?  Newspapers like the Alaska Daily News and the Alaska Journal are now reporting that the Governor now wants to reduce the cruise head tax by 25% and make Alaska more conducive to attracting cruise ships.  

In exchange for lower taxes, the cruise industry would drop its lawsuit to repeal the tax and send more ships to Alaska. 

The fact that these huge cruise ships burn nasty bunker fuels and discharge massive amount of ammonium, phosphorus, and fecal matter into Alaskan waters was probably not a topic of conversation when Governor Parnell (right) was chatting  with the cruise line executives. 

Alaskan voters previously voted in favor of the cruise tax to protect its waters.  Who did Governor Parnell pledge his allegiance to?  The citizens of Alaska, or the Miami-based cruise lines?  

Wiggling out of Alaska's laws will be the cruise industry's next step.  Cruise lines don't like to be regulated, especially where Alaska's environmental regulations cause the cruise industry to spend money on state-of-the-art wastewater technology.

Credits:

Cruise line executives       Travel Agent Central

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