[Federal Register Volume 65, Number 3 (Wednesday, January 5, 2000)]
[Proposed Rules]
[Pages 646-670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18]



[[Page 645]]



Part IV





Department of Transportation





_______________________________________________________________________



Maritime Administration



_______________________________________________________________________



46 CFR Part 356



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

  Federal Register / Vol. 65, No. 3 / Wednesday, January 5, 2000 / 
Proposed Rules  

[[Page 646]]



DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 356

[Docket No. MARAD-99-5609]
RIN 2133-AB38


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

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Notice of proposed rulemaking (``NPRM'').

-----------------------------------------------------------------------

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

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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
---------------------------------------------------------------------------

    \2\ Strike inapplicable paragraph 4.
---------------------------------------------------------------------------

    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
----------------------------------------------------------------------
----------------------------------------------------------------------
(Print or type name below)
----------------------------------------------------------------------
(SEAL)
By:--------------------------------------------------------------------
(Print or type name below)
----------------------------------------------------------------------
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, or 
other comparable corporate documents;
    (3) A copy of the most recent published report of condition of the 
Mortgage Trustee; and,
    (4) 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.
    (b) The Mortgage Trustee must file the documents required in 
paragraph (a) of this section within thirty (30) days of the annual 
stockholder's meeting of the Mortgage Trustee, or if no annual meeting 
is held, then the filing must be within thirty (30) days of the 
anniversary date of the original Affidavit of U.S. Citizenship filed 
with MARAD.
    (c) If at any time the Mortgage Trustee fails to meet the statutory 
requirements set forth in the AFA, the Mortgage Trustee must notify the 
Citizenship Approval Officer of such failure to qualify as a Mortgage 
Trustee not later than twenty (20) days after the event causing such 
failure. We will publish in the Federal Register a disapproval notice 
and will so notify the U.S. Coast Guard and the Mortgage Trustee of 
such disapproval by providing them a copy of the disapproval notice. 
Within thirty (30) days of such publication in the Federal Register, 
the disapproved Mortgage Trustee must transfer its fiduciary 
responsibilities to a successor Mortgage Trustee, approved by the 
Citizenship Approval Officer.


Sec. 356.37  Operation of a Fishing Vessel, Fish Processing Vessel, or 
Fish Tender Vessel by a Mortgage Trustee.

    An approved Mortgage Trustee cannot operate a Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel without the approval of the 
Citizenship Approval Officer, except where non-commercial operation is 
necessary for the immediate safety of the vessel and the vessel is 
operated under the command of a Citizen of the United States for a 
period of no more than 15 calendar days.

Subpart F--Charters, Management Agreements and Exclusive or Long-
Term Contracts


Sec. 356.39  Charters.

    (a) Charters to Citizens of the United States:
    (1) Bareboat charters may be entered into with Citizens of the 
United States subject to approval by the Citizenship Approval Officer 
that the charterer is a Citizen of the United States. The bareboat 
charterer of the Fishing Vessel, Fish Processing Vessel, or Fish Tender 
Vessel must submit an Affidavit of U.S. Citizenship to the Citizenship 
Approval Officer for review and approval prior to entering into such 
charter.
    (2) Time charters, voyage charters and other charter arrangements 
that do not constitute a bareboat charter of the Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel may be entered into with 
Citizens of the United States. The charterer must submit an Affidavit 
of U.S. Citizenship to the Citizenship Approval Officer within 30 days 
of execution of the charter.
    (b) Charters to Non-Citizens:
    (1) Bareboat or demise charters to Non-Citizens of Fishing Vessel, 
Fish Processing Vessel, or Fish Tender Vessels, including Fish Tender 
Vessels and Fish Processing Vessels, are prohibited.
    (2) Time charters, voyage charters and other charters that are not 
a demise of the vessel may be entered into with Non-Citizens for the 
charter of dedicated Fish Tender Vessels and Fish Processing Vessels 
that are not engaged in the Harvesting of fish or fishery resources. A 
copy of the charter must be submitted to the Citizenship Approval 
Officer prior to being executed in order for the Citizenship Approval 
officer to verify that the charter is not in fact a demise of the 
vessel.
    (3) Time charters, voyage charters and other charters of Fishing 
Vessel, Fish Processing Vessel, or Fish Tender Vessels to Non-Citizens 
are prohibited if the Fishing Vessel, Fish Processing Vessel, or Fish 
Tender Vessel will be used to Harvest fish or fishery resources.
    (c) We reserve the right to request a copy of any time charter, 
voyage charter, contract of affreightment or other Charter of a Fishing 
Vessel, Fish Processing Vessel, or Fish Tender Vessel in order to 
confirm that the Charter is not a bareboat charter of the Fishing 
Vessel, Fish Processing Vessel, or Fish Tender Vessel.
    (d) Any violation of this section will render the vessel's fishery 
endorsement immediately invalid.


Sec. 356.41  Management agreements.

    (a) An owner or bareboat charterer of a Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel may enter into a management 
agreement with a Non-Citizen in which the management company provides 
marketing services, consulting services or other services that are 
ministerial in nature and do not convey control of the vessel to the 
Non-Citizen.
    (b) An owner or bareboat charterer of a Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel may not enter into a 
management agreement that allows the Non-Citizen to appoint, discipline 
or replace the crew or the master, direct the operations of the vessel 
or to otherwise effectively gain control over the management and

[[Page 668]]

operation of the vessel or vessel-owning entity.
    (c) The owner or bareboat charterer must file with the Citizenship 
Approval Officer a description of any management agreement entered into 
with a Non-Citizen. The description must be submitted within 30 days of 
the execution and must include:
    (1) A description of the agreement with a summary of the terms and 
conditions, and,
    (2) 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.
    (d) The Citizenship Approval Officer may request a copy of any 
management agreement to determine if it contains provisions that convey 
control over the vessel or vessel-owning entity to a Non-Citizen.


Sec. 356.43  Long-term or exclusive sales and/or marketing contracts.

    (a) An owner or bareboat charterer of a Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel may enter into an agreement or 
contract with a Non-Citizen for the sale and/or marketing of all or a 
significant portion of its catch where the contract or agreement is 
solely for the purpose of employment of certain vessels on an exclusive 
basis for a specified period of time. Such contracts or agreements will 
not require our prior approval; provided, that the contract or 
agreement does not convey control over the owner or bareboat charterer 
of the vessel or the vessel's operation, management and harvesting 
activities.
    (b) Provisions of a long-term or exclusive contract or agreement 
for the sale and/or marketing of all or a significant portion of a 
vessel's catch entered into pursuant to paragraph (a) of this section 
that are not considered to convey impermissible control to a Non-
Citizen and do not require our approval include provisions that:
    (1) Specify that the owner or bareboat charterer agrees to sell and 
purchaser agrees to procure, on a preferential basis, certain fish 
caught on a specific vessel;
    (2) Specify that the services of the vessel are being employed for 
catching and supplying a specific type of fish to off loading points 
designated by the purchaser;
    (3) Provide for the replacement of vessels covered by the contract 
or agreement in the event of loss or damage;
    (4) Specify refrigeration criteria;
    (5) Provide that the owner or bareboat charterer has to comply with 
fishing schedules that specify the maximum age of fish to be delivered 
and a method to coordinate delivery to the purchaser;
    (6) Provide for methods of calculating price per pound or other 
price schedules and a schedule for payment for delivered fish;
    (7) Provide for an arbitration mechanism in the event of dispute; 
and
    (8) Provide for the purchaser to furnish off loading crew, but no 
vessel crew members.
    (c) An owner or bareboat charterer of a Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel must obtain the approval of 
the Citizenship Approval Officer prior to entering into any agreement 
or contract with a Non-Citizen for the sale and/or marketing of all or 
a significant portion of a vessel's catch if the agreement or contract 
contains provisions which in any way convey to the purchaser of the 
vessel's catch control over the operation, management or harvesting 
activities of the vessel, vessel owner, or bareboat charterer other 
than as provided for in paragraph (b) of this section.
    (d) An owner or bareboat charterer must submit, with its Affidavit 
of United States Citizenship and annually thereafter, a list of any 
long-term or exclusive sales or marketing agreements to which it is a 
party and the principle parties to those agreements. If requested, a 
copy of such agreements must be provided to the Citizenship Approval 
Officer.


Sec. 356.45  Advance of funds.

    (a) A Non-Citizen may advance funds to the owner or bareboat 
charterer of a Fishing Vessel, Fish Processing Vessel, or Fish Tender 
Vessel where the basis of the advancement is an agreement between the 
Non-Citizen and the vessel owner or bareboat charterer to sell all or a 
portion of the vessel's catch to the Non-Citizen if:
    (1) The funds are used for working capital and not for capital 
expenditures on the Fishing Vessel, Fish Processing Vessel, or Fish 
Tender Vessel;
    (2) The amount of the advancement does not exceed the annual value 
of the sales contract;
    (3) The Non-Citizen is not granted any rights whatsoever to control 
the operation, management and harvesting activities of the Fishing 
Vessel, Fish Processing Vessel, or Fish Tender Vessel;
    (4) The owner or bareboat charterer submits to the Citizenship 
Approval Officer within 30 days of execution a description of the 
arrangement and a certification and warranty that the agreement or 
contract with the Non-Citizen does not convey control over the vessel, 
the vessel owner or bareboat charterer in any manner whatsoever; and,
    (5) No security interest in the vessel is conveyed as collateral 
for the advance of funds.
    (b) An owner or bareboat charterer may enter into an unsecured 
letter of credit or promissory note with a U.S. branch of a Non-Citizen 
Lender if:
    (1) The Non-Citizen Lender is not affiliated with any party with 
whom the owner or bareboat charter has entered into a mortgage, long-
term or exclusive marketing, sales or purchase agreement, or other 
similar contract;
    (2) The Non-Citizen Lender is not granted any rights whatsoever to 
control the owner or the operation, management and harvesting 
activities of the Fishing Vessel, Fish Processing Vessel, or Fish 
Tender Vessel; and,
    (3) The owner or bareboat charterer submits to the Citizenship 
Approval Officer within 30 days of execution a description of the 
arrangement and a certification and warranty that the agreement or 
contract with the Non-Citizen Lender does not convey control over the 
vessel, the vessel owner or bareboat charter in any manner whatsoever.
    (c) The Citizenship Approval Officer may request a copy of any 
agreement for an advance of funds or letter of credit in order to 
determine if it contains an impermissible conveyance of control to a 
Non-Citizen.

Subpart G--Special Requirements for Certain Vessels


Sec. 356.47  Special requirements for large vessels.

    (a) Unless exempted in paragraph (b) of this section, a vessel is 
not eligible for a fishery endorsement under 46 U.S.C. 12108 if:
    (1) It is greater than 165 feet in registered length;
    (2) It is more than 750 gross registered tons; or
    (3) It possesses an engine or engines capable of producing a total 
of more than 3,000 shaft horsepower.
    (b) A vessel that meets one or more of the conditions in paragraph 
(a) of this section may 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

[[Page 669]]

    (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.
    (c) A vessel that is prohibited from receiving a fishery 
endorsement under paragraph (a) of this section will be eligible if the 
owner of such vessel demonstrates to MARAD that the regional fishery 
management council of jurisdiction established under section 302(a)(1) 
of the Magnuson-Stevens Fishery Conservation and Management Act (16 
U.S.C. section 1852(a)(1)) has recommended after October 6, 1998, and 
the Secretary of Commerce has approved, conservation and management 
measures in accordance with the American Fisheries Act of 1998, Title 
II, Division C, Pub. L. 105-277, to allow such vessel to be used in 
fisheries under such council's authority.


Sec. 356.49  Penalties.

    If the owner or the representative or agent of the owner knowingly 
falsified or concealed a material fact or knowingly made a false 
statement or representation with respect to the eligibility of the 
vessel under section 12102(c) of Title 46, United States Code, in 
applying for or applying to renew the vessel's fishery endorsement, the 
following penalties may apply:
    (a) The vessel's fishery endorsement shall be revoked;
    (b) A fine of up to $100,000 may be assessed against the vessel 
owner for each day in which such vessel has engaged in fishing (as such 
term is defined in section 3 of the Magnuson-Stevens Fishery 
Conservation and Management Act (16 U.S.C. 1802)) within the exclusive 
economic zone of the United States; and
    (c) The owner, representative or agent may be subject to additional 
fines, penalties or both for violation of the proscriptions of 18 
U.S.C. 1001 (see also 18 U.S.C. 286, 287).


Sec. 356.51  Exemptions for specific vessels.

    (a) Vessels listed in paragraph (b) of this section are exempt from 
the requirements of section 12102(c) of Title 46, United States Code, 
and this part, until such time after October 1, 2001, as more than 50 
percent of the interest owned and controlled in the vessel changes; 
provided, that the vessel maintains eligibility for a fishery 
endorsement under the federal law that was in effect on October 1, 
1998.
    (b) The following vessels are exempt from the requirements of 46 
U.S.C. 12102(c):
    (1) EXCELLENCE (United States official number 296779);
    (2) GOLDEN ALASKA (United States official number 651041);
    (3) OCEAN PHOENIX (United States official number 296779);
    (4) NORTHERN TRAVELER (United States official number 635986); and
    (5) NORTHERN VOYAGER (United States official number 637398) or a 
replacement for the NORTHERN VOYAGER that complies with paragraphs 2, 
5, and 6 of section 208(g) of the AFA.
    (c) The NORTHERN VOYAGER and NORTHERN TRAVELER must be used in a 
fishery under the authority of a regional fishery management council 
other than the New England Fishery Management Council or Mid-Atlantic 
Fishery Management Council established, respectively, under 
subparagraphs (A) and (B) of section 302(a)(1) of the Magnuson-Stevens 
Fishery Conservation and Management Act (16 U.S.C. 1852(a)(1)(A) and 
(B).
    (d) The EXCELLENCE, GOLDEN ALASKA, and OCEAN PHOENIX may not be 
used to Harvest fish.
    (e) The following Fishing Vessels, Fish Processing Vessels, or Fish 
Tender Vessels are exempt from the ownership and Mortgagee requirements 
of the AFA and part 356:
    (1) Fishing Vessels, Fish Processing Vessels, or Fish Tender 
Vessels engaged in fisheries in the exclusive economic zone under the 
authority of the Western Pacific Fishery Management Council established 
under section 302(a)(1)(H) of the Magnuson-Stevens Fishery Conservation 
and Management Act (16 U.S.C. Sec. 1852(a)(1)(H)), and
    (2) Purse seine vessels when they are engaged in tuna fishing in 
the Pacific Ocean outside the exclusive economic zone of the United 
States or pursuant to the South Pacific Regional Fisheries Treaty.
    (f) Owners of vessels exempt from the requirements of the AFA and 
part 356 by paragraphs (b) and (e) of this section must still comply 
with the requirements for a fishery endorsement under the federal law 
that was in effect on October 1, 1998. The owners must also submit to 
the Citizenship Approval Officer on an annual basis an Affidavit of 
United States Citizenship in accordance with Sec. 356.15 demonstrating 
that they comply with the Controlling Interest requirements of the 
section 2(b) of the 1916 Act. In addition:
    (1) The owners of the Fishing Vessels, Fish Processing Vessels, or 
Fish Tender Vessels listed in paragraph (b) of this section that are 
exempt from the new requirements of 46 U.S.C. section 12102(c) must 
specifically outline the current ownership structure, any changes in 
the ownership structure that have occurred since the filing of the last 
Affidavit, and a chronology of all changes that have occurred since 
October 6, 1998; and,
    (2) The owners of Fishing Vessels, Fish Processing Vessels, or Fish 
Tender Vessels exempted under paragraph (e) of this section must note 
on the Affidavit that the owner is claiming an exemption from the 
requirements of part 356 pursuant to Sec. 356.51(e).

Subpart H--International Agreements


Sec. 356.53  Conflicts with international agreements.

    (a) If the owner or Mortgagee of a Fishing Vessel, Fish Processing 
Vessel, or Fish Tender Vessel believes that there is a conflict between 
46 CFR part 356 and any international treaty or agreement to which the 
United States is a party on October 1, 2001, and to which the United 
States is currently a party, the owner or Mortgagee may petition the 
Citizenship Approval Officer for a ruling that all or part of the 
requirements of part 356 do not apply to that particular owner or 
particular Mortgagee with respect to a specific vessel; provided, the 
petitioner had an ownership interest in the Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel, or a mortgage on the vessel 
in the case of a Mortgagee, on October 1, 2001, and is covered by the 
international agreement. Petitions may be filed prior to October 1, 
2001 by owners or Mortgagees with respect to international treaties or 
agreements in effect at the time of the petition which are not 
scheduled to expire prior to October 1, 2001.
    (b) A petition for exemption from the requirements of part 356 must 
include:
    (1) Evidence of the ownership structure of the Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel as of October 1, 2001, (or on 
the date of the petition for petitions filed prior to October 1, 2001), 
and any subsequent changes to the ownership structure of the vessel;
    (2) A copy of the provisions of the international agreement or 
treaty which the owner believes are in conflict with the regulations;
    (3) A detailed description of how the provisions of the 
international agreement or treaty and the regulations are in conflict;
    (4) A certification in all petitions filed on or after October 1, 
2001, that no interest in the vessel-owning entity has been transferred 
to a Non-Citizen after September 30, 2001; and,
    (5) For all petitions filed prior to October 1, 2001, a 
certification that the owner intends to transfer no interest in

[[Page 670]]

the vessel-owning entity to a Non-citizen for the succeeding year.
    (c) A separate petition must be filed for each Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel unless the Citizenship 
Approval Officer authorizes consolidated filing. Petitions should 
include two copies of all materials and should be sent to the following 
address: Maritime Administration, Office of Chief Counsel, Citizenship 
Approval Officer, Room 7228, 400 7th Street, S.W., Washington, DC 
20590.
    (d) Upon receipt of a complete petition, the Citizenship Approval 
Officer will review the petition to determine whether the international 
agreement and the requirements of Part 356 are in conflict. To the 
extent that it is determined that an international agreement covering 
the petitioner is in conflict with the requirements of part 356, and 46 
U.S.C. 12102(c) will not be applied to the petitioner with respect to 
the specific vessel. The petitioner will be required to comply with the 
documentation requirements as in effect on October 5, 1998, prior to 
passage of the AFA.
    (e) The owner of a Fishing Vessel, Fish Processing Vessel, or Fish 
Tender Vessel that is determined through the petition process to be 
exempt from all or part of the requirements of part 356 must submit 
evidence of its ownership structure to the Citizenship Approval Officer 
on an annual basis. The owner must specifically set forth:
    (1) Its current ownership structure;
    (2) The identity of all Non-Citizen owners and the percentage 
owned,
    (3) Any changes in the ownership structure that have occurred since 
the filing of the last Affidavit; and,
    (4) A certification that no interest in the vessel was transferred 
to a Non-Citizen after September 30, 2001.
    (f) The provisions of part 356 shall apply:
    (1) To all owners and Mortgagees of a Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel who acquired an interest in 
the vessel after October 1, 2001; and
    (2) To the owner of a Fishing Vessel, Fish Processing Vessel, or 
Fish Tender Vessel on October 1, 2001, if any ownership interest in 
that owner is transferred to or otherwise acquired by a Non-Citizen 
after such date.

Subpart I--Review of Harvesting and Processing Compliance


Sec. 356.55  Review of compliance with harvesting and processing 
quotas.

    (a) Upon the request of either the North Pacific Fishery Council or 
the Secretary of Commerce, the Citizenship Approval Officer will review 
any allegation that an individual or entity has exceeded the allowable 
percentage for harvesting or processing pollock as provided for in 
section 210(e)(1) or (2) of the AFA.
    (b) The Citizenship Approval Officer will require a Person(s) 
alleged to have exceeded the cap to submit any information that is 
deemed relevant in determining whether such Person(s) have exceeded the 
cap.
    (c) The Citizenship Approval Officer will make a finding as soon as 
practicable and will submit it to the North Pacific Fishery Council and 
the Secretary of Commerce.
    (d) For purposes of this section, if 10 percent or more of the 
interest in an entity is owned or controlled either directly or 
indirectly by another individual or entity, the two entities will be 
considered the same entity for purposes of applying the harvesting and 
processing caps.
    (1) For purposes of this subsection, an entity will be deemed to 
have an ownership interest in a pollock harvesting or processing entity 
if it either owns a percentage of the pollock harvesting or processing 
entity directly or if ownership of can be traced through intermediate 
entities to the pollock harvesting or processing entity. To determine 
the percentage of ownership interest that an entity has in a pollock 
harvesting or processing entity where the ownership interest passes 
through one or more intermediate entities, the entity's percentage of 
direct interest in an intermediate entity is multiplied by the 
intermediate entity's percentage of direct or indirect interest in the 
pollock harvesting or processing entity.
    (2) For purposes of this subsection, an entity will be deemed to 
exercise 10 percent or greater control over a pollock harvesting or 
processing entity if:
    (i) It has the right to direct the business of the pollock 
harvesting or processing entity;
    (ii) It has the right to appoint members to the management team of 
the pollock harvesting or processing entity such as the directors of a 
corporation or is a general partner or joint venturer in a harvesting 
or processing entity;
    (iii) It has the right to direct the business of an entity that 
directly or indirectly owns or controls 10 percent of a harvesting or 
processing entity; or
    (iv) It owns 50% or more of an entity that owns or controls 10 
percent of a pollock harvesting or processing entity.
    (e) If the Citizenship Approval Officer determines that a Person 
has violated Sec. 210(e) of the AFA, the Person is entitled to notice 
and an opportunity for a hearing before the Secretary of Commerce in 
accordance with section 554 of title 5, United States Code.
    (f) Violations of section 210(e) of the AFA will be considered the 
commission of an act prohibited by section 307 of the Magnuson-Stevens 
Fisheries Act, 16 U.S.C. section 1857, and may subject the individual 
to:
    (1) Civil penalties;
    (2) Permit sanctions applicable under section 308 of the AFA; and
    (3) Forfeiture to the Secretary of Commerce of any fish harvested 
or processed during the commission of such act.

    Dated: December 27, 1999.

    By Order of the Maritime Administrator.
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 00-18 Filed 1-4-00; 8:45 am]
BILLING CODE 4910-81-P