[Federal Register Volume 65, Number 30 (Monday, February 14, 2000)]
[Proposed Rules]
[Pages 7335-7339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3325]


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FEDERAL MARITIME COMMISSION

46 CFR Part 515

[Docket No. 99-23]


In the Matter of a Single Individual Contemporaneously Acting as 
the Qualifying Individual for Both an Ocean Freight Forwarder and a 
Non-Vessel-Operating Common Carrier

AGENCY: Federal Maritime Commission.

ACTION: Notice of proposed rule.

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SUMMARY: The Federal Maritime Commission amends its regulations

[[Page 7336]]

pertaining to the licensing requirements of ocean transportation 
intermediaries in accordance with the Shipping Act of 1984, as amended 
by The Ocean Shipping Reform Act of 1998. We are also republishing a 
certification process pertaining to drug convictions that was 
previously omitted.

DATES: Submit comments on the proposed rule on or before February 28, 
2000.

ADDRESSES: Address comments concerning the proposed rule to: Bryant L. 
VanBrakle, Secretary, Federal Maritime Commission, 800 North Capitol 
Street, NW, Washington, D.C. 20573-0001.

FOR FURTHER INFORMATION CONTACT:

Austin L. Schmitt, Director, Bureau of Tariffs, Certification and 
Licensing, Federal Maritime Commission, 800 North Capitol Street, NW, 
Washington, DC 20573-0001, (202) 523-5796
Thomas Panebianco, General Counsel, Federal Maritime Commission, 800 
North Capitol St., NW, Washington, DC 20573-0001, (202) 523-5740

SUPPLEMENTARY INFORMATION: On November 10, 1999, the National Customs 
Brokers & Forwarders Association of America (``NCBFAA'' or 
``Petitioner'') filed a Petition in which it requests that the 
Commission issue a declaratory order confirming, pursuant to 46 CFR 
515.11(c)(1999), that a single individual can act contemporaneously as 
the qualifying individual for both an ocean freight forwarder and a 
non-vessel-operating common carrier (``NVOCC''), as long as they are 
affiliated entities. In the alternative, NCBFAA seeks a rulemaking to 
amend Sec. 515.11(c) to achieve the same result. Notice of the filing 
of the Petition appeared in the Federal Register on November 19, 1999. 
64 FR 63318. No comments were received in response to the Petition. For 
the reasons set forth more fully below, the Commission grants NCBFAA's 
request to issue a Notice of Proposed Rulemaking.

Background

    Effective May 1, 1999, the Commission promulgated final rules to 
implement changes made to the Shipping Act of 1984 (``1984 Act''), 46 
U.S.C. app. section 1701 et seq., by the Ocean Shipping Reform Act of 
1998 (``OSRA''), Pub L. 105-258, 112 Stat. 1902. In Docket No. 98-28, 
Licensing, Financial Responsibility Requirements, and General Duties 
for Ocean Transportation Intermediaries, the Commission solicited 
comments, and ultimately published final rules at 46 CFR part 515, 
governing ocean transportation intermediaries (``OTIs''). See 64 FR 
11155, March 8, 1999. OSRA essentially defines OTIs as ocean freight 
forwarders and NVOCCs as those terms were originally defined by the 
1984 Act. Section 515.11 of the Commission's rules sets forth the 
requirements for obtaining an OTI license in accordance with OSRA's 
directive that all OTIs in the United States obtain one. Section 
515.11(c) provides:

    Affiliates of intermediaries. An independently qualified 
applicant may be granted a separate license to carry on the business 
of providing ocean transportation intermediary services even though 
it is associated with, under common control with, or otherwise 
related to another ocean transportation intermediary through stock 
ownership or common directors or officers, if such applicant 
submits: a separate application and fee, and a valid instrument of 
financial responsibility in the form and amount prescribed under 
Sec. 515.21. The qualifying individual of one active licensee shall 
not also be designated as the qualifying individual of an applicant 
for another ocean transportation intermediary license, except for a 
separately incorporated branch office.

46 CFR 515.11(c).

The Petition

    In its Petition, NCBFAA asserts that it is crucial for the 
Commission to address this issue in a formal proceeding, contending 
``the Commission appears to be administering Sec. 515.11(c) in a manner 
which is fundamentally at odds with the letter and spirit of the 
interpretation of this provision as stated in its final rule, Docket 
No. 98-28.'' Petition at 2. NCBFAA argues that in its comments in 
Docket No. 98-28, it requested that the Commission ``specifically 
affirm the principle that a qualifying individual is permitted to be a 
corporate officer of more than a single company.'' Id. NCBFAA states 
that the basis of its request was that many OTIs are relatively small 
companies that have elected to provide their forwarding and NVOCC 
services through separate corporate entities for a variety of business 
reasons. NCBFAA notes that the Commission ``appeared to be 
sympathetic'' with this position during the rulemaking proceeding when 
it ``affirm[ed] that a person may be the qualifying individual for more 
than one company,'' and further when it added the phrase ``except for a 
separately incorporated branch office'' to proposed section 515.11(c). 
Id. (quoting 64 FR 11158).
    NCBFAA points out that when the Commission added the ``except for a 
separately incorporated branch office'' language to Sec. 515.11(c), it 
``meant that separately incorporated branch offices will be permitted 
to have the same qualifying individuals for licensing purposes.'' Id. 
(quoting 64 FR 11158). However, NCBFAA further contends that only when 
OTIs were filing their license applications after the rules became 
effective May 1, 1999, were they informed that only applicants in a 
parent-subsidiary relationship would be permitted to have the same 
qualifying individual. NCBFAA objects to the Commission's refusal ``to 
allow affiliated OTIs owned by a single individual or holding company 
to share the same person as qualifying individual despite the fact that 
these corporations are controlled by the same parent and often have 
identical officers,'' and claims that this ``apparent departure from 
[the Commission's] expressed policy caught the OTI industry by 
surprise.'' Id.
    In submitting its comments to Docket No. 98-28, NCBFAA maintains 
that it had in mind the numerous small companies that were already 
organized to provide forwarding and NVOCC services through separate 
corporate entities, and opines that these companies are the most 
disadvantaged by what it calls the Commission's ``present restrictive 
interpretation of Sec. 515.11(c).'' Petition at 3. To remedy the 
problems presented by the ``except for a separately incorporated branch 
office'' language, NCBFAA submits that ``if a corporate applicant for 
an OTI license is affiliated with another applicant or licensee either 
as a subsidiary, parent or sibling corporation and if an individual is 
an officer in both entities, that person should be allowed to be the 
qualifying individual for both companies.'' Petition at 4.
    NCBFAA believes that a clarification of the Commission's rule would 
be sufficient to address the problem, but in the alternative, if the 
Commission believes that the rule needs to be amended, it suggests 
amending Sec. 515.11(c) as follows:

    The qualifying individual of one active licensee shall not also 
be designated contemporaneously as the qualifying individual of an 
applicant for another ocean transportation intermediary license, 
unless the entities are affiliated and the person who is to be the 
qualifying individual is an officer of both entities.

    Further, NCBFAA suggests that the term ``affiliated'' be construed 
to include situations where the relevant companies are commonly 
controlled or where one directly controls the other. Id.

Discussion

    At the outset, the Commission denies the Petition for a Declaratory 
Order, as it is not the proper forum for addressing

[[Page 7337]]

the issue raised here. Rule 68 of the Commission's Rules of Practice 
and Procedure, 46 CFR 502.68, provides that the Commission may, in its 
discretion, issue a declaratory order to terminate a controversy or to 
remove uncertainty. 46 CFR 502.68(a)(1)(1999). The rule further 
provides that this section shall be invoked solely for the purpose of 
obtaining declaratory rulings which will allow persons to act without 
peril upon their own view. 46 CFR 502.68(b)(1999).
    We do not believe that the Petition provides sufficient information 
to satisfy the requirements of Rule 68. There is no controversy or 
uncertainty with respect to the interpretation of Sec. 515.11(c) to be 
terminated or removed, respectively. Section 515.11(c) contains the 
express restriction that a qualifying individual of one active licensee 
may not be a qualifying individual for another OTI licensee, except for 
a separately incorporated branch office. There is no ambiguity in this 
proviso, particularly when it is read in conjunction with the 
definition of branch office:

    Branch office means any office in the United States established 
by or maintained by or under the control of a licensee for the 
purpose of rendering intermediary services, which office is located 
at an address different from that of the licensee's designated home 
office. This term does not include a separately incorporated entity.

    We disagree that the Commission's interpretation of Sec. 515.11(c) 
represents a departure from its expressed policy and thereby creates an 
ambiguity; rather, this is a matter in which the Commission took a more 
narrow approach in enacting Sec. 515.11(c) than NCBFAA originally 
sought during the rulemaking proceeding in Docket No. 98-28. The 
language and interpretation of Sec. 515.11(c) are the same as they were 
pre-OSRA, except for the addition of the branch office language which 
lessens the restrictions pertaining to qualifying individuals. In fact, 
NCBFAA acknowledges that this is helpful, although it does not address 
the problems faced by the closely affiliated entities. Petition at 2.
    Nor is there a controversy within the meaning of the rule such that 
Petitioner is acting at peril of violating the regulations. Upon 
application of the criteria of the current provision, the OTIs 
Petitioner claims are most harmed by Sec. 515.11(c) would be denied 
licenses to operate and would be so advised. Moreover, the Commission's 
Bureau of Tariffs, Certification and Licensing has refrained from 
denying licenses on this basis until the conclusion of this proceeding. 
Thus, there is no basis for any claim that OTIs are currently acting at 
some peril of violating the OTI licensing rules based on the identity 
of their qualifying individual. We conclude, therefore, that a 
declaratory order is not the appropriate mechanism for relief.
    However, we believe that a Notice of Proposed Rulemaking is the 
proper venue for allowing the Petitioner to seek relief in the form of 
a proposed rule change. We are aware that since the implementation of 
the new rules effective May 1, 1999, some entities have been affected 
by this provision. Although Sec. 515.11(c) remains largely the same as 
the provisions in Sec. 510.11(c) of the Commission's pre-OSRA 
regulations, OSRA now requires that all OTIs in the United States, 
rather than only ocean freight forwarders, obtain a license. As a 
consequence, this provision has had a restrictive impact on those 
entities that are jointly held in some manner. We are especially 
mindful of the burden imposed on sole proprietors who operate both an 
NVOCC and an ocean freight forwarder. We do not want these entities to 
be required unnecessarily to modify their existing business structures 
to comply with OSRA and its implementing regulations. To that end, the 
Commission is issuing this notice of proposed rulemaking to broaden 
Sec. 515.11(c) to allow affiliated entities to have the same qualifying 
individual to obtain a license under this part. We are, however, 
modifying the language suggested by Petitioner to effect this change.
    The last sentence of Sec. 515.11(c) currently states:

    The qualifying individual of one active licensee shall not also 
be designated as the qualifying individual of an applicant for 
another ocean transportation intermediary license, except for a 
separately incorporated branch office.

    In its Petition, NCBFAA suggests replacing ``except for a 
separately incorporated branch office'' with ``unless the entities are 
affiliated and the person who is to be the qualifying individual is an 
officer of both entities.'' Petition at 4. We find that proposal to be 
redundant, however, because the rules already specify who may be a 
qualifying individual, including not only an active corporate officer 
or an active managing partner, but also a sole proprietor. See 46 CFR 
515.11(b). Further, NCBFAA suggests that the term ``affiliated'' be 
construed to include situations where the relevant companies are 
commonly controlled or where one directly controls the other. Petition 
at 4. We prefer to make this explicit in the rule, rather than leave it 
open to interpretation. Thus, the Commission proposes the following 
amendment to the last sentence of Sec. 515.11(c):

    The qualifying individual of one active licensee shall not also 
be designated as the qualifying individual of an applicant for 
another ocean transportation intermediary license, unless both 
entities are commonly owned or where one directly controls the 
other.

    This proposal is somewhat broader than that urged by Petitioner. It 
encompasses not only the type of entities described by NCBFAA in 
support of its Petition, but also the multiple offices such as those 
licensed under the ``separately incorporated branch office'' provision 
in the current Sec. 515.11(c). Moreover, we have incorporated into the 
express language of the proposed rule NCBFAA's suggestion that the rule 
be construed to include situations where the relevant companies are 
commonly controlled or where one directly controls the other, so as to 
prevent any misunderstanding or confusion with respect to those 
requirements.
    In conjunction with the proposed amendment to Sec. 515.11(c), we 
also at this time seek to amend the definition of ``branch office'' at 
46 CFR 515.2(c), by removing the last sentence of the definition, which 
states that the term does not include a separately incorporated branch 
office. The Commission has recognized separately incorporated branch 
offices elsewhere in part 515, particularly with respect to licensing 
and financial responsibility requirements. This proposed modification 
should remove any potential confusion.

Other Correction

    In promulgating the rules to implement OSRA in Docket No. 98-28, we 
inadvertently failed to carry over Sec. 510.12(a)(2) into part 515. 
That section was a certification process to effect the requirements of 
21 U.S.C. 862, which provides that Federal benefits shall be withheld 
in certain circumstances from individuals who have been convicted of 
drug distribution or possession in Federal or state courts. As 
described in the original proceeding, a license issued by the 
Commission is considered to be a Federal benefit. Further, if an 
individual is banned from receiving Federal benefits pursuant to 21 
U.S.C. 862, the Commission has no discretion in the matter; this 
section merely establishes a practice and procedure for implementing 
the ban. See 55 FR 42193, October 18, 1990 and 59 FR 59171, November 
16, 1994. Therefore, we are republishing the omitted section at this 
time.

[[Page 7338]]

Initial Regulatory Flexibility Analysis

Why the Commission Is Considering the New Rule

    On November 10, 1999, the NCBFAA filed a Petition requesting that 
the Commission issue a declaratory order, confirming, pursuant to 46 
CFR 515.11(c)(1999), that a single individual can act contemporaneously 
as the qualifying individual for both an ocean freight forwarder and an 
NVOCC, as long as they are affiliated entities. In the alternative, 
NCBFAA seeks a rulemaking to amend Sec. 515.11(c) to achieve the same 
result. For reasons set forth more fully in the supplementary 
information of the proposed rulemaking, the Commission decided to grant 
NCBFAA's request to issue a Notice of Proposed Rulemaking.

Legal Basis and Objectives for the New Rule

    Effective May 1, 1999, the Commission promulgated final rules to 
implement changes made to the 1984 Act, 46 U.S.C. app. Sec. 1701 et 
seq., by OSRA, Pub. L. 105-258, 112 Stat. 1902. See 64 FR 11155, March 
8, 1999. Section 515.11(c) of those rules provides:

    Affiliates of intermediaries. An independently qualified 
applicant may be granted a separate license to carry on the business 
of providing ocean transportation intermediary services even though 
it is associated with, under common control with, or otherwise 
related to another ocean transportation intermediary through stock 
ownership or common directors or officers, if such applicant 
submits: a separate application and fee, and a valid instrument of 
financial responsibility in the form and amount prescribed under 
Sec. 515.21. The qualifying individual of one active licensee shall 
not also be designated as the qualifying individual of an applicant 
for another ocean transportation intermediary license, except for a 
separately incorporated branch office.

46 CFR 515.11(c).
    Since the implementation of the new rules effective May 1, 1999, 
some entities have been affected by this provision. Although 
Sec. 515.11(c) remains largely unchanged since OSRA's enactment, OSRA 
now requires that all OTIs in the United States, rather than only ocean 
freight forwarders, obtain a license. As a consequence, this provision 
has had a restrictive impact on those entities that are jointly held in 
some manner. The Commission is especially mindful of the burden imposed 
on sole proprietors who operate both as an NVOCC and an ocean freight 
forwarder. The Commission does not want these entities to be required 
unnecessarily to modify their existing business structures to comply 
with OSRA and its implementing regulations. To that end, the Commission 
is issuing a notice of proposed rulemaking to broaden Sec. 515.11(c) to 
allow affiliated entities to have the same qualifying individual to 
obtain a license under this part.

Description of and Estimate of the Number of Small Entities to Which 
the New Rule Will Apply

    It is estimated that the proposed rulemaking will benefit OTIs that 
act as qualifying individuals for both affiliated ocean freight 
forwarders and NVOCCs. At present, there are approximately 600 OTIs 
with affiliated ocean freight forwarder and NVOCC operations affected 
by the proposed rulemaking, including approximately 20 sole 
proprietorships.
    Entities affected by the current rule, particularly sole 
proprietors, could be required to modify their existing business 
structures, either by (1) Merging their affiliated ocean freight 
forwarder and NVOCC operations, (2) creating a branch office, or (3) 
hiring a qualifying individual to oversee their operations. However, 
the Commission's Bureau of Tariffs, Certification and Licensing has 
refrained from denying licenses on this basis pending the conclusion of 
this proceeding.

Projected Reporting, Record Keeping and Other Compliance Requirements 
of the New Rule

    The Commission is not aware of any additional reporting, record 
keeping or other compliance requirements as a result of the proposed 
rulemaking. Rather, the Commission believes that the impact of the 
proposed rulemaking will primarily be to benefit sole proprietorship 
OTIs that act as qualifying individuals for both affiliated ocean 
freight forwarders and NVOCCs.
    The benefit of the proposed rulemaking can be measured primarily as 
the savings to sole proprietorships of not having to modify their 
business structures as described above. Moreover, the proposed 
rulemaking will benefit corporations and partnerships with affiliated 
freight forwarder and NVOCC operations by giving them greater 
flexibility in selecting a single qualifying individual for both 
organizations. However, it is not feasible to specifically quantify 
these benefits because individual OTI operations vary dramatically in 
scope and overhead.
    The Chairman cannot certify that the proposed rulemaking will not 
have a significant economic impact on a substantial number of small 
entities. However, the Commission believes that the proposed rulemaking 
will have no adverse impact on small entities. Further, the Commission 
believes that the impact of the proposed rulemaking will be to benefit 
OTIs that act as qualifying individuals for both affiliated ocean 
freight forwarders and NVOCCs.

Relevant Federal Rules That May Duplicate, Overlap, or Conflict With 
the New Rule

    The Commission is not aware of any other federal rules that 
duplicate, overlap, or conflict with the proposed rulemaking.

List of Subjects in 46 CFR Part 515

    Exports, Freight forwarders, Non-vessel-operating common carriers, 
Ocean transportation intermediaries, Licensing requirements, Financial 
responsibility requirements, Reports and recordkeeping requirements.

    For the reasons stated in the preamble, the Federal Maritime 
Commission proposes to amend 46 CFR chapter IV, subchapter B, as set 
forth below:

PART 515--LICENSING, FINANCIAL RESPONSIBILITY REQUIREMENTS, AND 
GENERAL DUTIES OF OCEAN TRANSPORTATION INTERMEDIARIES

    1. The authority citation is amended to read as follows:

    Authority: 5 U.S.C. 553; 31 U.S.C. 9701; 46 U.S.C. app. 1702, 
1707, 1709, 1710, 1712, 1714, 1716, and 1718, Pub. L. 105-383, 112 
Stat. 3411, 21 U.S.C. 862.

    2. In Sec. 515.2, revise paragraph (c) to read as follows:


Sec. 515.2  Definitions.

* * * * *
    (c) Branch office means any office in the United States established 
by or maintained by or under the control of a licensee for the purpose 
of rendering intermediary services, which office is located at an 
address different from that of the licensee's designated home office.
* * * * *
    3. In Sec. 515.11, revise paragraph (c) to read as follows:


Sec. 515.11  Basic requirements for licensing; eligibility.

* * * * *
    (c) Affiliates of intermediaries. An independently qualified 
applicant may be granted a separate license to carry on the business of 
providing ocean transportation intermediary services even though it is 
associated with, under common control with, or otherwise related to 
another ocean transportation intermediary through stock ownership or 
common directors or officers, if such applicant submits: a separate

[[Page 7339]]

application and fee, and a valid instrument of financial responsibility 
in the form and amount prescribed under Sec. 515.21. The qualifying 
individual of one active licensee shall not also be designated as the 
qualifying individual of an applicant for another ocean transportation 
intermediary license, unless both entities are commonly owned or where 
one directly controls the other.
    4. In Sec. 515.12, revise paragraph (a) to read as follows:


Sec. 515.12  Application for license.

    (a) Application and forms. 
    (1) Any person who wishes to obtain a license to operate as an 
ocean transportation intermediary shall submit, in duplicate, to the 
Director of the Commission's Bureau of Tariffs, Certification and 
Licensing, a completed application Form FMC-18 Rev. (``Application for 
a License as an Ocean Transportation Intermediary'') accompanied by the 
fee required under Sec. 515.5(b). All applications will be assigned an 
application number, and each applicant will be notified of the number 
assigned to its application. Notice of filing of such application shall 
be published in the Federal Register and shall state the name and 
address of the applicant and the name and address of the qualifying 
individual. If the applicant is a corporation or partnership, the names 
of the officers or partners thereof shall be published.
    (2) An individual who is applying for a license in his or her own 
name must complete the following certification:
    I, ________ (Name) ________, certify under penalty of perjury 
under the laws of the United States, that I have not been convicted, 
after September 1, 1989, of any Federal or state offense involving 
the distribution or possession of a controlled substance, or that if 
I have been so convicted, I am not ineligible to receive Federal 
benefits, either by court order or operation of law, pursuant to 21 
U.S.C. 862.
* * * * *

    By the Commission.
Ronald D. Murphy,
Assistant Secretary.
[FR Doc. 00-3325 Filed 2-11-00; 8:45 am]
BILLING CODE 6730-01-P