[Federal Register Volume 65, Number 139 (Wednesday, July 19, 2000)]
[Rules and Regulations]
[Pages 44860-44891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17495]



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Part II





Department of Transportation





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Maritime Administration



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46 CFR Part 356



Fishery Endorsement; Eligibility of U.S.-Flag Vessels of 100 Feet or 
Greater; Final Rule

  Federal Register / Vol. 65, No. 139 / Wednesday, July 19, 2000 / 
Rules and Regulations  

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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, Transportation.

ACTION: Final rule.

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SUMMARY: The Maritime Administration (``MARAD,'' ``we,'' ``our,'' or 
``us'') is publishing this final rule implementing the new U.S. 
citizenship requirements set forth in the American Fisheries Act of 
1998 (``AFA'') for vessels of 100 feet or greater in registered length 
for which a fishery endorsement to the vessel's documentation is 
sought.
    The rule implements new statutory requirements of the AFA by 
raising the U.S. ownership and control requirements 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 cannot 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 vessels of 100 
feet or greater with a fishery endorsement to the vessel's 
documentation. 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. Pursuant to 5 U.S.C. 553(d)(3), this final rule 
will become effective immediately upon the date of publication. The 
immediate effective date is necessary to provide extra time before the 
compliance date for vessel owners and mortgagees to request letter 
rulings from MARAD regarding their citizenship status and potential 
waivers from the rule by virtue of a conflict with an international 
agreement or treaty.

DATES: Effective Date: July 19, 2000.
    Compliance Date: Vessel owners and Mortgagees are required to 
comply with the new citizenship requirements by October 1, 2001, in 
order to obtain a fishery endorsement to the vessel's documentation. 
The rule requires owners to submit an Affidavit of U.S. Citizenship by 
June 1, 2001, so that MARAD can make render citizenship decisions by 
the compliance date.

ADDRESSES: The complete file for this rule is available for inspection 
with the Docket Clerk, U.S. DOT Dockets, Room PL-401, Department of 
Transportation, 400 7th St., SW., Washington, DC 20590-0001, between 10 
a.m. and 5 p.m., E.T., Monday through Friday, except federal holidays. 
You may also view the comments submitted to the docket via the Internet 
at http://dms.dot.gov by using the search function and entering the 
docket number 5609.

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 7th St., SW, Washington, DC, 20590-0001, or you may contact 
him by e-mail at [email protected].

SUPPLEMENTARY INFORMATION:

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 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 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 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 
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 transfer 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 set out which transactions are 
permissible, which transactions will require prior approval, and which 
transactions are impermissible. Pursuant to 203(b) of the AFA, these 
regulations 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.''
    The rule provides procedures for owners, Mortgagees, Mortgage 
Trustees, and charterers to request letter rulings regarding 
citizenship status and for Owners and Mortgagees to request letter 
rulings regarding exemptions from the regulations as a result of 
conflicts between the regulations and an international treaty or law 
upon publication of the rule in the Federal Register. However, the new 
ownership and control standards, including the 75% ownership and 
control requirement, will not become effective until October 1, 2001.

Prior Federal Action

    As the first step in this rulemaking process, we issued an Advance 
Notice of Proposed Rulemaking (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. Based on the comments that we received in response 
to the ANPRM, we

[[Page 44861]]

issued a Notice of Proposed Rulemaking (NPRM) entitled Eligibility of 
U.S.-Flag Vessels of 100 Feet or Greater In Registered Length to Obtain 
a Fishery Endorsement to the Vessel's Documentation Commercial 
Fisheries Documents, 65 FR 645 (January 5, 2000).
    The NPRM set forth a proposed rule 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 the NPRM, we 
received approximately 20 written comments. In addition, we held three 
public meetings in Seattle, WA, Anchorage, AK, and Washington, DC, and 
met with one interested party who requested a meeting with us. The 
written comments, transcripts of the public meetings, and a memorandum 
summarizing a meeting with an interested party are available for review 
in the rulemaking docket. Following is a summary of those comments and 
our response.

Comments on the Proposed Rule

Subpart A--General Provisions

Section 356.3  Definitions
    Several commenters noted that a state or federally chartered 
financial institution that meets the controlling interest requirements 
of 2(b) of the 1916 Act would be deemed a Non-Citizen under the 
definitions of ``Citizen of the United States'' in Sec. 356.3(d), 
``Non-Citizen'' in Sec. 356.3(n), and ``Non-Citizen Lender'' in 
Sec. 356.3(o). Accordingly, the commenters state that the benefit 
accorded to state or federally chartered financial institution under 
202 of the AFA to be eligible to hold a Preferred Mortgage on a Fishing 
Vessel, Fish Tender Vessel or Fish Processing Vessel would be rendered 
without meaning. The commenters suggested that the rule should clarify 
in Sec. 356.19 or in one of the definitions in Sec. 356.3 that a state 
or federally chartered financial institution is considered to be a U.S. 
Citizen when functioning as a Preferred Mortgagee with respect to a 
Fishing Vessel, Fish Processing Vessel or Fish Tender Vessel.
    We agree that the rule should be clarified with regard to the 
citizenship status of state or federally chartered financial 
institutions that meet the controlling interest requirements of 2(b) of 
the 1916 Act and that are acting as Preferred Mortgagees. Accordingly, 
the definitions of ``Controlling Interest'' and ``Non-Citizen Lender'' 
in Sec. 356.3 have been amended to indicate that a state or federally 
chartered financial institution that meets the controlling interest 
requirements is considered a Citizen of the United States for purposes 
of Subpart D of the regulation.
    One commenter reasoned that it is commercially impractical to 
expect parties to wonder whether a bona fide limited liability company 
will be treated by the Maritime Administration as a general partnership 
for AFA purposes under proposed Sec. 356.3(d)(2)(vii) or 
Sec. 356.3(f)(2)(vi). The commenter noted that every state, or almost 
every state, now has a limited liability company statute and that MARAD 
should provide certainty in the rule regarding the citizenship status 
of limited liability companies (``LLCs'') by concluding that it will 
accept the status of these entities as determined by state law or by 
specifying which state limited liability company statutes create, for 
AFA purposes, general partnerships.
    This rule marks the first time that we have set out in a regulation 
how we plan to deal with LLCs in the context of determining U.S. 
Citizenship. Because LLCs can vary greatly in their structure, we feel 
that it is important to reserve some flexibility for ourselves in this 
area. Furthermore, we do not believe that it makes sense to list every 
state limited liability company statute that could potentially present 
a problem as these statutes can easily be amended over time. Therefore, 
the final rule will follow our proposal in the NPRM that an LLC that is 
deemed to be a general partnership will be treated as such, and we will 
evaluate each LLC citizenship application individually.
    The same commenter also stated that the definitions of Citizen of 
the United States and Controlling Interest in Secs. 356.3(d)(2)(i)(a) 
and 356.3(f)(2)(i)(a) were unnecessarily broad because they state that 
all officers authorized to act in the absence of the chief executive 
officer and chairman of a corporation must be citizens, whereas the 
relevant statutes refer only to the citizenship of chairmen, presidents 
and chief executive officers. The commenter suggested that the relevant 
statutes identify chairmen, presidents and chief executive officers as 
the officers who must be U.S. Citizens and that MARAD should allow a 
Non-Citizen Vice President or Non-Citizen Vice Chairman unless a 
vacancy that temporarily places such a person in the senior position of 
responsibility is left unfilled with the intent of evading the law. The 
commenter proposed that the rule should allow a vacancy in the offices 
of chairman, president or chief executive officer that is filled with a 
Citizen of the United States before the earlier of the next required 
filing date for an annual meeting or the next actual meeting of 
directors for which a notice of meeting has not already been set at the 
time at which the vacancy occurs.
    We disagree with the commenter's assertion that 2 of the 1916 Act 
limits our citizenship analysis to the citizenship of chairmen, 
presidents and chief executive officers or restricts us from taking 
into consideration the rights of a Non-Citizen to act in the absence of 
the chief executive officer or chairman of a corporation. Moreover, 
this analysis is consistent with our past practice of determining 
citizenship under 2 of the 1916 Act. Accordingly, we do not plan to 
amend the final rule.
    Several commenters also noted that we had used the terms 
``affiliated'' and ``unrelated'' in the rule, but that the terms were 
not defined. Accordingly, we have added definitions for the terms 
``Affiliate or Affiliated'' and ``Related Party'' to Sec. 356.3 and 
have renumbered the section accordingly.

Subpart B--Ownership and Control

Section 356.7  Methods of Establishing United States Ownership
    One commenter stated that the fair inference rule is outdated and 
does not take into consideration the sweeping changes that have 
occurred in the way that shares of publicly traded companies are held 
since the establishment of the fair inference method in 1936. In 
particular, the commenter stated that because the vast majority of 
shares in corporations are held today by brokerage houses in ``street'' 
name for beneficial owners, the stock ownership records of corporations 
do not provide information as to the beneficial owners. In addition, 
the commenter noted that many shares are held for the benefit of 
pension trusts or mutual funds, the true beneficial owners of which 
change frequently and are not discernible from any available records. 
Accordingly, the commenter proposed that a different rule be adopted 
for use by publicly traded corporations with some minimum number of 
shareholders (perhaps keyed to the reporting requirements of the 
Securities Exchange Act of 1934) pursuant to which it may be inferred 
that shares held in street name or similar manner are held by U.S. 
Citizens if the record holder has a U.S. address unless the party 
claiming U.S. citizenship for the corporation has actual notice to the 
contrary. Under the commenter's proposal, the shares held by greater 
than 5% beneficial owners, who are obligated to file with the 
Securities Exchange Commission would be treated as owned by their 
actual beneficial owners as reflected on the pertinent forms and all 
other shares would be deemed held by and in the domicile of the record 
holder, absent

[[Page 44862]]

actual knowledge or information to the contrary.
    We disagree with the commenter's assertion that the information 
required for entities to demonstrate the citizenship of beneficial 
owners under the fair inference rule is not available to corporations 
because stocks today are widely held in ``street'' name by brokerages. 
Although the citizenship information for beneficial owners where the 
stock is held by a brokerage company or other entity may not be part of 
the corporation's stock records, it is readily available from the 
brokerage company, trust, pension plan, or other entity that is holding 
the stock for the benefit of the true owner. In fact, a corporation or 
other entity proving its citizenship is required to obtain from any 
brokerage firm, trust, pension plan, or other entity that is holding 
stock for the benefit of other persons, confirmation as to how many 
shares are held for the benefit of holders with a U.S. address and 
whether any shareholders hold more than 5% of the outstanding shares of 
a class of stock. We regularly deal with large publicly traded 
companies that are required to demonstrate their citizenship for other 
MARAD programs using the fair inference method, and we have not found 
it to be a problem for corporations or other entities to obtain this 
information.
Section 356.9  Tiered Ownership Structures
    Section 202 of the AFA requires that 75% of the interest in an 
entity that owns or controls a vessel eligible for a fishery 
endorsement under 46 U.S.C. 12108 be held by Citizens of the United 
States ``at each tier of ownership of such entity and in the 
aggregate.'' In the NPRM, we proposed to interpret the phrase ``in the 
aggregate'' to mean that no individual Non-Citizen may own or control 
more than 25% of the interest in a vessel or vessel-owning entity. In 
the NPRM, we stated that our belief was that a restrictive 
interpretation of the phrase ``in the aggregate'' would limit the 
ability of companies to have tiered ownership and would limit their 
ability to raise capital through equity participation.
    There were three different comments relating to MARAD's 
interpretation of ``in the aggregate'' under proposed Sec. 356.9. One 
commenter supported MARAD's interpretation and noted that it is both 
workable and appropriate where publicly traded companies and complex 
ownership structures are involved. The commenter noted that there is 
virtually no possibility that varied, disparate and unrelated Non-
Citizen interests throughout a complex ownership structure could come 
together to control the entity or its vessels and that the reservation 
of authority to reject excessive tiering arrangements provides a 
safeguard against abuse of the flexibility in the proposed provisions. 
Further, the commenter highlighted that there is well established 
precedent for a similar mechanism, the fair inference rule. The 
commenter agreed that a restrictive interpretation of ``in the 
aggregate'' would not only significantly complicate the process, but 
would also likely be disruptive to the industry and could reduce the 
availability of conventional financing.
    Two commenters opposed MARAD's interpretation of ``in the 
aggregate'' as overly broad and stated that it does not reflect the 
basic intent of the AFA to insure at least 75% U.S. ownership and 
control of fishing vessels ``at each tier and in the aggregate.'' The 
first commenter stated that the proposed rule could be interpreted to 
allow 25% ownership by three different Non-Citizens at three ownership 
tiers which would result in an aggregate Non-Citizen ownership in 
excess of 50%. The commenter reasoned that such ownership structures 
run contrary to the intent of the AFA; therefore, MARAD should use a 
more restrictive interpretation of the ownership and control standards.
    The second commenter opposed to MARAD's interpretation of ``in the 
aggregate'' noted that even if MARAD's concern that an overly 
restrictive reading of ``in the aggregate'' would result in limiting 
the ability of owners to obtain equity participation in their 
companies, Congress had already decided the issue otherwise. The 
commenter stated that there is nothing in the AFA that limits the 
``aggregation'' to each particular Non-citizen and that such an 
interpretation would turn the statutory requirement on its head by 
permitting Non-U.S. Citizens to own more than 25% in the aggregate of 
the equity interest in a vessel, with the result that less than 75% of 
the interest in an entity in the aggregate will be owned and controlled 
by U.S. Citizens. The commenter asserts that this interpretation 
contradicts the plain language of the statute and cannot be a 
``reasonable'' interpretation of the law. The commenter further states 
that the final rule, including the definitions and the Affidavit of 
U.S. Citizenship, must comply with the Congressional requirement that 
at least 75% of the interest in a vessel seeking a fishery endorsement 
be owned and controlled by U.S. Citizens, at each tier of ownership and 
in the aggregate. This means that no more than 25% of such interest may 
be held ``in the aggregate'' by either a particular foreign citizen or 
any combination of foreign citizens.
    Upon further consideration, we agree that the plain language of the 
statute leaves little room for flexibility of interpretation in the 
regulation and that the phrase ``in the aggregate'' precludes more than 
25% Non-Citizen ownership whether for an individual or several entities 
if taking into account all tiers. As a matter of clarification, we do 
not conclude that this interpretation prohibits use of the fair 
inference method to determine citizenship of publicly traded companies, 
i.e., 95% U.S. Citizen addresses establishes a fair inference of 75% 
U.S. ownership, provided that there is not clear evidence of more than 
25% ownership and control by a Non-Citizen. For example if a U.S. 
Citizen owns 80% of a vessel-owning entity and a Non-Citizen owns 20% 
of the vessel-owning entity, we would permit the U.S. Citizen to 
demonstrate its citizenship using the fair inference rule and 
demonstrating that 95% of the addresses of shareholders are U.S. 
addresses. However, if a U.S. Citizen owns 75% of a vessel-owning 
entity and a Non-Citizen owns 25% of the vessel-owning entity, the U.S. 
Citizen could not use the fair inference method to demonstrate that it 
is a U.S. Citizen unless it could demonstrate 100% U.S. Citizen 
addresses as the Non-Citizen ownership already amounts to 25% and does 
not provide for any leeway for additional Non-Citizen participation. 
Accordingly, the interpretation of ``in the aggregate'' proposed in the 
NPRM will be so modified in the final rule.
    This interpretation eliminates the need to caution against 
unlimited tiering because MARAD will deem it to be excessive foreign 
ownership and control if the sum of the ownership and control in Non-
Citizens through subsequent tiering is in excess of 25% as computed by 
MARAD. As a practical matter, there will be very limited opportunities 
for any tiering involving Non-Citizen ownership and control.
Section 356.11(a)--Absolute Indicia of Control
    Several commenters provided comments on the various indicia of 
control. One commenter noted that, as a general matter, the AFA (46 
U.S.C. 12102(c)(2)(B)) expressly authorized Non-Citizens simply to 
participate in certain activities that would otherwise be deemed 
control; however, this language is not included in the rule. We agree 
with the commenter that certain

[[Page 44863]]

limited rights of participation that may limit the authority of 
directors and possibly additional personnel aboard the vessel were 
statutorily intended. We have added language to Sec. 356.11(a)(1) and 
(3) to indicate that a Non-Citizen has the right simply to participate 
in certain activities.
    One commenter noted that every partnership and shareholder 
agreement involving minority investors typically includes limitations 
in favor of the minority investors on ``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 fishing industry vessel.'' Such agreements typically 
prohibit the majority investors and the management they control from 
selling all or substantially all of the assets of the entity without 
the consent of the minority investors, from going into a different 
business, and from entering into contracts with or guaranteeing the 
obligations of the majority investors or their affiliates without the 
consent of the minority investors. The commenter noted that none of 
these restrictions permit the Non-Citizen to intrude into the day-to-
day operations of the vessel or the vessel owner. Furthermore, the 
commenter stated that measures that restrict the actions of the 
management, board of directors, general partner, etc., are inconsistent 
with the types of restrictive loan covenants approved in 
Sec. 356.23(a). For example, the commenter stated that 
Sec. 356.23(a)(1) authorizes mortgage loan covenants that prohibit the 
borrower from selling part or all of its assets; however, these 
covenants would be deemed impermissible under Sec. 356.11(a)(2). The 
commenter suggested that Sec. 356.11(a)(2) should provide that these 
and similar restrictions are not deemed impermissible control. We agree 
with commenter that certain rights of minority shareholders that do not 
deal with day-to-day activities should be authorized and have amended 
Sec. 356.11(a)(2) to make clear that certain standard minority 
shareholder rights are permitted.
    The same commenter suggested that Sec. 356.11(a)(2) is inconsistent 
with Sec. 356.11(a)(4), which states that it is impermissible control 
if a Non-Citizen has the right to unduly restrict the day-to-day 
activities and management policies through loan covenants or other 
means. We do not believe that these provisions are inconsistent. 
However, Sec. 356.11(a)(4) has been amended to make clear that the 
limitation on the ability of a Non-Citizen to unduly restrict the day-
to-day activities and management policies through loan covenants 
applies to covenants other than those approved for use by the 
Citizenship Approval Officer.
    The commenter also indicated that Sec. 356.11(a)(2) is inconsistent 
with Sec. 356.11(b)(2) which states that the authority to preclude the 
owner from engaging in other business activities is just one factor 
that may, in conjunction with other factors, lead to a finding of 
impermissible control by a Non-Citizen. We intend for the two sections 
to be distinguishable and for Sec. 356.11(a)(2) to address the right of 
a Non-Citizen to participate in day-to-day business activities 
conducted in the ordinary course of business. Section 356.11(a)(2) has 
been amended accordingly to distinguish it from Sec. 356.11(b)(2).
    Four commenters pointed out that traditional arrangements in the 
fishing industry could be technically read to confer a 
``disproportionate'' benefit on the Non-Citizen. The commenters claimed 
that limited disproportion in economic benefits in the range of 1-5% 
are common in the fishing industry, and are not a meaningful indicia of 
control. Accordingly, the commenters suggested that Sec. 356.11(a)(5), 
which defines as an absolute indicia of control the right to derive 
through a minority shareholder a ``disproportionate'' share of the 
economic benefits from the ownership or operation of a vessel, is 
overly vague. The commenters recommended that Sec. 356.11(a)(5) be 
moved to subsection (b) and defined as a possible indicia of control, 
thus giving the agency discretion to determine on a case-by-case basis 
if disproportionate economic benefit is conferred upon Non-Citizens. In 
the alternative, the commenters suggested that some measure of 
materiality be added to Sec. 356.11(a)(5) by requiring that the 
disproportion be ``substantial,'' ``considerable,'' ``significant,'' or 
``material.'' We agree with the latter suggestion and have amended 
Sec. 356.11(a)(5) to indicate that ability of a Non-Citizen to derive a 
``significantly disproportionate'' share of the economic benefit will 
be deemed impermissible control.
    One commenter further suggested that Sec. 356.11(a)(5) be tightened 
to clearly state that the disproportionate benefit be in favor of the 
Non-Citizen in order to result in a loss of Citizenship. Otherwise an 
arrangement where the Non-Citizen owns 24% of the interest but derives 
10% of the economic benefit would result in the automatic loss of U.S. 
citizenship. We agree with this comment and have amended 
Sec. 356.11(a)(5) accordingly.
    One commenter argued that the language of Sec. 356.11(a)(6), which 
indicates that impermissible control will be found where a Non-Citizen 
has the right to be or is ``a controlling factor'' in the entity, is 
too vague. The commenter explained that a Non-Citizen who is a 20% 
shareholder and has one fifth of the votes would be a deciding factor 
if the other four Citizens are split. We disagree with the assertion 
that the term ``controlling factor'' is too vague. This provision is 
intended to address more direct involvement by a Non-Citizen; 
therefore, we do not consider the ability of a Non-Citizen to act as a 
tie breaker where the Citizen owners are deadlocked to be a 
``controlling factor.''
    Section 356.11(a)(7), which prohibits a Non-Citizen shareholder or 
limited partner from having the right to cause the sale of the vessel, 
was thought to be overly restrictive by one commenter. The commenter 
stated that most shareholder agreements and partnership agreements 
contain provisions for terminating the association of the investors. 
The usual mechanism for terminating the relationship between investors 
is for one to buy out the other(s). Because there is no market for a 
minority interest in a closely held company and a Non-Citizen is 
prevented from buying out the interest of the U.S. Citizens, the 
commenter recommended that a Non-Citizen minority shareholder should 
have the ability to force the sale of the vessel to a qualified third 
party. We agree that minority shareholders should have the ability to 
exit the arrangement, but we do not believe that a Non-Citizen should 
have the ability to force the sale of the assets in other situations. 
Accordingly, we have amended Sec. 356.11(a)(7) to make clear that in 
the event of the dissolution of the arrangement the Non-Citizen may 
require the sale of its interest in the vessel.
    The deletion of Sec. 356.11(a)(9) was suggested by one commenter 
who believed that responsibility of a Non-Citizen for the procurement 
of insurance on a Fishing Vessel is completely unrelated to control of 
the vessel or vessel owner. We disagree with the commenter. The 
responsibility for procuring insurance on a vessel is generally the 
responsibility of the vessel owner or a bareboat charterer who steps 
into the shoes of a vessel owner. It is a definitive control 
responsibility because it determines disposition of loss proceeds as 
well as forward condition and likelihood of recovering loss proceeds. 
Therefore, it is an element of ownership that will be deemed 
impermissible control if it is the responsibility of a Non-Citizen.
    Section 356.11(a)(10) states that it will be considered an absolute 
indicia of control if a Non-Citizen ``[h]as the

[[Page 44864]]

ability through any other means whatsoever to control the entity that 
owns a Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel.'' 
Several commenters stated that it was inappropriate to include as an 
absolute indicia of control what appears to be a ``catch all'' 
provision. The commenters submitted that while other factors of 
contractual arrangement may accurately be considered ``indicia'' of 
control (as described in Sec. 356.11(b)), Sec. 356.11(a) should only 
include specific descriptions of impermissible transfers of control and 
thus Sec. 356.11(a)(10) should be deleted. Because every instance of 
control cannot be identified in the rule, we disagree with the 
commenter and believe that a flexible provision such as 
Sec. 356.11(a)(10) is needed in the final rule. Further the provision 
is firmly rooted in statute (see, 46 App. U.S.C. 802).
Section 356.11(b)  Discretionary Indicia of Control
    One commenter suggested that the undefined term ``foreign 
involvement'' used in the first sentence of Sec. 356.11(b) should be 
changed to the defined term ``Non-Citizen'' in order to avoid 
confusion. We agree with the commenter and have amended Sec. 356.11(b) 
to use the term ``Non-Citizen.''
    Section 356.11(b)(5) states that one factor to be considered in 
determining whether impermissible control by a Non-Citizen is present 
is whether a Non-Citizen absorbs ``many of the costs and normal 
business risks of the ownership and operation of a vessel.'' One 
commenter suggested that the term ``many'' could make it difficult to 
interpret this provision and, therefore, suggested that the term 
``many'' should be replaced with ``most'' to clarify that only an 
inequity of cost and risk may suggest impermissible control. We agree 
with the commenter that the language should be clarified and have 
amended Sec. 356.11(b)(5) to replace the phrase ``many of'' with 
``considerable.''
    Section 356.11(b)(6) states that if a Non-Citizen provides start up 
capital for an owner or bareboat charterer on ``less than an arm's 
length basis,'' this may be deemed impermissible. Two commenters 
remarked that the provision should only apply to ``prospective'' start 
up capital arrangements as to do otherwise would penalize parties who 
entered into arrangements that complied with the law prior to the AFA. 
While we understand the commenters' concern, this is only one factor to 
be considered and weighed, and it will not necessarily constitute 
control. Therefore, we intend to apply Sec. 356.11(b)(6) to all 
citizenship determinations.
    Section 356.11(b)(7) states that if a Non-Citizen has the general 
right to inspect the books and records of the owner or bareboat 
charter, this may be deemed impermissible control. Three commenters 
noted that under state and common law, the right to inspect the books 
and records of a company at a proper time and for a proper purpose has 
long been basic among rights of minority partners and shareholders. The 
commenters explained that this right has been essential to prevent 
abuse and fraud by the majority partner or shareholder upon the 
minority and is more indicative of a lack of control. The commenters 
recommended that this provision be deleted. Section 356.11(b)(7) was 
intended to implement MARAD's long standing policy that one indicia of 
control to be considered is whether a Non-Citizen time charterer has 
the right to inspect the books of an owner or a bareboat charterer. 
Consequently, 356.11(b)(7) has been amended so that it restricts the 
right of a time charterer, and not all Non-Citizen minority 
shareholders, to examine the books of an owner, bareboat charterer, or 
time charterer.
    Several commenters stated MARAD should not consider the use of the 
same legal representation, accounting firms, etc., as an indicia of 
control in Sec. 356.11(b)(8). The commenters explained that many 
fishermen in Seattle use the same law firms, accounting firms, etc., 
because these firms have experience in the fishing industry and 
understand the idiosyncrasies of the fishing industry. We inadvertently 
failed to include the use of law firms and accounting firms by 
participants in the fishing industry and have so amended the provision. 
However, it is only one factor to be considered in the full context of 
each particular situation, and is not an absolute indicia of control.
    Two commenters noted that the right to control a vessel's co-op 
allocation share is the practical equivalent of control over the 
vessel. One of the commenters pointed out that the owners of several 
fishing boats have sold or leased the pollock co-op share allocations 
corresponding to certain vessels for the year 2000 pollock season and, 
as a result, the vessels are tied up at the dock, not operating in any 
fishery. Both commenters explained that if the co-op share allocated to 
a vessel is sold or leased, the co-op share holder can prevent the 
vessel from participating in the pollock fishery for the next five 
years, which is the duration of the fishing allocation under subtitle 
II of the AFA. Accordingly, the commenters stressed that Non-Citizen 
ownership or control over a Fishing Vessel's fishing privileges, 
whether in the form of the sale or lease of co-op allocation shares or 
some other fishing privilege reserved exclusively for that vessel under 
any future fishery management regime, must be prohibited by MARAD's 
regulations as an impermissible transfer of control to a Non-Citizen. 
One commenter also suggested that such a transfer should be considered 
as the equivalent of a prohibited time or voyage charter of a Fishing 
Vessel. We received no other comments on this issue either at the NPRM 
or ANPRM stage. We agree with the commenters that control over a 
vessel's co-op share or fishing rights by a Non-Citizen is an element 
of control that should be considered; therefore, we have added a new 
Sec. 356.11(b)(9) to include control over the fishing quota or fishing 
rights allocated to a vessel or vessel owner as an indicia of control 
to be considered.
    One commenter stated that Sec. 356.11(d) should indicate that MARAD 
will not seek to revoke a vessel's fishery endorsement or impose 
penalties for violation of the Non-Citizen control restrictions until 
the agency has notified the vessel owner of its concerns and sought to 
resolve the matter by agreement. The commenter argued that the rule 
should provide a process for working out any problems that the agency 
has with previously executed agreements and provide for a reasonable 
time for owners to cure the problem. The commenter believed that such 
an approach would ensure that owners do not seek advance rulings from 
MARAD in every case. In addition, the commenter asserted that the rules 
should include basic principles of due process and the right to an 
adjudicative hearing. The commenter suggested that the rule should 
state that a fishery endorsement will not become invalid for violation 
of the Non-Citizen ownership or control restrictions until formally 
revoked and that before MARAD can formally request that the Coast Guard 
revoke a fishery endorsement, it must give the owner written notice and 
an opportunity for a formal adjudicative hearing.
    We agree with the commenter that prior to the imposition of 
penalties or the revocation of a vessel's fishery endorsement, we 
should attempt to notify the vessel owner and work out any problems, 
assuming no involvement of fraud. In fact, that is precisely the intent 
of Sec. 356.11(d). To the extent possible and consistent with our long-
standing practice in making citizenship determinations for other 
programs, we

[[Page 44865]]

intend to work through any issues related to citizenship determinations 
under the AFA. However, we do not agree that it is necessary to 
prescribe any additional process for working through such issues or to 
establish a formal adjudicative hearing process for such 
determinations.

Subpart C--Requirements for Vessels Owners

Section 356.13  Information Required To Be Submitted by Vessel Owners
    A commenter recommended that MARAD should limit the documentation 
to be submitted in support of a citizenship determination to those 
documents and agreements involving transactions with Non-Citizens. 
Specifically, the commenter noted that Sec. 356.13(a)(5) requires 
vessel owners to submit loan agreements and other financing documents 
applicable to a fishing industry vessel even when the loan is with a 
U.S.-Citizen Bank. We agree with the commenter and have amended 
Sec. 356.13(a)(5) to require the submission of loan agreements and 
financing documents where the lender has not been approved by MARAD as 
a U.S. Citizen, except for standard loan agreements from Non-Citizen 
Lenders where the Non-Citizen Lender has been granted approval from the 
Citizenship Approval Officer pursuant to Sec. 356.21 to enter into such 
standard loans without transactional approval from MARAD.
    The commenter also noted that Sec. 356.13(a)(6) applies to 
management agreements with both U.S. Citizens and Non-Citizens, and 
suggested that information related to management agreements should only 
be required where the agreement is with a Non-Citizen. We have amended 
Sec. 356.13(a)(6) to clarify that information related to operating and 
management agreements is only required where the agreement is between 
the owner or bareboat charterer and an entity that has not been 
determined by MARAD to be a U.S. Citizen.
    One commenter suggested that Sec. 356.13(a)(7) should only require 
information on exclusive sales agreements where the agreement is with 
or for the benefit of a Non-Citizen as opposed to all exclusive sales 
agreements. We agree that information regarding agreements with U.S. 
Citizens should not be required. Therefore, we have amended 
Sec. 356.13(a)(7) to state that copies of any sales, purchase, or 
marketing agreements that relate to the sale or purchase of all or a 
significant portion of a vessel's catch must only be submitted where 
the agreement is with an entity that has not been determined by MARAD 
to be a U.S. Citizen and the agreement contains provisions that could 
convey control to a Non-Citizen other than those provisions expressly 
authorized in Sec. 356.43. For agreements that only contain the 
provisions expressly authorized in Sec. 356.43, the owner or bareboat 
charterer is still required to identify the agreements and the parties 
to the agreement, but copies of the agreements are not required to be 
submitted.
    The commenter also noted that Secs. 356.13(a)(8) and (9) would 
require submission of stockholders' agreements, voting trust 
agreements, pooling agreements, proxy appointments, options to buy or 
sell stock or other comparable equity interests and agreements that 
restrict the sale of such stock or equity interests for the vessel 
owner and for any entity whose interest is being relied upon to 
establish 75% U.S. Citizen ownership, without regard to whether a Non-
Citizen is a party to such agreements or receives any rights or 
benefits thereunder. The commenter stated that such information should 
only be required where the agreements or contracts are with a Non-
Citizen or where a Non-Citizen receives rights or benefits. It is 
important for MARAD to be able to identify the true owners of an entity 
for which it is making a Citizenship determination. Accordingly, we 
disagree with the commenter's suggestion and will continue to require 
the information identified in Secs. 356.13(a)(8) and (9).
    The commenter suggested that Sec. 356.13(a)(10) should only require 
documents relating to a merger, consolidation, liquidation, or 
dissolution of the vessel owner or any parent corporation where a Non-
Citizen is involved in or affected by the transaction or will benefit 
from the transaction. We agree that where the parties involved have 
already been determined by MARAD to be U.S. Citizens the information 
required by Sec. 356.13(a)(10) is not necessary. However, because the 
transactions identified in Sec. 356.13(a)(10) involve significant 
changes to the ownership structure of an entity that can have major 
implications to its citizenship status, this information will continue 
to be required for parties that have not been deemed to be U.S. 
Citizens by MARAD.
    As noted in the discussion under Sec. 356.11(b), we agree with one 
commenter's suggestion that agreements to sell, lease, or otherwise 
transfer to a Non-Citizen a fishing quota, fishing right, processing 
quota, or any other right allocated to a vessel or vessel owner is an 
element that should be considered in determining whether impermissible 
control has been conveyed to a Non-Citizen. Accordingly, we have added 
a new Sec. 356.13(a)(12) to require that such agreements or contracts 
be submitted to the Citizenship Approval Officer.
Section 356.15  Filing of Affidavit of U.S. Citizenship
    We received a number of comments regarding the timing and ongoing 
availability of letter rulings. Several commenters requested that 
entities be allowed to request letter rulings under Sec. 356.15 
regarding their citizenship status as soon as the rules become final as 
opposed to being forced to wait until October 1, 2000. The commenters 
explained that delaying the time for accepting letter requests to 
October 1, 2000, has the effect of shortening the time period that 
Congress intended to give vessel owners, mortgagees, and others with a 
stake in the fishing industry to adjust to the new requirements. One 
commenter noted that in some cases, lenders have required that owners 
obtain their citizenship status by December 31, 2000. We agree with the 
commenters and have amended Sec. 356.15(a) to indicate that we will 
begin accepting requests for letter rulings as soon as the final rules 
are published in the Federal Register. Parties can request an advance 
letter ruling up to June 1, 2001; however, owners will still be 
required to submit their citizenship information no later than June 1, 
2001, to ensure that we have enough time to make a citizenship 
determination before the rules go into effect on October 1, 2001. In 
addition, the time period for submission of the required certification 
indicating that the information submitted in support of a letter ruling 
remains true and accurate has been amended to require submission of the 
certification between September 10, 2001 and September 20, 2001, in 
order to provide time for the Citizenship Approval Officer to review 
the certifications prior to October 1, 2001.
    Several commenters requested that the rule expressly state that 
letter rulings will be available after October 1, 2001. We do not 
currently plan to issue letter rulings after October 1, 2001 because 
letter rulings necessarily involve hypothetical transactions and can 
absorb an inordinate amount of time and resources.
    A couple of commenters stated that the 120-day time period in 
Sec. 356.15(a) for MARAD to respond to a request for a letter ruling is 
too long. The commenters suggested shortening the time period to 60 
days or 30 days after

[[Page 44866]]

the submission of any supplemental material, whichever is longer. We 
plan to respond to letter ruling requests as expeditiously as possible; 
however, we feel that given the uncertainty regarding the number of 
letter ruling requests that we may receive and the level of difficulty 
that each one will present, the 120-day time period is reasonable.
    One commenter noted that Sec. 356.15(c) requires vessel owners to 
submit an Affidavit and supporting documentation by June 1, 2001, so 
that MARAD can issue a citizenship determination by October 1, 2001; 
however, the rule is unclear as to whether the existing fishery 
endorsements will expire on October 1, 2001, thus requiring a new 
fishery endorsement to be obtained prior to October 1, 2001; whether 
existing fishery endorsements will be subject to revocation if the 
required affidavit and supporting documentation are not submitted; or 
whether the requirements of Sec. 356.15(c) apply only to owners seeking 
new fishery endorsements on or after October 1, 2001. The commenter 
stated that if the intent of the rules is that all existing fishery 
endorsements will expire on October 1, 2001, unless MARAD reviews and 
approves them in advance, the rules should provide for adequate notice 
and an opportunity for a formal hearing before a vessel loses its 
fishery endorsement.
    We agree with the commenter that the intent of Sec. 356.15(c) 
should be clarified. We have added a new Sec. 356.15(d) to make clear 
that a fishery endorsement for a vessel of 100 feet or greater in 
registered length will not be valid after October 1, 2001, unless the 
Citizenship Approval Officer has determined that the owner is eligible 
to own a vessel with a fishery endorsement. If the Citizenship Approval 
Officer determines that the owner is eligible to own a vessel with a 
fishery endorsement, the vessel's fishery endorsement will continue to 
be valid and will not be required to be renewed until its normal 
expiration. If the Citizenship Approval Officer determines that the 
owner is not eligible to own a vessel with a fishery endorsement, the 
endorsement will be deemed invalid as of October 1, 2001. In order to 
obtain a new fishery endorsement, the owner must demonstrate to the 
Citizenship Approval Officer that it is eligible to own a vessel with a 
fishery endorsement and apply to the Coast Guard for a new fishery 
endorsement.
    The same commenter suggested that the rule should clearly state 
that MARAD will notify the owner of any defects in its Affidavit or 
related filings and give the owner an opportunity to cure the defect 
before any action is taken against the vessel's fishery endorsement. 
The commenter also stated that the rules should provide for adequate 
notice and an opportunity for a formal hearing before a vessel loses 
its fishery endorsement. We agree with the commenter that the rule 
should make clear that we will generally notify the applicant of any 
defects in its citizenship information and provide an opportunity to 
cure those defects. In fact, Sec. 356.11(d) states that we will notify 
an owner if we have concerns regarding its citizenship status and that 
we will work with them to reach a satisfactory resolution, provided 
there is no verifiable evidence of fraud.
    One commenter suggested that proposed Sec. 356.15(d) should be 
clarified to indicate whether a ``new owner'' can document a vessel 
with a fishery endorsement (or operate it in the fisheries) before 
MARAD has made an affirmative determination that the new owner is 
eligible for a fishery endorsement. The commenter stated that if 
MARAD's involvement is required in every sale before an owner can 
operate the vessel, the purchase and sale of fishing vessels could be 
greatly complicated and delayed. According to the commenter, it would 
be a major mistake for MARAD to delay the purchase and transfer of 
every vessel. Given that most of these transactions take place between 
U.S. citizens with no foreign involvement, the commenter felt that it 
is likely that the cost of MARAD's involvement and the burdens placed 
on the industry will vastly exceed any benefits. Accordingly, the 
commenter urged that, at a minimum, MARAD provide for expedited 
approval of a fishery endorsement if the Citizenship Approval Officer 
has previously determined that a purchaser is eligible to own a vessel 
with a fishery endorsement and the purchaser certifies that no change 
has occurred since that determination was made or since the most recent 
filing of its Citizenship Affidavit. The commenter suggested that MARAD 
should be required to act within 15 days where the buyer has previously 
been approved by MARAD as a U.S. Citizen, and in all other cases there 
should be a deadline for action of 60 days. In addition, the commenter 
stated that MARAD should permit advance determinations to minimize 
disruptions of vessel sales.
    We agree with the commenter that proposed Sec. 356.15(d) (now 
Sec. 356.15(e)) could be clarified to indicate that a vessel may not be 
documented with a fishery endorsement until the Citizenship Approval 
Officer has made a determination that the vessel owner is eligible to 
document a vessel with a fishery endorsement or operated in the 
fisheries of the United States until a fishery endorsement has in fact 
been issued by the Coast Guard. However, we do not agree that it will 
be necessary to provide for an expedited approval process where the 
vessel buyer has already been approved by the Citizenship Approval 
Officer as a Citizen of the United States. Such approvals should 
naturally be turned around very quickly if there are no significant 
changes. Similarly, we do not believe that it is necessary to create a 
deadline for action with regard to a sale that involves parties whose 
citizenship has not been previously reviewed by the Citizenship 
Approval Officer. We would expect to respond to these applications in a 
timely and expeditious manner; however, without knowing the parties 
involved or the particulars of each transaction and how complicated the 
citizenship analysis will be, we are reluctant to establish a deadline 
for action by the Citizenship Approval Officer at this time.
Section 356.17 Annual Requirements for Vessel Owners
    One commenter stated that Sec. 356.17 should clearly state that a 
vessel owner submitting its annual Affidavit need not include all the 
documentary material or information anticipated in its first submission 
if to do so would be repetitive of information already submitted to 
MARAD. We agree that the information should not have to be resubmitted 
unless the Citizenship Approval Officer requests copies of specific 
documents and have amended Sec. 356.17 to incorporate the comment.
    In order to simplify the renewal process and to coordinate better 
with the Coast Guard, we have decided on our own initiative to amend 
Sec. 356.17(b) so that the date for the annual citizenship submission 
is tied to the renewal date for the vessel's documentation and fishery 
endorsement rather than the stockholder's meeting. Otherwise, owners 
would be forced to re-document each vessel so that the expiration of 
the fishery endorsement and the citizenship approval coincide. Owners 
of multiple vessels with different documentation dates are only 
required to file an Affidavit of U.S. Citizenship and supporting 
documentation in conjunction with the first vessel renewal during each 
calendar year. In order to avoid requiring an owner of multiple vessels 
to submit a separate Affidavit of U.S. Citizenship and supporting 
documentation in conjunction with the

[[Page 44867]]

annual renewal of the fishery endorsement for each vessel, the rule 
allows the owner to rely on the Affidavit of U.S. Citizenship and 
supporting documentation submitted with the first vessel that is 
subject to renewal in a given calendar year. For every other vessel for 
which the owner has to demonstrate that it is a Citizen eligible to own 
a vessel with a fishery endorsement, the owner must submit a 
certification to the Citizenship Approval Officer at least 45 days 
prior to the renewal date for the vessel's fishery endorsement stating 
that the Affidavit of U.S. Citizenship and supporting documentation 
already on file with Citizenship Approval Officer for the first renewal 
in that calendar year of a fishery endorsement for a vessel or 100 feet 
or greater in registered length continues to be true and accurate. Any 
information or supporting documentation unique to a particular vessel 
that would normally be required to be submitted under Sec. 356.13 or 
any other provision of Part 356 such as charters, management 
agreements, loans or financing agreements, long-term agreements for the 
sale of a vessels catch, or exemptions claimed under the rule must be 
submitted with the annual filing for that vessel if the documents are 
not already on file with the Citizenship Approval Officer.

Subpart D--Mortgages

Section 356.19 Requirements To Hold a Preferred Mortgage
    Several commenters noted that state or federally chartered 
financial institutions meeting the controlling interest requirements of 
section 2(b) of the 1916 Act are deemed eligible under section 202 of 
the AFA to hold a preferred mortgage on a Fishing Vessel. However, the 
commenters stated that this benefit, which is conferred upon state or 
federally chartered financial institutions through Sec. 356.19, is 
vitiated by the definition of Non-Citizen in proposed Sec. 356.3(n), 
which includes any entity that does not meet the 75% U.S. Citizen 
ownership and control standard, including a state or federally 
chartered financial institution that meets the controlling interest 
standard. The commenters recommended that either the definition section 
be amended or that Sec. 356.19 be amended to state specifically that 
for purposes of Subpart D of the regulations these lenders are 
considered U.S. Citizens as though they met the 75% ownership standard. 
We agree with the commenters and have added a new subsection 
356.3(g)(3) to clarify under the definition of ``Controlling Interest'' 
that a state or federally chartered financial institution is considered 
a Citizen of the United States for purposes of Subpart D of this Part 
for all purposes other than operation of the vessel pursuant to 
Sec. 356.25. Similar language was also added to the definition of 
``Non-Citizen Lender'' at Sec. 356.3(p).
Section 356.21 General Approval for Non-Citizen Lender's Standard Loan 
or Mortgage Agreements
    Several commenters suggested that Sec. 356.21(a) should be 
clarified to make clear that general approval of loan documents is not 
limited to ``financial institutions engaged in the business of 
financing fishing vessels.'' They contend that this language should 
only be descriptive and not limiting, otherwise, it could restrict 
sources of financing. The commenters recommended that pre-approval of 
loan documents be available to all Non-Citizen Lenders seeking to lend 
to the owner of a U.S. fishing industry vessel through a Mortgage 
Trustee. In addition, one of the commenters recommended that any Non-
Citizen whose business includes making loans to vessel owners should be 
able to obtain prior approval.
    The language used in Sec. 356.21(a) is intended to be limiting and 
to apply to financial institutions that are engaged in the business of 
financing fishing vessels. We want to provide an avenue through the 
rule for financing institutions to get approval of their standard loan 
and mortgage packages to minimize the burden of the rule and to provide 
certainty for traditional financial institutions regarding the 
covenants that can be used. However, we are concerned about loans from 
other Non-Citizen entities that may have additional dealings with the 
vessel owner or bareboat charter that when considered together with the 
loan may result in excessive control by the Non-Citizen. Accordingly, 
we believe that it is necessary to examine the loan agreements between 
vessel owners and Non-Citizens other than financial institutions 
engaged in the business of financing fishing vessels on more of a case-
by-case basis and that general approval of loan agreements should not 
be granted to other Non-Citizens.
    A couple of commenters noted that Sec. 356.21(e) imposes stiff 
penalties on owners as well as lenders when the lender strays from the 
pre-approved documents. In addition to the loss of the vessel's fishery 
endorsement, this subsection subjects lenders to civil and criminal 
penalties. The commenters suggest that the loss of economic value of 
the capital should be sufficient. The commenters felt that criminal 
liability resulting from some minor variance in the loan documents was 
excessive and that it would likely deter lenders from lending or 
encourage them to get every loan approved to avoid the potential 
liability. The commenters recommend that the civil and criminal 
penalties be deleted or that, at a minimum, the regulations set a 
materiality benchmark for variations.
    The civil and criminal penalties included in Sec. 356.21(e) were 
intended to discourage willful misconduct and material fraud and were 
not intended to result in overly harsh penalties for essentially 
harmless mistakes. We agree with the commenters that some measure of 
materiality would be an improvement to this subsection, and we have 
amended Sec. 356.21(e) to indicate that the penalties apply where there 
has been material fraud or the lender has knowingly violated this 
subsection.
Section 356.23  Restrictive Loan Covenants Approved for Use by Non-
Citizens
    Although Sec. 356.23 provides a general conceptual framework for 
restrictive loan covenants that would be permissible, several 
commenters noted that loan covenants may vary from one transaction to 
the next. Because it will be crucial during the final negotiations of a 
transaction to know whether covenants will pass muster, the commenters 
stated that it would be helpful for the rule to provide for a quick 
response time, such as 15 business days, to confirm that similar 
provisions fall within the general approval authority or are similarly 
approved. We understand the need for a quick response time during the 
final stages of negotiations and in response to questions related to 
the regulation in general, and we will endeavor to provide quick 
responses. However, without knowing how complicated the transactions or 
questions put forth to us will be or what the workload to implement 
these rules will be at any given point in time, we feel that we must 
evaluate each question on a case-by-case basis and that we can not 
include a set time frame in the regulation at this point.
    One commenter noted that Sec. 356.23(a) provides a list of approved 
covenants for use by a Non-Citizen Lender that is ``unrelated'' to the 
vessel owner. The commenter suggested that the term ``unrelated'' 
should be deleted so that the approved covenants could be used by 
related parties as well as unrelated parties or, at a minimum, that it 
should be defined so that owners do not have to seek prior approval for 
every loan where they may have some other

[[Page 44868]]

business dealing with the Non-Citizen Lender. In addition, the 
commenter stated that Sec. 356.23 should provide that Non-Citizen 
Lenders who use the covenants approved in this section do not have to 
obtain prior MARAD approval before entering into the mortgage. As with 
Sec. 356.45, the commenter suggested that the owner should only have to 
submit a description of the loan within 30 days.
    We do not agree to the extension of approved covenants to related 
parties. The predicate of a list of approved restrictive loan covenants 
is that there are no other relationships between the lender and the 
vessel owner. The restrictive loan covenants in conjunction with other 
relationships between related parties may result in impermissible 
control. Therefore, we have not extended the coverage of approved 
covenants to related parties, and we have added a definition of 
``Related Parties'' to Sec. 356.3 to provide additional clarification.

Subpart E Mortgage Trustees

Section 356.27  Mortgage Trustee Requirements
    Section 356.27(b)(6) contains a ``catch all'' requirement which 
states that Mortgage Trustees must ``meet any other requirements 
prescribed by the Citizenship Approval Officer.'' Several commenters 
noted that while this is consistent with MARAD's discretion under the 
AFA, it creates continued uncertainty regarding the Mortgage Trustee 
requirements and could discourage potential Mortgage Trustees who may 
be considering engaging in the business. The commenters noted that 
MARAD always has the right to amend the rule at a later date if other 
conditions need to be included and, therefore, suggested that the 
``catch all'' requirement of Sec. 356.27(b)(6) be deleted in order to 
provide certainty regarding the Mortgage Trustee provisions. Although 
MARAD has the authority to promulgate a new regulation to respond to 
any unforeseen circumstances that could arise related to Mortgage 
Trustees, promulgating a new rule is a cumbersome, time consuming 
approach. We believe that the ``catch all'' requirement 
Sec. 356.27(b)(6) provides a reasonable way to handle any unforeseen 
issues and that it would not serve as a significant deterrent to U.S-
Citizen financial institutions to act as Mortgage Trustees.
    A couple of commenters stated that they believed Sec. 356.27(e) 
presents a problem by creating a conflict between the fiduciary duties 
that the Mortgage Trustee has to the Non-Citizen Lender and the 
requirement of the regulations that the Mortgage Trustee not assume any 
fiduciary duty in favor of a Non-Citizen Lender that is in conflict 
with the U.S. Citizen ownership and control provisions of the AFA. 
State and common law requirements subject trustees to a fiduciary duty 
in favor of the beneficiary--in this case, the Non-Citizen Lender. 
Therefore, the commenters suggest that a financial institution may be 
wary of litigation and unlikely to place itself in this conflict and 
face the possible civil and criminal penalties of Sec. 356.27(g). The 
commenters recommend that MARAD modify the section to provide that a 
Mortgage Trustee that utilizes a trust agreement form that is pre-
approved by MARAD will be deemed not to be in conflict with the U.S. 
Citizen ownership and control requirements. We agree with the commenter 
and have amended Sec. 356.27(e) to provide for requests for pre-
approval of trust documents to the Citizenship Approval Officer if the 
Mortgage Trustee desires additional assurance that the agreement is 
consistent with the requirements of Part 356 and the AFA.
Section 356.31  Maintenance of Mortgage Trustee Approval
    A couple of commenters recommended that Sec. 356.31 be amended to 
make clear that if a Mortgage Trustee loses its qualification and the 
Non-Citizen Lender is forced to find a new Mortgage Trustee, the 
preferred status of the mortgage will be preserved during the 30-day 
transition period. We agree with the comment and have amended 
Sec. 356.31(c) to implement the commenters' suggestion.

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

Section 356.39  Charters
    One commenter suggested that MARAD should not accept as a valid 
practice in the fishing industry so-called ``service agreements,'' in 
which a contract is made between a party and a vessel owner to have 
certain services (for example delivery of 100 tons of pollock) 
performed without specifying which vessel or for what time period. The 
commenter stated that such agreements have been used in marine 
transportation to avoid charter limitations. Accordingly, the commenter 
suggested that MARAD should review all agreements involving Fishing 
Vessels, Fish Processing Vessels, and Fish Tender Vessels and Non-
Citizens, to ensure that:
    (1) The owner retains management and operation of the vessel, 
deciding when to fish, what species to catch, and where and when to 
deliver the catch;
    (2) A Non-Citizen, whether a processor or another entity, may not 
hire the vessel for any period of time or for any voyage as such an 
arrangement would be a prohibited time or voyage charter. The commenter 
intimated that a foreign-owned processor, for example, could not 
contract with a fishing vessel for a season or for a year, since that 
would be the equivalent of a time charter; and
    (3) A bareboat charter is indeed a bareboat charter and not a time 
charter.
    The commenter stated that MARAD should examine all agreements to 
determine who has the right to hire the crew, who has the obligation to 
pay expenses and insurance, and who is liable to third parties. For a 
Fishing Vessel used to harvest fish, the commenter stated that if a 
Non-Citizen has any of these rights or obligations the agreement should 
be prohibited.
    We agree with the commenter that provisions in various agreements 
must be regulated to limit the transfer of control over a vessel or 
vessel-owning entity to Non-Citizens. Accordingly, we feel that a well-
grounded approach is to define provisions that are deemed acceptable 
and others that are deemed prohibited and to require a copy of the 
charters to be submitted to the Citizenship Approval Officer to ensure 
that time charters are indeed time charters and that impermissible 
control is not transferred to a Non-Citizen. However, we do not agree 
with the commenter that any agreement with a Non-Citizen processor, 
which for instance sets a delivery schedule for fish to be delivered 
for processing should be deemed a time charter and prohibited. Certain 
provisions will be necessary in any such agreements to allow parties to 
coordinate their operations without determining that coordination 
equates to control by a Non-Citizen. We discuss management agreements 
and long-term sales agreements in greater detail under Sec. 356.41 and 
Sec. 356.43 respectively.
    One commenter stated that Sec. 356.39(a)(1), which requires a 
bareboat charterer to submit an Affidavit of U.S. Citizenship to MARAD 
for review and approval prior to entering into such charter, is 
inconsistent with the requirements of the regulations unless MARAD 
plans to require pre-approval before the sale of each vessel. If so, 
the commenter suggested that MARAD should minimize the disruption of 
transactions by permitting a charterer to get an advance determination 
from the Citizenship Approval Officer that it is a

[[Page 44869]]

U.S. Citizen. The commenter also suggested that a vessel owner should 
be protected if it enters into a voyage or time charter with a person 
who has been determined by the Citizenship Approval Officer to be a 
U.S. Citizen. We intend to require approval of a bareboat charterer's 
citizenship before the parties may enter into the charter. However, an 
owner may enter into a bareboat charter without prior MARAD approval if 
the charterer has already been approved by the Citizenship Approval 
Officer as a U.S. Citizen. Accordingly, we would make a citizenship 
determination for an entity before it entered into a bareboat charter, 
minimizing the disruption to transactions between U.S. Citizens. In 
addition, the owner would be free to rely on the certification of the 
charterer that it was deemed by the Citizenship Approval Officer within 
the last year to be a U.S. Citizen where the owner did not otherwise 
have reason to know that the charterer no longer qualified as a U.S. 
Citizen.
    One commenter noted that Sec. 356.39(b)(1) contains typographical 
errors. The terms ``Fishing Vessel'' and ``Fish Processing Vessel'' 
should be plural and the words ``including Fish Tender Vessels and Fish 
Processing Vessels'' should be deleted. We agree and have made the 
technical corrections to Sec. 356.39(b)(1).
    The same commenter stated that Sec. 356.39(b)(2) should not require 
prior approval by MARAD of time and voyage charters of Fish Processing 
and Fish Tender Vessels to charterers who are Non-Citizens. The 
commenter asserted that the differences between a bareboat charter and 
time charter are readily apparent and the penalty, loss of the fishery 
endorsement, is sufficiently severe to keep people honest. Accordingly, 
the commenter suggested that such charters should be allowed to be 
submitted to MARAD within 30 days of execution as in Sec. 356.39(a)(2) 
for charters to U.S. Citizens.
    We do not agree with the commenter that MARAD review of the time 
and voyage charters to Non-Citizens is unnecessary. In order to ensure 
that an owner has not entered into a prohibited charter with a Non-
Citizen, we must know whether the parties to the charter are U.S. 
citizens and into what type of charter the parties have entered. 
Because any charter of a Fishing Vessel to a Non-Citizen for the 
purposes of harvesting fish is prohibited, we must confirm that all 
charterers of Fishing Vessels are U.S. Citizens. Accordingly, we have 
required in Sec. 356.39(a)(2) that a charterer claiming to be a U.S. 
Citizen submit an Affidavit of U.S. Citizenship. However, in 
Sec. 356.39(b)(2) we are authorizing time and voyage charters of Fish 
Processing Vessels and Fish Tender Vessels to Non-Citizens. Because a 
bareboat charterer steps into the shoes of the owner and is considered 
the owner pro hac vice, we believe that it is necessary to ensure that 
a charter with a Non-Citizen is indeed a time charter or voyage charter 
to ensure that such impermissible control is not transferred to a Non-
Citizen. Therefore, we will continue to require the approval of time 
and voyage charters to Non-Citizens prior to their execution. As we 
gain more experience over time with the participants and charters in 
the fishing industry, we may revisit whether it is necessary to pre-
approve time and voyage charters to Non-Citizens.
    The commenter also noted that Sec. 356.39(b)(2), which authorizes 
time or voyage charters to Non-Citizens of dedicated Fish Processing or 
Fish Tender Vessels, should be clarified to make clear that the vessel 
only needs to be ``dedicated'' as a fish harvesting or fish processing 
vessel during the period that it is on charter. The commenter stated 
that there is no policy reason for prohibiting a Fishing Vessel from 
being utilized as a Fish Tender Vessel or Fish Processing Vessel on a 
charter to a Non-Citizen when it is not being used as a Fishing Vessel. 
We agree that the ultimate use of the vessel should determine whether 
or not it can be chartered under a time or voyage charter to a Non-
Citizen. However, we disagree with the commenter's suggestion to allow 
Fishing Vessels to be chartered to Non-Citizens for use as Fish 
Processing Vessels and Fish Tender Vessels when not being used to 
harvest fish because it would be too difficult to track and police time 
and voyage charters of Fishing Vessels to Non-Citizens. If an owner 
wishes to time charter or voyage charter a Fishing Vessel for use as a 
Fish Processing Vessels or Fish Tender Vessel in order to fully utilize 
its vessel, it still has the option of chartering to a U.S. Citizen.
    One commenter suggested that Sec. 356.39 should allow bareboat 
charters of Fish Tender Vessels or Fish Processing Vessels to Non-
Citizens for operation outside of the United States. The commenter 
noted that this would be perfectly legal and, unlike Fishing Vessels 
for which there is a rationale to avoid operation outside of the United 
States, there is not a rationale for preventing what would be a logical 
use of the vessel outside of the United States. Furthermore, the 
commenter stated that there is no statutory authority to immediately 
invalidate the fishery endorsement of a Fish Tender Vessel or Fish 
Processing Vessel. We agree with the commenter that the same compelling 
reasons for limiting the use of Fishing Vessels outside of the United 
States do not exist for the charter of Fish Processing Vessels and Fish 
Tender Vessels. Accordingly, Sec. 356.39(b)(1) has been amended to 
allow bareboat charters of Fish Processing Vessels or Fish Tender 
Vessels to Non-Citizens for use outside of the United States.
    One commenter noted that the rule should make clear that a Non-
Citizen time charterer of a Fish Processing Vessel may hire, supervise, 
manage and direct the processing workers employed in the processing 
operations of the vessel without rendering the charter a bareboat 
charter. The commenter urged that the term ``crew'' be defined as 
limited to navigational and deck crew where restrictions on Non-Citizen 
control of the vessel's crew are described. We agree with the commenter 
that the term ``crew'' is intended to apply to the navigational and 
deck crew. Personnel that are solely involved in processing the catch 
may be hired and managed by a Non-Citizen time charterer, provided that 
they are engaged solely in the processing of the vessel's catch and are 
in no way responsible for or authorized to control the navigation, fish 
harvesting activities, or general operation of the vessel.
    Two commenters provided suggestions on Sec. 356.39(d). One 
commenter suggested that the section is unnecessary and should be 
deleted because it is clear that a violation of the rules could lead to 
a loss of the fishery endorsement. The commenter did not believe that 
it was necessary to restate the penalty here while the rule is silent 
elsewhere. At a minimum, the commenter thought that the provision 
should be amended to indicate that the fishery endorsement will be lost 
only if the vessel is chartered to a Non-Citizen and used for 
harvesting fish. The commenter stated that loss of the fishery 
endorsement for a violation of this section for a reason other than 
using the vessel for harvesting fish goes beyond the requirements of 
the AFA. The second commenter did not oppose the specification in 
Sec. 356.39(d) of the penalty for violating this section; however, the 
commenter thought it should provide for notice to the charterer if it 
was determined that there was a violation. We disagree with the first 
commenter's assertion that a loss of the fishery endorsement for a 
violation of the chartering restrictions goes beyond the scope of the 
AFA. If a charterer is deemed to have violated the chartering 
provisions, we would deem there to be an impermissible transfer of 
control to a Non-Citizen, which would

[[Page 44870]]

mean that the vessel owner is not eligible to own a vessel with a 
fishery endorsement. Accordingly, we do not plan to delete 
Sec. 356.39(d) from the rule. However, we agree with the second 
commenter that the owner should be notified if the Citizenship Approval 
Officer determines that there has been a violation of Sec. 356.39 and 
that the fishery endorsement is, therefore, being revoked.
Section 356.41  Management Agreements
    Several commenters suggested that Sec. 356.41(b) be amended to 
authorize quality control activities, management of fish processors and 
other non-navigational crew as elements of a management agreement with 
a Non-Citizen. Similarly, the commenters suggested that for time or 
voyage charters to Non-Citizens of Fish Processing Vessels and Fish 
Tender Vessels that are not used for harvesting fish, the Non-Citizen 
time charterer or voyage charterer should be permitted to hire, 
supervise, manage and direct the processing workers employed in the 
processing operations of the vessel without violating the Non-Citizen 
control provisions of the rule. The commenters noted that such quality 
control personnel are critical to maintain quality assurance of surimi 
and other processed products. Accordingly, the commenters urged that 
the term ``crew'' be defined as limited to navigational and deck crew 
and that the term ``operation of the vessel'' should be defined to 
exclude processing activities.
    We agree with the commenters that control of employees who are 
engaged solely in the processing operations of a vessel, including 
quality control personnel, is distinguishable from control over crew 
responsible for the navigation and general operation of the vessel. 
Accordingly, we will not consider the term ``crew'' to include any 
employees who are engaged solely in the processing of the fish and who 
are in no way responsible for or authorized to control the navigation, 
fish harvesting activities, or general operation of the vessel.
Section 356.43  Long-Term or Exclusive Sales and/or Marketing Contracts
    Several commenters stated that the AFA does not grant authority to 
MARAD to regulate long-term marketing arrangements or exclusive sales 
contracts of processed products. Even if MARAD did conclude that it had 
such authority, the commenters urged that the rule include elements of 
long-term sales contracts that are permissible and that reference to 
approval of long-term marketing arrangements be dropped. We agree with 
the commenters that the regulation of long-term marketing arrangements 
of a vessel's catch is unnecessarily broad and should be dropped from 
Sec. 356.43. However, we do not agree that the requirement of section 
203(c)(2) of the AFA that MARAD review contracts or agreements with 
Non-Citizens related to the sale of all, or substantially all, of the 
living marine resources harvested by a fishing vessel was intended to 
apply only to the sale of whole fish. Catcher/processors that sell all 
or substantially all of the living marine resources harvested by that 
vessel after performing some level of processing on the catch are still 
subject to control through such agreements by Non-Citizens. 
Accordingly, even if the living marine resources harvested by a vessel 
have been processed in some way, long-term contracts for the sale of 
those products that account for all or a significant portion of the 
vessel's catch are still covered by this regulation.
    One of the commenters who supported the approval of long-term or 
exclusive sales agreements without prior approval elaborated on the 
above comment by pointing out that the provisions in the regulation 
focus on harvesting vessels delivering to shoreside processors and do 
not address factory trawlers. The commenter stated that factory trawler 
agreements include additional contractual elements such as species and 
product type, expected quantities to be purchased, quality standards, 
conditions for consignment, responsibility for various costs of sales, 
terms and methods of payments, shipping instructions, and the possible 
engagement of a buyer's representative or technician. However, the 
commenter did not provide specific suggestions regarding contractual 
provisions that should be approved and no other information relating to 
standard provisions for such agreements with factory trawlers was 
submitted. Therefore, the final rule has not been amended and any 
additional terms that are specific to agreements with factory trawlers 
will have to be approved by the Citizenship Approval Officer.
    One commenter suggested that Sec. 356.43(b)(8) should be revised to 
allow the Non-Citizen purchaser also to provide processing or quality 
control technicians. We agree with this comment, provided the quality 
control technician or processing technician does not have the ability 
to control navigation, operation, or harvesting activities of the 
vessel.
    One commenter opposed our approach in Sec. 356.43 and stated that 
the rule should not allow exclusive sales or marketing contracts for 
all or a significant portion of a vessel's catch without prior review 
and approval in any case involving a Non-Citizen. The commenter stated 
that, as proposed, the regulations would allow a Non-Citizen to enter 
into an arrangement with a Fishing Vessel that is indistinguishable 
from a prohibited time or voyage charter. For example, the commenter 
pointed out that Sec. 356.43(a) would permit ``the employment of 
certain vessels on an exclusive basis for a certain period of time,'' 
while Sec. 356.43(b)(2) would permit the contract to specify the type 
of fish to be caught and the place at which the fish is to be 
delivered. The commenter stated that these provisions are identical to 
the requirements of a time or voyage charter and that the effort to 
``minimize disruptions to the fishing industry'' should not be 
translated into loopholes to the express limitations of the AFA. 
Therefore, the commenter recommended that Sec. 356.43 be revised to 
require that all contracts with a Non-Citizen for the sale of all or a 
significant portion of a Fishing Vessel's catch be submitted for 
approval prior to implementation, and that the rule prohibit any such 
contract if it permits the Non-Citizen to control the time, location, 
operation, or nature of the fishing activities.
    We believe that a long-term sales contract is distinguishable from 
a charter of the vessel and that certain provisions related to the 
timing and scheduling of deliveries are a necessary requirement for any 
processor to conduct an efficient operation and to avoid bottlenecks. 
These contracts may specifically provide that the purchaser has the 
right of first refusal to purchase all or a certain portion of an 
owner's or bareboat charterer's catch and/or that the owner or 
charterer agrees to sell all production of its vessels or a portion of 
the production of its vessels to the processor at fair market value.
Section 356.45  Advance of Funds
    One commenter suggested we make clear in Sec. 356.45(a)(1) that it 
addresses both funds advanced for products prior to delivery of the 
product to the buyer and provisional payments for product already 
delivered for consignment sales, but not yet sold. We agree that an 
advance of funds should also be allowed for provisional payments from a 
Non-Citizen for product already delivered for consignment but not yet 
sold.
    Several commenters stated that Sec. 356.45(a)(1) should not 
restrict the

[[Page 44871]]

advancement of funds to working capital expenditures or restrict the 
use of funds in any way. Rather, the commenters suggested that MARAD 
should focus on permissible and prohibited security, collateral, and 
other obligations by the vessel owner to the Non-Citizen in exchange 
for the advancement. The commenters stated that the inquiry should be 
whether the advance of funds is for a bona fide need of the vessel or 
would otherwise improve the operation of the vessel or its access to 
fish. Further, the commenters explained that the decision is often 
artificial or uncertain regarding whether the funds are used for 
capitalized improvements, so this requirement does not further the 
purposes of the AFA. Therefore, the commenters suggested that no 
restriction should be placed on an unsecured, uncollateralized 
advancement of sales proceeds. The commenters stated that the use of an 
unsecured advancement of funds for capital improvements to a Fishing 
Vessel should not be deemed evidence of a transfer of control to a Non-
Citizen.
    Another commenter elaborated on the advancement of funds and noted 
that such loans from processors to vessel owners are common in the 
fishing industry. The commenter explained that often these loans from 
fish processors to vessel owners are necessary because the vessel owner 
does not have enough collateral to provide security for the loan. In 
almost every situation, there is no unencumbered security available, 
and the processor is asked to take a junior credit position. The 
borrower is generally required to commit to the delivery of fish to the 
processor on a right of first refusal basis for a period of time or at 
least until the loan has been paid off; and to grant security for the 
loan including a preferred ship mortgage in the vessel. According to 
the commenter, Non-Citizen owned processors would be placed at a 
competitive disadvantage if they could not make such loans or had to 
wait 30, 60, or 90 days for MARAD to approve a transaction.
    Likewise, another commenter stated that the requirement in 
Sec. 356.45(a)(5) that advances of funds not be secured with an 
interest in the vessel is not appropriate as such a requirement would 
disrupt the standard practice in the fishing industry. Moreover, the 
commenter pointed out that even if a Non-Citizen processor did not 
require a preferred mortgage, an advance of funds for the purpose of 
procuring goods or services for the vessel (i.e., necessaries) likely 
gives rise to a lien on the vessel whether or not a mortgage is 
granted.
    We agree with the commenters that an advancement of funds should 
not be limited on the basis of whether those funds are used for working 
capital or capitalized improvements to the vessel because dollars are 
not readily traceable. A more appropriate consideration is what type of 
security is granted for the loan. Accordingly, we have amended the rule 
by striking the requirement that an advance of funds from a Non-Citizen 
can only be used for working capital. Although we recognize that loans 
from Non-Citizen processors secured by a preferred mortgage on the 
vessel may have been widely utilized in the past, the parties that can 
hold a preferred mortgage on a vessel are specifically delineated in 
section 202 of the AFA. A Non-Citizen is specifically prohibited from 
holding a preferred mortgage on a vessel.
    Several commenters requested that we clarify whether a Non-Citizen 
processor can obtain a preferred mortgage through a Mortgage Trustee as 
security for a loan to a vessel owner. We do believe that such a 
security interest in the vessel conveys too much control to a Non-
Citizen when considered in conjunction with other leverage that it may 
have over a vessel owner or charterer through a long term sales 
contract. Therefore, advancements of funds from Non-Citizen processors 
will not be permitted where the security for the loan is a security 
interest in the vessel. If a Non-Citizen processor wishes to lend money 
to a vessel owner or charterer it may only do so if the loan is 
unsecured or if the security for the loan is based on a sales agreement 
for the sale of a percentage of the catch from the vessel owner's 
vessels.
    One commenter stated that Sec. 356.45(a)(3) should not prohibit an 
advance of funds on the basis of a sales agreement if the agreement 
provides ``any right whatsoever to control the operation, management, 
and harvesting activities'' of a vessel. Instead, it should permit an 
advance of funds on the basis of a sales agreement which contains the 
terms approved in proposed Sec. 356.43(b). The commenter asserted that 
Sec. 356.43(b) clearly contemplates some degree of control over the 
management and harvesting activities of a vessel by a Non-Citizen and 
that it does not make sense to authorize these terms in one section and 
negate their use in another. We agree with the commenter and have 
amended Sec. 356.45 to clarify that the limitations on the ability of 
the Non-Citizen to control the operation and harvesting activities of 
the vessel are limited to those actions not explicitly authorized by 
Sec. 356.43.
    One commenter requested that Sec. 356.45(a)(2) be clarified to 
indicate what is meant by ``the annual value of the sales contract'' or 
why such a standard makes sense as a limit for the amount of the 
advance. We have amended the rule to clarify that the ``annual value of 
the sales contract'' refers to the total sums paid by the processor 
under the supply contract.
    A commenter noted that Sec. 356.45(b) provides a safe harbor for 
loans that are not secured by a sales or marketing agreement. The 
commenter stated that the reference to a Non-Citizen Lender with a 
``U.S. branch'' suggests that proposed Sec. 356.45(b) was intended to 
provide a safe harbor for Non-Citizen financial institutions. However, 
the language of the section is not so limited and the commenter asserts 
that there is no reason why the provision should be limited to a 
financial institution with a U.S. branch. The commenter suggests that 
the practical result of excluding processors from the safe harbor 
provisions of Sec. 356.43 and Sec. 356.45 will be to require case-by-
case approval of all financial arrangements between Non-Citizen 
processors and vessel owners. The commenter claims that this will 
severely burden such arrangements and leave vessel owners with few 
alternatives to obtain necessary financing for operating costs, repairs 
or capital improvements. Therefore, the commenter requests that ``U.S. 
branch'' be deleted from the provision to make clear that it is 
available to any Non-Citizen. We do intend to allow Non-Citizens other 
than financial institutions to enter into unsecured loans with vessel 
owners. However, the rule restricts the allowance of unsecured loans to 
a parties with a ``U.S. branch'' to assure that the foreign entity is 
subject to service of process in the United States.

Subpart G--Special Requirements for Certain Vessels

Section 356.47  Special Requirements for Large Vessels
    There were only a few comments related to the special requirements 
for larger vessels contained in Sec. 356.47. Two commenters requested 
that the rule be amended to state that for purposes of 46 U.S.C. 
12102(c)(6)(A)(iii) a vessel exceeding the length, tonnage, and 
horsepower threshold cannot be rendered ineligible for a fishery 
endorsement by reason of the failure to file an application for a new 
fishery endorsement within 15 business days after an event causing the 
endorsement to become invalid unless the owner failed to file such an 
application after

[[Page 44872]]

having received written notice that the fishery endorsement was 
invalidated and a complete statement as to the grounds for such 
invalidation. The commenters noted that this concept was discussed in 
the preamble of the NPRM but was not actually included in the rule. We 
agree with the comment and have amended Sec. 356.47 accordingly.
    Another commenter claimed that the 15 business-day time period to 
respond to an invalidated endorsement is too short under any 
circumstances to respond. The commenter pointed out that senior 
personnel in the fishing industry are often away from their desks for 
extended periods of time during the fishing season, and notice of this 
kind could easily be overlooked, without fault of the company, for 
longer than 15 business-days. In addition, in cases where the 
invalidation of a fishery endorsement was due to an impermissible 
change in Non-Citizen ownership, or failure of a Non-Citizen owner or 
Mortgagee to qualify for or retain a treaty exemption, the proposed 15 
business-day cure period is entirely too short and would result in a 
fire sale of the vessel. We understand the commenter's concern; 
however, the 15 business-day time period is a statutory requirement and 
MARAD does not have discretion to provide for a longer period of time.
    One commenter stated that while the requirement in 
Sec. 356.47(a)(3) that a vessel possess an engine or engines ``capable 
of producing a total of more than 3,000 shaft horsepower'' is 
consistent with the language of the statute, it is overly broad and 
could be misinterpreted. The commenter suggested that the intent of the 
statute was to limit the power of the vessel's propulsion engines, but 
that the term ``shaft horsepower'' does not necessarily refer to the 
output at the vessel's propeller shafts and could be interpreted to 
include all engines aboard the vessel including auxiliaries for 
hydraulics, electrical equipment, etc.
    In addition, the commenter noted that use of the term ``capable 
of'' to describe the horsepower produced by the engines is overly broad 
as the term could refer to the maximum possible horsepower rating 
rather than the horsepower that the engine produces in its actual 
service rate. For example, the commenter noted that a Caterpillar 3516 
marine diesel engine would be rated at 3,000 horsepower at 1,925 rpm 
for fast passenger vessels and patrol craft, but would only be rated at 
1,200 horsepower at 900 rpm when ``A'' rated for continuous duty 
operation. Therefore, a new fishing vessel with two 3516's in 
continuous duty operation would have a combined output of 2,400 
horsepower, well within the limits of the law and regulation. However, 
under the proposed regulation the vessel could be in interpreted as 
having engines ``capable of producing a total of'' 6,000 horsepower, 
nearly double the threshold of the regulations.
    We agree with the commenter that the AFA was intended to limit the 
propulsion horsepower of the vessel's engines as they are rated for 
their intended use. Accordingly, we have amended Sec. 356.47(a)(3) to 
clarify that rule applies to the rated horsepower and does not include 
other auxiliary engines.
Section 356.51  Exemptions for Specific Vessels
    One commenter pointed out that there was a technical error in 
Sec. 356.51(c) and that it should read that the NORTHERN VOYAGER and 
NORTHERN TRAVELER must be used in a fishery governed by the authority 
of either the New England Fishery Management Council or the Mid-
Atlantic Fishery Council rather than a fishery other than one governed 
by one of these fishery councils. The technical correction was made to 
the final rule.
    One commenter noted that pursuant to the newly enacted 46 U.S.C. 
12102(c)(5), the new citizenship regime does not apply at all to some 
of the Western Pacific fisheries. The commenter stated that it expected 
the Coast Guard to implement two fishery endorsements, one applicable 
generally under the AFA and one limited to service in the relevant 
Pacific fisheries. The commenter suggested that the regulations deal 
with these vessels either in a scope provision that serves as a gloss 
on all of part 356, or at least at the places where phrases like 
``eligible for a fishery endorsement'' or the like are used.
    We recognize that these vessels are exempt from the new citizenship 
requirements and have already addressed this in the proposed rule. 
Section 356.51(e) (now section 356.51(d)) exempts Fishing Vessels, Fish 
Processing Vessels, and 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. 
1852(a)(1)(H)) from compliance with the new citizenship standards and 
Mortgagee requirements established by the AFA and part 356. In order to 
obtain a fishery endorsement, the vessel owner is still required to 
demonstrate in an Affidavit of U.S. Citizenship that it complies with 
the ownership and control requirements in effect prior to the passage 
of the AFA and to note on its Affidavit of U.S. Citizenship that it is 
claiming an exemption pursuant to this subpart, so that we can 
appropriately notify the Coast Guard if the vessel owner qualifies for 
a fishery endorsement.

Subpart H--International Agreements

Section 356.53  Conflicts With International Agreements
    We received a number of comments related to section 356.53 and the 
process to exempt vessel owners and Mortgagees from the requirements of 
the rule where there is deemed to be a conflict between the 
requirements of the rule and an international agreement or treaty to 
which the United States is a party. Several commenters noted that they 
believed that there was indeed a conflict between the requirements of 
the AFA and the Treaty of Friendship, Commerce, and Navigation 
(``FCN'') between the United States and Japan and the FCN between the 
United States and Korea. These commenters stated that harming Japanese 
interests violates the AFA's provisions requiring that MARAD ``minimize 
disruptions to the commercial fishing industry, to the traditional 
financing arrangements of such industry, and to the opportunity to form 
fishery cooperatives.''
    The commenters noted that Article V of the U.S.-Japan FCN prohibits 
``unreasonable measures that would impair the legally acquired rights 
or interests'' of Japanese nationals or companies. These commenters 
stated that the regulations and the AFA are in conflict with the U.S.-
Japan FCN because the law fails to provide for ``prompt payment and 
compensation'' for what amounts to a taking. The commenters further 
explained that failure of the rule to address the treaty issue has 
placed relationships with Japanese owned entities in the fishing 
industry in unnecessary jeopardy and is likely to have a significant 
adverse economic effect on the U.S. fishing industry as this 
uncertainty may cause Japanese interests to sell rather than wait for 
the final rule or determination by MARAD.
    Several commenters asserted that the final rule should acknowledge 
that the rules and the U.S.-Japan FCN are inconsistent and that it 
should state that any owner or Mortgagee that makes the required 
factual showing that it is covered by the U.S.-Japan FCN will be 
exempted from the final rule. The commenters also stated that the

[[Page 44873]]

proposed rule ignores the affirmative obligation of the United States 
to rule on the applicability of the U.S.-Japan FCN, and thus attempts 
to shift the burden to the Japanese investors and lenders to assert the 
conflict on an individual, case-by-case basis. The commenters stated 
that all Japanese companies would not be assured of an exemption from 
the requirements of the AFA due to the procedural review mechanism, 
which would require a private company to provide interpretations of the 
FCN, a matter which they asserted is the obligation of the U.S. 
Government.
    In contrast, one commenter stated that a liberal interpretation of 
the investment treaties with Japan and Korea would eliminate the 
intended effect of the new ownership requirements in the nation's 
largest fishery. The commenter stated that Congress could not have 
intended such a result inasmuch as all of the treaties were given 
advice and consent of the Senate and were thus known to Congress. 
Nevertheless, the commenter pointed out that the Conference Report 
states that ``[w]hile Congress does not believe that any of the 
requirements of the American Fisheries Act violate any international 
agreements relating to foreign investment to which the United States is 
a party, subsection [213](g) is included as a precaution.'' 
Furthermore, the commenter stated that the FCN treaties were general in 
nature and were negotiated for the purpose of granting most-favored-
nation trading status to the other nations with respect to tariffs.
    The commenter noted that the U.S. has consistently exempted vessel 
ownership statutes from multilateral agreements dealing with trade and 
investment. The final act establishing the World Trade Organization, 
signed on April 15, 1994, adopted a series of additional 
understandings, one of which made it clear that the new WTO provisions 
did not apply to national legislation restricting vessel ownership and 
use within a nation's territorial sea or exclusive economic zone. In 
addition, the commenter stated that the North American Free Trade 
Agreement (NAFTA) contains a reservation in Annex II dealing with water 
transportation which states that the U.S. reserved the right to adopt 
any new measure or maintain any existing measure covering investments, 
ownership, control and operation of vessels engaged in fishing in the 
U.S. territorial sea or exclusive economic zone. Among the statutes 
identified in the Act are the Commercial Fishing Industry Vessel Anti-
Reflagging Act, which established majority U.S. ownership and control 
requirements for all fishing industry vessels. The commenter asserted 
that the United States clearly must have believed that it could apply 
existing and new requirements to nationals of Canada and Mexico.
    In any event, the commenter noted that the Anti-Reflagging Act 
contained requirements that all fishing vessels be majority owned and 
controlled by U.S. Citizens. Even if the U.S.-Korea and U.S.-Japan FCN 
treaties are stretched to cover fishing industry investment, the 
commenter suggested that any investment made after January 11, 1988, 
must now comply with the majority ownership and control requirements 
implemented by the Anti-Reflagging Act, regardless of any previous 
grandfathering that may have applied to a specific vessel under section 
7(b) of that Act. By repealing section 7(b) in 204 of the AFA, the 
commenter stated that Congress eliminated the exemption provided to 
vessels and clearly intended that all Non-Citizen investment in the 
U.S. fishing industry must meet the majority ownership requirements 
after January 11, 1988.
    The final rule promulgates a process under which a vessel owner or 
Mortgagee may petition MARAD for a determination that there is a 
conflict between the requirements of the final rule and an 
international agreement and that the vessel owner or Mortgagee is 
therefore exempt from the requirements of the rule. We do not agree 
with the comments that it is an affirmative duty of the United States 
Government to pronounce its interpretation of the treaties in the rule 
or that it would be a hardship on private sector companies to advance 
an argument as to why they believe they should be exempt from the 
requirements of the rule. Therefore, we intend to maintain our process 
in the final rule for making determinations regarding the exemption of 
certain vessel owners and Mortgagees on the grounds that there is a 
conflict with an international agreement or treaty and the AFA as 
implemented in the rule.
    Several commenters noted that the proposed rule implicitly invites 
submission of petitions any time after issuance of the rule in final 
form, but fails to state this explicitly. The commenters urged that the 
rule explicitly state that the petitions will be received as soon as 
the rule becomes final. We agree and have amended the final rule 
accordingly.
    In addition, several commenters noted that there is no time 
schedule for review of petitions by MARAD. The commenters pointed out 
that a time frame is included for analogous situations in the rule, 
such as citizenship determinations under Sec. 356.15(a) and suggested 
that we include a time frame for decision-making related to exemptions 
under Sec. 356.53. The suggested time frames ranged from 45 days to120 
days. The commenters stated that failure to provide a prompt response 
to an exemption petition will have the effect of a denial, since 
uncertainty can have the same adverse effect as a definitive 
requirement to divest. We agree with the commenters that a time frame 
for MARAD decision should be included in the rule, and we have amended 
Sec. 356.53 to indicate that absent any extenuating circumstances, a 
decision will be rendered within 120 days of the receipt of a fully 
completed petition. After consulting with the federal agencies who have 
responsibility for interpreting investment treaties, we have concluded 
that under most circumstances we should be able to render a decision 
within the 120 day time frame. However, because we do not know how many 
petitions we may receive, how complicated the petitions will be, how 
many investment agreements we may be required to address 
simultaneously, or what other unforseen circumstances may be presented, 
it is possible that the work load at a given point in time or other 
extenuating circumstances could prevent us from rendering a decision 
within 120 days. We recognize the importance of obtaining a decision on 
a petition in a timely manner and of knowing when that decision will be 
rendered; therefore, if the Chief Counsel concludes that it will not be 
possible to render a decision within the 120 day time frame, the 
petitioner will be notified around the 90th day after the completed 
petition is received that a decision will not be rendered within 120 
days. The Chief Counsel will advise the petitioner at the time of that 
notification of the date on which MARAD expects to render a decision.
    Other commenters suggested that any petitions should be subject to 
publication in the Federal Register with an opportunity for the public 
to comment given the precedential value of these decisions. We agree 
with the commenters and have amended the rule to include a requirement 
that each application be noticed in the Federal Register with an 
opportunity for comment. The Federal Register notice will include the 
petitioner's description regarding how the AFA and Part 356 are in 
conflict with a particular investment treaty or agreement, but it will 
not include proprietary or confidential information about the 
petitioner. The Chief Counsel, in consultation with other departments 
and agencies within

[[Page 44874]]

the Federal Government that have responsibility or expertise related to 
the interpretation or application of international investment 
agreements (e.g., the Department of State, United States Trade 
Representative, Department of Treasury, etc.), will review the petition 
and the public comments to determine whether the international 
agreement and the requirements of the AFA and Part 356 are in conflict.
    Several commenters noted that information in Secs. 356.53(b), (d), 
and (e) only addresses owners of vessels and would be either 
inappropriate or irrelevant for a foreign mortgagee. They pointed out 
that the rule does not describe the information that a foreign 
mortgagee must submit. We agree with the comments and have amended 
Sec. 356.53(b), (d) and (e) to address the particular information that 
must be submitted by a Non-Citizen mortgagee. It should be noted that 
Sec. 356.53(d) has been divided and the second part has been renumbered 
as Sec. 356.53(e). Subsection (e) and (f) have been renumbered as (f) 
and (g) respectively.
    A number of commenters stated that the rule should recognize that 
the owner of a vessel may be seeking an exemption from any of the 
control provisions of the AFA and should clearly state that an owner 
that is deemed to be exempt does not have to abide by the control 
provisions in its dealings with Non-Citizens since the owner is now 
outside the scope of the rule. The commenters stated that the rule 
should be clarified to anticipate petitions for exemption from the 
``control'' provisions with respect to other types of business 
arrangements (such as exclusive sales contracts) incidental to a 
mortgage. Further, the commenters stated that the rule should make 
clear that anyone that has an ownership interest may utilize the 
petition process, e.g., a minority shareholder with a direct or 
indirect interest. We agree with the commenters that a minority 
shareholder should be allowed to petition for an exemption.
    One commenter offered a technical correction to Sec. 356.53(d) of 
the NPRM, pointing out that the language should include a reference to 
a conflict with 46 U.S.C. 31322(a). We agree with the commenter and 
have amended Sec. 356.53(d).
    One commenter noted that Sec. 356.53(d) should also include a 
statement that the pre-AFA documentation requirements included a 
prohibition on control by a foreign national. Those issues are not 
addressed in this rule and will be considered when acting on requests 
under Sec. 356.53.
    One commenter noted that the rule does not provide for an 
opportunity for comment or appeal if the agency rules against a 
petition for exemption. Accordingly, the new Sec. 356.53(e) will allow 
for an appeal to the Maritime Administrator within 15 business-days of 
the issuance of a decision by the Chief Counsel.
    Section 356.53(f)(2) of the NPRM states that an exemption under 
Sec. 356.53 is terminated ``if any ownership interest in [the owner of 
a fishing industry vessel] is transferred to or otherwise acquired by a 
Non-Citizen after [October 1, 2001].'' Several commenters felt that it 
was clear from the AFA, and should be made explicit in the regulations, 
that the term ``owner'' in this provision relates only to the U.S. 
vessel-owning company and not to the mere change of one share of the 
foreign investor, which may be publicly traded. The commenters 
supported their argument by noting that the balance of stock shares of 
a Non-Citizen investor, which by definition is not relied upon for 
citizen ownership or control requirement, is of no concern under the 
AFA. The commenters recommend that the rule clarify that such an 
exemption-ending ownership change refers only to an equity shift in the 
U.S. vessel-owning company, not any parent foreign companies, which, 
for example, may be publicly traded on foreign markets.
    We agree with the commenters and have made clear in 
Sec. 356.53(g)(2) of the final rule that an ownership interest is 
deemed to be transferred under this subsection when there is a transfer 
of interest in the primary vessel-owning entity. The amendments further 
clarify that we will not consider a transfer of interest in the primary 
vessel-owning entity to take place where: (1) The primary vessel-owning 
entity is a publicly traded company and the transfer is of disparately 
held shares totaling less than 5% of the shares in that class; (2) the 
transfer is of shares in a parent company of the primary vessel-owning 
entity and the transfer does not result in a transfer of the parent 
company to another Non-Citizen; or (3) the transfer is pursuant to a 
divorce or death. However, an interest in a vessel owning entity that 
exceeds 5% of the shares in a class can not be sold to the same Non-
Citizen through multiple transactions involving less than 5% of the 
shares of that class of stock in order to maintain the exemption for 
the vessel owner.
    We made one additional change to Sec. 356.53 on our own initiative 
to require that a petition for an exemption be filed with the Chief 
Counsel of the Maritime Administration as opposed to the Citizenship 
Approval Officer. References in Sec. 356.53 to the Citizenship Approval 
Officer have therefore been changed to the Chief Counsel. In addition, 
we have clarified in Sec. 356.53 that the Chief Counsel will make his 
decision in consultation with other departments and agencies within the 
Federal Government that have responsibility or expertise related to the 
interpretation or application of international investment agreements 
(e.g., the Department of State, United States Trade Representative, 
Department of Treasury, etc.).

Subpart I--Review of Harvesting and Processing Compliance

Section 356.55  Review of Compliance With Harvesting and Processing 
Quotas.
    One commenter noted that MARAD should suspend rulemaking under 
subpart I until the National Marine Fisheries Service (``NMFS'') has 
promulgated a processing and excessive share regulation and should 
adopt whatever definition of ``entity'' is used in the fishery 
regulations. We determined that it is not necessary to suspend our 
rulemaking under Subpart I; however, we decided that a number of 
changes to Sec. 356.55 are appropriate. Those changes include:
     Making the Chief Counsel of the Maritime Administration 
the appropriate official to make the necessary findings under 
Sec. 356.55.
     Describing in Sec. 356.55(b) the type of information that 
the Chief Counsel will request from the National Marine Fisheries 
Service or the North Pacific Fishery Management Council (``NPFMC'').
     Clarifying in a new paragraph Sec. 356.55(c) that any 
requests for information from the parties involved will be transmitted 
to the parties by the Chief Counsel through the Secretary of Commerce 
and/or the NPFMC.
     Redesignating paragraphs (c), (d), and (e) as (d), (e), 
and (f) respectively.
     Amending the newly designated paragraph (f) to clarify 
that it is within the Secretary of Commerce's discretion to determine 
either, on the basis of MARAD's finding or other evidence, if there is 
enough evidence to pursue an enforcement action for a violation of the 
harvesting or processing caps contained in Sec. 210(e) of the AFA.
     Deleting former paragraph (f) relating to penalties. 
Penalties will be assessed by the National Oceanic and Atmospheric 
Administration.

Rulemaking Analysis and Notices

Executive Order 12866 (Regulatory Planning and Review)

    This final rule is a significant regulatory action under section 
3(f) of

[[Page 44875]]

Executive Order 12866 and was reviewed by the Office of Management and 
Budget. The rule is not economically significant under section 3(f)(1) 
of the Executive Order. The rule is significant under the Regulatory 
Policies and Procedures of the Department of Transportation, 44 FR 
11034 (February 26, 1979), because of significant public and 
congressional interest.
    This final rule establishes 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 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 fewer than 550 of these vessels are 100 feet or greater in 
registered length and thus subject to these final 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 United States. 
Therefore, owners that comply with the ownership requirements may still 
be affected by this rule 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 interfere unduly 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 affected by this rule 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 Non-Citizen Lenders may incur 
some cost associated with using a qualified Mortgage Trustee to hold 
the Preferred Mortgage, the burden will be minimal; Non-Citizen Lenders 
will not be prohibited from financing Fishing Vessels, Fish Processing 
Vessels, or Fish Tender Vessels; and, no more than minimal costs are 
likely to be passed on to vessel owners.
    We do not have additional cost estimates regarding the total cost 
of the requirements of the statute or this rule because little cost 
information was submitted by the industry in response to the ANPRM and 
the NPRM and no one disputed the above assessment. The preliminary 
regulatory analysis reflects the comments that were received in 
response to the ANPRM and NPRM.

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 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 
203(c) that we rigorously scrutinize certain transactions, is the more 
general mandate of 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.
    The Affidavit of U.S. Citizenship required for an entity owning a 
Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel to 
provide evidence of United States citizenship is modeled after our 
existing regulations in 46 CFR part 355. 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.
    We have also reviewed alternatives with respect to the approval and 
oversight of mortgages and Mortgage Trustees. While 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

[[Page 44876]]

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 a Fishing Vessel, Fish 
Processing Vessel, or Fish Tender 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 simply to 
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 its 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 Non-Citizen Lenders regarding qualified Mortgage Trustees, 
and will simplify the process for owners to obtain financing from Non-
Citizens.
    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 
consultation with State and local officials. 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.

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 section 3 of the Small Business Act (15 U.S.C. 632). 
We believe that the cost of complying with these proposed regulations 
will be minimal. Therefore, MARAD certifies that this rule will not 
have a significant economic impact on a substantial number of small 
entities.
    In our effort to determine whether there are a substantial number 
of small entities that may be affected by this 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 a NPRM 
entitled Eligibility of U.S.-Flag Vessels of 100 Feet or Greater in 
Registered Length To Obtain a Fishery Endorsement to the Vessel's 
Documentation, 65 FR 646 (January 5, 2000) 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 60-day comment period for the ANPRM and 
three public meetings during the 45-day comment period for the NPRM to 
obtain oral and written comments from the public. Although the comments 
in response to the ANPRM and the NPRM provided us with some valuable 
information, we only received four comments from entities that 
identified themselves as small entities, and we did not receive 
specific information regarding the economic impact on small entities 
that may result from this rulemaking.
    This 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, we have not 
received any comments indicating that the rulemaking will have a 
significant economic impact on small entities. We estimate that of the 
nearly 33,000 vessels that have a fishery endorsement, fewer than 550 
are 100 feet or greater in registered length and thus subject to this 
final rule. We further estimate that there are approximately 400 vessel 
owners within this group of 550. Only one commenter responded to the 
NPRM that several of its members who are subject to the rule would be 
classified as small businesses; however, the commenter did not provide 
a specific number of small entities that would be subject to the rule 
or argue that the rule would result in a significant economic impact on 
a substantial number of small entities.
    We estimate that less than 6 percent of the 550 vessels potentially 
subject to this final 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 Citizen ownership 
requirement may still be affected by the proposed rule if the

[[Page 44877]]

vessel is mortgaged to a financial institution 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 financial institution 
that does not qualify, the financial institution 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, we have concluded that 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 are expected to 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)''.

Environmental Impact Statement

    We have analyzed this rule 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 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 that clearly have no environmental impact.

Paperwork Reduction Act

    This rulemaking establishes a new requirement for the collection of 
information. The Office of Management and Budget (``OMB'') has reviewed 
and approved the information collection requirements under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq.) and assigned 
OMB control number 2133-0530. Comments received on this information 
collection are discussed in the ``Comments on the Proposed Rule'' 
section of this notice of final rule.

Unfunded Mandates Reform Act of 1995

    This final rule will not impose an unfunded mandate under the 
Unfunded Mandates Reform Act of 1995. It will 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.

Regulation Identifier Number

    A regulation identifier number (RIN) is assigned to each regulatory 
action listed in the Unified Agenda of Federal Regulations. The 
Regulatory Information Service Center publishes the Unified Agenda in 
April and October of each year. The RIN number contained in the heading 
of this document can be used to cross reference this action with the 
Unified Agenda.

List of Subjects in 46 CFR Part 356

    Citizenship and naturalization, Fishery endorsement, Fishing 
vessels, Mortgages, Mortgage trustee, Penalties, Preferred mortgages, 
Reporting and recordkeeping requirements, Vessels.

    Accordingly, we are adding 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 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; Pub. L. 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 1.66.
Subpart A--General Provisions


Sec. 356.1  Purpose.

    (a) Part 356 implements the U.S. Citizenship requirements of the 
American Fisheries Act of 1998, as amended, Title II, Division C, 
Public Law 105-277, for owners, Mortgage Trustees, and Mortgagees of 
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.
    (b) An agency may not conduct or sponsor and a person is not 
required to respond to a collection of information unless it displays a 
currently valid OMB

[[Page 44878]]

control number. Part 356 establishes a new requirement for the 
collection of information. The Office of Management and Budget 
(``OMB'') has reviewed and approved the information collection 
requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, 
et seq.) and assigned OMB control number 2133-0530 to the information 
collection requirements of this part 356.


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, 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. 
802(c), and 46 U.S.C. 12102(c).
    (b) AFA means the American Fisheries Act of 1998, as amended, Title 
II, Division C, of Public Law 105-277;
    (c) Affiliate or Affiliated refers to a Person that directly or 
indirectly through one or more intermediaries, controls, or is 
controlled by, or is under common control with, the first Person. For 
the purposes of this definition the term ``control'' (including the 
terms ``controlled by'' and ``under common control with'') means the 
possession, directly or indirectly, of the power to direct or cause the 
direction of the management policies of a Person, whether through the 
ownership of voting securities, by contract, as trustee or executor, or 
otherwise.
    (d) 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.
    (e) 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 section 
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 (e)(2) of this section 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 co-venturer 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.
    (f) 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, SW., Washington, DC 20590.
    (g) Controlling Interest:
    (1) Means, in the context of an entity, that in both form and 
substance, at each tier of ownership and in the aggregate, the entity 
satisfies the controlling interest requirements of section 2(b) of the 
1916 Act, 46 App. U.S.C. 802(b). In order to satisfy the statutory 
requirements, an entity other than an individual must meet the 
requirements of paragraph (g)(2) of this section 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:

[[Page 44879]]

    (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;
    (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 to 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;
    (3) A state or federally chartered financial institution that meets 
the Controlling Interest requirements of paragraphs (g)(1) and (2) of 
this section is deemed to be a Citizen of the United States for all 
purposes under subpart D of this part other than operation of the 
vessel pursuant to Sec. 356.25.
    (h) 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;
    (i) 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;
    (j) 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;
    (k) 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;
    (l) 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;
    (m) 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)
    (n) 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.
    (o) 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).
    (p) Non-Citizen Lender means a lender that does not qualify as a 
Citizen of the United States. A state or federally chartered financial 
institution that meets the requirements of Sec. 356.3(g) is considered 
a Citizen of the United States for all purposes of subpart D of this 
part other than operation of the vessel pursuant to Sec. 356.25.
    (q) Person includes an individual, corporation, partnership, joint 
venture, association, limited liability company, Trust, 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.
    (r) 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 46 U.S.C. 
12102(c)(4).
    (s) Related Party means a holding company, subsidiary, affiliate, 
or associate of a Non-Citizen or an officer, director, agent, or other 
executive of the Non-Citizen or of a holding company, subsidiary, 
affiliate or associate thereof.
    (t) 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.
    (u) 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;
    (v) Trust means:
    (1) In the case of ownership of a Fishing Vessel, Fish Processing 
Vessel,

[[Page 44880]]

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 through 356.37.
    (w) 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, and any other territory or 
possession of the United States; when used in other than the geographic 
sense, it means the United States Government.
    (x) United States Government means the Federal Government acting by 
or through any of its departments or agencies.

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://www.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 ________ Social Security Number: 
________
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 45 days of the annual documentation renewal date for 
vessel owners. Other parties required to provide evidence of U.S. 
citizenship status must file 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, and 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)

[[Page 44881]]

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% 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) class 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 Preferred 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 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 
Sec. 356.7(c), the extent of U.S. Citizen ownership of stock should be 
ascertained in the requisite percentage (65 % for state or federally 
chartered financial institutions and 95 % for Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel owners, bareboat charterers, 
trustees, as well as entities owning 5% or more of the stock of such 
entities). 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% 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.

    Non-Citizens 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 Non-Citizens owning or 
controlling more

[[Page 44882]]

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:
    (a) Non-Citizens that own or control 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; and
    (b) Non-Citizens that own or control 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, the total 
ownership and control by Non-Citizens 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.


Sec. 356.11  Impermissible control by a Non-Citizen.

    (a) An impermissible transfer of control will be deemed to exist 
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. The 
right to ``direct the business of the entity'' does not include the 
right to simply participate in the direction of the business activities 
of an entity which owns a Fishing Vessel, Fish Tender Vessel or Fish 
Processing Vessel;
    (2) Has the right in the ordinary course of business 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. Standard rights of minority 
shareholders to restrict the actions of the entity are permitted 
provided they are unrelated to day-to-day business activities. These 
rights include provisions to require the consent of the minority 
shareholder to sell all or substantially all of the assets, to enter 
into a different business, to contract with the majority investors or 
their affiliates or to guarantee the obligations of majority investors 
or their affiliates;
    (3) Has the right to direct the transfer, operation, or manning of 
a Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel. The 
right to ``direct the transfer, operation, or manning'' of such vessels 
does not include the right to simply participate in the direction of 
the transfer, operation, and manning of such vessels;
    (4) Has the right to restrict unduly 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 other than those approved for use by the Citizenship Approval 
Officer or other means;
    (5) Has the right to derive, through a minority shareholder and in 
favor of a Non-Citizen, a significantly disproportionate amount of the 
economic benefit 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 or 
where it is necessary in order to allow a Non-Citizen to dissolve its 
interest in the entity;
    (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 Non-Citizen 
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 law firm, 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 considerable 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 arm's-length basis;
    (7) If a Non-Citizen time charterer has the general right to 
inspect the books and records of the owner, bareboat charterer, or time 
charterer of a Fish Processing Vessel or Fish Tender Vessel;
    (8) If the owner or bareboat charterer uses the same insurance 
agent, law firm, accounting firm, 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; or
    (9) If a Non-Citizen has the right to control, whether through 
sale, lease or other method, the fishing quota, fishing rights or 
processing rights allocated to a vessel or vessel-owning entity.
    (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 a Non-Citizen, we will notify 
the entity of the concern and work with the entity toward a 
satisfactory resolution, provided there is no verifiable evidence of 
fraud. 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.

[[Page 44883]]

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. 356.15, 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 has not been approved by MARAD as a U.S. Citizen, excepting 
standard loan agreements from Non-Citizen Lenders where the Non-Citizen 
Lender has been granted approval from the Citizenship Approval Officer 
pursuant to Sec. 356.21 to enter into such loans without transactional 
approval from MARAD;
    (6) A description of any operating and/or management agreements 
entered into between the owner or bareboat charterer of a Fishing 
Vessel, Fish Processing Vessel, or Fish Tender Vessel and an entity 
that has not been determined by MARAD to be a U.S. Citizen, 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) Copies of any sales or purchase agreements that relate to the 
sale or purchase of all or a significant portion of a vessel's catch 
where the agreement is with an entity that has not been determined by 
MARAD to be a U.S. Citizen and the agreement contains provisions that 
could convey control to a Non-Citizen other than those expressly 
authorized in Sec. 356.43. Agreements that only contain provisions 
expressly authorized in Sec. 356.43 do not have to be submitted; 
however, the agreements and the parties to the agreements must be 
identified;
    (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 where 
all of the parties have not been determined by the Citizenship Approval 
Officer to be U.S. Citizens;
    (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; and
    (12) Any contract or agreement that purports to sell, lease or 
otherwise transfer to a Non-Citizen the fishing rights, a fishing 
quota, a processing quota or any other right allocated to a vessel 
owner, bareboat charterer, or a particular Fishing Vessel, Fish 
Processing Vessel or Fish Tender Vessel.
    (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) Prior to June 1, 2001, the owner of a Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel may request a letter ruling 
from the Citizenship Approval Officer 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 calendar days of receiving all 
applicable documents.
    (b) An owner that receives a letter ruling pursuant to paragraph 
(a) of this section must submit 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. The certification must be submitted no earlier than 
September 10, 2001 and no later than September 20, 2001. 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

[[Page 44884]]

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 
including all required documentation is not submitted by June 1, 2001, 
the Citizenship Approval Officer may not have sufficient time to make a 
citizenship determination 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) A vessel owner that has a valid fishery endorsement prior to 
October 1, 2001, must obtain a citizenship determination from the 
Citizenship Approval Officer no later than October 1, 2001, which 
states that the owner is a U.S. Citizen eligible to own a vessel with a 
fishery endorsement. If the owner obtains the required determination 
from the Citizenship Approval Officer, the fishery endorsement will 
remain valid and will be subject to renewal at the time of its next 
regularly scheduled annual filing to document the vessel with the Coast 
Guard, at which point the owner will be required to obtain an annual 
ruling from the MARAD's Citizenship Approval Officer that it is still a 
U.S. Citizen. If a vessel owner that owns a vessel with a valid fishery 
endorsement prior to October 1, 2001, does not obtain the required 
determination from the Citizenship Approval Officer by October 1, 2001, 
the vessel's fishery endorsement will necessarily be deemed invalid. In 
order to obtain a new fishery endorsement, the vessel owner will be 
required to obtain a citizenship determination from the Citizenship 
Approval Officer and to apply to the U.S. Coast Guard for a new fishery 
endorsement.
    (e) 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 whether the owner is eligible to own a vessel with a 
fishery endorsement to the vessel's documentation. A vessel may not 
receive a fishery endorsement to its documentation or operate in the 
fisheries of the United States before this determination has been made.
    (f) If the Citizenship Approval Officer believes that there is a 
defect in the Affidavit of U.S. Citizenship or the supporting 
documentation, the applicant will be notified and will be given an 
opportunity to work with the Citizenship Approval Officer to resolve 
the matter before a determination is made whether the applicant 
qualifies as a U.S. Citizen.


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. The vessel 
owner does not have to submit duplicate copies of documents that have 
already been submitted and that have not changed, provided a copy is 
still retained by us. 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) The annual certification required by paragraph (a) of this 
section must be filed at least 45 days prior to the renewal date for 
the vessel's documentation and fishery endorsement. Owners of multiple 
vessels with different documentation renewal dates are only required to 
file an Affidavit of U.S. Citizenship and supporting documentation in 
conjunction with the first vessel renewal during each calendar year. To 
satisfy the citizenship approval requirements for the renewal of a 
fishery endorsement for another vessel in the same calendar year, the 
owner must submit a certification to the Citizenship Approval Officer 
at least 45 days prior to the renewal date for the vessel's fishery 
endorsement stating that the Affidavit of U.S. Citizenship and 
supporting documentation already on file with the Citizenship Approval 
Officer for the first renewal in that calendar year of a fishery 
endorsement for a vessel of 100 feet or greater in registered length 
belonging to that owner continues to be true and accurate. Any 
information or supporting documentation unique to a particular vessel 
that would normally be required to be submitted under Sec. 356.13 or 
any other provision of this part 356 such as charters, management 
agreements, loans or financing agreements, sales, purchase or marketing 
agreements, or exemptions claimed under the rule must be submitted with 
the annual filing for that vessel if the documents are not already on 
file 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 through 
356.31.
    (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 at least 30 calendar days prior to the 
annual anniversary date 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

[[Page 44885]]

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 deviations from 
the standard agreement or covenants that were not reviewed and approved 
by the Citizenship Approval Officer. The certification must be 
submitted at least 30 calendar days prior to the annual anniversary 
date 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 will be subject 
to loss of its general approval and the Citizenship Approval Officer 
may determine that there has been an impermissible transfer of control 
to a Non-Citizen resulting in a loss of the vessel owner's eligibility 
to document the vessel with a fishery endorsement. If the Non-Citizen 
Lender knowingly files a false certification with the Citizenship 
Approval Officer or has used covenants in a loan or mortgage on a 
Fishing Vessel, Fish Processing Vessel, or Fish Tender Vessel that are 
materially different from the approved covenants, it may also be 
subject to civil and criminal penalties pursuant to 18 U.S.C. 1001.


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 that 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, 
cannot make excessive contributions to pension plans, make 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, 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 this 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

[[Page 44886]]

the 1916 Act and Section 356.3(g) 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. An approved Mortgage Trustee may request 
that the Citizenship Approval Officer pre-approve a trust agreement 
form to ensure that the fiduciary duties assumed by the Mortgage 
Trustee in favor of a Non-Citizen Lender are consistent with the 
ownership and control requirements of this part and the AFA.
    (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:
    I. 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.
    II. 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; and
    (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 within 30 calendar days of such 
changes;
    (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 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.
    III. 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

[[Page 44887]]

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:
----------------------------------------------------------------------
(Print or type name below)
(SEAL)
MORTGAGE TRUSTEE'S NAME & ADDRESS
----------------------------------------------------------------------
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 
calendar 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 30 calendar days of the annual 
stockholder's meeting of the Mortgage Trustee, or if no annual meeting 
is held, then the filing must be within 30 calendar days prior to 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 20 calendar 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 calendar 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. The preferred status of the mortgage will 
be maintained during the 30 day period following publication of the 
disapproval notice in the Federal Register pending transfer of the 
Mortgage Trustee's fiduciary responsibilities to a successor Mortgage 
Trustee.


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 Fishing Vessels, Fish Processing Vessels, or Fish Tender 
Vessels 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 
calendar days of execution of the charter.
    (b) Charters to Non-Citizens:
    (1) Bareboat or demise charters to Non-Citizens of Fishing Vessels, 
Fish Processing Vessels, or Fish Tender Vessels for use in the United 
States are prohibited. Bareboat charters to Non-Citizens of Fish 
Processing Vessels and Fish Tender Vessels for use solely outside of 
the United States are permitted.
    (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 upon notification from the Citizenship 
Approval Officer.


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 
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 contracts.

    (a) An owner or bareboat charterer of a Fishing Vessel, Fish 
Processing Vessel,

[[Page 44888]]

or Fish Tender Vessel may enter into an agreement or contract with a 
Non-Citizen for the sale 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 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, a certain 
quantity of fish caught by a vessel owner or bareboat charterer on a 
specific vessel;
    (2) Specify that the vessel owner or charterer is responsible for 
supplying a specific type of fish to off-loading points designated by 
the purchaser;
    (3) Provide for the replacement by the vessel owner 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 and/or 
processing or quality control technicians but no other 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 of all or a significant 
portion of a vessel's catch if the agreement or contract contains 
provisions that 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 agreements to which it is a party and the 
principal 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:
    (1) As provisional payment for products delivered for consignment 
sales, but not yet sold; or
    (2) 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 and the agreement 
meets the following conditions:
    (i) The amount of the advancement does not exceed the annual value 
of the sales contract, measured as the value of the product to be 
supplied to the processor;
    (ii) 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 other 
than as provided for in Sec. 356.43;
    (iii) 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 other 
than as provided for in Sec. 356.43; and,
    (iv) 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 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), (c) or (d) 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 a main propulsion engine or engines rated to 
produce a total of more than 3,000 shaft horsepower; such limitation 
shall not include auxiliary engines for hydraulic power, electrical 
generation, bow or stern thrusters, or similar purposes.
    (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 
21, 1998; and,
    (3) In the event of the invalidation of the fishery endorsement 
after October 21, 1998, application is made for a new fishery 
endorsement within 15 business days of the receipt of written 
notification from MARAD or the Coast Guard identifying the reason for 
such invalidation;
    (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. 1852(a)(1)) has recommended after October 21, 1998, and the 
Secretary of Commerce has approved, conservation and

[[Page 44889]]

management measures in accordance with the American Fisheries Act of 
1998, Title II, Division C, Public Law 105-277, to allow such vessel to 
be used in fisheries under such council's authority.
    (d) 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 
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.


Sec. 356.49  Penalties.

    If the owner or the representative or agent of the owner has 
knowingly falsified or concealed a material fact or knowingly made a 
false statement or representation with respect to the eligibility of 
the vessel under 46 U.S.C. 12102(c), in applying for or applying to 
renew the vessel's fishery endorsement, the following penalties may 
apply:
    (a) The vessel's fishery endorsement may 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. 286, 287, and 1001.


Sec. 356.51  Exemptions for specific vessels.

    (a) The following vessels are exempt from the requirements of 46 
U.S.C. 12102(c) as amended by the AFA until such time as 50% of the 
interest owned and controlled in the vessel changes; provided, the 
vessel maintains eligibility for a fishery endorsement under the 
federal law that was in effect prior to the enactment of the AFA:
    (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.
    (b) The NORTHERN VOYAGER (United States official number 637398) and 
NORTHERN TRAVELER (United States official number 635986) will forfeit 
the exemption under paragraph (a) of this section if the vessel is 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)).
    (c) The EXCELLENCE (United States official number 296779), GOLDEN 
ALASKA (United States official number 651041), and OCEAN PHOENIX 
(United States official number 296779) will forfeit their exemption 
under paragraph (a) of this section if the vessel is used to Harvest 
fish.
    (d) The following Fishing Vessels, Fish Processing Vessels, or Fish 
Tender Vessels are exempt from the new ownership and control standards 
under the AFA and this part 356 for vessel owners and Mortgagees:
    (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. 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.
    (e) Owners of vessels exempt from the new ownership and control 
requirements of the AFA and this part 356 by paragraph (a) or (d) of 
this section must still comply with the requirements for a fishery 
endorsement under the federal law that was in effect on October 20, 
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 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 (a) of this section that are 
exempt from the new requirements of 46 U.S.C. 12102(c) must 
specifically outline the current ownership structure at the time of 
filing, 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 21, 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 this 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 
the AFA or 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 Chief Counsel of the Maritime Administration at any time after July 
19, 2000 to request a ruling that all or part of the requirements of 
this 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 this part 356 
must include:
    (1) Evidence of the ownership structure, or mortgage structure in 
the case of a Mortgagee, 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, or mortgage structure in 
the case of a Mortgagee, of the vessel;
    (2) A copy of the provisions of the international agreement or 
treaty which the owner or mortgagee believes are in conflict with the 
regulations in this part 356;
    (3) A detailed description of how the provisions of the 
international agreement or treaty and the regulations in this part 356 
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,

[[Page 44890]]

    (5) For all petitions filed prior to October 1, 2001, a 
certification that the owner does not intend to transfer interest in 
the vessel-owning entity to a Non-citizen prior to October 1, 2001.
    (c) A separate petition must be filed for each Fishing Vessel, Fish 
Processing Vessel, or Fish Tender Vessel for which the vessel owner or 
a Mortgagee is requesting an exemption unless the Chief Counsel 
authorizes consolidated filing. Petitions should include two copies of 
all materials and should be sent to the following address: Maritime 
Administration, Chief Counsel, Room 7228, 400 7th Street, SW., 
Washington, DC 20590.
    (d) Upon receipt of a complete petition, the Chief Counsel will 
publish a notice in the Federal Register requesting public comment. The 
Federal Register notice will include the petitioner's descriptions 
regarding how the AFA and this part 356 are in conflict with a 
particular investment treaty or agreement, but it will not include 
proprietary or confidential information about the petitioner. The Chief 
Counsel, in consultation with other departments and agencies within the 
Federal Government that have responsibility or expertise related to the 
interpretation or application of international investment agreements 
(e.g., the Department of State, United States Trade Representative, 
Department of Treasury, etc.), will review the petition and the public 
comments to determine whether the international agreement and the 
requirements of the AFA and this part 356 are in conflict and, absent 
any extenuating circumstances, will render a decision within 120 days 
of the receipt of a fully completed petition. If MARAD's Chief Counsel 
determines after the receipt of a fully completed petition that there 
are extenuating circumstances that will preclude a decision from being 
rendered on the petition within 120 days, the petitioner will be 
notified around the 90th day and provided with an estimated date on 
which a decision will be rendered.
    (e) To the extent that it is determined that an international 
agreement covering the petitioner is in conflict with the requirements 
of this part 356, the AFA, 46 U.S.C. 31322(a), 46 U.S.C. 12102(c), and 
this part 356 will not be applied to the petitioner with respect to the 
specific vessel. If the petitioner is a vessel owner, it will be 
required to comply with the documentation requirements as in effect 
prior to passage of the AFA on October 21, 1998. If the petitioner is a 
Mortgagee, it will be subject to requirements of 46 U.S.C. 31322(a) as 
in effect prior to passage of the AFA with regard to the mortgage on 
the particular vessel covered by the petition. Decisions of the Chief 
Counsel may be appealed to the Maritime Administrator within 15 
business days of issuance.
    (f) 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 this part 356 must 
submit evidence of its ownership structure to the Chief Counsel on an 
annual basis. The owner must specifically set forth:
    (1) The Vessel's 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.
    (g) The provisions of this 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. An ownership interest is deemed to be transferred 
under this section when there is a transfer of interest in the primary 
vessel-owning entity. A transfer of interest in the primary vessel-
owning entity does not include:
    (i) Transfers of disparately held shares of the vessel-owning 
entity if it is a publicly traded company and the total of the shares 
transferred in a particular transaction equals less than 5% of the 
shares in that class. An interest in a vessel owning entity that 
exceeds 5% of the shares in a class can not be sold to the same Non-
Citizen through multiple transactions involving less than 5% of the 
shares of that class of stock in order to maintain the exemption for 
the vessel owner;
    (ii) Transfers of shares in a parent company that do not result in 
a transfer of the parent company to another Non-Citizen; or
    (iii) Transfers pursuant to a divorce or death.

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 Management 
Council (``NPFMC'') or the Secretary of Commerce, the Chief Counsel 
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) Following a request for MARAD review under paragraph (a) of 
this section, the NPFMC and the Secretary of Commerce (through the 
National Oceanic and Atmospheric Administration and the National Marine 
Fisheries Service) will transmit to MARAD any relevant information in 
their possession including, but not limited to:
    (1) The identity of the parties alleged to have exceeded the 
excessive share caps;
    (2) The relevant harvesting or processing data (the amount 
harvested or processed by particular parties);
    (3) Any information that would be helpful in determining if the 
parties are related;
    (4) Any information regarding the ownership structure of the 
parties, including:
    (i) Articles of incorporation;
    (ii) Bylaws;
    (iii) Identity of shareholders and the percentage owned;
    (iv) Any contracts or agreements that would demonstrate ownership 
or control of one party by another allegedly related party; and
    (v) Any other evidence that would demonstrate ownership or control 
of one party by another allegedly related party.
    (c) If MARAD determines during the course of its review that 
additional information is required from the parties alleged to have 
exceeded the excessive share cap, the Chief Counsel will advise the 
Secretary of Commerce and/or the NPFMC what information is required. 
The Secretary and/or the NPFMC will request that specific parties 
submit the required information to MARAD.
    (d) The Chief Counsel will make a finding as soon as practicable 
and will submit it to the Secretary of Commerce and the NPFMC.
    (e) For purposes of this section, if 10% 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 section, 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

[[Page 44891]]

or if ownership 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 section, an entity will be deemed to 
exercise 10% 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% 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.
    (f) If the Secretary of Commerce determines that there is enough 
evidence to pursue an enforcement action for violation of the 
harvesting or processing caps contained in section 210(e) of the AFA, 
the Person against whom an enforcement action is taken is entitled to 
notice and an opportunity for a hearing before the Secretary of 
Commerce in accordance with 5 U.S.C. 554.

    Dated: July 6, 2000.

    By Order of the Maritime Administrator
Joel C. Richard,
Secretary, Maritime Administration.
[FR Doc. 00-17495 Filed 7-17-00; 10:09 am]
BILLING CODE 4910-81-P