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Shipowner beware: undeclared ship stores

11.09.13

Shipowners and ship masters have recently encountered serious perils while calling at Ukrainian ports – but not natural perils. Rather, some foreign ships have faced significant challenges when dealing with the Ukrainian customs office.

Ship masters should take great care to ensure the correct declaration of the ship's stores during customs clearance at Ukrainian ports, as the customs office closely monitors for discrepancies between the declared stores and the ship's actual stores (including those for the ship's own use). If found, such discrepancies may entail heavy fines.

According to Paragraph 472 of the new Customs Code, which entered into force on June 1 2012, failure to provide accurate information on the goods being moved across the customs border is subject to a fine amounting to 100% of the goods' value, along with confiscation of the goods. As a result, even the smallest discrepancy discovered during customs clearance may provide grounds for the customs authorities to charge the ship master with concealing fuel or goods and to impose a substantial penalty.

The previous Customs Code stipulated that the incorrect (ie, understated) indication of the amount of the ship's stores, including fuel on board, was subject to a fine of between $200 and $2,000. Considering the amount of other levies at Ukrainian ports, this amount seemed insignificant, and shipowners usually preferred to admit liability and pay the fine. Moreover, such incidents were rare.

However, the customs office's practice of holding ship masters liable for violations of Paragraph 472 of the Customs Code has greatly expanded as of late. In June 2013 the Nikolaev Central District Court imposed a fine of around $66,000 on the master of a Liberian-flagged bulk carrier for incorrect declaration (ie, under-declaration) of the remaining fuel in the ship's fuel tanks. In this case, both the judge and the customs office treated the fuel in the ship's tanks as a saleable commodity, even though the Customs Code stipulates that it should be regarded as the ship's consumables. The court also ignored the argument of the defence that the ship master had no need to understate the amount of the bunkers because:

no taxes or fees are due at the port for the fuel on board; and
the bunkers cannot be pumped out of the fuel tanks for further sale.

The court's decision has been appealed to a higher instance court.

In a May 2013 case, the master of a foreign ship was charged with the under-declaration of the ship's stores. Several sets of crew uniforms, work boots, hardhats and work gloves, with a total value of about $700, were found in the storage room of the 300-metre-long container ship. The workwear was not mentioned in the customs declaration due to a mistake by the person in charge; however, the customs officers identified this as an administrative offence and passed the matter to the corresponding court in Odessa. In its decision, the court took the same position as in the previous case, and considered the crew workwear a saleable commodity. The master received a fine of $700 and the workwear was confiscated. The matter is now being considered in the Court of Appeal.

In accordance with the Convention on Facilitation of International Maritime Traffic, the ship's stores declaration is the basic arrival document providing information on the ship's stores that is required by public authorities. It is therefore crucial to be as accurate as possible when making this declaration. The exact quantity of the bunkers in the tanks, as well as other small amounts, should be counted when declaring the bunkers. Otherwise, the customs office can charge the ship master with bunker smuggling. Accurate filing of the declarations of medicine stores, drugs and chemicals, and cleaning products is also important, since the discovery of any non-declared drugs containing narcotic substances may result in a drug-smuggling charge.

In any event, it is essential that qualified local legal counsel be contacted immediately at the beginning of customs investigations, in order to provide adequate defence for the ship master and the ship.

Alexander Chebotarenko for Internationallawoffice.com

Author: Alexander Chebotarenko