us-cbp-cross-rulings-hq-109543•HQ 109543: Application of the coastwise passenger law to a foreign-flag yacht chartered by corporations and used to transport business guests of the corporate charterers
HQ 109543: Application of the coastwise passenger law to a foreign-flag yacht chartered by corporations and used to transport business guests of the corporate charterers
us-cbp-cross-rulings-hq-109543HQ 109543: Application of the coastwise passenger law to a foreign-flag yacht chartered by corporations and used to transport business guests of the corporate charterersGuidance
Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.
HQ 109543
September 9, 1988
VES-3-02 CO:R:P:C 109543 PH/BEW
CATEGORY: Carriers
Thomas J. Stadnik, Esq.
Associate International Counsel
American International Group, Inc.
70 Pine Street
New York, New York 10270
RE: Application of the coastwise passenger law to a foreign-flag
yacht chartered by corporations and used to transport business
guests of the corporate charterers
Dear Mr. Stadnik:
This in response to your letters of May 16, 1988, in which
you request a ruling on the use of a foreign-flag yacht under
charter. With your communication of June 29, 1988, you transmit-
ted a copy of the charter party you intend to use. You requested
that the terms and information contained in the charter party be
kept CONFIDENTIAL and we will do so with regard to the financial
information therein.
With regard to the "hypothetical fact scenario" you describe
concerning the requirements for obtaining a yacht cruising li-
cense under 19 CFR 4.94, we regret that we are unable to issue a
ruling with regard to questions which are hypothetical in nature
(see 19 CFR 177.7(a)). However, we are making advisory comments
on the issues you raise in this regard in the LAW AND ANALYSIS
portion of this ruling.
FACTS:
You state that your company ("AIG") is a Delaware corporation
headquartered in New York and "majority-owned" by United States
citizens. AIG is the parent holding company of a worldwide
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insurance and financial services organization. Keys, Ltd.
("Owner") is a Cayman Islands company which owns the Cayman-flag
yacht TEMPTRESS OF CAYMAN ("Yacht"). The Owner holds a valid
cruising license for the Yacht.
You state that AIG, on behalf of itself and its subsidiaries,
as well as on behalf of an affiliated company ("Charterers") de-
sires to charter the Yacht for one year from the Owner. AIG will
execute the charter for itself and for its subsidiaries and
affiliate, each of whom will be named in the charter party joint-
ly as charterers and each of whom will contribute to the charter
hire. You state that the Charterers will not enter into any
bareboat charter with any third party in or for use in United
States waters. The Charterers will choose and pay for a crew.
The Yacht will be in use in United States waters during the sum-
mer months and it is likely that it will be used in both southern
United States and foreign Caribbean waters during the winter
months.
You describe the charter arrangement under which the Yacht
will be chartered as a bareboat charter. The copy of the charter
party which you provided us is denominated a "Bareboat Yacht
Charter Agreement." Article 11 of the charter party provides
that:
It is mutually agreed that full authority regarding the
operation and management of the yacht is hereby
transferred to the Charterer for the term thereof.
In the event, however, that the Charterer wishes to
utilize the services of a Captain and/or crew members
in connection with the operation and management of the
yacht, whether said Captain and/or crew members are
furnished by the Owner or by the Charterer, it is
agreed that said Captain and/or crew members are agents
and employees of the Charterer and not of the Owner.
In the further event that local United States Coast
Guard or other regulations require the Owner exclusive-
ly to provide a Captain and/or crew, the Owner agrees
to provide a Captain who is competent not only in
coastwise piloting but in deep sea navigation, and to
provide a proper crew. The Captain shall in no way be
the agent of the Owner, except that he shall handle
clearance and the normal running of the yacht subject
to the limitations of this charter party. The Captain
shall receive orders from the Charterer as to ports to
be called at and the general course of the voyage, but
the Captain shall be responsible for the safe naviga-
tion of the yacht, and the Charterer shall abide by his
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judgement as to sailing, weather, anchorages, and
pertinent matters. The Charterer assumes total control
and liability as if the Charterer were the owner of the
yacht during the term of the Charter.
Notwithstanding any of the foregoing, the Charterer
shall have and exercise complete management and control
of the yacht, shall be free to hire its own crew, and
use the yacht as it sees fit.
You state that the Charterers would use the Yacht to
entertain insurance brokers, business and financial customers,
and other contacts. Occasionally, such persons may be embarked
at one United States port and disembarked at a different United
States port. The charterers will not charge or accept from any
such person any contribution to the expenses of any trip or event
undertaken during the term of the charter.
ISSUE:
Are insurance brokers, business and financial customers, and
other contacts of the corporate charterers of a foreign-flag
vessel "passengers" for purposes of 46 U.S.C. App. 289?
LAW AND ANALYSIS:
The Act of June 19, 1886, as amended (24 Stat. 81; 46 U.S.C.
App. 289, sometimes called the coastwise passenger law), provides
that:
No foreign vessel shall transport passengers between
ports or places in the United States either directly or
by way of a foreign port, under a penalty of $200 for
each passenger so transported and landed.
For your general information, we have consistently interpreted
this proscription to apply to any vessel except a United States-
built, owned, and properly documented vessel (see 46 U.S.C. 12106
and 12110, 46 U.S.C. App. 883, and 19 CFR 4.80(a)).
In interpreting the coastwise laws as applied to the
transportation of passengers, we have ruled that the carriage of
passengers entirely within territorial waters, even though the
passengers disembark at their point of embarkation and the vessel
touches no other point, is considered coastwise trade subject to
the coastwise laws. However, the transportation of passengers to
the high seas or foreign waters and back to the point of embarka-
tion, assuming the passengers do not go ashore, even temporarily,
at another United States point, often called a "voyage to
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nowhere," is not considered coastwise trade. The carriage of
fishing parties for hire, even if the vessel proceeds beyond
territorial waters and returns to the point of the passengers'
embarkation, is considered coastwise trade subject to the coast-
wise laws. The territorial waters of the United States consist
of the territorial sea, defined as the belt, 3 nautical miles
wide, adjacent to the coast of the United States and seaward of
the territorial sea baseline.
We have consistently ruled that yachts or pleasure vessels
chartered under a bona fide bareboat or demise charter may be
used by the charterer and his guests for pleasure cruising in the
United States and between points therein without violating the
coastwise laws. The use of a yacht or pleasure vessel chartered
under a charter arrangement other than a bareboat charter (e.g.,
a time charter) to transport the charterer and/or his guests
between coastwise points or in territorial waters would be
considered coastwise trade.
It is generally settled law that, "To create a demise [or
bareboat charter] the owner of the vessel must completely and ex-
clusively relinquish 'possession, command, and navigation' there-
of to the demisee ... It is therefore tantamount to, though just
short of, an outright transfer of ownership. However, anything
short of such a complete transfer is a time or voyage charter
party or not a charter party at all." (Guzman v. Pichirilo, 369
U.S. 698, 699-670 (1962); see also, Leary v. United States, 81
U.S. 607, 611 (1871), and 2B Benedict on Admiralty (1978 Ed.), 3-
9 through 3-13, Test for Demise Charter.)
In our review of charter arrangements to determine whether or
not they are bareboat charters for Customs purposes, we have gen-
erally held, in addition to the above-described generally settled
principles, that:
The nature of a particular charter arrangement is a
question of fact to be determined from the circumstanc-
es of each case ... The crux of the matter is whether
complete management and control have been wholly sur-
rendered by the owner to the charterer so that for the
period of the charter the charterer is in effect the
owner. Although a charter agreement on its face may
appear to be a bareboat or demise charter, the manner
in which its covenants are carried out and the inten-
tion of the respective parties to relinquish or to
assume complete management and control are also factors
to be considered.
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In this case, the copy of the charter party which you
provided us appears to be a bareboat or demise charter agreement
on its face. We note, however, that only AIG would be a
signatory to the charter party. Only those parties which are
signatories to the charter party as charterers have standing as
bareboat charterers. Assuming that the manner in which the
charter arrangement is carried out is not inconsistent with a
bareboat charter, as described above, the charter arrangement
under consideration would be considered a bareboat or demise
charter with regard to AIG.
Even when a yacht is chartered under a bareboat or demise
charter arrangement, the charterers may not use the vessel in the
coastwise trade if, as is true in this case, it is not qualified
to engage in the coastwise trade. As noted above, 46 U.S.C. App.
289 prohibits the transportation between points in the United
States of passengers in a non-coastwise-qualified vessel. "Pas-
senger," for purposes of this provision, is defined as "... any
person carried on a vessel who is not connected with the opera-
tion of such vessel, her navigation, ownership, or business" (19
CFR 4.50(b)). Because there appears to have been some confusion
on the interpretation of this provision with regard to the
transportation of corporate or business "guests" on a yacht, we
have reviewed the earliest rulings in this regard. Based on this
review, we have concluded that although a member of the board of
directors of a corporate yacht owner (or bareboat charterer) and
members of his immediate family would not be considered passen-
gers, business "guests" such as insurance brokers and financial
customers would be considered passengers.
Accordingly, the transportation between points in the United
States of business "guests" such as insurance brokers, business
and financial customers, and other contacts in the Yacht would be
prohibited by 46 U.S.C. App. 289 regardless of whether or not the
charter arrangement is a bareboat charter. Of course, section
289 would not prohibit the use of the Yacht for the transporta-
tion of such passengers in non-coastwise movements (e.g., on
"voyages to nowhere" to the high seas, see above, or foreign
voyages (but see 19 CFR 4.80a with regard to voyages to "nearby
foreign ports")) or the entertainment of such passengers when the
vessel remains stationary at its moorage.
We offer the following general comments on yacht cruising
licenses. Cruising licenses may be issued, on a reciprocal
basis, to pleasure vessels of the foreign countries listed in 19
CFR 4.94(b). A vessel which has a cruising license is exempt
from the requirements for vessel entry (see 19 U.S.C. 1435; 19
CFR 4.2), except for entry on its first arrival before it has a
cruising license, vessel clearance (see 46 U.S.C. App. 91; 19 CFR
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4.60 et seq.), and vessel permits to proceed between United
States ports (see 46 U.S.C. App. 313-315; 19 CFR 4.80 et seq.).
A cruising license does not exempt a vessel from the requirement
to report its arrival in the United States to Customs immediately
upon such arrival (see 19 U.S.C. 1433; 19 CFR 4.2). We emphasize
that although cruising licenses exempt yachts having them from
the above described requirements while cruising in the United
States, they are not required as a condition precedent to
cruising in the United States or its waters.
Pursuant to 46 U.S.C. App. 104 and 19 CFR 4.94, an
application for a cruising license is to be filed with Customs by
the vessel owner or master. Since a bareboat charterer is treat-
ed as the owner pro hac vice during the term of the charter, a
bareboat charterer or his master could apply for a cruising
license.
Only yachts which are "used and employed exclusively as
pleasure vessels" (see 46 U.S.C. App. 104) may be granted cruis-
ing licenses. A yacht used under a "time" or similar charter
would not be considered to be used exclusively as a pleasure
vessel and could not be granted a cruising license. Since the
use of a yacht to transport business "guests" would be considered
an engagement in trade (coastwise trade if the passengers are
transported between coastwise points), a yacht so used could not
be granted a cruising license.
You should be aware that a yacht or pleasure boat owned by a
resident of the United States or brought into the United States
for sale or charter to a resident thereof is dutiable at the rate
of 1.5 percent ad valorem, under item 696.05 or 696.10, Tariff
Schedules of the United States.
HOLDING:
Business guests such as insurance brokers, business and
financial customers, and other contacts of the corporate charter-
ers of a foreign-flag vessel are "passengers" for purposes of 46
U.S.C. App. 289, and their transportation between coastwise
points or on a "voyage to nowhere" solely in United States terri-
torial waters would be prohibited by that statute.
Sincerely,
John E. Elkins
Acting Director, Regulatory
Procedures and Penalties Division
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