HQ 109781: Application of the coastwise passenger statute to a foreign-flag yacht chartered by a U.S. corporation and used to transport business quests of the corporate charterers

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 109781
                                   November 7, 1988

            VES-3-02 CO:R:P:C 109781 LLB

            CATEGORY:  Carriers

            Thomas L. Stadnik, Esq.
            Associate International Counsel
            American International Group, Inc.
            70 Pine Street
            New York, New York 10270

            RE:  Application of the coastwise passenger statute to a
            foreign-flag yacht chartered by a U.S. corporation and used to
            transport business quests of the corporate charterers

            Dear Mr. Stadnik:

                 This is in response to your letter of October 3, 1988, in
            which you seek reconsideration of one element of our ruling
            letter to you of September 9, 1988, regarding the above-
            captioned subject.  Our ruling letter held that the quests of
            the corporation would be considered "passengers" within the
            meaning of the coastwise passenger statute, and their carriage
            aboard the vessel would be in violation of that law.

            FACTS:

                 During the pendency of a one-year charter agreement, the
            officers and directors of the corporation (charterer) may from
            time to time invite clients aboard the motor yacht TEMPTRESS OF
            CAYMAN for the purpose of promoting good will for the
            corporation, and in the hope of obtaining future business
            advantages.  These persons would be insurance brokers or others
            involved in the insurance and financial services industries.
            No monetary or other tangible consideration would be solicited
            or accepted in exchange for the proposed transportation aboard
            the vessel.

                 Issues regarding the character and validity of the charter
            agreement, the issuance of a cruising license, and potential
            dutiability under the Tariff Schedules of the United States
            were addressed in our previous letter ruling and are not the
            subject of this request for reconsideration.















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            ISSUE:

                 The sole issue presented for resolution is whether the
            persons transported, as described, are permissible "guests", or
            prohibited "passengers" under the coastwise passenger statute,
            title 46, United States Code App., section 289 (46 U.S.C. App.
            289).

            LAW AND ANALYSIS:

                 Section 289 provides, in its entirety:

                     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.

                 The implementing regulations provide at section 4.50(b),
            Customs Regulations (19 CFR 4.50(b)), that:

                     A passenger within the meaning of this part is
                     any person carried on a vessel who is not
                     connected with the operation of such vessel, her
                     navigation, ownership, or business.

                 The definition of a prohibited "passenger" in this area
            has apparently remained unsettled for some time, with
            administrative rulings going both ways.  For example, an early
            ruling issued by the Department of Commerce, Bureau of
            Navigation (General Letter No. 117, dated May 20, 1916),
            interpreted the term for purposes of the Steamboat-Inspection
            Laws, finding that a stockholder in the corporate owner of a
            vessel is a passenger.  Similarly, in directly confronting the
            question in relation to 19 CFR 4.50(b), Customs stated in a
            letter of August 29, 1960 (MA 217.1), that:

                     ...newspapermen or cruise agents who merely
                     accompany the vessel for publicity purposes and
                     cruise passage sales promotion are not persons
                     connected with the operation, navigation,
                     ownership, or business of the vessel within the
                     meaning of section 4.50(b) of the Customs
                     Regulations.  The activity of the persons
                     involved is only remotely or indirectly connected
                     with the operation of business of the vessel
                     rather than direct and immediate as is
                     contemplated by the regulations.

                 More recent rulings have reached the opposite result.  In
            a ruling of April 2, 1986 (case number 108278) it was held that
            the corporate client/guests of a corporate charterer are not










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            "passengers"; in a ruling of October 22, 1979 (104276), it was
            stated that:

                     We have ruled that the entertainment of guests
                     for the purpose of promoting good will or with
                     the thought that those who are entertained will
                     favor the hosts with new or increased business is
                     a use of a vessel for pleasure purposes.
                     Consequently, such guests would not be considered
                     "passengers", within the meaning of the coastwise
                     laws.

            In a ruling dated October 18, 1984 (107028), it was held that
            the clients, prospective clients, business associates, and
            employees of the corporate owner of a yacht were not passengers
            within the meaning of section 289.

                 Given the fact that the circumstances here involved are
            strikingly similar to those in which we have found no violation
            of section 289, we are disposed to find that the persons to be
            transported aboard the vessel in this case are not passengers.

            HOLDING:

                 The carriage of clients aboard the vessel TEMPTRESS OF
            CAYMAN by the corporate bareboat charterer thereof, for no
            monetary consideration, the purpose of which is the
            solicitation of good will and possible future business
            considerations, is not a violation of 46 U.S.C. App. 289.

                                         Sincerely,




                                         John E. Elkins
                                         Acting Director
                                         Regulatory Procedures and
                                         Penalties Division