INTERTANKO NORTH AMERICAN PANEL March 17, 2008 ENVIRONMENTAL “INSURANCE” How to Maximize Potential Benefit Under Coast Guard Voluntary Disclosure Policy INTERTANKO NORTH AMERICAN PANEL March 17, 2008 Gregory F. Linsin The information contained herein is abridged and summarized from numerous sources, the accuracy and completeness of which cannot be assured. This should not be construed as legal advice or opinion and is not a substitute for the advice of counsel.

ENHANCED REGULATORY ATTENTION FOR MARITIME INDUSTRY Fact of life in 21st century Criminal prosecutions for intentional Annex I MARPOL violations OWS cases for oil discharges and false records In 2007 - $65 million dollars in criminal fines; 34 new cases charged Oil spills resulting from marine casualties Intertwined with response actions and civil liability issues under OPA 90 or CLC Intensive publicity and political interest Criminal charges based on evidence of negligence as proximate cause of spill MARPOL Annex VI; CARB regulations; Ballast Water Convention Port State authorities will rely on vessel record inspections to verify compliance More Port States are intensifying vessel inspection protocols and enforcement efforts

BACKGROUND - ENVIRONMENTAL AUDITS AND VOLUNTARY DISCLOSURE ENRD 1991 Voluntary Disclosure Policy Self-audits and voluntary disclosure as potential basis for declination EPA Voluntary Disclosure Program In effect since 1995 Thousands of disclosures made Vast majority result in waiver of gravity-based penalties or non-referral to Department of Justice DoJ Principles for Federal Prosecution of Business Organizations Corporate compliance program and voluntary disclosure as mitigating factor in exercise of prosecutorial discretion USSG mitigating factor Prior existence of compliance program as mitigating factor in sentence

COMPLIANCE PLANS FOR MARITIME OPERATORS YIELD BENEFITS Empirical data from United States Hundreds of ships sailed for years under ECPs following convictions Only two ships have been found by court to have violated ECP Many companies continuing ECPs after probation ends Industry guidance on use of oily water separators BIMCO, INTERTANKO and other industry associations Provides technical and management approaches Industry guidance on environmental compliance International Chamber of Shipping & International Shipping Federation Stresses need for more thorough management oversight and verification The Standard P & I Club – December 2007 Bulletin Sets out business case for enhanced management controls and implementation of comprehensive ECP

NEW COAST GUARD VOLUNTARY DISCLOSURE POLICY Specifically for environmental crimes Issued November 2007 Modeled on EPA Voluntary Disclosure Program Designed to encourage and reward proactive compliance efforts If conditions satisfied and new violation voluntarily reported, Coast Guard may forego referral of corporate violation to Department of Justice To qualify, company must previously have implemented a Compliance Management System to prevent, detect and correct violations Clear policies and standards Designation of senior corporate official with responsibility for compliance Monitoring and auditing regime Effective training program Incentives for managers and employees to comply Procedures to promptly correct violations and modify CMS

NEW COAST GUARD POLICY – cont’d If future violation discovered through audit or CMS, Coast Guard will consider factors: Voluntary discovery – not through legally mandated monitoring Prompt disclosure – within 21 days of discovery Independent discovery and disclosure – prior to government inquiry Must be corrected in 60 days – complex problems may require schedule Take steps to prevent recurrence No pattern of violations Violations involving serious harm or substantial endangerment of human health and environment excluded Full cooperation with any ensuing investigation Policy is NOT a guarantee of immunity

CRAFTING ENVIRONMENTAL “INSURANCE” POLICY ECP and EMS “insurance policy” requires an investment of resources Must be – Tailored to your fleet, your operations and your personnel Integrated with SMS Manual Supported by flexible environmental compliance budget Actively managed by senior shoreside official Implemented on a dynamic basis Advice of counsel should be obtained – For development, implementation and periodic re-evaluation of ECP/EMS When new violations are suspected or discovered Prior to any contemplated disclosure to the Coast Guard As summarized in ICS guidance – A company must “demonstrate, by behaviour and action, that environmental compliance is a core element of the company’s business plan.”

SUMMARY OF POTENTIAL BENEFITS Properly structured ECP/EMS implemented in good faith can produce range of benefits – Can help change corporate culture Can significantly reduce environmental noncompliance If new violations detected, new Coast Guard Voluntary Disclosure policy may help avoid referral to Department of Justice If criminal investigation is initiated, can help influence charging decision under Department of Justice policies – Declination Deferred prosecution agreement Reduced charges Can help establish legal and factual predicate for “rogue employee” defense If conviction results, can help mitigate penalty under sentencing guidelines

Questions? Contact information: Gregory F. Linsin Blank Rome LLP 600 New Hampshire Ave, N.W. Washington, D.C. 20037 (202) 772-5813 linsin@blankrome.com