JULY 2013 ~ UNITED STATES VS BENGIS / DAMAGES FOR ILLEGAL FISHING


The long awaited conclusion to the Bengis saga finally came on Friday 14 June 2013, with the United States Court of Appeals ordering a restitution award of $ 22,446,720.00 to the South Africa government for compensation for the illegal export of large quantities of West Coast rock lobster from South African waters. Arnold Bengis, his son David Bengis and his business partner Jeffrey Noll had been illegally harvesting rock lobsters in South African waters from 1987 to 2001 for export to the United States (U.S.) in violation of both South African and U.S. law. A container destined for the U.S. was seized and opened by South African authorities in May 2001. Prosecutions in both South Africa and the U.S. followed, the results of which included jail time. The on-going litigation has now culminated in a massive restitution award, the largest known restitution order in the history of the Lacey Act (U.S. legislation).

BACKGROUND

During the U.S. Court procedures, it was found that Arnold Bengis, David Bengis and Jeffrey Noll had engaged, from 1987 to 2001, in an “elaborate scheme” to illegally harvest rock lobster in South African waters for export. Bengis Snr. was the Managing Director and Chairman of Hout Bay Fishing Industries (Pty) Ltd (Hout Bay Fishing), a fishing and processing operation in Cape Town, and Noll and Bengis Jnr. were presidents of two U.S. corporations that imported, processed, packed and distributed the fish within the U.S. on behalf of Hout Bay Fishing. The rock lobster was harvested by Hout Bay Fishing in amounts far exceeding authorised quotas.

 

In May 2001, the South African authorities seized and opened a container of unlawfully harvested fish scheduled for export to the U.S. Following the seizure, the South African authorities obtained arrest warrants for Bengis Snr., Bengis Jnr. and Noll but concluded that because the three defendants were outside of South Africa, as were the bulk of their financial resources, they were beyond the reach of the South African authorities. The South African authorities focused instead on the prosecution of the South African based entities involved in the scheme, including Hout Bay Fishing, its operational manager, Collin van Schalkwyk, seven fisherman with whom Hout Bay Fishing had contracted and fourteen fisheries inspectors who had taken bribes during the course of the scheme. Bengis Snr. returned to South Africa in April 2002 to enter a plea of guilty on behalf of Hout Bay Fishing for the over-fishing of South and West Coast rock lobster. A plea agreement was struck and Hout Bay Fishing paid a fine of R 12 million and forfeited two fishing boats and the contents of the seized container.

 

In the U.S., Bengis Snr. and Noll pleaded guilty to conspiracy to violate the Lacey Act (a federal statute which makes it a crime to import into the U.S. any fish, wildlife, or plants taken in violation of a state or foreign law), and to violations of the Lacey Act. Bengis Jnr. pleaded guilty to the conspiracy charge only. In 2004, the three defendants were sentenced to varying terms of imprisonment (which have now been served) and together forfeited a total of $ 13,300,000.00 to the U.S. Although the concept of restitution to the South African government was acknowledged in these proceedings, the district court deferred the restitution hearing to a later date.

 

RESTITUTION AND THE PROPERTY LAW DEBATE

 

The issue of restitution to the South African government was first heard in the United States District Court for the Southern District of New York, where it was held that South Africa had no right to restitution. In terms of the American statute under which the claim for restitution was brought, restitution could only be paid if the offence constituted an offence against “property”. The district court held that South Africa had no property interest in either the lobsters that the defendants took from South African waters or in any tax or other form of revenue that the State would have been entitled to, but for the defendants’ breach of South Africa’s regulatory laws. The basis for this decision was that it was held that in South African law the State does not “own” the fish in its territorial waters. The court furthermore held that in U.S. law, the definition of “property” is limited to “tangible property” and does not extend to “purely regulatory” interests.

 

On appeal to the U.S. Court of Appeals, it was argued that South Africa has a property interest in rock lobsters unlawfully harvested from its waters, and is a “victim” as defined in the restitution legislation and is accordingly entitled to restitution. On appeal it was held that under South African law rock lobsters may only be harvested subject to the regulatory scheme administered by the then Department of Marine and Coastal Management. Furthermore, under South African law, lobsters caught illegally are not the property of those who caught them, and the South African government is authorised to seize illegally harvested lobsters, sell them and retain the proceeds. Evading seizure of overharvested lobster therefore deprives South Africa of an opportunity to sell those illegally harvested lobster at market price and retain the proceeds, representing an economic loss each time an illegally harvested lobster goes unseized. It was therefore concluded that South Africa’s interest goes beyond a merely regulatory interest in administering fishing activities in its waters. This decision of the U.S Court of Appeals was handed down on 4 January 2011, with an order that the case be remanded to the district court with instructions to calculate restitution and enter an order of restitution in favour of the Republic of South Africa.

 

The extent of the restitution was hotly contested before the district court. Two different methods for calculating restitution were prepared by the Ocean and Land Resource Assessment Consultants (OLRAC). Method I focused on the costs of remediation, i.e. what it would cost South Africa to restore the rock lobster fishery to the level it would have been had the defendants not engaged in overharvesting. Method II focused on the market value of the overharvested fish. The figure reached under Method II was greater than Method I. Method II was then deemed the appropriate method. Under Method II, the losses to South Africa from the overharvesting of both West Coast and South Coast rock lobsters were calculated. However, it was found that there was no evidence that any of the South Coast rock lobsters were imported into or intended for the United States. It was held that the U.S. restitution legislation, which formed the basis for the award to South Africa, only allows for restitution for harm caused through importation to the U.S. There was therefore no basis for awarding restitution to South Africa for lobster taken in violation of South African law that was neither shipped to the U.S. nor taken for the purpose of its shipment to the U.S. Method II’s calculation of the market value of West Coast rock lobster therefore formed the basis of the award. This calculation yielded the amount of $ 29,494,800.00 which was then reduced by the $ 7,049,080.00 which the defendants had already paid to South Africa, resulting in a final award of $ 22,446,720.00. Although this final award is clearly substantial and is the largest restitution award in the history of the Lacey Act, mention must be made of the fact that the award could have been more than double the amount had there been sufficient evidence that South Coast rock lobster had also been imported to the U.S. OLRAC calculated the loss to South Africa from over-harvesting of South Coast rock lobster to have been $ 32,436,000.00. However, as far as the record had disclosed neither witness had spoken about the South Coast rock lobster and there was not sufficient evidence to show that it had been sent to the U.S. These evidentiary problems therefore ironically “cost” the South African government.

 The restitution judgement was handed down on 14 June 2013. According to the Cape Times report of 17 June 2013, Desmond Stevens, the Acting Deputy Director of Fisheries, said that the Department had initially wanted more than R 537 million as restitution, but was “overjoyed” with the sum which the U.S. court had ordered. The higher amount hoped for would have been achieved had there been sufficient evidence with regard to the South Coast rock lobster. After discussion of the details with the National Prosecuting Authority and the U.S. authorities, the money will presumably be paid into the Marine Living Resources Fund. Stevens is quoted in the Cape Times as expressing a desire to utilise the money to help fight poaching. If properly managed, the amount represents a huge opportunity to curb poaching.  

 

 

 



APRIL 2013 ~ FUTURE FISHING RIGHTS ALLOCATION PROCESS / REVISED GENERAL POLICY


INTRODUCTION:

On the 11 April 2013 at the Cape Sun in Strand Street Cape Town the Fisheries Management Branch of the Department of Agriculture Forestry and Fisheries (“the Department”) held a stake holder’s meeting to introduce “Draft policies for the new allocations: and the right allocation roll out plan”.

The Department intends to have further stake holder meetings at various places along the coast, terminating on the 26 April 2013 at Port Nolloth. For your information a schedule of the various meetings is attached hereto.

Only a Draft Revised General Policy was circulated at the meeting but no revised sector policies. Accordingly, most of the time at the meeting was taken up by the presentation of the revised general policy and comments and queries from stake holders relating thereto.

In short, the Department has requested comments on the Revised General Policy by the 30th April 2013. According to the DDG they intend finalising the General Policy by the latest end of May 2013 with applications for rights to be invited in early June for submission by the end of June.

The Department has not provided any fixed timetable in respect of the publishing for comment of draft sector policies and draft application forms. Based on the time frame within which they want to invite applications for fishing rights we cannot see how they will accommodate this process bearing in mind that they only intend issuing draft sector policies once they receive and process comments on the General Policy.

In addition, the Department indicated that it intends amending the Marine Living Resources Act particularly for purposes of legalising the Small Scale Sector. However, they only envisage any amendments coming into effect between September and November of 2013. However, they stated that even though amendments relating to the Small Scale Fisheries Policy may not have been made, in the rights allocation process for 2013, the Small Scale Fisheries Policy would nevertheless be applied. We are not sure how allocations will be made to small scale fishers if the small scale fishery has not been legalised in terms of the MLRA (other than by ring fencing TAE/TAC pending changes being made to the MLRA).

We do not intend analysing the revised General Policy in any detail in this news flash and would advise clients or interested parties who require clarity to consult us should they wish a more detailed overview / opinion. However, below in point form are certain issues arising out of the policy and the stakeholder meeting:

  • The extremely tight time constraints provided begs the question whether proper consultation could ever take place regarding the policies and rights allocation process;
  • On the face of it the revised policy appears to be a “cut and paste document” based primarily on the current General Policy which was published prior to the 2005 long-term rights process – with obvious changes relating to small scale fisheries / forms of rights holders and referring to various national development plans;
  • With regard to the allocation methodology and process, and in particular the core allocation considerations, the Department has referred to the same key principals utilised in the previous allocation with an increased focus on transformation – in particular the Department has made it clear that although the BBBEE Act was considered in the development of the policy the Minister has not adopted the weighting and benchmarks set in the codes relating to ownership and management. The Department has stated that it will compare applicants with each other rather than use an external benchmark;
  • Therefore, the fishing rights application process will be a competitive process with applicants’ scoring being carried out on a comparative basis (similar to what occurred in the previous allocation process). No indication has been given as to what mechanical system will be used in carrying out this comparative process;
  • As with the previous allocations, the criteria and weight are only going to be developed after receipt of applications and the information contained in such applications. However, they have indicated that there will be four types of criteria being exclusionary criteria, weighted balancing criteria, tie-breaking factors and quantum or effort criteria;
  • Similar to the previous allocation process under the balancing criteria, the applications for current rights holders will be scored in terms of different criteria and weighting as to potential new entrants and will be ranked separately. Furthermore, cut offs will be determined separately for current right holders and potential new entrants and as such all applicants with a score equalling or more than the cut off will be allocated rights;
  • With regard to new entrants, the Department has stated that there is very little room to accommodate additional entrants in those sectors which are oversubscribed and new entrants may only be accommodated to replace unsuccessful rights holders or if the current effort in a specific fishery is considered to be less than optimal;
  • This position regarding new entrants begs the question as to how the small scale fishery allocations will be made in that the small scale entities in theory are also new entrants. In other words will the small scale entities simply be regarded as new entrants along with other new entrant applicants or will a portion of the TAE/TAC be ring fenced specifically for the small scale fishing sector so that the small scale entities will not be left competing for “scraps” with the other new entrants;
  • Regarding the quantum of rights allocated, no detail has been provided other than to state that the allocation of a right and the decision on the quantum of that right are two separate decisions and that the delegated authority will decide on the allocation of quantum or effort to each successful applicant “in line with the policy” – the policy does not deal with quantum allocation at this stage so this is an issue which in our view will need to be clarified in more detail;
  • The Department seemed uncertain as to whether it would take into account the results of the performance review process with the Department initially stating that the results were unreliable and not be taken into account but then ending with the statement that they would be taken into account even though unreliable;
  • There was no clarity on the appeal process and whether pending the outcome of an appeal, current rights holders who were unsuccessful would be allowed to continue fishing on an exemption basis (should the appeal process carry on into the 2014 season). The DDG’s simple answer to the question was that if you weren’t allocated a right you could not fish, but with respect we are not sure whether she has applied her mind fully to this issue;
  • Regarding the small scale sector it would appear that the intention is that the small scale entities which apply would be given a “basket” of fishing rights from various sectors depending on the area from where the small scale entity is based;
  • Regarding outstanding section 21 decisions the Department has made an undertaking that current Section 21 applications which have been lodged and which relate to one of the eight sectors coming up for re-allocation will be decided on (including any appeals) prior to the invitation for future rights in such sectors.

In closing, the revised policy and the process forward as well as the many unanswered questions make it imperative for stake holders, not only in the eight sectors which are up for re-allocation, but in all other sectors (as the policy applies to every sector) to make detailed comments on the policy.

Finally, should clients or interested parties wish our assistance in submitting comments on the general policy and the rights allocation process going forward please contact us as soon as possible.