This morning, the Coast Guard issued a Notice in the Federal Register entitled “Mechanisms of Compliance With United States Citizenship Requirements for the Ownership of Vessels Eligible to Engage in Restricted Trades by Publicly Traded Companies.” The notice informs the public of how the Coast Guard plans to exercise its discretion in enforcing the citizenship requirements for public companies. The Coast Guard has moved away from its longstanding position regarding direct proof of citizenship by stating that changes in the trading of securities over the past 20 years have caused it “to take another look” at the ways public companies can establish their citizenship:
The Coast Guard recognizes that in the modern, complex, multi-faceted, and dynamic securities market no single measure or combination of measures may always provide direct proof of the citizenship of every shareholder. The Coast Guard also recognizes that the choice of compliance measures is best left up to the individual company as each one is best positioned to evaluate initially and on an on-going basis the totality of its circumstances. Companies that employ, and diligently administer and adhere to, measures such as those identified [in the Notice] in an active system of monitoring stock ownership may use these as a sufficient basis to file an Application … to document a vessel with a coastwise endorsement.
Among the measures described in the Notice were analysis of registered shareholders, monitoring SEC filings of 5 percent shareholders and communications with non-objecting beneficial owners.
Left unclear is the Coast Guard’s position regarding the use of the “fair inference” test, which has been accepted by the U.S. Maritime Administration and widely employed by public companies in order to establish citizenship. We will continue to monitor developments in the wake of this announcement and inform you of any relevant changes.
Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you (an â€˜engagement letterâ€™).
By clicking the â€˜ACCEPTâ€™ button, you agree that we may review any information you transmit to us. You recognize that our review of your information, even if you submitted it in a good faith effort to retain us, and, further, even if you consider it confidential, does not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you. Please click the â€˜ACCEPTâ€™ button if you understand and accept the foregoing statement and wish to proceed.