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