Two Alaska seafood shipping companies agreed to pay a $9.5 million penalty to the federal government for violations related to their use of a tiny rail track in Canada that the federal government said was an illegal attempt to avoid requirements of the U.S. Jones Act.
Kloosterboer International Forwarding and Alaska Reefer Management accepted the settlement in January, agreeing to what amounts to the second-largest settlement involving the act, the U.S. Department of Justice said in a statement Feb. 23.
The companies provide transportation and logistics services as part of the American Seafoods Group family. A Kloosterboer representative declined to comment Feb. 23.
A spokesperson with the Justice Department in Alaska declined to release the settlement.
The Jones Act requires goods, commodities or equipment is shipped between American ports to travel on American-flagged vessels. An exception allows seafood from Alaska to be transported by a foreign-flagged ship to the mainland U.S. if it later traveled on a Canadian rail line.
The Justice Department said the shipping scheme worked like this: For more than a decade, the companies moved frozen seafood from Dutch Harbor in the Aleutian Islands to a port in New Brunswick, Canada, on foreign-flagged vessels.
Once in Canada, Kloosterboer arranged for the seafood to be offloaded from the vessel onto trucks in the port, the agency said.
The trucks were driven onto a flatbed rail car on the Bayside Canadian Railway, a roughly 100-foot length of railroad track located entirely within the Port of Bayside, the Justice Department said.
The trucks rode the length of the rail, and returned, before being driven off the train cars and proceeding directly to a border crossing in Maine for final shipments across the Lower 48, it said.
The settlement grew from steep fines handed down by U.S. Customs and Border Protection alleging that the 100-foot rail track was illegal because it did not meet the Jones Act’s exception for transportation on a Canadian railway.
In 2021, the seafood shipping companies filed a complaint in U.S. District Court in Alaska, challenging the fines. The Justice Department asserted that the mini-track goes nowhere and was specially built to save money and illegally create a loophole in the Jones Act.
The federal court in Alaska determined that the shipments were illegal, since seafood was not actually “transported” on the short railway, the agency said. The companies haven’t used the short railway since the court’s ruling.
“This is the second largest settlement of a case brought under the Jones Act in the history of our nation,” said U.S. Attorney S. Lane Tucker for the District of Alaska in a statement.
The case sends a clear signal that U.S. Customs “will use its law enforcement powers to detect and deter schemes that are designed to circumvent laws — such as the Jones Act — which are intended to protect U.S. industries,” said AnnMarie R. Highsmith, executive assistant commissioner with the Office of Trade in U.S. Customs and Border Protection.
The largest Jones Act fine in history also involved an Alaska company.
Cook Inlet natural gas producer Furie Operating Alaska agreed to pay the U.S. government $10 million in 2017. The company violated the act in 2011, using a foreign ship to haul a jack-up drill rig from Texas to Alaska.
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