EXCESS BUNKER LIABILITY
An Inconvenient Practice!
According to the Turkish Customs Regulations, vessels are obliged to declare the bunkers quantity on board to the customs authorities before entering to Turkish Ports. If more bunker is found on board during the random inspections carried our by the customs officers, the authorities may confiscate the excess bunker, they may charge taxes for the excess bunker and initiate criminal proceedings against the crew or owners. You may find below the consequences of excess bunkers in detail.
In parallel with the practice all over the world, foreign-flag vessels calling at Turkish Ports are obliged to declare the items on board such as oils (fuel oil, diesel oil and lubricating oil) and bonded store(cigarettes, etc.) to the Customs Directorate in accordance with the Turkish Customs Regulations. Errors in fulfilling this these requirements will result in penalties in accordance with customs and criminal laws and regulations as excess bunker situations are associated with smuggling in Turkiye.
In this article, the processes of fuel measurement, declaration and inspection of fuel by customs officials will be explained in detail as well as the provisions of criminal law, tax law and administrative law to be applied as a consequence of under or over declaration of fuel as we have frequently witnessed in this period.
In order to examine the occurrence of bunker smuggling, the Turkish government takes strict precautions by conducting random inspections by the police force and customs officers on vessels calling at Turkish ports. A Presidential Circular about this topic, published in the Official Gazette dated 06.11.2021, serves as the reconfirmation of the Government’s determination for the continued enforcement of the anti-smuggling precautions against the crime of bunker smuggling. The new circular asserts that a board of ministers (consisting of the Ministers of Commerce, Energy and Natural Resources, Internal Affairs and Industry and Technology) is being setup to lead the operation against bunker smuggling and ensure a healthy coordination between different state departments. Article 8 under the circular also specifies that the Port Authority and the Coastal Safety will also provide maximum technical support for the operations to be conducted on board. This circular has to be interpreted as a supplementary resource to reference Anti-Smuggling Law No. 5607, law of criminal procedure no. 5271, customs law no. 4458, customs regulation and also tax procedural law no. 213.
The main purpose of mentioned circular is to detect attempted fuel smuggling events. In other words, it is obvious that the number of the random inspections on vessels and criminal investigations against crew members will increase.
Inspections that we mentioned above are based on the customs regulation Art. 9/2 which indicates “persons suspected of hiding smuggled goods in customs halls and customs gates may be searched by customs officers for customs control purposes.” In addition, Article 481/1 of the same regulation is a slightly more specialized article and explains the determining fuel quantities by saying “Since the amount of fuel purchased from foreign ports by the vessels to enter cabotage is shown in the vessels' logbooks and fuel logbooks, the amount to be taxed is determined by finding the difference between the amount purchased according to the logbook and the amount consumed according to the logbook and fuel logbook.”
Vessels are usually expected to inform the amount of the bunkers on board to the relevant Turkish port authority before calling at a Turkish port. Certain vessels make declarations through their agents and while the others submit the relevant vessel documents directly to the inspectors boarding the vessel in order to inspect upon her arrival to the relevant port. In case of the customs officers decide to conduct an inspection on board the vessel they will most likely carry out a proper bunker survey by sounding the bunker tanks. Thus, making declarations considering the electronic systems (without conducting an actual bunker survey with the sounding pipes) revealing information about the vessel’s daily bunker consumption is not safe since in most cases the results of the actual bunker surveys conducted with a sounding pipe and the figures obtained from the electronic systems contradict each other and this conflict forces the inspectors to consider the probability of an intentional misdeclaration and gives them an opportunity to report the incident to the Public Prosecutor for the initiation of a criminal investigation. As described in detail below, the relevant investigation will be initiated against the master and chief engineer and the excessive bunker will be confiscated as an administrative implication. The vessel is not allowed to depart during the undeclared fuel discharge procedures. This process; the arrangement of the road tankers, the discharge of the fuel causes a delay in the vessel's schedule. This period may take three days. In practice, it is determined that delays are experienced in some ports due to the supply of tanks or barges where the fuel will be discharged.
In addition, if excessive fuel is detected, the teams return to the vessel and take samples from the bunker tanks. The sample taken is transferred to the Scientific and Technological Research Council of Turkiye (TUBITAK) for analysis and it is investigated whether this sample complies with the values given for category ISO-F type RME, RMG and RMK grades in ISO 8217:2017 Fuel Standard for marine distillate fuels. In practice, the fact that the fuel does not comply with international fuel standards does not affect whether an investigation will be initiated or not since excess causes different breaches in tax and administrative law; however, if a case is opened after investigation, there will be a presumption that the fuel misdeclaration act was not malicious.
Without making further explanation about the custom fines and criminal proceedings, the club cover against the fines for smuggling and breach of the custom regulations needs to be addressed.
Fines issued by Turkish customs authorities as a consequence of ‘excess bunkers’ may be located in the category of ‘fines for smuggling and breach of customs regulation’ depending on how they are classified by the customs authorities. This could be a key difference-maker as fines concerning the misdeclarations may be covered as of right under related article of the rulebook that contains the expression of “failure to comply with regulations..”, save in respect of smuggling of goods or cargo, which would be interpreted as an exclusion in the following article of almost all rulebooks. Thus the indemnity of the loss by the P&I Club would be discretionary since the event may have a chance to be evaluated as a malicious act by the customs authorities. The club board will decide whether to compensate the loss according to the facts or not. On the other hand, it is even less likely that they will be able to afford the fine and/or expenses imposed as a result of the criminal proceedings.
Confiscation of Excess Bunker
According to the current practice, if more fuel is detected than declared in the inspection, the excess bunker will be confiscated.
The confiscation decision is implemented in accordance with the procedures set out in Article 127 of the Criminal Procedure Code (CPC). Pursuant to the aforementioned article, the decision to confiscate is given by the judge. As an exception (in cases where a delay is not acceptable) it can also be given by the Public Prosecutor or the Chief of Police. The decisions not taken by the judge must be submitted to the approval of the judge within 24 hours and it should be approved by the judge within the 48 hours after the decision is made. Otherwise, the confiscation decision will automatically be annulled.
After the confiscation decision is made, the excess bunker on the vessel must be discharged. The vessel will not be allowed to continue her voyage until excess bunker discharge is completed. After the discharge, the confiscated fuel will be transferred to the warehouses of the General Directorate Of National Real Estate.
During the discharge process, technical difficulties are frequently encountered due to the fact that the tanks of the vessels are not usually suitable for discharging oils. Accordingly, it takes at least two days to get the oils off the vessel and to procure the barges that will carry the oils. In some cases, this process can even take a week. As you can imagine, the discharge process causes serious financial losses and incurs other costs such as an anchorage fee.
The only way for a vessel with excess bunker to continue her voyage without waiting for the bunker to be discharged is by depositing security. According to article 132/5 of the CPC, a security can be deposited for the return of the bunker for which the confiscation decision has been made. Of course, it’s important to deposit the security before the discharge process has been commenced. As for the deposit fee, the customs authorities determine the customs value of the excess bunker.
The customs value of the excess bunker is the CIF value of the goods plus Special Consumption Tax (ÖTV), Value Added Tax (KDV) and customs tax (according to the customs tariff). The relevant customs authority issues a letter titled "Identification Document for Smuggled Goods" showing the customs value of the good and how the calculation was made. If the amount specified in this letter is paid, the excess bunker will not be discharged from the vessel and the vessel will be allowed to carry on her voyage.
It is highly likely that criminal proceedings brought against the crew members simultaneously with the confiscation procedure. In that case, the final decision about the confiscation will be made by the criminal court. The judge may decide to liquidate the confiscated fuel at any stage of trial. The liquidation process is carried out according to the procedures determined in Article 16/A of the Anti-Smuggling Law No. 5607. Pursuant to this article, the confiscated fuel is liquidated free of charge for the use of public institutions and organizations or sold, provided that it complies with the technical regulations mentioned in the introduction part above. If the confiscated fuel does not comply with the technical regulations, it will be disposed of by being sold to the nearest refinery. Upon the request of the administrative institution where the fuel is stored, the judge may decide on the liquidation of the excess bunker. We must say that it is unusual for the fuel to be returned to the vessel and it is highly probable that the judge will decide to liquidate it after the criminal proceedings have commenced.
In case that the criminal proceedings are concluded in favor of the crew/owners the issue of returning the confiscated excess bunker will come up. In order to the confiscated fuel to be recovered or the deposit to be returned, the criminal proceedings must have concluded that the crime of smuggling had not been committed. In case where the criminal case ends in favor of the owners or the crew, either the deposit shall be returned or the value of the excess bunker shall be paid to the owners (if the bunker was liquidated as stated above). However, according to article 16/A-(4) of the Anti-Smuggling Code, the taxes will not be returned to the owners and only the CIF value of the excess bunker shall be paid to the owners together with the accrued legal interest.
Usually, in cases where excess bunker is physically confiscated (discharged from the vessel), the customs authorities ask the owners to pay the taxes for the excess bunker as it will be explained in detail below. Accordingly, if the excess bunker was discharged from the vessel and liquidated and the criminal proceedings concluded in favor of the crew/owners afterwards, the CIF value of the excess bunker will be paid to the owners, but not the taxes (see next chapter). In case that a security was provided by the owners and the excess bunker was not discharged from the vessel then the security will be returned to the owners after the taxes are deducted.
In the event that the Customs Officials detected excess bunkers in a vessel’s tanks, a concern arises about “possible customs fine”. Unlike the misdeclaration of cargo cases, the customs authorities do not impose customs fine in excess bunker situations. Misdeclaration of the bunker in vessels’ tanks are subject to different provisions of customs law than misdeclaration of vessels’ cargo (dry cargo or oil), as it’s associated with smuggling.
Therefore, the customs authorities do not impose a fine equivalent the CIF value or multiple values of the goods. However, they determine the CIF value of the excess bunker in any case in order to calculate its special consumption tax, value added tax, customs tax. Normally the bunkers purchased abroad by foreign flag vessels is not subject to tax in Turkiye. However, in excess bunker cases, the authorities usually ask ship owners to pay special consumption tax (OTV) , value added tax (KDV), customs tax of the excess bunker calculated on the CIF value of the goods.
As mentioned in the previous section, upon the notification of the customs authority/ public prosecutor, the court orders confiscation of the excess bunker. In cases where the customs authorities discharge the excess bunker from the vessel, the authorities usually require the owners to pay the above mentioned taxes of the excess bunker. If security is provided by the owners in order not to discharge the excess bunker from the vessel, it will consist of the CIF value of the excess bunker and plus the taxes. Even if the criminal proceedings ends in favor of the crew/owners, the taxes are not refunded to the owners.
Excess bunker on the vessels calling at Turkish Ports will also lead to criminal proceedings against the crew members (generally the master and the chief engineer) according to the Anti-Smuggling Law No. 5607 Article 3:
“The person who brings the goods into the country without going through proper customs procedures is punished by imprisonment from one year to five years and an additional court imposed sentence of judicial fine up to ten thousand days. If the goods are brought into the country from outside the customs gates, the penalty to be imposed is increased from one third to half.”
According to the sub-paragraph 10 and 11 of the same article:
“In cases the goods which constitutes the smuggling consist of fuel, tobacco, tobacco products, sheets of cigarette paper, ethyl alcohol, methanol and alcoholic beverages, penalties to be imposed according to the above paragraphs are increased from half to twice length. In any case the penalty to be imposed cannot be less than three years.”
“The person who produces, possesses, transports, offers for sale or sells the fuel that is subject to national marker application for commercial purposes, which contains national marker below the level determined by the Energy Market Regulatory Authority or does not contain national marker at all, and who purchases it for commercial purposes knowing this feature shall be sentenced to imprisonment from two to five years and a judicial fine up to twenty thousand days.”
If the value of the goods constituting the subject matter of the offenses defined in the paragraphs above is significant, the penalties to be imposed shall be increased by half to one times. If the value of the goods is not high, the penalties to be imposed shall be reduced by up to half, and if the value of the goods is very light, the penalties to be imposed shall be reduced by up to one third.
In case a criminal investigation is initiated by the public prosecutor, officials would proceed to take statements from the crew. If the prosecutor decides to prepare an indictment based on the above mentioned articles of Anti-Smuggling Law and the court decides to prosecute, the trial period begins.
Fuel smuggling is a public crime and not subject to a complaint. When the prosecutor's office learns that the crime has been committed in some way, an investigation will be automatically started. Although there is no complaint period for the investigation of the crime, the statute of limitations for the crime is 8 years.
Suspension of the Announcement of the Verdict
In Turkish Criminal Law Suspension of the Announcement of the Verdict is a criminal procedure institution that causes the case to be dismissed when certain conditions are fulfilled by the defendant within a certain period of supervision time. Unless the effective remorse provisions are applied, Decision for Suspension of the Announcement of the Verdict cannot be granted by the court for the crime of fuel smuggling.
In addition, prison sentence for the crime of fuel smuggling cannot be converted into a judicial fine. During the trial, It is necessary to prove that the difference between the declared amount of bunker and the amount of bunker on board is caused by negligence.
 Effective Remorse
Effective remorse is an institution of substantive criminal law that provides for a reduction in the penalty for the perpetrator if the perpetrator regrets the act committed and compensates for the damage caused by the offense. If a person who has participated in the crime of bunker smuggling informs the authorities about the act, the other perpetrators and the places where the smuggled fuel is hidden before being informed by the official authorities, he shall not be punished if the information provided leads to the arrest of the perpetrators or the seizure of the smuggled bunker. The penalty shall be reduced by two thirds for the person who, after being informed, serves and assists in the full discovery of the act.
According to the High Court, in order for the effective remorse provision to be applied, the following conditions must be met together:
-Payment to the State Treasury of a sum of money equal to twice the customs value of the goods subject to the offense until the end of the investigation phase,
-The perpetrator is not a repeat offender for smuggling,
-The act of smuggling was not committed within the framework of the activities of an organization.