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ASC Affiliates Pay $9.5M to Settle "Canadian Rail" Jones Act Case

A truck makes a "rail" compliance trip aboard the Bayside Canadian Railroad at Bayside, New Brunswick, 2015 (Brian Golding / U.S. CBP)

Published Feb 25, 2024 8:17 PM by The Maritime Executive

Two affiliates of American Seafood Company (ASC) have paid a near-record $9.5 million fine in connection with the notorious "Bayside Canadian Railway" scheme. The Jones Act compliance scheme was set up to legalize foreign-flag cargo transport from Alaska to the U.S. East Coast, but U.S. Customs and Border Protection (CBP) determined that it was in violation of the law. 

In 2017, CBP began investigating a unique arrangement that American Seafood Company (ASC) created for transporting pollock from Alaska to Maine. An ASC subsidiary, Alaska Reefer Management (ARM), chartered foreign-flag reefer ships to transport fish from Dutch Harbor to New Brunswick, Canada via the Panama Canal. At Bayside, New Brunswick, the fish was offloaded at a terminal operated by ARM subsidiary Kloosterboer International.

The cargo was then loaded into truck trailers and driven onto a two-car, one-track train, the Bayside Canadian Railway (BCR). A mini locomotive pulled each laden truck 100 feet to the south, then 100 feet back north, completing a round-trip "Canadian rail journey." After this brief rail treatment, the truck would drive over the border and deliver the cargo to consumers in New England. 

For years, the "Bayside Canadian Railroad" allowed these shipments to pass through a little-known loophole in the Jones Act. An obscure clause in the Act allows foreign-flag ships to carry U.S. coastwise cargo when the voyage involves "transportation . . . in part over Canadian rail lines."  

However, CBP determined that the Bayside railway was a sham. In 2021, the agency issued penalties totaling about $350 million dollars to the firms involved in this novel supply network, including tens of millions in fines for foreign-flag shipowners. It was the largest package of Jones Act penalties ever issued.

ASC's affiliates immediately sued to block the fines and obtain permission to keep using the route, since there were still millions of dollars' worth of pollock in transit. It succeeded in obtaining a temporary injunction to keep operating the rail line while litigation continued, and it also won part of its financial battle: In May 2022, Judge Sharon Gleason threw out millions of dollars in CBP fines, finding that the agency had not followed proper administrative procedures. 

However, Judge Gleason also agreed with CBP on the merits of the charges, and she ruled that the Bayside Canadian Railroad was not a legitimate Jones Act operation. Since the rail portion of the route started and ended at the same point, it did not result in forward progress and therefore did not meet the statute's standard for "transportation," she ruled.

On Friday, CBP, Kloosterboer and Alaska Reefer Management announced a settlement agreement that ends litigation over the Bayside Canadian Railroad. The firms have agreed to cease using it, and the two ASC affiliate companies will pay a total of $9.5 million in penalties. 

“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. “Our prosecutors and law enforcement partners did a tremendous job successfully investigating and litigating this complex case."