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Game Over Before it Begins - Right at the Waters Edge? Understanding Maritime Law in Nome, Alaska

I have a new client who has been in the mining industry for over 30 years.  During this time he ran a successful sand and gravel mining operation with his father.  His father recently retired, so now my client wants to embark on the adventure of starting an offshore gold mining operation 143 miles from the Arctic Circle in Nome, Alaska.  Nome is the town that proudly hosts the finish of the grueling Iditarod dog sled race.  However, beyond the shores of this quaint, unassuming little town lies the frigid Bering Sea, and beneath its often-churning coastal plain waters is found one of the richest placer gold deposits ​1 on Earth.

For many decades, with lower gold prices, mining was for the most part, left to the giants of the industry with the financial resources to invest in operations on a massive scale, recovering insane quantities of gold to make the sheer volume of it an economically feasible enterprise.  But now, with gold prices at around $1,500 per ounce, a new gold rush is taking shape as the allure of striking it rich has proven irresistible.  And with cable T.V. shows like Discovery Channel’s “Bearing Sea Gold,” gaining explosive popularity, these days it seems as though everyone and their brother (literally) is striking out to try their luck at making a shiny golden fortune.

The State of Alaska has for decades maintained a few square miles of coastal waters right off the shores of Nome for use as a free public recreational gold mining area, where practically anyone with a dredge hose and a floating sluice box could dive in and try to vacuum up a few nuggets of gold out of the nooks and crannies of this abundant seafloor (assuming they paid their permit fees).  Several private claim areas on lease from the State exist seaward beyond the waters of the public space, which are often used by miners for a modest royalty payment to the claimholders on recovered gold.  As the price of gold began skyrocketing about a decade ago - hitting its highest point in human history on August 22, 2011 ($1,917.90 per ounce) - the Nome dredging “fleet” seemingly took on a total free-for-all attitude.  People began building their own dredge rigs using scrap materials, and then venturing out into the open sea on little more than a pontoon raft held together with a plywood floorboard with a sluice box running down the middle and an air compressor pump for the diver’s air supply and suction hose.  Half of these contraptions look like something made by “The Professor,” on Gilligan’s Island.  All humor aside, it quickly turned into a dangerous environment, and two divers died in 2011 and 2014, respectively, from accidents that could have been prevented with proper experience and training.  Furthermore, as the offshore mining grounds became more and more congested with what appeared to be floating picnic tables, especially in the free public areas, territorial clashes and general nastiness started becoming commonplace.  Things carried along on this trajectory until in entered the United States Coast Guard.

The Coast Guard has always had law enforcement jurisdiction over the coastal waters of Nome.  And for the most part, the Coast Guard had given a wide berth to Nome dredging vessels.  However, after a recent legal review and risk assessment analysis, especially in the wake of the diver deaths, and the Coast Guard’s perception of a rapidly growing “anything goes,” environment among some operators, the USCG determined there was an increased need to ensure adherence to the applicable federal regulations for the Nome gold dredge vessel fleet.  Starting in the 2018 summer gold dredging season, the USCG’s enforcement posture deviated from previous seasons, which allowed dredges leeway and time to come into compliance.  Now the Coast Guard might take immediate enforcement action against any vessel found to be not in compliance with federal regulations.

As I am legal counsel for my client’s Nome dredge mining operation, of course I was tasked with the responsibility of navigating through the morass of federal maritime regulations applicable to the Nome dredge fleet.  If you ever feel the urge to take a shot at making your fortune along Nome’s gold coast, it is imperative that you first thoroughly understand and strictly comply with these regulations.  There are dredge owners in Nome who sunk hundreds of thousands of dollars into their gold mining vessels, but did not become aware of these regulations (or chose to ignore them), and  now their vessels are dry docked and collecting rust because they can’t afford the additional tens or hundreds of thousands of dollars to bring their vessels into compliance before the Coast Guard will permit them into the water.  Even if your dredge vessel is allowed out to sea, ignorance of the relevant regulations could lead to situations resulting in thousands of dollars of fines or voyage termination.

Following are some of the more consequential regulations governing gold dredge vessel operations in Nome, Alaska.

What Constitutes Dredging: Under Customs Service Decision 79-331, “dredging” means “the use of a vessel equipped with excavating machinery (e.g., suction hose, excavator, crane, etc.) in digging up or otherwise removing submarine material.”  Pursuant to Title 46 United States Code §55109 (46 U.S.C. §55109), a vessel may engage in dredging in the navigable waters of the United States only if the vessel is wholly owned by citizens of the United States, or if chartered, the charterer is a citizen of the United States; and the vessel has been issued a Certificate of Documentation with a coastwise endorsement.  The penalty for a knowing violation of this section is that the vessel and its equipment is subject to seizure and forfeiture to the U.S. Government.

Obviously establishing proof of a knowing violation of this section is difficult, especially on a first-time offense.  Nonetheless, this regulation illustrates the importance of compliance with these rules and the potentially catastrophic consequence for failure to comply.  I for one was very relieved to have learned of this regulation.  My client was considering either chartering a vessel or buying one on a contract-for-title, while the seller retained ownership until paid in full.  Many of these vessels for sale are located outside the U.S. and are owned by foreign entities.  My client might have put a large deposit down on one of these vessels owned by a non-U.S. citizen and incurred the substantial cost of transporting it to Nome, only to be advised by the Coast Guard at the Nome Harbor that the vessel may not qualify for a Certificate of Documentation due to the retained ownership of the vessel by the non-U.S. seller, and therefore, is prohibited from engaging in dredging activity.  Game over before it began, right at the water’s edge.  

Along those lines, Title 46 of the Code of Federal Regulations §67.7 (46 C.F.R. §67.7) requires any vessel of at least five net tons which engages in coastwise trade (e.g., dredging) to have a Certificate of Documentation bearing a valid endorsement appropriate for the activity in which it is engaged.

Inspected Dredge Vessels and Certificate of Inspection: 46 C.F.R. Subchapter I - Cargo and Miscellaneous Vessels - specifies that self-propelled dredge vessels of 300 gross tons or more are required to be inspected by the Coast Guard, and they must maintain a valid Coast Guard Certificate of Inspection (COI).  Dredges subject to inspection and requiring a COI must adhere to the very long and tedious list of requirements of Subchapter I, including special construction and vessel stability requirements, hull structural standards, ventilation requirements, potential accommodation requirements for officers and crew, rails and guards, navigation bridge visibility, general fire protection, structural fire protection, means of escape, mandatory vessel operations protocols, and the list goes on and on.  Accordingly, the Coast Guard adamantly warns would be mega-dredge owners to contact the USCG before buying or building a large dredge.  Otherwise the vessel may end up collecting rust in permanent dry dock due to a seemingly endless (and expensive) list of modifications required by the Coast Guard before a COI is issued.  Although it seems like 300 gross tons is a very large vessel (and it is), I found many barges - the preferred vessel platform for large dredging operations - to be well over 300 gross tons.

Merchant Mariner Credentials: A self-propelled dredge vessel of 200 gross tons or more must be operated by an appropriately licensed Master (i.e., Captain) and a Chief Engineer credentialed in accordance with 46 C.F.R. §15.805(a)(1) and 46 C.F.R. §15.820, respectively.  If one has a non self-propelled dredge and plans to tow it, towing vessels that are 26 feet or longer will require a Master appropriately credentialed for towing to operate the towing vessel. 

Load Line Requirements: Dredge vessels 79 feet or longer built in 1986 or later (or 150 gross tons or more if built in 1985 or before) must maintain a valid Load Line Certificate pursuant to 46 C.F.R. §42.07-1.  The concept of a vessel’s load line is a bit challenging to fully explain in the limited space of this article.  Suffice it to say that the load lines are those numbers one typically sees on a ship’s bow.  However, to obtain a load line certification, a specially trained individual must examine the vessel, measure internal volume and water displacement, among a variety of other factors, to ultimately determine the maximum water depth in which the vessel should sit when fully loaded with cargo, and whether that particular vessel is exceeding its depth or whether the vessel fails to properly balance in the water likely due to some structural or design defect or inappropriate weight distribution.  Have you ever seen someone driving down the freeway in a station wagon (and invariably speeding) with a couple mattresses, a desk, and three chairs somehow all tied together on the roof with one rope?  You really don't want that same type of situation on a boat on the high seas.  If the vessel fails to obtain load line certification it could result in the need for prohibitively expensive structural modifications.

In addition to the foregoing, there are many other rules and regulations related to dive safety, marine casualty reporting, mandatory drug and alcohol testing requirements, pollution reporting, vessel lights and flags positioning, and several others too numerous to mention.

For anyone who dares to venture up to the Bering Sea and tries to make a go at offshore dredge gold mining, it would be challenging enough just dealing with equipment issues while contending with the Bering Sea’s notorious summer storms and choppy waters.  The last thing one would need is to have to deal with the Coast Guard because of an unexpected and expensive violation of a maritime regulation.  Hopefully this article helps you stay on the right course and avoid an unpleasant run-in with a Coast Guard boarding party.  Apart from anything else, it is highly advisable to just contact the regional Coast Guard office in Anchorage.  I am sure they will appreciate the proactive approach, and will be more than happy to walk you through all the most important regulations, permit requirements (from as many as 10 separate government agencies), fee requirements, etc., to try to make your experience as successful as possible.  As for my client, all we can do is hope for the best but thoroughly plan for the worst, and with this venture, the worst that you plan for, the better the best will be.

1.  A placer gold deposit is a surficial accumulation of gold in loose particulate form within the ground that breaks free from its source rock (usually quartz) during weathering processes and is transported away by waterway currents or glacial drift, and ultimately comes to rest in a new location.  The term “placer” is from the Spanish word of the same spelling, which means “alluvial sand”, or, sand deposited by rivers. 

About the Author

Jack Atnip III is an experienced litigator and creditors’ rights attorney who practices in the areas of Commercial Litigation, Financial Services, Collections/Creditors’ Rights, and Bankruptcy. Contact Jack by email or at (612) 305-1501.

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