Carnival’s Compliance Caper Court Conundrum


Sailing Sordid Slimy Seas: “Fun for All” – Except the Fish!

So, in case you haven’t heard, Carnival Cruise Lines has a compliance caper conundrum, The “Fun for All – All for Fun” maritime business plead guilty in 2016 to a variety of environmental crimes. The U.S. fined Carnival 40 million dollars for dumping oil into the ocean, falsifying records and denying it.

According to the U.S. Attorney’s Office, this is the largest criminal fine of its kind for deliberate vessel pollution. Carnival was also under a 2017 court ordered environmental compliance program (ECP) and sentenced to five year’s probation.

That’s really bad – but wait…there’s more. There always is.

Compliance Cover-ups: Always Worse Than Crime Itself

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We know many things about the historic 1972 Watergate scandal. One is that the break in at the Democratic National Committee Headquarters was illegal.

But the break in wasn’t the action that ultimately resulted in the 1974 resignation of the 37th U.S. President. Richard “Tricky Dick” Nixon, resigned as a result of the post crime cover-up and not the Watergate break in itself.

In 1905, George Santayana said, “those who cannot remember the past are condemned to repeat it.” In 2019, Carnival’s actions suggest that not everyone fully grasps that concept today.

Third party monitors and auditors were present to verify compliance with court ordered activities. The mere presence of independent compliance oversight personnel should have been deterrent enough to ensure the company sailed straight.

As if environmental crimes, fines and enforcement actions aren’t bad enough, this story wouldn’t be complete without a cover-up. The Miami Herald recently reported that while on probation court filings show that Carnival “sought to avoid unfavorable findings. They prepared ships in advance of court-ordered audits, falsified records, dumped plastic garbage into the ocean and illegally discharged gray water into Glacier Bay National Park in Alaska.”

Everyone knows that the cover-ups always worse than the initial crime…well, almost everyone it appears. VW isn’t alone in the intentional manipulation of regulatory required environmental data, testing, equipment and log results.

And Justice for All

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Federal judges usually aren’t that enamored with environmental enforcement ordered, legal avoidance shenanigans.

Carnival’s three years removed from the initial order and are still under the probation terms.

The matters now going back to Patricia Seitz, Senior U.S. District Judge (Southern District of Florida) for a scheduled hearing. On June 24, 2019, she’ll rule on non-compliance avoidance activity and determine Carnival’s punishment for intentional secondary infractions.

Apparently, this isn’t Carnival’s first go round with environmental infractions. According to the U.S. Attorney’s Office, Carnival’s been accused of “dumping and doctoring” on multiple occasions.

Given the cruise lines environmental track record, the reported actions appear to intentionally circumvent the courts initial orders. Judge Seitz appears to believe that further punitive action (beyond the original fine and regulatory oversight) are in order.

A look at Carnival’s departure ports shows 20 U.S. locations, accounting for all but seven of their international departure locations. That’s material, as according to published news reports, Judge Seitz has several punitive options available to her.

Some of those options include: probation revocation, additional civil/criminal penalties or temporarily banning Carnival ships from docking at all U.S. port locations. Preventing Carnival from accessing 74% of their total port locations would have significant bottom line revenue impact to the company.

Corporate Ethics & Compliance

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An important question in today’s competitive business environment centers around business views on ethics.

Aldo Leopold, the famous conservationist and philosopher once said, ethical behavior is doing the right thing when no one else is watching- even when doing the wrong thing is legal. Leopold was definitely on to something.

The differences between Leopold’s definition and Carnival’s activity are that auditors WERE watching and the wrong thing was illegal. The fact is that the blatant circumvention activity reportedly occurred despite that oversight.

Were post probation “work around” activities knowingly sanctioned by senior management executives? Did they understand that these actions violated terms of the federal court’s compliance agreement? If so, isn’t this just another classic example of corporate white-collar crime? 

Will Carnival’s actions rise to the level of the infamous “Greed is Good” (Gordon Gekko – Wall Street, 1987) corporate white-collar crime cases? Or how about the 1970’s Pinto (Ford Motor Company) case? Consumers, who purchased Pinto’s, died as a direct result of Ford’s negligence.

Perhaps not, but Carnival’s activity will undoubtedly have a direct impact on the aquatic habitat, water quality, fish and marine wildlife in areas where hazardous waste dumping occurred.

What Kind of Corporate Citizen is Your Business?

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Corporate citizenship is defined as a “recognition that a business, corporation or business-like organization, has social, cultural and environmental responsibilities to the community in which it seeks a license to operate, as well as economic and financial ones to its shareholders or immediate stakeholders” (Business Dictionary).

Beyond shareholders and the community, businesses also have an obligation to customers, the government and the environment.

Dumping oil into the ocean and then enacting a plan to hide avoidance activities from auditors is definitely “no bueno.” It isn’t in line with the court ordered compliance mandate or beneficial to the environment or its inhabitants.

Your company may not be dumping oil into the ocean, which is great! Nonetheless, it’s imperative to be a good corporate citizen, propagating ethical behavior, social responsibility and great governance programs.

In the social responsibility realm, it’s interesting how many green initiatives are out there today. More companies are sourcing more sustainable, recyclable and less harmful materials which are beneficial to the environment and society.

The old cliché is still true today, “tone at the top” and effective communication are everything. If senior management demonstrate solid ethics, good governance and social responsibility – everything rolls downhill to employees who more willingly embrace these initiatives.

See last week’s article, “Varsity Blues Won’t Win an Oscar

Does your business have fraud or revenue/data loss challenges? If so, contact Fraud Solutions for more information about fraud risk assessments, implementing effective enterprise fraud risk mitigation programs, GRC or ethics hotline/employee code of conduct issues, training or fraud consulting engagements to strengthen your anti-fraud posture: info@fraudsolutions.com.

About Dan Draz

Dan Draz is a fraud risk management consultant, keynote speaker, industry trainer and published author. Draz is an often-quoted fraud and investigations expert in industry, trade, online and news publications. Draz is the principal of Chicago-basedFraud Solutions, and consults with clients across industry verticals, providing enterprise fraud risk management consulting, GRC strategies and ethics assessments and training. He has a Masters in Economic Crime Management, is a Certified Fraud Examiner (CFE), a Fellow at the Governance and Accountability Institute and a 2018 “Top Thought Leader in Trust” recipient. He writes and records unique business and consumer multimedia public awareness material under the name of “Detective Dan.”