Case 1:16-cr-20897-PAS Document 105 Entered on FLSD Docket 04/10/2019 Page 1 of 205 CONFIDENTIAL June 21, 2018 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA Case No.: 16-20897-CR-SEITZ UNITED STATES OF AMERICA v. PRINCESS CRUISE LINES, LTD., Defendant. ________________________________/ FIRST ANNUAL REPORT OF THE COURT APPOINTED MONITOR (2017-2018) TABLE OF CONTENTS I. Executive Summary .............................................................................................................. 1 A. CAM Findings: Progress .................................................................................................... 3 B. CAM Findings: Unresolved Barriers and Opportunities for Improvement ....................... 4 II. Introduction and Background ............................................................................................. 5 A. Overview of CAM Annual Report ..................................................................................... 5 B. History of Vessel Pollution Cases ...................................................................................... 6 C. History of Current Case ..................................................................................................... 8 1. Criminal Conduct ....................................................................................................... 8 2. Guilty Plea, Conviction, and Judgment ................................................................... 10 3. Court Oversight........................................................................................................ 11 D. Regulatory Regime .......................................................................................................... 12 III. Company Capabilities to Meet ECP Objectives: Progress ............................................. 13 A. No Repeat of the Underlying Offenses ............................................................................ 13 B. Substantial Implementation of Enumerated ECP Year One Requirements ..................... 13 C. Qualified and Dedicated Compliance Personnel ............................................................. 14 D. Employee Cooperation and Awareness of Environmental Obligations ........................... 16 E. Initiatives Beyond the Enumerated ECP Requirements................................................... 19 F. CSMART Training Center ............................................................................................... 21 G. Review and Improvements to Internal Investigation Process .......................................... 23 H. Culture Survey ................................................................................................................. 24 i Case 1:16-cr-20897-PAS Document 105 Entered on FLSD Docket 04/10/2019 Page 2 of 205 CONFIDENTIAL June 21, 2018 IV. Company Capabilities to Meet ECP Objectives: Unresolved Barriers and Opportunities for Improvement ........................................................................................ 25 A. Challenges of the Complex Corporate Structure ............................................................. 25 1. Lack of Centralized Policies, Practices, and Procedures ......................................... 26 2. Lack of Clarity as to Responsibility, Accountability, and Authority for Environmental Compliance ..................................................................................... 27 B. Blame Culture and Lack of Learning Culture .................................................................. 30 C. Ineffective Internal Investigations.................................................................................... 33 1. Background .............................................................................................................. 33 2. Observations ............................................................................................................ 35 3. Investigation Illustrations ........................................................................................ 36 D. Environmental and ECP Violations ................................................................................. 40 1. Environmental Incidents .......................................................................................... 40 2. Failure to Provide CCM with ECP-Required Authority .......................................... 42 V. Environmental Incidents .................................................................................................... 42 A. Incident Reporting Mechanisms ...................................................................................... 42 B. Data Analysis of Incident Reports ................................................................................... 43 1. Context and Significance ......................................................................................... 43 2. Recurrent Incident Categories ................................................................................. 44 3. Recurrent Incident Examples ................................................................................... 46 C. Data Analysis ................................................................................................................... 55 VI. Evaluation of the TPA ........................................................................................................ 58 A. Engagement with the TPA ............................................................................................... 58 B. TPA Audit Process .......................................................................................................... 59 C. TPA Audit Reports ........................................................................................................... 60 D. TPA Receptiveness to CAM Feedback ............................................................................ 61 VII. Evaluation of Internal Audit Function ............................................................................. 61 A. Overview of Internal Audit Process ................................................................................. 61 B. CAM Assessment of Internal Audits and Audit Reports ................................................. 63 1. Shipboard Audits ..................................................................................................... 63 2. Audit Reports ........................................................................................................... 64 3. Employee Interviews ............................................................................................... 65 ii Case 1:16-cr-20897-PAS Document 105 Entered on FLSD Docket 04/10/2019 Page 3 of 205 CONFIDENTIAL June 21, 2018 C. TPA Assessment of Internal Audit Function ................................................................... 67 D. Overall CAM Observations ............................................................................................. 67 VIII. Areas of Focus for Year Two ............................................................................................ 68 A. Culture Survey ................................................................................................................. 68 B. Investigations ................................................................................................................... 69 C. Training ............................................................................................................................ 69 D. Resources for Operations and Compliance ...................................................................... 70 E. Shoreside Support for Vessels ......................................................................................... 71 F. Personnel .......................................................................................................................... 72 1. Environmental Officers............................................................................................ 72 2. Engineers ................................................................................................................. 73 3. Ratings ..................................................................................................................... 73 G. Company Vessel Visit Programs ..................................................................................... 73 Appendix A: CAM’s Methodology and Activities Appendix B: Notable Company Initiatives Beyond Enumerated ECP Requirements Appendix C: Organizational Charts Appendix D: Status of ECP Year One Requirements Appendix E: ECP Year One Incidents Tracked by the CAM Attachment 1: Superseding First Annual Work Plan and Budget of the Court Appointed Monitor iii Case 1:16-cr-20897-PAS Document 105 Entered on FLSD Docket 04/10/2019 Page 4 of 205 CONFIDENTIAL June 21, 2018 I. EXECUTIVE SUMMARY The defendant in this case is Princess Cruise Lines (“Princess”). Princess is a wholly- owned indirect subsidiary of Carnival Corporation & plc (“Carnival Corp.”), “the world’s largest leisure travel company.” http://www.carnivalcorp.com/phoenix.zhtml?c=200767&p=irol- prlanding. Carnival Corp. currently is structured to include four groups or operating lines that each operate one or more brands: (1) Holland America Group, which manages the Princess, Holland America Line, Seabourn, and P&O Australia brands; (2) Carnival Cruise Line, which manages the Carnival Cruise Line brand; (3) Carnival UK, which manages the Cunard and P&O Cruises UK brands; and (4) Carnival