Was bribery rampant in 20th century maritime shipping?

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FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.

In this week’s edition, from the February 1981 issue, FreightWaves explores a claim of bribery during a court case. 

Bribery

Bribes to shipowner representatives, related businesses, and regulators were condoned by top Bethlehem Steel Corp. management, according to a former company official charged in December.

“Over the years there were literally hundreds, I am sure thousands, of payoffs,” Thomas A. LaMonica told a federal judge in New York on December 5. “They were condoned, permitted, and encouraged by nearly everyone in management, inside and outside the yard, from the top down.”

LaMonica’s unusual appearance capped a four-year saga which included probes by the Securities and Exchange Commission, the Justice Department, and a million-dollar embezzlement suit.

LaMonica, the former assistant to the general manager at Bethlehem’s Baltimore repair yard, said bribes were paid to a variety of businesses and agencies.

A legion of bribe-takers

“Bribe-takers were also from … businesses associated with or supporting the shipping industry, including independent consultants, underwriters of insurance, regulatory groups, and, in one singular case, a blackmailer,” he said.

The flap over the case which was the latest and one of the largest, dollarwise, is a controversy involving a practice that is almost as old as the maritime industry itself.

It was common practice in the days of sailing ships for the masters to receive a “gratuity” from suppliers in return for favoring the merchants with their business.

When steam engines, and the engineering officers to operate them, came into wide use on merchant vessels, the engineers demanded, and usually got, their “cuts.”

Rebating from carriers to shippers — in which a shipper receives the equivalent of a “gratuity” for favoring an ocean carrier with his business — is illegal under American law, and the attempted eradication practice occupies much of the time of the Federal Maritime Commission.

Nevertheless, efforts to eliminate the practice entirely have traditionally met with little success.

Bethlehem, one of the country’s major shipbuilding and repair firms as well as the second-largest steel company, responded to the charges by repeating a statement made in the summer, that its top officials were not aware of any unlawful activities.

Guilty plea 

But Bethlehem had already pleaded guilty in July to paying $400,000 in bribes between 1972 and 1976 to representatives of foreign and domestic shipowners and to laundering $1.7 million through a secret Swiss account.

The admissions came in a plea bargain with the U.S. Attorney’s office in Manhattan which agreed not to name or prosecute any Bethlehem officials involved in the scheme. The corporation was subsequently fined $325,000.

In the end, despite LaMonica’s sweeping charges, few details of the bribery scheme were revealed. LaMonica’s 15-minute statement in New York gave no names and few specifics.

LaMonica had pleaded guilty to helping defraud Victory Carriers Inc., a New York tanker firm, of $50,000. The crime was related to an earlier $30,000 bribe to an unnamed Victory employee to bring tanker repair work to the Baltimore yard.

The sentence handed down on October 28 included a one-year suspended sentence, a fine of $1,000, and restitutions to Victory Carriers. But in an unexpected move, U.S. District Court Judge Vincent L. Broderick ordered LaMonica to return to his court and “set forth the complete story of your involvement in this crime and all the developments that led up to your involvement in this crime.”

Bribery since 1947

LaMonica said he had taken part in bribery since joining the Baltimore yard in 1947 as a ship superintendent.

“The shipyard was doing this [bribery] for years and years and years, until 1976 to be exact,” LaMonica said. “And even at the time of the government inquiry — it was contemplated.”

He also outlined his specific crime, in which he and the unnamed Victory employee defrauded Victory Carriers by using a third party — Nordic Diesel Co.

“I helped him defraud his own company and was wrong,” LaMonica said.

The investigation of Bethlehem Steel stretches back to 1976, when the Securities and Exchange Commission started asking questions about possible bribes to South American navies.

Bethlehem denied any bribes were paid. But the corporation had to explain large sums of money that were unaccounted for.

To explain for this unaccounted money, Bethlehem brought suit on January 28, 1977 for embezzling $1 million against two former employees — LaMonica and Clifford R. Wise of Larchmont, NY, former manager of ship repair sales in New York. Both had been fired in 1976.

But in August 1977 LaMonica filed an affidavit claiming Bethlehem had used the supposedly embezzled money to bribe foreign and domestic shipowners.

Padding and smuggling charge

The court document said ship repair bills were padded, the money passed on to secret accounts in Switzerland and South America, and then smuggled back into the United States for bribery.

Bethlehem called the charges “scandalous,” “scurrilous,” and “utterly baseless.”

But this denial did not prevent the Justice Department from opening an investigation.

However, that investigation was hampered by four different prosecutors heading the effort at various times. Also, some important leads were not followed.

For instance, the Justice Department did not interview a retired Colombian admiral who had already admitted in a deposition in the Philadelphia civil suit that he received payments to take ship repair business to Baltimore.

Bethlehem settled its suit against LaMonica in October just before he was scheduled to give a deposition which might have proved damaging to Bethlehem management.

300 years to pay fine

The settlement included LaMonica agreeing to have a $700,000 judgment entered against him. But the significance of the judgment is questionable since a separate side agreement requires LaMonica to pay only $200 a month. At that rate, it will take 300 years to pay the judgment.

Wise, the other defendant in the civil suit, is still working toward a settlement.

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Editor: American Shipper Archives