Manufacturer to Pay $2.6M Over Use of Foreign-Flagged Ships in Military Contracts

SEA BOX, Inc., a Cinnaminson-based shipping container manufacturer, has agreed to pay $2.6 million plus interest to settle federal allegations that it violated U.S. cargo shipping laws and defense contract requirements by using foreign-flagged vessels to transport military supplies.

The settlement resolves claims brought by the United States under the False Claims Act, according to an announcement by Senior Counsel Philip Lamparello. The government alleged that SEA BOX used lower-cost, foreign-flagged ships to deliver shipping containers produced for the United States Department of the Army, United States Department of the Air Force, and the Defense Logistics Agency.

Alleged Violations of Cargo Preference Law

According to the settlement agreement, federal law dating back to approximately 1904 requires that supplies purchased for any Department of War agency be transported by sea exclusively on U.S.-flagged vessels. This requirement is codified in the Cargo Preference Act and incorporated into the Defense Federal Acquisition Regulations, making it binding in defense contracts.

The law is intended to protect American maritime commerce and maintain a U.S. merchant marine fleet capable of supporting both commercial and military operations.

Between late 2017 and late 2021, SEA BOX was awarded approximately 35 contracts to manufacture International Organization for Standardization (ISO)-compliant shipping containers for the Army and Air Force, primarily through the Defense Logistics Agency. Federal authorities contend that, despite contractual and statutory prohibitions, the company arranged for the containers to be transported on foreign-flagged vessels because they were less expensive.

The United States further alleged that by doing so, SEA BOX deprived U.S.-flagged shipping companies of revenue and lowered its own costs, potentially undercutting competitors that adhered to the legal requirements. When questioned by military authorities, the company allegedly provided inaccurate or misleading information about its shipping practices.

SEA BOX denied liability as part of the settlement but agreed to resolve the matter by paying $2.6 million, plus interest, over a three-year period.

Investigation and Enforcement

Lamparello credited special agents from multiple federal agencies for their roles in the investigation, including the Defense Criminal Investigative Service, the United States Army Criminal Investigation Division, the United States Air Force Office of Special Investigations, as well as personnel from the Defense Contract Audit Agency, the Defense Logistics Agency, and the United States Maritime Administration.

The government is represented by Assistant U.S. Attorney Paul W. Kaufman of the U.S. Attorney’s Office’s Healthcare Fraud and Opioid Enforcement Unit.

Reporting Fraud

Federal officials also reiterated that individuals with information about attempted fraud involving COVID-19 relief programs may contact the Department of Justice’s National Center for Disaster Fraud Hotline at 866-720-5721 or submit a complaint through the Justice Department’s online reporting portal.

The settlement underscores federal authorities’ continued enforcement of maritime shipping requirements tied to military procurement contracts, including those affecting manufacturers operating in New Jersey.