““CEOs go to their vacation homes just after companies report favorable news, and CEOs return to headquarters right before subsequent news is released. More good news is released when CEOs are back at work, and CEOs appear not to leave headquarters at all if a firm has adverse news to disclose. When CEOs are away from the office, stock prices behave quietly with sharply lower volatility. Volatility increases immediately when CEOs return to work.” —David Yermack, a New York University finance professor, whose recently released study shows a correlation between when CEOs take their private jets on vacation and movements in their companies’ stock price ”
Chartering out your jet? Beware of drug runners
Taking care of an airplane is a big job, which is why many owners turn it over to management companies.
As part of the arrangement, these companies often charter out the aircraft. Most of their charter customers are legitimate business travelers, but the government is now warning business jet charter operators about a different type of clientele-drug smugglers.
Many drug traffickers are turning to private aviation in response to tighter security at commercial airports, according to William Brown, special agent in charge of the U.S. Drug Enforcement Administration's aviation division. "Homeland Security is doing such a good job of screening passengers at commercial airports that traffickers are moving drugs and money through other means," he said. "They don't want to go through metal detectors or have their bags examined."
The traffickers often steal or charter aircraft rather than use their own. "An airplane is an expensive asset," Brown explained. "Drug traffickers put other people's assets out there to insulate themselves."
As a result, the use of chartered aircraft by drug traffickers is likely to continue increasing, Brown said. "I sense that it's becoming more and more prevalent as the pressure is built up along the borders," he added.
Owners need to be aware that civil and criminal laws allow the government to seize an aircraft if it is used in the furtherance of a drug-related crime, such as distribution. However, the Department of Justice does not allow an airplane to be seized if only trace amounts of contraband are found. "We have to show that the aircraft was being used illegally and that the owner was cognizant of that," Brown explained.
It's up to the aircraft owner to prove his innocence, however. Under U.S. Code Title 18 Section 983(d), an owner not only must demonstrate to the courts that he wasn't aware that his aircraft was being used to distribute drugs; he must also show that once he learned of the illegal activity, he "did all that reasonably could be expected...to terminate such use of the property and gave timely notice to an appropriate law enforcement agency."
If the courts determine that the owner was culpable, the judge can turn the aircraft over to the DEA for it to be auctioned off through the U.S. Marshall's office. "The money goes into the Treasury to offset taxes," Brown said. The owner can also face penalties, but the details of the case will determine his sentence. "The judges have a great deal of latitude in determining the degree of guilt," Brown noted.
Even if an owner can prove his innocence, however, it could take months or years for an airplane to be returned. "That aircraft could be in limbo for quite some time before a judge and jury decide what involvement the owner had, if any," Brown said.
In August 2004, for example, the DEA broke up a Mexican drug ring that was smuggling cocaine into the New York area via Teterboro Airport in New Jersey. The agency arrested six men and seized 64 kilograms of cocaine, an AK-47 assault rifle, two handguns, $700,000 in cash and three Learjet 35s belonging to Texas charter operator Addison Express.
Addison Express eventually proved its innocence, but the seizure caused "substantial financial hardship," according to documents filed in the U.S. District Court for the Northern District of Texas. By the time the DEA returned the aircraft in late October of that year, the operator was forced to close due to the severe financial strain.
Brown said that Addison could have avoided this fate if it had been more diligent. "Addison thought the client was a mortgage broker, but they never really knew," he commented. "They would never ask for any identification of the passengers." Brown added that the company also failed to screen passengers' baggage. In addition, customers would always pay in cash, but the charter operator failed to fill out the proper IRS and currency transaction reports.
Brown said that charter operators should always verify a passenger's name and cross-reference the information with the Transportation Security Administration's No-Fly list. Operators should also scrutinize baggage for weapons and be aware of unusual flight requests. One drug trafficker told charter operators that he was in the "hail business" and needed to travel to areas that had been damaged by hail. "Interestingly, he often went to places where there wasn't any hail damage," Brown said.
If you're an aircraft owner, what can you do to avoid having your airplane chartered out to drug traffickers? Because regulations require charter operators to maintain operational control, you can't do much directly. You can, however, verify that your management company employs good business practices and carefully screens its customers and their passengers. If it doesn't, the price you pay for its negligence could be steep indeed.