Flag of convenience

Open registries have been criticised, mainly by trade union organisations based in developed countries, especially those in the European Union, United States, Japan, Canada, or the United Kingdom. One criticism is that shipowners who want to hide their ownership may select a flag-of-convenience jurisdiction which enables them to be legally anonymous. Some ships with flags of convenience have been found engaging in crime, offering substandard working conditions, and negatively impacting the environment, primarily through illegal, unreported and unregulated fishing. Prior to the implementation of the International Convention on Tonnage Measurement of Ships, 1969, shipowners may have selected a jurisdiction with measurement rules that reduced the certified gross register tonnage of a ship, to reduce subsequent port of call dock dues. Such was a consideration when Carnival Cruise Line changed the flag of the RMS Empress of Canada in 1972 to that of Panama. In 2011, Cunard Line registered all its ships in Bermuda, which, besides other considerations, enabled its ship captains to marry couples at sea. Weddings at sea are described as a lucrative market. Maritime industry practitioners and seafarers from other countries contend that this is a natural product of globalisation. Supporters of the practice, however, point to economic and regulatory advantages, and increased freedom in choosing employees from an international labour pool. Publications from as early as 1962 argue that shipowners from developed countries use the practice to be competitive in a global environment. In 2010 in a message connected to the World Maritime Day, the Secretary-General of the International Maritime Organization gave recognition to the present status of the open registries and noted that the seafarers from some developing countries are providing a major source of foreign currency to their home economies: The development of open registries for ships has given the shipping industry the flexibility to recruit its manpower from alternate sources, with the result that developing and newly industrialized countries now provide the majority of seafarers for the entire global fleet – not just for the ships flying their own country's flag. Legal context International law requires that every merchant ship be registered in a country. A ship operates under the laws of its flag state, and these laws are used if the ship is involved in an admiralty case. A ship's flag state exercises regulatory control over the vessel and is required to inspect it regularly, certify the ship's equipment and crew, and issue safety and pollution prevention documents. The organization which actually registers the ship is known as its registry. Registries may be governmental or private agencies. Reasons for adopting a flag of convenience The reasons for choosing an open register are varied and include tax avoidance, and the ability to hire crews from lower-wage countries. National or closed registries typically require a ship be owned and constructed by national interests, and at least partially crewed by its citizens. Conversely, open registries frequently offer on-line registration with few questions asked. The use of flags of convenience lowers registration and maintenance costs, which in turn reduces overall transportation costs. The accumulated advantages can be significant, for example in 1999, 28 of the American company SeaLand's fleet of 63 ships were foreign-flagged, saving the company up to US$3.5 million per ship every year. Resulting from strong political and public outcry over the Amoco Cadiz sinking, fourteen European nations signed the 1982 Paris Memorandum of Understanding on Port State Control or Paris MOU. In 2015, member states of the Paris MOU conducted 17,858 inspections with deficiencies, which resulted in 595 detained vessels and 11 banned. Member states of the Tokyo Memorandum of Understanding conducted 17,269 ship inspections in 2015, recording 83,606 deficiencies which resulted in 1,153 detentions. The principle that there be a genuine link between a ship's owners and its flag state dates back to 1958, when Article 5(1) of the Geneva Convention on the High Seas also required that "the state must effectively exercise its jurisdiction and control in administrative, technical and social matters over ships flying its flag." The principle was repeated in Article 91 of the 1982 treaty called the United Nations Convention on the Law of the Sea and often referred to as UNCLOS. The Convention for Registration of Ships would require that a flag state be linked to its ships either by having an economic stake in the ownership of its ships or by providing mariners to crew the ships. To come into force, the 1986 treaty requires 40 signatories whose combined tonnage exceeds 25% of the world total. Between 1986 and 2012, 24 countries signed or ratified the treaty. , it has not entered into force. ==History==

Merchant ships have used false flags as a tactic to evade enemy warships since antiquity, and examples can be found from as early as the Roman era through to the Middle Ages. Following the American Revolutionary War, merchantmen flying the flag of the fledgling United States quickly found it offered little protection against attack by Barbary pirates – many responded by seeking to transfer their registry back to Great Britain. The use of false flags was frequently used as a ruse de guerre by the British during the Napoleonic Wars and the United States during the War of 1812. The Belen Quezada, in August 1919, was the first foreign ship to be re-registered in the Panamanian registry, and was employed in running illegal alcohol between Canada and the United States during Prohibition. The modern practice of registering ships in foreign countries to gain economic advantage originated in the United States in the era of World War I, though the term "flag of convenience" did not come into use until the 1950s. , from left to right, maritime labor leader Andrew Furuseth, Senator Robert La Follette, and muckraker Lincoln Steffens, circa 1915 Between 1915 and 1922, several laws were passed in the United States to strengthen the United States Merchant Marine and provide safeguards for its mariners. During this period, U.S.-flagged ships became subject to regular inspections undertaken by the American Bureau of Shipping. The Seamen's Act regulated mariners' working hours, their payment, and established baseline requirements for shipboard food. The Liberian open registry, founded in 1948, was the brainchild of Edward Stettinius, who had been Franklin D. Roosevelt's Secretary of State during World War II. Stettinius created a corporate structure that included The Liberia Corporation, a joint-venture with the government of Liberia. Within 18 years, Liberia grew to surpass the United Kingdom as the world's largest register. Ships of the Russian war-time shadow fleet transporting sanctioned cargo (especially crude oil) frequently change their flag registrations. Since 2022, this practice has given new importance in global shipping to previously insignificant registries like those of Gabon, Eswatini (itself landlocked with no open water access), the Comoro Islands, and Guinea-Bissau. According to a report of the Atlantic council "They are so permissive that virtually any vessel can register, even ones turned down by other flag-of-convenience-states." , the open registries of Panama, Liberia, and Marshall Islands accounted for approximately half of the entire world fleet by deadweight tonnage, maintaining roughly the same proportion for over a decade. ==Extent of use==

The International Transport Workers' Federation (ITF) is the biggest campaigner against FOC since 1948, and maintains a list of registries it considers to be flags of convenience. In developing the list, the ITF takes into account "ability and willingness of the flag state to enforce international minimum social standards on its vessels," the "degree of ratification and enforcement of ILO Conventions and Recommendations," and "safety and environmental record". , the list includes 48 registries. , Liberia, Panama and the Marshall Islands are the world's three largest registries in terms of deadweight tonnage (DWT). , these three nations registered 17,752 ships of and above, for a total of : more than 46% of the world's shipborne carrying capacity. In comparison, the total capacity of ships in the U.S. and U.K. registers as of 1 January 2024 is 13.2 mil. dwt and 11.1 mil. dwt respectively. ==Criticism==

Deepwater Horizon flew a Marshallese flag of convenience.There are a number of common threads found in criticisms of the flag of convenience system. One is that these flag states have insufficient regulations and that those regulations they do have are poorly enforced. Another is that, in many cases, the flag state cannot identify a shipowner, much less hold the owner civilly or criminally responsible for a ship's actions. As a result of this lack of flag state control, flags of convenience are criticized on grounds of enabling tax avoidance, providing an environment for conducting criminal activities, supporting terrorism, providing poor working conditions for seafarers, and having an adverse effect on the environment. David Cockroft, former general secretary of the ITF, says: Panama has the largest maritime register, followed by Liberia. Landlocked Mongolia also has a major registry, as does Bolivia. Also, some registers are based in other countries. For example, Panamanian overseas consulates manage the documentation and collect registration fees, Liberia's registry is managed by a company in Virginia and Bahamas' from the City of London. Concealed ownership A ship's beneficial owner is legally and financially responsible for the ship and its activities. For any of a number of reasons, some justifiable and some suspicious, shipowners who wish to conceal their ownership may use a number of strategies to achieve that goal. In jurisdictions that permit it, actual owners may establish shell corporations to be the legal owners of their ships, making it difficult, if not impossible, to track who is the beneficial owner of the ship. The 2004 Report of the UN Secretary General's Consultative Group on Flag State Implementation reported that "It is very easy, and comparatively inexpensive, to establish a complex web of corporate entities to provide very effective cover to the identities of beneficial owners who do not want to be known." According to a 2003 report by the Organisation for Economic Co-operation and Development (OECD) report entitled "Ownership and Control of Ships", these corporate structures are often multi-layered, spread across numerous jurisdictions, and make the beneficial owner "almost impenetrable" to law enforcement officials and taxation. Physically possessing a bearer share accords ownership of the corporation. All corporations are required to have at least one director, however many jurisdictions allow this to be a nominee director. A nominee director's name would appear on all corporate paperwork in place of the beneficial owners, and like nominee shareholders, few jurisdictions can compel a nominee director to divulge the identity of beneficial owners. Ships registered by the Cambodia Shipping Corporation (CSC) were found smuggling drugs and cigarettes in Europe, breaking the Iraq oil embargo, and engaging in human trafficking and prostitution in Europe and Asia. The North Korean flag of convenience has also garnered significant scrutiny. In 2003, the North Korean freighter Pong Su reflagged to Tuvalu in the middle of a voyage shortly before being seized by Australian authorities for smuggling heroin into that country. Working conditions In the accompanying material of the ILO's Maritime Labour Convention of 2006, the International Labour Organization estimated that at that time there were approximately 1,200,000 working seafarers across the world. This document goes on to say that when working aboard ships flagged to states that do not "exercise effective jurisdiction and control" over their ships that "seafarers often have to work under unacceptable conditions, to the detriment of their well-being, health and safety and the safety of the ships on which they work." The International Transport Workers' Federation goes further, stating that flags of convenience "provide a means of avoiding labor regulation in the country of ownership, and become a vehicle for paying low wages and forcing long hours of work and unsafe working conditions. Since FOC ships have no real nationality, they are beyond the reach of any single national seafarers' trade union." They also say that these ships have low safety standards and no construction requirements, that they "do not enforce safety standards, minimum social standards or trade union rights for seafarers", that they frequently fail to pay their crews, the Bahamian-flagged , the Marshallese-flagged Deepwater Horizon, and the Liberian-flagged , and ), the most common environmental criticism they face regards illegal fishing. These critics of the flag of convenience system argue that many of the FOC flag states lack the resources or the will to properly monitor and control those vessels. The Environmental Justice Foundation (EJF) contends that illegal, unreported and unregulated fishing (IUU) vessels use flags of convenience to avoid fisheries regulations and controls. Flags of convenience help reduce the operating costs associated with illegal fishing methods, and help illegal operators avoid prosecution and hide beneficial ownership. As a result, flags of convenience perpetuate IUU fishing which has extensive environmental, social and economic impacts, particularly in developing countries. The EJF is campaigning to end the granting of flags of convenience to fishing vessels as an effective measure to combat IUU fishing. According to Franz Fischler, European Union Fisheries Commissioner, ==Port state control==

In 1978, a number of European countries agreed in The Hague to audit labour conditions on board vessels vis-a-vis the rules of the International Labour Organization. To this end, in 1982 the "Paris Memorandum of Understanding on Port State Control" (Paris MOU) was established, setting port state control standards for what is now twenty-six European countries and Canada. Several other regional Memoranda of Understanding have been established based on the Paris model, including the "Memorandum of Understanding on Port State Control in the Asia-Pacific Region", typically referred to as the "Tokyo MOU", and organizations for the Black Sea, the Caribbean, the Indian Ocean, the Mediterranean, and Latin America. The Tokyo and Paris organizations generate, based on deficiencies and detentions, black-, white-, and grey-lists of flag states. The US Coast Guard, which handles port state control inspections in the US, maintains a similar target list for underperforming flag states., Paris MoU, Tokyo MoU, USCG Both Paris and Tokyo MoU-s maintain blacklists of low performing flags, but there are FOC and non-FOC registries among them. Panama has a policy to reduce PSC detentions and to improve performance on Panamanian vessels. The effectiveness of the port state control regime in correcting deficiencies is mitigated in some part by the practice of flag-hopping, in which shipowners and operators will rename their ships and acquire new vessel registrations in other jurisdictions in order to avoid detection and reduce the likelihood of being selected for port state control inspections. ==Ratification of maritime conventions==

International regulations for the maritime industry are promulgated by agencies of the United Nations, particularly the International Maritime Organization and International Labour Organization. Flag states adopt these regulations for their ships by ratifying individual treaties. One common criticism against flags of convenience was that they allow shipowners to avoid these regulations by not ratifying important treaties or by failing to enforce them. Recent surveys (table on right side) shows that major FOC administrations comply with the international conventions. Only small percent of FOC tonnage belongs to flags, which are out of this process. The International Chamber of Shipping (ICS) issues an annual report entitled the Shipping Industry Flag State Performance Table LL 66 sets standards for minimum buoyancy, hull stress, and ship's fittings, as well as establishing navigational zones where extra precautions must be taken. The International Labour Organization Maritime Labour Convention, 2006 provides comprehensive rights and protection at work for seafarers, including requirements for minimum age, qualifications, hours of work and rest, medical care, complaint procedures, wage payments, and onboard living arrangements. The MLC replaced a number of earlier ILO Conventions including ILO147. MARPOL and CLC/FUND92 relate to pollution. The International Convention for the Prevention of Pollution from Ships, 1973 (MARPOL), as modified by the Protocol of 1978, including Annexes I–VI" regulates pollution by ships, including oil and air pollution, shipboard sewage and garbage. The Civil Liability for Oil Pollution Damage (CLC) and International Fund for Compensation for Oil Pollution Damage (FUND92) together provide mechanisms to ensure compensation for victims of oil spills. With the exception of Cameroon, each of the top twelve FOC registries by tonnage (see Port state control) are signatories to the major revisions of all six core maritime conventions. ==Wages==

The United Nations Conference on Trade and Development, in its 2009 Report on Maritime Trade, states that shipowners often register their ships under a foreign flag in order to employ "seafarers from developing countries with lower wages". The Philippines and China supply a large percentage of maritime labor in general, and major flags of convenience in particular. In 2009, the flag-states employing the highest number of expatriate-Filipino seafarers were Panama, the Bahamas, Liberia and the Marshall Islands. That year, more than 150,000 Filipino sailors were employed by these four flags of convenience. The MARAD report referred to both China and the Philippines as "low cost" crewing sources. The seafaring industry is often divided into two employment groups: licensed mariners including deck officers and marine engineers, and mariners that are not required to have licenses, such as able seamen and cooks, but are required to be certified. The latter group is collectively known as unlicensed mariners or ratings. Differences in wages can be seen in both groups, between "high cost" crewing sources such as the United States, and "low cost" sources such as China and The Philippines. However, salaries on flag of convenience ships are still far higher than median salaries of non-seafarers in these countries, in addition to income tax exemption of some seamen, particularly those from the Philippines. For unlicensed mariners, 2009 statistics from the American Bureau of Labor Statistics give median earnings for able and ordinary seamen as US$35,810, varying from $21,640 (at the 10th percentile) to $55,360 (at the 90th percentile). This can be compared with 2006 statistics from the International Labour Organization, giving average yearly earnings for Filipino and Chinese able seamen around $2,000 to $3,000 per year (PHP9,900 per month and CNY3,071 per year). A 2005 study by industry groups the Baltic and International Maritime Council and International Shipping Federation estimated that 466,000 licensed mariners and 721,000 unlicensed personnel worked aboard the world's ships. The study found that an approximately equal share of licensed mariners come from OECD countries and the far east, with significant numbers also coming from eastern Europe, the Indian Subcontinent, Africa and Latin America. Conversely, the major suppliers of unlicensed personnel are the far east, southeast Asia, and the Indian sub-continent. --> == See also ==