MOL Pride, owned and operated by the Japanese company Mitsui O.S.K. Lines, flying the flag of Liberia and bears the home port of Monrovia.

MV Mainport Pine, a seismic support vessel owned by Irish company Mainport Group, flies the flag of the Marshall Islands and bears the home port of Majuro.

Flag of convenience (FOC) is a business practice whereby a ship's owners register a merchant ship in a ship register of a country other than that of the ship's owners, and the ship flies the civil ensign of that country, called the flag state.^[1] The term is often used pejoratively, and although common, the practice is sometimes regarded as contentious.

Each merchant ship is required by international law to be registered in a registry created by a country,^[2] and a ship is subject to the laws of that country, which are used also if the ship is involved in a case under admiralty law. A ship's owners may elect to register a ship in a foreign country so as to avoid the regulations of the owners' country, which may, for example, have stricter safety standards. They may also select a jurisdiction to reduce operating costs, avoiding higher taxes in the owners' country and bypassing laws that protect the wages and working conditions of mariners.^[3] The term "flag of convenience" has been used since the 1950s. A registry which does not have a nationality or residency requirement for ship registration is often described as an open registry. Panama, for example, offers advantages such as easier registration (often online), the ability to employ cheaper foreign labour, and an exemption on income taxes.

The modern practice of ships being registered in a foreign country began in the 1920s in the United States when shipowners seeking to serve alcohol to passengers during Prohibition registered their ships in Panama. Owners soon began to perceive advantages in terms of avoiding increased regulations and rising labor costs and continued to register their ships in Panama even after Prohibition ended. The use of open registries steadily increased, and in 1968, Liberia grew to surpass the United Kingdom with the world's largest ship register.

As of 2021, more than half the world's merchant ships were registered with open registries, and almost 40% of the entire world fleet, in terms of deadweight tonnage, (DWT) were registered in Panama, Liberia, and the Marshall Islands.^[4] It is estimated that nearly two thirds of the world's fleet is registered in states to which they have no connection.^[5][6] According to the UN Conference on Trade and Development (UNCTAD), in January 2021, Panama had 6,653 ships on its registry (16 per cent of the global fleet by DWT), followed by Liberia (3,909), Marshall Islands (3,732), Singapore (2,541), and Hong Kong (2,440).^[4]

Background

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.^[7]

As of 2009, thirteen flag states have been found by international shipping organisations to have substandard regulations. On the other hand, 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.^[8]

Accidents and reform

The sinking of Amoco Cadiz led to concerted ship inspections by port states.

The environmental disaster caused by the 1978 sinking of the MV Amoco Cadiz, which flew the Liberian flag, spurred the creation of a new type of maritime enforcement.^[16] 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.^[16] Under port state control, ships in international trade became subject to inspection by the states they visit. In addition to shipboard living and working conditions, these inspections cover items concerning the safety of life at sea and the prevention of pollution by ships.^[16] In cases when a port state inspection uncovers problems with a ship, the port state may take actions including detaining the ship.^[17] In 2015, member states of the Paris MOU conducted 17,858 inspections with deficiencies, which resulted in 595 detained vessels and 11 banned.^[18] 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.^[19]

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."^[20] 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.^[2] In 1986, the United Nations Conference on Trade and Development attempted to solidify the genuine link concept in the United Nations Convention on Conditions for Registration of Ships.^[21] 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.^[21] To come into force, the 1986 treaty requires 40 signatories whose combined tonnage exceeds 25% of the world total.^[21] As of 2017, only 14 countries have signed the treaty.^[21]

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.^[22] 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.^[3] During the mid-19th century, slave ships flew various flags to avoid being searched by British anti-slavery fleets.^[23] 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.^[24] 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.^[25]

The engineers of the Seamen's Act, 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.^[26] During this period, U.S.-flagged ships became subject to regular inspections undertaken by the American Bureau of Shipping.^[26] This was also the time of Robert LaFollette's Seamen's Act of 1915, which has been described as the "Magna Carta of American sailors' rights".^[27] The Seamen's Act regulated mariners' working hours, their payment, and established baseline requirements for shipboard food.^[27] It also reduced penalties for disobedience and abolished the practice of imprisoning sailors for the offense of desertion.^[27] Another aspect of the Seamen's Act was enforcement of safety standards, with requirements on lifeboats, the number of qualified able seamen on board, and that officers and seamen be able to speak the same language.^[27] These laws put U.S.-flagged vessels at an economic disadvantage against countries lacking such safeguards, and ships started to be re-registered in Panama's open registry from 1919.^[26] In addition to sidestepping the Seamen's Act, Panamanian-flagged ships in this early period paid sailors on the Japanese wage scale, which was much lower than that of western merchant powers.^[24] In the early phase of World War II the transfer of American-owned ships to the Panama registry was sanctioned by the United States government so that they could be used to deliver materials to Britain without dragging the United States, as a neutral, unintentionally into war.^[28]

The Liberian open registry, founded in 1948,^[29] was the brainchild of Edward Stettinius, who had been Franklin D. Roosevelt's Secretary of State during World War II.^[30] Stettinius created a corporate structure that included The Liberia Corporation, a joint-venture with the government of Liberia.^[30] The corporation was structured so that 25% of its revenue would go to the Liberian government, another 10% went to fund social programs in Liberia, and the remainder returned to Stettinius' corporation.^[30] The Liberian registry was created at a time when Panama's registry was becoming less attractive for several reasons including its unpopularity with the U.S. labor movement and European shipping concerns, political unrest in Panama, and increases in its fees and regulations.^[30]

On 11 March 1949, Greek shipping magnate Stavros Niarchos registered the first ship under the Liberian flag, World Peace. When Stettinius died in 1949, ownership of the registry passed to the International Bank of Washington, led by General George Olmsted.^[31] Within 18 years, Liberia grew to surpass the United Kingdom as the world's largest register.^[31]

Due to Liberia's 1989 and 1999 civil wars, its registry eventually fell second to Panama's flag of convenience, but maritime funds continued to supply 70% of its total government revenue.^[31] After the civil war of 1990, Liberia joined with the Republic of the Marshall Islands to develop a new maritime and corporate program.^[31] The resulting company, International Registries, was formed as a parent company, and in 1993 was bought out by its management.^[31] After taking over the Liberian government, Americo-Liberian warlord Charles Taylor signed a new registry contract with the Liberian International Ship and Corporate Registry, commonly known as LISCR. LISCR was one of the few legal sources of income for Taylor's regime.^[31] Liberia's registry is operated from Virginia, United States.

As of 2021, the open registries of Panama, Liberia, and Marshall Islands accounted for almost 40% of the entire world fleet by deadweight tonnage,^[4] maintaining roughly the same proportion for over a decade.^[32] In 2009, the top ten flags of convenience registered 55% of the world's deadweight tonnage, including 61% of bulk carriers and 56% of oil tankers;^[32] by 2021, they accounted for 38% of the world's vessels and over two-thirds of the global deadweight tonnage.^[33]

To counteract class hopping, in 2009 the International Association of Classification Societies (IACS) established a Transfer of Class Agreement (TOCA).^[34][35]

Extent of use

Countries listed as having a flag of convenience by the International Transport Workers' Federation

The International Transport Workers' Federation (ITF) maintains a list of registries it considers to be flags of convenience (FOC) registries.^[36] In developing the list, the ITF considers "ability and willingness of the flag state to enforce international minimum social standards on its vessels,"^[37] the "degree of ratification and enforcement of ILO Conventions and Recommendations,"^[37] and "safety and environmental record".^[37] As of 2021, the list includes 42 countries.^[36]

The top 11 flags of convenience in 2009, accounting for almost 55% of the entire world fleet^[32]

As of 2009, Panama, Liberia and the Marshall Islands are the world's three largest registries in terms of deadweight tonnage (DWT).^[32] These three organizations registered 11,636 ships of 1,000 DWT and above, for a total of 468,405,000 DWT: more than 39% of the world's shipborne carrying capacity.^[32] Panama dominates the scene with over 8,065 ships accounting for almost 23% of the world's DWT.^[32] Of the three, the Marshall Islands (with 1,265 registered ships) had the greatest rate of DWT increase in 2009, increasing its tonnage by almost 15%.^[32]

The Bahamian flag ranks sixth worldwide, behind the Hong Kong and Greek registries, but is similar in size to the Marshallese flag of convenience, with about 200 more ships but a carrying capacity about 6,000,000 DWT lower.^[32] Malta, at the ninth position worldwide, had about 100 more ships than the Bahamas, with a capacity of 50,666,000 DWT, representing 4% of the world fleet with 12% growth that year.^[32]

At the eleventh position, Cyprus registered 1,016 ships in 2009, 2.6% of world tonnage.^[32] The remaining top 11 flags of convenience are Antigua and Barbuda (#20), Bermuda (#22), Saint Vincent and the Grenadines (#26), and the French International Ship Register (FIS) at number No. 27.^[32] Bermuda and the FIS have fewer than 200 ships apiece, but they are large: the average Bermudan ship is 67,310 DWT and the average FIS ship is at 42,524 DWT.^[32] (By way of reference, the average capacity of ships in the U.S. and U.K. registers is 1,851 DWT and 9,517 DWT respectively.^[32]) The registries of Antigua and Barbuda and Saint Vincent and the Grenadines both have over 1,000 ships with average capacity of 10,423 DWT and 7,334 DWT respectively.^[32]

The remaining flags of convenience listed by the ITF each account for less than 1% of the world's DWT.^[32] As of 2008, more than half of the world's merchant ships (measured by tonnage) are registered under flags of convenience.^[38]

Table of flags of convenience and statistics of registered ships
(2022 data)^[39]

Flag state[36]	Ships registered	Bulk carriers	Container ships	General cargo	Oil tankers	other
Panama	8,025	2,690	662	1,418	785	2,470
Liberia	4,311	1,673	962	141	907	628
Marshall Islands	4,042	1,879	276	62	1,023	802
Malta	2,047	545	312	182	395	613
Bahamas	1,307	337	40	63	213	654
Cyprus	1,030	255	169	200	61	345
Saint Vincent and the Grenadines	832	32	17	148	14	621
Madeira (as data for Portugal)	820	103	290	175	28	224
Belize	817	51	–	433	67	266
Antigua and Barbuda	638	26	112	443	4	53
Sierra Leone	605	36	6	325	104	134
Germany	592	1	72	79	34	406
France	549	–	32	49	26	442
Honduras	505	–	–	246	82	177
Togo	403	1	10	254	57	81
Vanuatu	331	16	4	87	2	222
Zanzibar (as data for Tanzania)	322	4	9	148	46	115
Mongolia	314	3	6	151	57	97
Palau	304	29	6	137	43	89
Saint Kitts and Nevis	282	9	11	64	46	152
North Korea	270	9	5	193	33	30
Comoros	248	10	6	108	38	86
Cambodia	242	–	2	159	18	63
Barbados	195	61	–	114	–	20
Cook Islands	189	20	–	53	51	65
Gibraltar	155	8	12	36	16	83
Cayman Islands	139	29	3	1	20	86
Bermuda	135	–	14	–	15	106
Moldova	126	5	2	79	7	33
Cameroon	121	2	–	45	33	41
Myanmar	102	1	–	45	5	51
Sri Lanka	92	5	–	13	11	63
Faroe Islands	91	–	6	43	–	42
Curaçao	59	–	–	5	1	53
Lebanon	49	2	–	32	1	14
Bolivia	46	–	–	29	3	14
Equatorial Guinea	46	1	–	12	7	26
Jamaica	36	1	–	9	1	25
Tonga	32	–	4	13	1	14
Mauritius	31	–	–	1	5	25
São Tomé and Príncipe	25	–	–	15	2	8
Georgia	24	–	–	3	–	21

Criticism

The drilling platform Deepwater Horizon flew a Marshallese flag of convenience.^[40]

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:

Arms smuggling, the ability to conceal large sums of money, trafficking in goods and people and other illegal activities can also thrive in the unregulated havens which the flag of convenience system provides.^[15]

Panama has the largest maritime register, followed by Liberia. Landlocked Bolivia also has a major registry, as does Mongolia. 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.^[41]

Port state control

Port state control, 2021^[62]

Flag	Paris Blacklist	Tokyo Blacklist	USCG Target List
Bolivia			N
Comoros	N
Moldova	N
Mongolia		N
St. Kitts/Nevis			N
St. Vincent/Grenadines			N
Sierra Leone		N
Togo	N	N	N
Zanzibar			N
Note	Cambodia,  Cameroon, and  Equatorial Guinea were not reviewed by ICS

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.^[63] 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. As of 2021, at least nine of the 42 flags of convenience listed by the ITF are targeted for special enforcement by the countries of the Paris and Tokyo MOUs or U.S. Coast Guard.^[62]

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.^[64]

Ratification of maritime conventions

Non-ratification of International Conventions, 2023^[62]

Flag	SOLAS	MARPOL	LL66	MLC2006	CLC ‍FUND92‍
Bolivia	No	No	No	No	No
Comoros	No	No	No	No
Cook Islands		No
Georgia		No		No
Honduras					No
North Korea		No		No	No
Lebanon	No	No			No
Moldova		No		No	No
Mongolia					No
Myanmar		No			No
São Tomé/Príncipe				No	No
Sierra Leone				No
Sri Lanka	No	No	No
Togo					No
Tonga				No
Vanuatu				No
Zanzibar	No	No	No
Note	Cambodia,  Cameroon, and  Equatorial Guinea were not reviewed by ICS

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 flag of convenience countries is that they allow shipowners to avoid these regulations by not ratifying important treaties or by failing to enforce them.

The International Chamber of Shipping (ICS) issues an annual report entitled the Shipping Industry Flag State Performance Table identifying the six "core" conventions representing a minimum level of maritime regulation, from the viewpoint of shipowners, as SOLAS, MARPOL, LL 66, STCW, MLC, and CLC/FUND92.^[62] Of these, all 42 flag of convenience countries listed by ITF have ratified the STCW Convention, concerning standards of training, certification and watchkeeping for seafarers, and 22 of them have ratified all six. However, at least seventeen listed countries have not ratified all the remaining five conventions. To put this in context, over 50 flag states have not ratified all six conventions, including China and United States of America.^[62]

The Safety of Life at Sea (SOLAS) and Load Line (LL 66) conventions focus on shipboard safety issues. Originally developed in response to the sinking of RMS Titanic, SOLAS sets regulations on lifeboats, emergency equipment and safety procedures, including continuous radio watches. It has been updated to include regulations on ship construction, fire protection systems, life-saving appliances, radio communications, safety of navigation, management for the safe operation of ships, and other safety and security concerns.^[62][65] 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.^[66]

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.^[67] The MLC replaced a number of earlier ILO Conventions including ILO147.^[68]

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.^[69] 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.^[70][71]

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".^[72] The Philippines and China supply a large percentage of maritime labor in general,^[73] 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.^[74] That year, more than 150,000 Filipino sailors were employed by these four flags of convenience.^[74] In a 2006 study by the United States Maritime Administration (MARAD), sailors from the People's Republic of China comprised over 40% of the crews on surveyed ships flying the Panamanian flag, and around 10% of those flying the Liberian flag.^[75] The MARAD report referred to both China and the Philippines as "low cost" crewing sources.^[76]

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,^[77] in addition to income tax exemption of some seamen,^[78] 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).^[79] 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).^[80][81] Among licensed mariners, American chief engineers earned a median $63,630, varying from $35,030 to $109,310 while their Filipino counterparts averaged $5,500 per year (PHP21,342 per month).^[81][82]

See also

• Declaration recognising the Right to a Flag of States having no Sea-coast
• Tax haven

Footnotes

References

Further reading

External links

Wikimedia Commons has media related to Flag of convenience.

• Database on reported incidents of abandonment of seafarers
• Flag of Convenience Cyprus: Prestige Oil Spill Archived 28 February 2009 at the Wayback Machine
• List of flag State comments on detentions for the years 2000, 2001 and 2002
• Cardiente, Christian; Barlaan, Karl Allan (10 September 2011). "A sea of trouble". Archived from the original on 2 September 2013.