May 16, 2002
How the war on terrorism could change the shape of shipping
Osama Bin Laden, intelligence sources would have us believe, is, among other things, a shipowner with a fleet of over 20 ships, probably flying flags of convenience (FOCs). Whether or not this is true, the world is slowly waking up to the dangers of allowing shipping to operate under the cloak offered by FOCs: no questions asked so long as the shipowner pays registration fees and tonnage taxes. Brass plates in such places as Liberia, Panama and the Bahamas, single-ship companies to limit liability and cats' cradles of ownership structures all create a wall of secrecy behind which the vessels' real owners can hide. Even Sri Lanka's Tamil Tigers are said to own a fleet.
The United States, spooked that terrorists might turn ships into floating bombs and sail them into American ports, is now demanding that shipping open up its books. Last month, at the International Maritime Organisation (IMO), a London-based agency that is part of the United Nations, the Americans presented proposals to make ownership more transparent. This triggered a chorus of protest, led by Greek shipowners who say that America only needs to know who is in day-to-day control, not the beneficial owner.
Stephen Flynn, a security adviser at the Council on Foreign Relations, who is also a former US Coast Guard commander, describes the current system as "managed anarchy". He believes that the Americans will "engage at a higher level" if they fail to get their proposals through the IMO. An alternative route might be the OECD, which last year produced a report urging governments to clamp down on the use of brass-plate firms for illicit purposes.
All this is rather ironic. It was America, after all, that helped Liberia to create its "open" register as an alternative to Panama, the first FOC, in the late 1940s. American oil companies, with Greek shipowners riding piggyback, switched their tanker fleets to Liberia to avoid high labour costs at home (American-registered ships are required by law to use expensive American crews). Liberia's success spawned many imitators: "free flags" are now flown by such unlikely places as Cambodia and landlocked Bolivia. China is a big user of FOCs, its main preference being Panama, the world's biggest FOC by tonnage.
Panama is also among the most delinquent of FOCs. For instance, it blatantly disregards an international law requiring reports of casualty investigations to be filed with the IMO. The agency cannot force its members to apply the laws they have passed. The best it has come up with is a toothless system of self-audits.
There is a further irony: the IMO's limited powers are the result of American meddling with its constitution in the 1950s, which gave voting powers to countries by registered tonnage rather than by goods actually traded. Liberia (America's proxy) and Panama won seats at the top table, but also became liable for a greater share of the IMO's budget. Late payments by the two have bedevilled the agency ever since.
The Americans are not the first to want FOCs hauled down. Opposition in the 1970s from transport unions and poor countries led to a proposal for a UN convention on the registration of ships, which would have imposed such strict conditions that FOCs would no longer be viable. The convention was shelved, however, when OECD countries, supported by most shipowners, ganged up on it.
So imagine the dismay of FOC-wavers on hearing that John Breaux, a Democratic senator from Louisiana, had recently proposed a bill to revive the convention as a counter-terrorism measure. Clay Maitland, senior managing partner of International Registries Inc, the company that administers the Marshall Islands flag, says that the convention is "so messed up it would take years to fix. It's the last thing I would do if I wanted speedy action." Another option would be to strengthen the UN Convention on the Law of the Sea, which also covers ship registration and calls for a "genuine link" between ship and flag. Mr Maitland thinks this could be done more quickly.
There is yet another optionâ€”extreme, but sure to work. If the Americans were serious about destroying the monster they helped to create in FOCs, they could ban brass-plate ships from their ports. Such a move would force most FOCs to shut up shop, and the Liberias of the world to seek new sources of income.