Signalling distress, sending a message, claiming allegiance – ships use flags for many reasons. In the Caribbean they are also used to bypass regulations, avoid taxes and encourage shipbreaking as unscrupulous vessel owners exploit loopholes in shipping registries and sail under flags of convenience.
What are FOCs
The term ‘flag of convenience’ (FOC) first entered the lexicon in the 1950s, but the practice has a longer history with its roots in Prohibition. Canny ship operators, who wanted to serve alcohol to their passengers, decided to circumvent the US temperance laws by registering their vessels in another country. What began as an underhand way to imbibe is now commonplace on the world’s oceans and it’s not unusual to see vessels from all over the globe flying Caribbean flags. Almost 73 per cent of the world fleet is flagged in a country other than that of its beneficial ownership, according to the United Nations Conference on Trade and Development.
Adopting another nation’s flag has obvious benefits. Some owners do it to avoid paying taxes, others to duck stringent safety requirements, cut operating costs or avoid labour laws. While every merchant ship must be registered in a national shipping registry, owners have almost free rein when it comes to selecting which country; so, although controversial, FOCs are not illegal.
Operating an ‘open’ registry, i.e. one that doesn’t require nationality or residency in that country, Panama has long been considered the most convenient flag thanks to ease of registry, cheap labour and zero income tax. The country has the largest ship registry in the world, according to shipping analysts Clarksons, with just over 7,000 vessels on its books. The second-largest is Liberia with 3,726 and the Marshall Islands is a close third with 3,719.
Only one Caribbean country (the Bahamas) made the top ten in 2018, taking seventh place, but several Caribbean nations have made a tidy profit from international vessels. Bermuda, the Cayman Islands, Antigua and Barbuda and St Vincent and the Grenadines all have popular ship registries. In 2016, Saint Lucia made its own move into the market when the Saint Lucia Air and Sea Ports Authority (SLASPA) announced implementation of an open ship registry.
Shipbreaking
A ship may begin its life under one flag, but end its tenure under another. This type of ‘flag swapping’ is common on the high seas as vessels near the end of their operational lifespan and owners mull the costs involved with their dismantling.
Around a thousand ocean-going commercial vessels reach the end of their service life annually, according to NGO Shipbreaking Platform, and only a small percentage of these are properly handled. More than 70 per cent of ships end up in South Asia and are haphazardly broken down on beaches where they pose a huge threat to human and environmental health. Unfortunately for the Caribbean, a sizeable proportion of these junked ships are carrying the flag of St Kitts and Nevis.
According to a 2018 report from Shipbreaking Platform, St Kitts and Nevis is the fourth largest ‘end-of-life flag state’ in the world, behind Palau, Comoros and Panama. Since 2016, almost 150 St Kitts and Nevis ships have been scrapped on South Asian beaches.
The St Kitts and Nevis flag is a popular choice for unethical owners because the country has consistently failed to properly implement international maritime regulations and, as a result, has been blacklisted by the Paris Memorandum of Understanding. An investigation by The Independent earlier this year uncovered how a London-based firm is selling St Kitts and Nevis flags to cash in on the shady shipbreaking market. The company, Skanreg, revealed that the St Kitts and Nevis government had earned around US$500,000 from selling flags through the firm in 2016.
The environmental and human cost
Toxic dumping grounds littered with ships leaching poisonous materials into the landscape is only one of the environmental hazards posed by unregulated maritime vessels.
In recent years there have been several dangerous oil spills from rigs and vessels carrying FOCs. The Deepwater Horizon, responsible for the largest oil spill in history, was registered in the Marshall Islands. In 2002, the Bahamian-flag-carrying oil tanker MV Prestige sank off the coast of Spain, leaking 50,000 tonnes of oil into the ocean.
Another concern for marine conservationists is the preponderance of illegal fishing activity among FOCs. Figures from the non-profit group Global Fishing Watch show that 48 per cent of refrigerated cargo vessels, used to collect large catches, are registered under FOCs. Obscuring their origins in this way makes it easier for a ship to engage in illegal, unreported and unregulated fishing and threatens the future of fisheries worldwide.
It’s sadly not a big leap from illegal fishing to modern-day piracy. Many ships with illegal catch are also implicated in other nefarious activities such as drug smuggling and human trafficking. For ill-intentioned owners, signing up with a poorly monitored and/or unregulated ship registry opens the door to criminality and corruption. By way of example, two blacklisted vessels tied to the Vidal Spanish poaching syndicate evaded Interpol for years by regularly switching out flags and names. The Yongding and the Songhua cycled through the flags of Tanzania, Sierra Leone and Chile before being grounded in 2015.
Some of the most serious charges levelled at FOCs concern human rights abuses, particularly those of the workers onboard. Unpaid wages, long hours, dangerous working conditions – horror stories from seafarers abound and have earned some FOC vessels the nickname of ‘sweatshops at sea’. The International Transport Workers’ Federation has a list of 35 ‘FOC Countries’ which includes Antigua and Barbuda, the Bahamas, the Cayman Islands, Barbados, Bermuda and St Vincent. The group wants to see a genuine link between a vessel’s owner and the flag it flies, claiming that FOC vessels often take advantage of cheap labour without any regulatory safeguards in place to guarantee workplace safety, fair wages and adequate compensation.
Flying the Saint Lucian flag
For small island economies, the appeal of easy overseas money often trumps the need for caution. Shipping registries can be a rich and sustainable source of revenue for regional governments but they carry a heavy cost if operated without stringent safeguards in place. As a newcomer into the market, Saint Lucia must look to St Kitts and Nevis as a cautionary tale. It is perhaps telling that when the Shipping Amendment Bill was passed and SLASPA announced the creation of Saint Lucia’s open registry, there was no mention of the need for oversight.
Instead, the Authority focused on the economic benefits and the hope that an open registry would gain Saint Lucia more global influence, saying: “The island is expected to gain several benefits from the implementation of an open ship registry. These are not limited to employment of seafarers, increased revenue from taxes and fees, provision of legal services, and expansion and growth of maritime services.
Additionally, apart from the obvious economic benefits, an increase in the quantum of ships registered will result in Saint Lucia having greater prominence and representation internationally, particularly at meetings of the International Maritime Organization (IMO).”
