An Inconvenient Flag

On the face of it, Liberia should hardly register as a maritime force of any consequence. Although the West African nation has boasted a naval component to its military since 1848 – when the Liberal British government of Lord John Russell presented the then-one-year-old republic with its first naval vessel, The Quail, a four-gun cutter with which to patrol its coastline against slave traders – in more recent years the Liberian National Coast Guard's connections to the sea have been increasingly tenuous, to put it charitably.

The six small patrol craft it once possessed have been inoperative since the early 1980s for want of spare parts. The last time the Liberian “navy” saw any action was five years ago during the second phase of the country's civil war when its commander, Roland Duo, led his “seamen” in retaking a town 60 kilometers inland on behalf of then-dictator Charles Taylor. Liberia's main port in Monrovia is in poor condition, littered with wrecked vessels and, in parts, visibly shoaling. Things are not much better onshore: in July, dozens of police as well as numerous civilians were injured in clashes between the regular Liberian National Police and the Liberian Seaport Police.

Despite all of this, according to a 2004 report by the International Transport Workers' Federation, the same Liberia that cannot float a single dugout to patrol its 579-kilometer coastline has the world's second largest merchant navy, both in terms of vessels and gross tonnage. The updated Central Intelligence Agency World Fact Book reports that this fleet has grown by almost 10 percent since then to include 1,687 large ships amounting to more than 96 million deadweight tons. These vessels include 3 barge carriers, 322 bulk carriers, 83 cargo ships, 199 chemical tankers, 2 combination ore/oil tankers, 477 container ships, 75 liquefied gas tankers, 397 petroleum tankers, 76 refrigerated cargo ships, 4 roll on/roll off vessels, 11 specialized tankers, and 35 vehicle carriers.

How did this come about? In 1948, Liberia enacted a Maritime Code which continues to generate revenues for the Liberian state through the registration of foreign-owned ships that are allowed to fly the Liberian flag and enjoy tax and other economic benefits. The consequent establishment of the “open registries” program of the fictitious “Liberian Merchant Marine” nowadays contributes the not-so-negligible sum of some $13 million annually to the impoverished country's treasury. In effect, Liberia rents out its national banner as a “flag of convenience” under which, in addition to escaping taxes, ship operators can find, according to the international umbrella group for seafarers' unions, “means of avoiding labor regulation in the country of ownership,” thus “paying low wages and forcing long hours of work and unsafe working conditions” on sailors.

The scheme works like this: Going through the Liberian International Shipping and Corporate Registry (LISCR), a Vienna, Virginia-based company that manages the registry in exchange for a percentage of the fees collected for Liberia, a ship owner forms a corporation with a Liberian charter under which he or she can register a vessel with the payment of minimal application and administrative fees and nominal tonnage taxes. The corporation and its vessel are consequently tax-free outside Liberia since they are legally under Liberian jurisdiction. The first vessel to participate in this tax dodge scheme was the tanker World Peace, owned by Greek shipping magnate Stavros Niachos and chartered to Gulf Oil, which was registered in March 1949.

Given that its contract with the Liberian government pays it by commission, LISCR makes the entire process as easy as possible for its potential clients. In addition to its Vienna, Virginia, headquarters in a non-descript commercial office complex, LISCR maintains offices in New York, Hamburg, Hong Kong, London, Piraeus (Greece), Tokyo, and Zurich, as well as a small presence in Monrovia. Business can be transacted even via the internet at LISCR's website (www.liscr.com), where visitors can download the necessary forms to take advantage of what chief executive office Yoram M. Cohen glowingly describes — under a banner marked “special pricing,” no less — as “the most competitive of all registries” with the added bonus that “in order to permit you maximum flexibility in taking advantage of both the new fee structure and the benefits of operation under the Liberian flag the Registry shall waive registration fees for ships entering the Registry until further notice, thereby making Liberia one of the least costly alternatives for vessel registration.” Just how nominal this entire process is can be verified by the following sample declarations on the LISCR website:

Liberian corporations, LLC's, partnerships, and not for profit businesses are easily formed. Formation will be completed no later than the day following the request for formation. The use of standard articles of incorporation, certificates of formation and other organizational documents facilitate the formation process so that a company may be formed in only one day.

The formation fee for forming a LLC or incorporating a non-resident domestic corporation in Liberia is US$713.50 (which includes first year annual fees). Subsequent annual fees — US$450.00.

What vessels are eligible for registration and is there an age restriction on vessels entering the Liberian Registry? Seagoing vessels of more than 500 net tons, engaged in foreign trade are eligible for registration in Liberia … Vessels should be not more than 20 years of age at the time of registration; however, vessels older than 20 years may be granted a waiver for registration on application by owner.

Last week The Economist observed that “during the worst days of Liberia's civil war, when almost everything that could be was being stolen or destroyed, as much as 90 percent of government revenues came from the registry, an enticing prize for [then-President] Taylor,” noting that “a UN report found that nearly $1 million was siphoned from the registry to Middle Eastern bank accounts” by Taylor, who used the funds to pay off arms purchases made in defiance of a Security Council-imposed embargo.

Whatever its faults, no one accuses Liberia's democratically-elected Ellen Johnson Sirleaf of anything approaching the malfeasance of her predecessor, who is now on trial before an international court at The Hague, and the revenues from its fictitious fleet presently only accounts for one-twentieth of the government's budget. The question, rather, is the wider implications of a farce such as allowing a country like Liberia to register ships. As William Langewiesche noted in his 2004 book The Outlaw Sea: A World of Freedom, Chaos, and Crime:

No one pretends that a ship comes from the home port painted on its stern, or that it has ever been anywhere near. Panama is the largest maritime nation on earth, followed by bloody Liberia, which hardly exists. No coastline is required either. There are ships that hail from La Paz, in landlocked Bolivia. There are ships that hail from the Mongolian desert. Moreover, the registries themselves are rarely based in the countries whose names they carry: Panama is considered to be an old-fashioned “flag” because its consulates handle the paperwork and collect the registration fees, but “Liberia” is run by a company in Virginia, “Cambodia” by another in South Korea, and the proud and independent “Bahamas” by a group in the City of London … The result was a sudden expansion in flags of convenience, and a corresponding loss of control. This happened in the context of a strong internationalistic democratic ideal, by which all countries are formally considered to be equal.

The notion that all states are equal may make sense in an idealize world populated solely by juridical norms, but it is foolhardily naïve in the real world of dangerous accidents and malicious people. Two of the five worst maritime oil spills of all time, the 1991 ABT Summer spill near Angola and the 1978 Amoco Cadiz spill just off the Brittany coast of France, which dumped 260,000 and 223,000 metric tons of crude petroleum, respectively, into the sea (the 1989 Exxon Valdez disaster, in contrast, involved only 37,000 metric tons of fuel), involved Liberian-registered vessels. A 1996 spill of some 70,000 metric tons by the Liberian-registered Sea Empress off Milford Haven, Wales, contaminated about 200 kilometers of the Pembrokeshire coast, including several marine and nature reserves and conservation and fishery sites. A large spring tide at the time of the accident worsened the impact of the pollution onshore by pushing the oil-polluted water higher up onto the rocky shore, causing some ₤60 million in damages to three dozen sites of scientific interest and over twenty properties under conservation by the National Trust for Places of Historic Interest and National Beauty.

At a 2002 hearing of the Armed Services Committee of the U.S. House of Representatives, David Heindel, secretary-treasurer of the Seafarers International Union of North America testified that flag of convenience vessels “have been linked to the registration of hijacked ships, phantom ships, fraudulent mariner documentation, illegal, unreported and unregulated fishing, illegal alien smuggling and, most recently, to international terrorism.” That same year, French commandos, acting on information gleaned from a 15-month surveillance program by U.S., French, Spanish, and Greek authorities, boarded the Cambodian-registered freighter Winner in international waters 1,100 kilometers southwest of the Canaries. Amid a firefight with the crew, the French seized more than a ton of cocaine (some had been tossed overboard by the crew) with a street value then estimated at $235 million.

Even more worrisome is the potential exploitation by terrorists of the possibilities offered by the discount ship registries of capacity-challenged countries. Dr. Rohan Gunaratna, head of the International Centre for Political Violence and Terrorism Research at the Institute of Defence and Strategic Studies in Singapore and author of Inside Al Qaeda: Global Network of Terrorism, among other works, has been quoted as asserting that that “many terrorist organizations have been known to use vessels registered in the 'HonPaLib' countries,” referring to Honduras, Panama and Liberia. A paper by Dr. Phil Williams of the University of Pittsburgh, published in the August 2007 issue of Strategic Insights, the bimonthly journal of the Naval Postgraduate School's Center for Contemporary Conflict, goes further by arguing:

Flags of convenience (FOC) for ship registration remain the equivalent in the maritime sphere of offshore financial centers and bank secrecy havens in the financial world, hiding beneficial ownership, minimizing transparency, and facilitating criminal and other malevolent activities … The FOC system and the layers of corporate ownership and front companies that accompany it, provide a veil of anonymity that allow criminals and terrorists alike to transport all sorts of illicit goods including possibly an [improvised nuclear device].

While progress has been made insofar as the government in Monrovia has agreed to allow the United States and its partners in the Proliferation Security Initiative (PSI) to board and inspect vessels flying its flag of convenience, this only marginally lessens the maritime threat from al-Qaeda and similar terrorist networks as well as the challenges of security strategic waters like the Gulf of Guinea, both of which I have previously reported on.

In the context of the present global war on terrorism, we can no longer afford to compromise with the fiction that all states are equal, even when their capacities to assume the responsibilities of full sovereignty are manifestly not there. Specifically, we need to be assured that the ships sailing the world's oceans — waters kept open largely by the efforts of the U.S. Navy — are safe, high-quality vessels meeting commonsense environmental safeguards and fair labor standards as well as basic security requirements. We need to know who owns the ships, who operates them, and who crews them, especially if they approach our shores or those of our allies. In short, the bargain-basement “flags of convenience” offered by Liberia and other similarly-situated countries have become quite inconvenient to our overall national security interests.

J. Peter Pham is Director of the Nelson Institute for International and Public Affairs and a Research Fellow of the Institute for Infrastructure and Information Assurance at James Madison University in Harrisonburg, Virginia. He is also an adjunct fellow at the Foundation for the Defense of Democracies in Washington, D.C.