Open Ship Registries and Implications for the Maritime Community

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By Frazer Hunt, Partner and Diana Lee, Law Graduate

Open ship registries were controversial from their inception, when the US ship Belen Quezada re-registered in the Panamanian registry in 1919 to avoid Prohibition laws and carry alcohol between Canada and the US. Open registries refer to flagship registry systems in some countries that allow vessel owners to register their vessel under the flag of that country, despite there being no ‘genuine link’ between the flag state and the vessel. The effect of this is that when the vessel is on the high seas, the vessel will fly the flag of that country, and the laws of that country will generally apply to the vessel and its crew. It is often asserted that countries that have open registries are generally characterised by their relatively lax tax laws, employment laws and environmental protection laws. For this reason, open registries have been derogatively referred to ‘Flags of Convenience’, as vessel owners are able to evade more stringent laws in their own countries by registering the vessel in an open registry country.

This article will explore how open registry systems may lead to substandard work conditions and a lack of accountability for pollution, crimes and other issues that can aversely affect us all. However, it has to be acknowledged that many open registry countries, such as Panama, are improving regulations regarding vessel conditions and crew safety.

Open Registries and the ‘genuine link’ test

A key feature of the open registry system is that it allows ships to fly the flag of a nation despite the lack of a ‘genuine link’ between the flag state and the ship. While Article 5 of the 1985 United Nations Convention on the High Seas and Article 91 of the United Nations Convention on the Law of the Sea both provide that every State has the right to fix the conditions for “the grant of its nationality to ships, for the registration of ships in its territory, and for the right to fly its flag”, they also provide that “there must exist a genuine link between the [flag] State and the ship”. A closed registry country establishes this ‘genuine link’ between itself and the ship through requirements such as the need for the ship owner and the crew to be nationals of the flag state and the ship owning company to be situated in the flag state.[1] On the other hand, open registry countries generally allow foreign ship owners to register their ship in their country with minimal or no requirements to show national, social or economic connections to that country.[2] However, as there is no agreed understanding amongst states on what constitutes a ‘genuine link’, states have freely adopted open registries without observing the ‘genuine link’ requirement.[3]

Issues with accountability arising from open registries

Registration of a ship on a state’s public registry is proof of the ship’s nationality.[4] Once a ship is imbued with a state’s nationality through the act of registration, that state’s jurisdiction will generally apply to the vessel and its crew. This particularly so when the vessel is on the high seas, which are not within the territory of any country.

Critics of the open registry, such as the International Transport Worker’s Federation (ITF), argue that many countries with an open registry are characterised by relatively lax laws regarding employment conditions, safety of the vessel, prohibited cargo, taxes and pollution, and a lack of legal accountability for such issues.[5] According to the ITF, some open registry states “even use the promise of anonymity as an attraction when advertising their services”, and make it “very easy and entirely legal to conceal the identities of vessel owners”, such as in Cyprus and Bahamas.[6]

The Rural and Regional Affairs and Transport References Committee’s report to the Senate called ‘Increasing use of so-called Flag of Convenience shipping in Australia’ (2016) (Senate Report) also noted that in 2016, Panama, Liberia and Marshall Islands accounted for the registration of more than 60% of all shipping vessels. While those countries have ratified a number of international conventions regarding ship operations, safety and maritime environmental protection, they have not ratified amendments to those conventions that provide further protection.[7] Furthermore, most foreign ship owners are not subject to income or withholding tax in those countries, making them attractive tax havens for foreign ship owners.

Additionally, open registry countries have become subject to international criticism and scrutiny due to more alarming shipping practices and incidents, which are highlighted in the Senate Report. For example, in 2016, when Cambodia had operated an open registry, a vessel flying the Cambodian flag with a North Korean crew was found to be carrying 30,000 rocket grenades, which were officially recorded as ‘underwater pump parts’.[8] Additionally, in 2017, an investigation found that more than 60% of ships that routinely turned off GPS transmissions when entering European waters, a practice which allegedly allows illegal activities such as drug dealing to occur without detection from maritime authorities, were flagged in open registry states.[9] Further, the notorious Deepwater Horizon oil rig, which was responsible for the spillage of 5 million barrels of oil into the Gulf of Mexico, was flagged in the open registry State of Marshall Islands. Poor wages, inadequate safety conditions, bullying and abuse of crews have also been identified as issues often associated with vessels flagged in open registries.[10]

Accordingly, critics of open registry systems argue that ship owners exploit the open registry system to avoid stringent laws in their resident countries, which may lead to substandard vessel conditions, exploitative work environments and more disastrous consequences.

Reform

International pressure and scrutiny has resulted in some open registry states abandoning open registry altogether. For example, in 2016, Cambodia became a closed registry state, following years of negative international attention due to illegal fishing activities and drugs and weapons smuggling, which were facilitated in part due to its open registry.[11]

However, it is important to note that preventing States from implementing an open registry will not necessarily solve substandard shipping conditions and practices. Further, a ship cannot be assumed to have the worst conditions merely because it is flagged in an open registry state nor can a closed registry state be deemed to provide ideal shipping conditions. Indeed, the worst performing flag state according to the 2020 ‘blacklist’ of the Paris Memorandum of Understanding (Paris MOU), which comprises of 27 maritime administration from Europe and North America, was Albania, a closed registry state. What is needed are improvements to the actual laws regarding crew safety, environmental protection, anti-corruption and the like in the state.

In this regard, many open registry states have over the years, improved regulations regarding vessel conditions and crew safety. For example, in 2008, Panama moved from the ‘black list’ to the ‘white list’ of the Paris MOU,[12] due to its increasingly low ship detention rate. Marshall Islands and Liberia are now also on Paris MOU’s 2020 ‘white list’.

What will continue to be an issue regarding open registries is that they allow ship owners to avoid complying with the maritime laws in their resident countries, and instead adopt the jurisdiction of an open registry country when their vessels are at sea. As mentioned above, this may lead to tax evasion and a lack of legal accountability for ship owners that operate under a cloak of anonymity on the seas. In this regard, so long as there is a lack of international will to enforce the requirement for a ‘genuine link’ between a ship and its flag state, open registries will continue to exist, and ship owners will continue to have the option of flying the flag of an open registry state.

[1] Ermal Xhelilaj and Ksenofon Krisafi, ‘International Implications Concerning the Legal Regime of Ship Registration’ (2013) 27(1) Scientific Journal of Marine Research 213, 217.

[2] Ibid 220.

[3] Rural and Regional Affairs and Transport References Committee, ‘Increasing use of so-called Flag of Convenience shipping in Australia’ (Senate Report, 2016) (Senate Report) 3.

[4] Above n 1.

[5] Matthew Gianni, Real and Present Danger – Flag State Failure and Maritime Security and Safety (Report, 2008).

[6] Ibid 2, 25.

[7] Senate Report 4.

[8] Ibid 10.

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] ‘Why so many shipowners find Panama’s flag convention’ (Online Article, BBC, 5 August 2014).

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