Liberia's profits grow from its flag of convenience registry

Liberia is expected to ring up $19 million in profits from ships flying its flag of convenience in 2008, according to Reuters.

With a total of nearly 2,600 ships, representing 82-million tons, the West African nation enjoys the second largest active flag of convenience registry, after Panama. The government claims it will continue to use this loophole in seafaring law to collect revenue, which is administered out of an office in the U.S. state of Virginia.

Flags of Convenience in general, and Liberia’s in particular, have enjoyed a tumultuous history. The flag of convenience designation allows a ship to fly the flag of a country other than its country of ownership. According to the International Transport Workers’ Federation, a group working to eliminate this special status, the FOC allows ship owners to circumvent taxes, labor laws and the ability of countries to enforce minimum standards on sea vessels. There are presently 32 countries allowing the flag of convenience designation, and the ITWF claims (.pdf, page 10) Liberia’s ships average 12 years of age, which is on the low end of all ship registries. (The average for the U.S. is 23 years; Japan is 13 years and 17 years for Panama.)

During the Liberian civil war, the government of Charles Taylor was under sanctions from the United Nations Security Council. However, a report from Global Witness and the International Transport Workers Federation found that the government was using the flag of convenience status to illegally make money for the government by registering ships and hiring some of those ships to illegally transport diamonds and, more commonly, wood out of the country. (Logging was an important source of illicit revenue for the Taylor government.)

Here’s a short introduction to Liberia’s flag of convenience, from William Langewiesche, formally of the Atlantic, where the article appeared in Sept. 2003

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, and is 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. The registries themselves are rarely based in the countries whose name they carry: Panama is considered to be an old-fashioned "flag," because its consulates collect the registration fees, but "Liberia" is run by a company in Virginia, "Cambodia" by another in South Korea, and the proud "Bahamas" by a group in the City of London. The system, generally known as "flags of convenience," began around World War II, but its big expansion occurred only in the 1990s - and in direct reaction to an international attempt to impose controls. By shopping globally, shipowners found that they could choose the laws that were applied to them rather than haplessly submitting as ordinary citizens must to the arbitrary jurisdictions of their native states. The effect was to lower operating costs - for crews and upkeep - and to limit the financial consequences of the occasional foundering or loss of a ship. The advantages were so great that even the most conservative and well-established shipowners, who were perhaps not naturally inclined to play along, found that they had no choice but to do so. What's more, because of the registration fees that the shipowners could offer to cash-strapped governments, the various flags competed for the business, and the deals kept getting better.