The Special Oversight Panel on the Merchant Marine - part of the U.S. House Armed Services Committee - conducted a hearing June 13 that focused on flags of convenience (FOCs) and how they threaten America's security.The panel also received detailed, disturbing evidence that the Liberian ship registry, which is based in Virginia, has funneled money for the illegal purchase and/or transportation of arms, among other violations of United Nations sanctions.
U.S. Rep. Duncan Hunter (R-Calif.) chaired the five-hour session, which drew a standing-room crowd for much of the proceedings. Testifying were (in order) U.S. Rep. Frank Wolf (R-Va.); U.S. Coast Guard Rear Adm. Paul Pluta; U.S. Maritime Administrator Capt. William Schubert; David Heindel, SIU secretary-treasurer and second vice chairman of the International Transport Workers' Federation's (ITF's) Seafarers' Section; Peter Morris, chairman, International Commission on Shipping; Alex Vines, former member of the U.N. panel of experts on Liberia, representing the New York-based Human Rights Watch; and the head of the Liberian registry, Yoram Cohen.
As the hearing began, Hunter stated, "From my view of certain registries, it is apparent that we have virtually no idea who owns, or who controls a number of these ships. It is also clear to me that we likewise lack a clear understanding of who is manning these vessels - or even whether the documents they hold are valid - or even whether they have the required training."
Although the inquiry mainly examined FOCs and their implications on U.S. national security, Hunter and Rep. Gene Taylor (D-Miss.) spent nearly 90 minutes conducting a question-and-answer session with Rear Adm. Pluta and Capt. Schubert. Some of the questions pertained to FOCs, but many others concerned present-day efforts by the Coast Guard to ensure - to the extent possible - security in American ports.
Earlier, Rep. Wolf (R-Va.) gave a compelling presentation that spotlighted Charles Taylor and the atrocities committed in Liberia. Poster-size photos of Liberian children and adults with hacked-off limbs (part of that nation's reign of terror) were posted before the panel. Wolf urged the U.S. to do whatever is necessary to cause Taylor to lose his control of Liberia. He noted that Taylor's relationship with international arms dealers and terrorist networks threatens the U.S.
The last panel consisted of Heindel, Morris, Vines and Cohen. Heindel urged Congress "on a unilateral basis to enact legislation authorizing the U.S. Coast Guard to refuse entry to U.S. ports to any foreign-flag vessel that does not provide transparency and/or full identity of the vessel's beneficial owner."
Morris covered many topics including port state control, mariner certification and shipboard living conditions. He urged the U.S. to push for "complete transparency, complete accountability" in ownership. He said it is realistic to set and enforce tough standards.
Vines went into detail about Liberia's refusal to cooperate with various United Nations sanctions and inquiries. Speaking of FOCs, Vines said, "They offer a high level of corporate secrecy and are easy to obtain. Some flags appear to be particularly inviting for illicit arms trade networks."
Following are some additional highlights of the testimony, in order of presentation. Full transcripts are available on the internet at http://www.house.gov/hasc/schedules/2002.html.
'It Should Be Shut Down'
Focusing on the atrocities committed in Liberia and the funding role of the Liberian International Ship & Corporate Registry (LISCR), Rep. Wolf stated, "It is critical that we are able to guarantee that the Liberian flag registry revenues are transparent and are going toward the needs [of] the people of Liberia, who have suffered so much. If we cannot guarantee this, it should be shut down."
He submitted several reports for the official record, and declared that they "lead to one conclusion - in the past the Liberian-flag registry has been implicated in contributing to the continued reign of Charles Taylor, the leader one of the most brutal, murderous and dangerous regimes in the world. In short, there is blood on the flag."
Beyond the humanitarian concern, Rep. Wolf concluded, "the links between al Qaeda and other international terrorist activity and Charles Taylor put this entire matter in a new light. We need a guarantee that Charles Taylor can no longer exploit this resource. A financial relationship no longer just supports a brutal African dictator causing misery for a far away people; it tacitly supports a terrorist organization dedicated to the destruction of the United States."
'Significant Challenge'
The agency's assistant commandant for marine safety and environmental protection, Rear Adm. Pluta noted that "with more than 7,500 foreign-flag ships originating from 92 different flag States making approximately 51,000 port calls annually, the United States faces a significant challenge. There are two areas of concern - vessel safety and maritime homeland security."
He added, "The massive flow of people and goods across our maritime borders helps fuel our economy, but also serves as a potential conduit for terrorists and weapons of mass destruction. As an open society, our nation's harbor complexes are accessible to thousands of maritime workers and ships from all corners of the world. The challenge we face today is balancing the security and economic needs of our country.
"This can only be done by filtering out potential terrorist activities from a massive steam of legitimate commerce. A key in meeting this challenge is better awareness of the cargo entering the country and the people who own, operate and service the thousands of vessels entering the U.S. every year. The solution will require ready access to detailed and accurate information, and sharing that information more effectively among our federal agencies and with our domestic and international partners in both the private and public sectors. The dynamics of a global economy and the resultant demands on our transportation system will require a continued coordinated national and international effort."
'We Know Who Owns Our Ships'
The maritime administrator discussed the threat posed by FOCs and emphasized the need to strengthen the U.S.-flag fleet.
"Our heightened need for homeland security requires that we examine the potential impact of the lack of transparency within open registries, which could ultimately lead to a serious threat to our nation's safety and security". A shipowner who registers his or her vessel in an open registry does not need to have any connection or link to the country sponsoring the registry. As a result, the flag of convenience regimes can inadvertently open the door for criminal and terrorist activity that would be impossible under the U.S.-flag registry or other reputable flag states with high standards like the United States."
Capt. Schubert said that U.S. crews employed on U.S.-flag ships "provide the pool of seafarers needed for both commercial and government sealift fleets in times of national emergency or crisis."
He continued, "The credible presence of a U.S.-flag fleet of vessels in larger numbers in international trade provides the U.S. government with the greatest influence in international bodies that create international standards of conduct with respect to shipping safety, as well as commerce. Now more than ever, our presence as a flag state is critical to our national interests. If we lost all our U.S.-flag vessels to open registries tomorrow, our presence in the international maritime arena would be diminished to that of a port state only - at a tremendous cost to U.S. national security and economic interests.
Schubert acknowledged that "encouraging shipowners to return to the U.S. flag is a daunting task, especially when compared to the economic advantages of open registries. However, the best way to protect our homeland and national security interests across the globe is a b U.S.-flag fleet manned by U.S. citizen mariners. If we did not have the Jones Act , cargo preference, and the MSP and VISA programs, I can assure you it is unlikely that ships would remain under U.S.-flag, and the U.S.-citizen mariner pool needed by the Department of Defense in times of national emergency or war would disappear.
"Many maritime scholars, industry experts and some members of Congress have suggested a complete reexamination of the tax laws which govern merchant shipping in order to create more incentives for investment by shipowners to return to the U.S. flag. These and other options to increase the number of vessels under U.S. registry should be fully explored and given the highest consideration.
"In today's environment, we should not compromise our security. In the United States we know who owns our ships, who operates them and who crews them. There is no better assurance to our nation's national security interests than a b U.S.-flag Merchant Marine."
FOC = Hiding Place
Representing the SIU and the ITF (an international federation of 594 transport trade unions in 136 countries representing approximately 5 million transport workers), Heindel said the FOC system "provides a hiding place for shipowners to avoid the restrictions of international law, where states sell their sovereignty to those wishing to avoid flag state interference in safety, environmental or labor standards and the transparency of their corporate structure.
"And herein lies one of the most serious deficiencies with the FOC system - the lack of transparency in corporate structure - that both the ITF and SIU view as a facilitator of transnational criminal activities and terrorism. FOC 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."
He said that the lack of transparency in the corporate structure of FOCs "is a threat to national and maritime security. One can also posture that the nautical prerogative of an American owner registering a vessel under a flag of convenience that ignores all legitimate safety, security, environmental and social concerns is similarly a threat to U.S. maritime and defense security."
Heindel (along with others who testified) took issue with so-called effective control, the risky notion that foreign-flagged, U.S.-owned vessels readily will be available - and useful - to America in times of crisis.
In addition to asserting that most of the vessels in that category wouldn't be militarily useful even if they were available, Heindel pointed out the "potential changes in attitudes of the FOC host countries and crews make availability and responsiveness questionable. We must remember that FOC vessels are crewed by a plethora of nationals - Philippine, Chinese, Indian, Pakistani, Russian, Ukrainian and South Korean - as well as those from other foreign countries that could pose a threat to U.S. security?. The SIU advances that we must, as an international leader of the free world, have the means under our own flag, with our own American crews and under our own control to fulfill our commitments and supply our military programs."
Essential to Security
The chairman of the International Commission on Shipping (ICONS) and a senior researcher for Human Rights Watch, Morris said that transparency in shipping is fundamental to security.
"It is difficult to [envision] the establishment of any reliable system of ensuring the true identity of ship owners/controllers and mariners based on the present regime of offshore registers," he sated. "An essential first step in establishing a reliable and effective identification system should be an examination of each of the offshore registers to determine who are the ship owners and where are they domiciled".
"There is little doubt that the failure of the industry to move forward to a more transparent style of operation in common with other forms of transport has been a factor in the failure of governments to understand the needs of the industry. The secrecy surrounding the tasks of classification societies, inspection reports for insurers, charterers, flag state investigations, the incidence of work related illnesses and non-fatal injuries at sea all combine to cover up the evils of substandard shipping. Such information is readily available in shore-based industries as essential management tools."
Morris said that "cutthroat, destructive competition in freight rates is the underlying cause of substandard shipping, crew exploitation and crew abuse. It has been facilitated by the ease with which substandard operators can avoid ship safety and crew competence requirements by shopping around among flag states, classification societies, insurers, manning agencies, ship operators and port state control authorities without being held to account."
He also noted that while gathering information for an internationally acclaimed ICONS report, "We were appalled by the nature of some of the practices inflicted upon seafarers and their families. In the course of the commission's hearings, ICONS was told repeatedly of cases of cheating of seafarers, blacklisting of seafarers, abandonment of seafarers, manipulation of the remittance of family allotments, reduced contractual compensation entitlements linked to 'quit claims' and general releases, and placement fees for jobs. The worst features include delayed or non-payment of wages, denial of adequate food and accommodation, denial of medical treatment and rest time, physical and psychological abuses, sexual abuse and abandonment. Many of the abuses have been known to the shipping industry, charterers and cargo owners for a long time. They are facilitated by the obsessive secrecy surrounding the industry that does not apply in other forms of transport."
Avoiding Scrutiny
In meticulous detail, Vines, also a senior researcher for Human Rights Watch, relayed the role of FOCs in illegal activities.
"Many ships use such flags to save costs, but also because arms dealers and their networks involved in this trade want to avoid scrutiny," he said. "Some flags of convenience provide ideal cover for setting up front companies. The operators also exploit weak controls on transport. They often file false manifests and submit fraudulent documents while sailing improperly registered ships to ply their trade.
"The most dramatic recent example of a flag-of-convenience ship being used for gunrunning was in January 2002 when the Tongan-flagged general cargo ship the Karine A was seized in the Red Sea carrying 50 tons of arms and explosives, which Israel said was bound for Yasser Arafat's Palestinian Authority. Two months later another Tongan-flagged vessel, the Monica, was apprehended by the French navy while trying to transport 1,000 asylum seekers to Italy."
Turning his attention to the Liberian registry, Vines noted that obtaining a Liberia flag "takes only a couple of days and does not require disclosure of share ownership or the names of the applicant company's directors. There is no requirement for any annual reports or audits. Such a system is attractive for gunrunning, where the real owner of a particular ship is hard to identify and therefore difficult to hold accountable.
"The trade, of course, depends on the ability of clients or their patrons to pay, whether in cash or precious gems or-as the Liberia panel found was the trend in Liberia-through direct bank transfers to arms traffickers from government accounts or those of private business interests allied to the government."
Vines went on to explain how Liberia's weapons purchases from 1999 to 2001 were mainly financed by off-budget spending by the Liberian government, or payments made from revenue that bypassed the central bank and was therefore not accounted for in the budget. "In particular, income received from the U.S.-based Liberian International Shipping and Corporate Registry (LISCR) was used to pay for illegal arms shipments."
Among other insightful accounts about Liberia, Vines noted that when a U.N. panel attempted to check the accounts of that nation's Bureau of Maritime Affairs in April 2002, "it was not able to do so. The panel was informed that a generator had broken down and that it would be repaired only after the panel had left Liberia."
He concluded, "Accurate information on shipowners, their shareholders, and the nature of their business are important. This nature of business needs much more transparency. The International Maritime Organization could play a greater role in promoting transparency but has to date lacked the political will to do so."
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