According to the UN Conference on Trade and Development, in 2023 maritime trade accounted for over 80% of international trade, carried out by vessels flagged and owned by different countries and manned by international crews.
Since the 15th century, the maritime industry has flourished thanks to the trade of exotic spices and later the slave trade. In the 17th century the establishment of the Dutch East India Company (VOC), the world's first multinational corporation, privatized maritime trade, bringing the logic of profit to the seven seas. According to the UN Conference on Trade and Development, in 2023 maritime trade accounted for over 80% of international trade, carried out by vessels flagged and owned by different countries and manned by international crews. The multiple jurisdictions involved and the distance to land contribute to making maritime trade prone to the exploitation of labor, environmental and human rights laws, as we will see shortly.
Since ancient times, “false flags” were used by traders and pirates to hide a vessel’s intended use or destination. The name, “flag of convenience” can be traced back to the 16th century when English traders illegally used the Spanish flag to circumvent trade restrictions. Today, flying a flag of convenience means that the owner has registered the vessel in a country other than their own. Typically, the flag state offers advantages such as fewer regulations, lower employment requirements, and thus cheaper labor, lower or no registration fees and taxes.
This practice began in the 1920s when U.S. ships registered in Panama to smuggle alcohol during Prohibition. According to Lloyd’s List ranking of largest flag states, in 2023 Liberia became the largest flag state, followed by Panama. These open registries guarantee anonymity to the owners, making it difficult for them to be held accountable. In Europe, the Maltese flag has become the most common flag allowing registration irrespective of nationality, low registration and tonnage tax.
One of the main benefits of having a flag of convenience is that it allows vessels to circumvent stricter labor laws. A July 2023 guidance by the International Transport Workers’ Federation (ITF), a trade union federation, reported extreme cases concerning seafarer abandonment, abuse and human trafficking in the shipping industry. MSC Cruises was convicted by a Brazilian Labour Court in 2015 for exploiting 11 crew members. In 2012, P&O Cruises hit the headlines over its crew who was paid a basic salary of 75 pence per hour, while in 2023 Carnival UK was reported to have threatened to fire 919 of its staff if they refused to take pay cuts.
Two case studies included in a report by ITF Global reveal how flags of convenience are exploited to commit criminal activity. In 2011, Spanish shipowner Antonio Vidal Pego was found guilty in the U.S. for illegally importing toothfish and obstructing justice. His affiliated company Vidal Armadores SA owned or operated five fishing vessels, two of whom were registered to North Korea, after being renamed and reflagged multiple times. UN Food and Agriculture Organization (FAO) tons of fish yearly amounting to USD 10–23 billion as of 2016.
With mounting concerns for environmental pollution, a 2020 study by the International Maritime Organization revealed that shipping accounted for 2.89% of global manmade emissions in 2018. A high-profile pollution case involved the Maltese-flagged tanker Erika, which sank off the coast of France pouring 30,000 tons of fuel in 1999. In 2008 a French tribunal ruled against multiple defendants including its owner, Italian financier Giuseppe Savarese, who hid behind a layer of Liberian and Maltese companies. French courts’ efforts to hold the Malta Maritime Authority accountable failed because it is subject only to Maltese laws.
After the 2022 invasion of Ukraine, Russia has relied on a network of companies, based in Dubai and the EU (the Spanish enclave of Ceuta and Greece) to transport Russian crude oil. These vessels often turn off their navigation systems to hide the fact they are docked at Russian ports or take on fuel from other tankers at sea to obscure their origins. The EU prohibits the docking of vessels suspected of buying oil exceeding the USD 60 barrel cap imposed by the G7 countries in 2022. The problem is that much of the product is headed for China and India.
Apart from oil, illegal fishing is another major issue. In 2017 the UN Security Council sanctioned North Korea following a ballistic missile test it conducted in November 2017 and penalized North Korea by not allowing it to sell fishing rights in its waters in exchange for foreign currency. Chinese vessels fishing illegally in North Korean waters under false names, stolen identification numbers and ship-to-ship transfers at sea. Most of these vessels sail under flags of convenience.
The 1900 Dutch play Op hoop van zegen is about a Dutch ship owner sending an unsound fishing boat out into a stormy sea, with the deliberate result that it sinks with the owner pocketing the insurance money. Although this is just a play, one of the most clamorous real-life cases involved Achille Lauro, the Italian ship known as the “Queen of the Seas”, that sank near Somalia in 1994 after three fires broke out, of which two were suspicious. For this, there was talk of insurance fraud and a mysterious instigator. Until this day there is no proof of this.
Another famous case was reported by Bloomberg in 2022 and involved the oil tanker Brillante Virtuoso, which was hijacked and set on fire in July 2011 by pirates as it drifted through the Gulf of Aden. Shortly after David Mockett, a maritime surveyor, inspected the vessel, he was killed in a car bombing. The incident left a consortium of British and American insurers having to pay ∼USD 100 million to Marios Iliopoulos, the Greek owner of the vessel. In 2016 he was arrested by British police on suspicion of fraud. To this day he has not been charged.
