In May this year, the European Union, as part of the implementation of its Regulation to prevent, deter and eliminate illegal, unreported and unregulated fishing (IUU), identified both Comoros and St Vincent and Grenadines as non-cooperating third countries. These decisions were taken as both countries were failing to control the activities of their fishing vessels abroad. Indeed, as documented by Greenpeace this year, vessels flagged to Comoros, although owned by companies based in Las Palmas, have been observed carrying out unauthorised at sea transhipments in Guinea-Bissau. Although the vessels had been issued a license to fish by the Guinea-Bissau government, transhipping at sea is prohibited in Guinea Bissau EEZ. Remarkably, the activities of Comoros flagged vessels in West Africa are also in breach of the national laws of Comoros that prohibit nationally flagged fishing vessels for operating outside of the Indian Ocean. Despite repeated warnings by the EC regarding these shortcomings, Comoros has failed to act.
In May 2017, Liberia was also pre-identified as a non-cooperating third country. In its press release, the EC stated that it hoped “that the pre-identification will raise political awareness and encourage the country to implement the necessary reforms in fisheries governance”. It too was warned of failing to control fishing vessels on its open register; one of the most popular ‘flags of convenience' registries in the world.
These moves by the EC are justified. Open registries are objectionable on many grounds, and facilitating illegal fishing is just one of these. However, the approach to issuing sanctions for the flag states of open registries fails to adequately recognise the wider state-corporate interests behind these registries. It is important that these largely hidden interests are brought into the open. Without this, trade sanctions aimed only at the flag state are unlikely to be effective or fair.
What’s at stake?
Although one of the consequences of being identified as a non-cooperating third country is that there is a trade ban on fish products, this doesn’t affect Comoros - Comoros doesn’t export fish to the EU. Rather, the impact will be the EC denouncing its Sustainable Fisheries Partnership Agreement, worth over 600,000 Euros a year in transfers from the EU, as well as additional fees paid to the Comoros government by EU flagged vessels. In the latest protocol, half of this money was earmarked for fisheries development, which is significant for one of the poorest countries in the world with rich and valuable marine resources, but very weak fisheries management. A similar fate faces Liberia, which signed an SFPA in 2016, if it doesn’t improve its management of foreign owned, but nationally flagged vessels.
Comoros, like Saint Vincent and Grenadines, are countries who operate open registries, where foreign owned and crewed vessels are allowed to register as nationally owned companies, provided with generous tax arrangements, despite there being no genuine link between the company and the flag state. Comoros has a shipping registry with about 1000 vessels at any one time, and a fraction of these are fishing vessels; in recent years, there have been about a dozen or so fishing vessels flying the Comoros flag.
As described by the NGO Ship Breaking Platform, a key business for Comoros’ open registry is receiving vessels that are due to be scrapped in India and Bangladesh; as Comoros offers a very low registry fee for vessels ‘on their last journey’, and enable vessel owners from EU member states, for example, to by-pass environmental and health and safety regulations for scrapping their boats. Until recently, Comoros has also proved a useful registry for vessels from North Korea; thereby allowing these vessels to avoid restrictions on passage imposed by other nations.
Still, fishing vessels make up a tiny fraction of the fees earned by the Comoros registry. This makes the inaction by the Comoros authorities not to deregister the problematic fishing vessels hard to understand; the potential loss of revenues from the EU’s SFPA is almost certainly far in excess of what is earned from registering fishing vessels. It appears as illogical for the government of Comoros to be identified as a non-cooperating country by the EU simply to maintain a few fishing vessels on its registry. Indeed, in 2010, Sierra Leone, who for several years registered far more fishing vessels on its open registry than Comoros, claimed it received about 10,000 USD over a four year period from providing this service to fishing companies.
The nature of open registries
The failure of flag states to control their vessels abroad is objectionable, particularly when these vessels have negative impact on small-scale fisheries, which seems to be the case with Comoros flagged vessels operating in West Africa. However, the decision by the Comoros not to take action needs to be put in wider context.
The success of open registries is not entirely due to the governments that own them. Instead, historically (just like the related off-shore tax havens in developing countries and small-island states) these have been established primarily by foreign governments, particularly the US government and US heads of industry, and are now run by transnational companies that are rarely based in the host country, with the most successful being registered in other off-shore havens, such as Delaware in the US, or Singapore and Dubai. Most have agents spanning the globe who assist vessels in gaining seaworthy certificates and other essential services, and these agents will often work on several registries at a time, offering their clients the best solutions for the most efficient costs.
In the case of Liberia, its open registry was established by senior American politicians and businessmen in the late 1940s. The same people had developed the first major open registry, in Panama, during the second World War. This was done ostensibly to help US ship owners circumvent the 1935 US Neutrality Act, which forbade US vessels from entering war zones and did not allow US citizens to travel on ships owned by either the European allied forces or German vessels. The law was deemed inconvenient for US ship owners, so they worked with the US controlled Panama government, with the support of the US government, to create legislation in Panama that allowed vessels to be legally transferred into Panama owned companies, thereby flying the flag of Panama and exempt from US laws.
A few US vessels had switched to the Panama flag before this, mainly to evade Prohibition laws. However, during the early years of the Second World War, the benefits for substantial numbers of ship owners of transferring their flags became apparent; it freed them from strict US laws on labour standards, including the need to employ US citizens. US trade Unions were among the first to condemn the practice, arguing that in the mid 1940s 16,000 US jobs had been lost as a result. By the 1990s, the number was reduced by a further 40,000, and several seafarers trade unions coined the phrase ‘crews of convenience’, given the appalling working conditions experienced by the new cheap labour force, mainly from Asia. Vessel owners from Europe began to make use of this strategy as well, and with the sale of excess ships after the Second World War, the number of vessels transferred to Panama had grown to several thousands.
The history of Liberia’s open registry, established in the late 1940s, has been well described by Christian Herbert, a Liberian scholar who attended the World Maritime University in the late 1990s. As he describes, the idea for Liberia’s open registry came about when US efforts failed to stop Arnulfo Arias, considered a communist by the US, to become elected as President of Panama. Arias was explicitly anti-US, and was against Panama’s new open registry. Besides, US shipowners began complaining about having to pay excessive and corrupt fees to Panamanian authorities. The solution came from Edward R. Stettinius, a former US Secretary of State. Stettinuis had extensive business interests in Liberia, a country with a longstanding relationship with the US dating back to the slave trade. With the blessing and assistance of the US government, the CIA and military, as well as encouragement of prominent ship owners, Stettinuis set up the company Stettinuis Associates, who established “The Liberian Company” as a subsidiary. Stettinuis' colleagues included former members of the US Foreign Economic Administration during World War II and former under-Secretary of State. By 1948 they had drafted a new Liberian Maritime Code, and awaited approval by the main US and European owned shipping companies.
The proposed law was deemed so unfair for Liberia by the US State Department, that they intervened and re-wrote the law, which was eventually passed into Liberian law, although without Liberian parliamentary approval, in 1958. The new legislation established Stettinuis's company as acting as the agent for the Liberian government to manage the registry, with a benefit sharing arrangement, which saw substantial fees being paid to the Liberian government. The new company was referred to as the Liberian Trust Company, which was owned and run by Stettinuis Associates located in New York. Stettinuis Associates also insisted that the Liberian government appoint Fred Leninger, an American national and close friend of Stettinius, as the first Deputy Commissioner for Maritime Affairs, a position he held for 30 years. This was to avoid the meddling of the Liberian government; a lesson learned from Panama.
Writing in the late 1990s, Don Clifford in his essay “Sailing Beyond the Reach of Workplace Regulations: Worker Exploitation by MNCs on the High Seas”, described that the operation of the Liberian registry remained completely independent of the Liberian government, evident by the fact that largest growth in the vessel registry occurred during Liberia’s civil war. In effect, the Trust Company had taken on the role of the Flag State, while Liberia’s capacities in maritime affairs was left undeveloped, including, we can imagine, its fisheries administration.
By the mid-1970s, the Liberian Trust Fund had offices throughout the world, although not in Liberia. The Liberian flag scored, and continues to do so, among the world’s largest in terms of the number of vessels, but also among the best on safety standards. Of course, although companies running successful open registries tout their safety records, the success of Panama and then Liberia served to depress overall standards in vessel registries, and both Panama and Liberia led to the establishment of dozens of other competing and smaller open registries with some of the worst standards of all, such as Comoros. Indeed, European countries responded to the loss of vessels to countries such as Liberia by creating so-called second registries, with lower tax and labour standards, in a bid to get some of their vessels back.
The ownership of Liberian Trust Company has passed through many organisations. It was bought by the International Bank in Washington in 1954; the International Bank was then acquired by a company run by a retired US general in 1956, who then later sold the company to the United Sates Life Insurance Company. It was then bought again by Archibald Stewart, who established a complex multinational company, including the International Registries Inc. (IRI), with stakes in several other open registries and off-shore financial services around the world. IRI established itself as the agent of the open registry of the Marshall Islands in the mid-1990s.
At this time, and for various reasons, the relationship between Stewart and the Liberian government soured. The Liberian Trust Company, under the control of the IRI, started to shift more vessels off the Liberian registry, and on to the Marshall Islands registry, because the benefit sharing arrangements were better. This meant the Marshall Islands became one of the fastest growing and successful open registries in the world. Stewart was then accused of conflicts of interests by the Liberian government, now under the authority of President Charles Taylor, who attempted to sue IRI in US courts for 70 million USD. The contract with the Liberian Trust Fund was terminated, and awarded to a new US company, named the Liberia International Ship and Corporate Registry (LISCR). The IRI counter sued the government of Liberia, accusing it of embezzling revenues passed on by the IRI, and it refused to pass on vital data to the new LISCR, meaning the new agent for Liberia could not function. In the end, an out of court settlement prevailed, with a substantial pay-off to the IRI, and a blending of staff and operations between the IRI and the LISCR, which relocated to Delaware; the off-shore tax haven in the US.
Although there was no proof, the LISCR became embroiled in investigations by the UN that fees passed from it to the Taylor regime were responsible for funding the purchase of weapons during the period of an arms embargo. Today, the LISCR not only operates one of the largest shipping registries, it also registers many thousands of other offshore companies in Liberia, although local knowledge of the activities of the company and the number of foreign companies registered in Monrovia apparently remains a mystery to many in the country, including those in parliament.
The case of Comoros’ open registry
Panama and Liberia undoubtedly inspired other open registries, and it is with this background that we should understand the Comoros shipping registry, which was set up in in 1999. It was reportedly the work of the Indian shipping magnate, Akram M Shaik who proposed the idea to the Comoros government in the late 1990s. A new Merchant Shipping Act was created in 2000, and Akram Shaik was appointed as the Commissioner of Maritime Affairs of the Union of Comoros Administration. he went on to establish satellite offices in in Bangladesh, Bulgaria, Greece, India, Iran, Lebanon, Singapore, Turkey, Russia and Ukraine. In 2007 a 25 year contract to operate as the agent to the open registry was awarded to Akram Shaik through his company Union Marine Classification Services LLC (UMCS), registered in Dubai.
However, Akram Shaik lost the contract in 2011 when it was passed to Essam al-Fahim, from the UAE, by the then President of Comoros, Ahmed Abdallah Sambi. Essam al Fahim’s company 'HSS Holding' had signed an MOU with the President for an investment of 300 million Euros to develop a marine transport project that would link the four Islands of Comoros to each other and to the African mainland. As part of the agreement, Sambi authorised Al-Fahm to establish the Autorité Nationale du Transport (ANT), which would take over the contract for running the comoros registry. UMCS subsequently took legal action against the Comoros government through the London Marine Affairs Arbitration Court, based on the argument that its 25 year contract could only be reviewed after 10 years.
In 2013, Al Fahim’s company backed away from the deal, as it did with the MOU for building the marine transportation contract, although it offered UMCS a co-management arrangement over the Comoros registry. This was rejected by UMCS, who continued with arbitration in London.
According to several reports by African Intelligence (paywall protected), Akram Shaik dominated Comoros political news in 2013, when it emerged that in the previous year he had offered a bribe to the then Minister of Transport to ensure that the contract for the registry was reinstated to his company. The sum of money promised to the Minister was 125,000USD, although Akram Shaik was reported to have paid only an upfront payment of 25,000USD. When the Minister failed to assist with the reversal of the contract, Shaik himself published the news of the bribe, which he had filmed in a hotel in Dubai.
The scandal led the government of Comoros, under the new Presidency of Ikililiou Dhoinine, to sack the previous Minister for Transport and appoint a special government task force to establish the legal arrangements for the running of the registry, including the provision that the appointment of a new agent would be done through competitive and transparent tenders. However, two months after the announcement of the task force, the new Minister of Transport and the Vice President signed a agreement in secret with a representative of Maritime Lloyd Georgia, owned by Georgian national Tallaani Hijazi. The agreement is reported as an improved contract than was thought to exist with Akram Shaik, as it now is guaranteed to run for 25 years, and has a 50-50 profit sharing arrangement.
Maritime Lloyd Georgia forms part of a wider company structure owned by Hijazi, which includes Veritas Registry of Shipping (VRS), established in Barcelona in 2008, but moved to London in 2012. VRS has contracts to run shipping registries with Tanzania, Moldova, Togo, Micronesia as well as Comoros.
More recent reports, from 2017, describe that the arbitration case between Akram Shaik and the government of Comoros is still ongoing, although the court has ruled that Akram Shaik in fact owes money to the government. It is not clear if VRS still remains the agent for the Comoros shipping registry, and one report from 2015 published by African Intelligence suggests the government of Comoros was attempting to nationalise the running of the agency. However, an article written in 2017 by North Korean News, describing the de-registration of a North Korean vessel from the Comoros shipping registry, cites the Deputy Commissioner of Maritime Affairs of Comoros as Boyan Bihlyumov, based in Bulgaria.
Blame for failing flag state responsibility?
The history of the Liberian vessel registry and Comoros’ shipping registry shows how these have been established by state-corporate interests from the developed world, primarily from the US, but now involving multinational companies from Europe and the Middle East; countries that still account for the vast majority of beneficial owners of merchant vessels. This does not absolve responsibility by the host governments, but it raises complex questions on how these registries function and who has control over the registered vessels.
The EU is justified in imposing sanctions on Comoros for having no control over its flagged fishing vessels, and warning Liberia it may take similar actions. But given the corporate structures behind these registries, as well as the persistent stories of litigation between the companies running these registries and the host government, it is unclear how straightforward it is for governments in countries such as Comoros to deregister vessels. More importantly, while a country like Comoros is portrayed as a pariah state for facilitating illegal fishing, the state-corporate interests that have established these open registries is rarely exposed or confronted.
International efforts to close open registries have failed. Perhaps the best attempt came with the United Nations Convention on the Conditions for the Registry of Vessels, finalised in 1984. It contained the provision that there has to be a 'genuine link' between the company owning the vessel and the flag state. But it required 40 nations to ratify it. Only 14 did, and the list did not include the US or any European country, apart from former Czechoslovakia. Various other efforts have been made to bring bad publicity to the worst vessel registries, and trade sanctions have been used before in fisheries against flag of convenience countries; Belize for example came under mounting pressure to get rid of fishing vessels fishing for tuna by the International Convention for the Conservation of Atlantic Tuna, and this eventually worked.
Of course, vessel owners can still flag hop. One wonders where the fishing vessels registered to Comoros may end up if Comoros de-registers them? It would seem likely that the company running the Comoros agency will find a solution, including on other registries that they run. As it is, the companies who establish and run these open registries remain largely immune from sanctions, because they are never targeted. Sanctions aimed at the flag states are unlikely to hurt the companies, because they can switch between various countries, just as the IRI did in establishing the Marshall Island registry when things were turning bad in Liberia, and remembering that Liberia’s open registry owed its existence to dissatisfaction among US government and multinational shipping companies with the government of Panama in the 1950s.