PANAMA and other so-called ‘flags of convenience’ have come a long way since the publication of the landmark Ships of Shame report in Australia in 1992, which led to an international commission that opened the public’s eyes to the widespread abuse of seafarers.

Yet it’s still possible for shipowners to use regulatory arbitrages left wide open by some flag states to participate in illegal activities, obfuscate liability, and avoid sanctions scrutiny. This can unintentionally ensnare those who insure, charter and finance these vessels, with devastating consequences for their reputation and bottom line.

Unsurprisingly, Iran-China exports of crude and liquefied petroleum gases are the latest to see such regulatory arbitrage at work on the high seas. 

Very large gas carriers and very large crude carriers owned by China’s Kunlun Shipping are playing cat-and-mouse games with open registers as they defy US sanctions. 

Initially, many of Kunlun’s ships flew the Liberian flag, via the Liberia International Ship & Corporate Registry, a US-owned company based in Dulles, Virginia. Once LISCR became aware these vessels were supplying energy commodities in violation of sanctions, those ships flagged in Liberia swiftly had certificates withdrawn. Yet within days the vessels had provisionally registered in another open registry — Panama — and continued sailing.

Panama, the world’s largest flag registry, is government-operated, but the Central American isthmus has historically been closely allied with the US and now finds itself at the forefront of sanctions-busting.

It is estimated at least seven ships that in recent weeks transferred to Panama from Liberia are shipping liquid petroleum gas and crude to China from Iran.

The tankers in question have been tracked engaging in activities that appear designed to disguise the origin and destination of their cargo. Automatic identification system transponders, which transmit their depth, destination and current location are switched off in violation of international regulations to which Panama is signatory. Ships are then involved in ship-to-ship transfers to further hide the cargo and its ultimate destination.

The origins and ownership of Kunlun Shipping — which has declined to respond to multiple Lloyd’s List requests for comment — are unknown. Registration to Panama was done online allowing immediate cover for at least 30 days. In theory, these ships could embark on an exhaustive series of flag-shopping for months, seeking out those registries that provide this option. (Liberia’s doesn’t).

In terms of regulatory oversight this issue falls into something of a black hole. Ship registration isn’t covered by any International Maritime Organization convention. There is a convention under the United Nations Conference on Trade and Development on registration matters that was adopted in 1986, but it has not entered into force. And while a handful of IMO circulars “urge” and “inform” government member states to follow best practice of data sharing, these don’t tackle the issue of flag hopping and only ever fall into the category of guidance rather than legislative requirements. 

Leaving aside any political discourse about the re-imposition of US sanctions on Iran, it makes sense that credible flag registries need to improve their co-ordination to identify owners and vessels that are using regulatory arbitrage to circumvent liabilities and legal responsibilities.

In the case of Kunlun Shipping, third-party marine providers to its vessels face risks of being blacklisted and penalised under secondary sanctions. These can result in untold repercussions on their business.

The US Treasury recently showed how devastating such any arbitrary approach to sanctions can be when it blacklisted all six ships owned by Italian based shipowner PB Tankers. One Cuban-chartered tanker had been identified shipping refined products from Venezuela. Shortly after, PB Tankers filed for bankruptcy protection.

While open registers may lack capacity to undertake exhaustive checks and vessel tracking, other service providers shouldn’t place the entire regulatory burden on flag states. Unwilling to lose business or antagonise powerful owners, insurers and classification societies often wait for others to take the first step to justify their own actions.

Today, a series of political appointees start new jobs at the Panama Maritime Authority. These executives, who are closely allied with the newly elected government, are responsible, at least in part, for running the world’s largest flag registry.

Lloyd’s List understands that senior registry figures were made aware of the Kunlun tankers before the handover, but as yet no action has been taken or acknowledged; the transition is likely hampering any information flow.

Establishing joint co-ordination and co-operation among participating flag registries to identify vessels participating in flag-hopping is not the complete answer.

However, it does provide greater accountability than at present to track those who wish to exploit the shortcomings of the open registry system.

Not all nefarious practices can be solved by ship-shaming. But additional means of exposure offers those unintentionally caught up in the worst of maritime practices a choice in whether they want to extract themselves.