Behind the flags

THE 4th annual Which Register, Which Flag? Conference, held at the St James Crowne Plaza in London, raised several interesting topics, although none of them was entirely surprising. One of the top issues on the agenda this time round was the question of transparency. Presentations from the Isle of Man Registry and the OECD addressed the topic directly, but it turned up in almost every presentation, from the US coastguard’s talk on security to Germanischer Lloyd’s investigation into accident investigation.

The OECD in particular is concerned with the various devices used to cloak the identity of the beneficial owner, including bearer shares, nominee shareholders, directors and intermediaries. It has come up with three suggestions for increasing the transparency of ship registries. These are:

• Close monitoring of nationality requirements
• Ensuring that locally incorporated entities are not fronts for foreign corporations
• Ensuring that external dependencies cannot be used to circumvent nationality requirements

Desmond Howell, Director of the Isle of Man Marine Administration, had the unenviable task of speaking on transparency from the owner’s point of view. This was a nearly impossible task, he said, not least because, “Transparency is something which we can’t see, and if it exists then it is by definition invisible.” He argued that a good register will know who has operational control of a vessel. Internal audits within the registry would make sure that the operator was a suitable client, and information about the operators would be made widely available. Compared with that information, the name of the ultimate beneficial owner was immaterial.

Off the podium, Howell was quick to suspect an agenda in the OECD’s demands. When it comes to transparency, he believes these requirements are part of an anti-open register platform backed by the ITF. In particular, the OECD wants registers to stop promoting anonymity of beneficial ownership as a potential benefit to those joining the flag. Given that criminalisation of flag states and polluter pays legislation was another hot topic that was returned to time and again in question and answer sessions, anonymity is obviously an asset that neither shipowners nor the registries that offer it are likely to abandon.

The criminalisation of accidental pollution was another of the main concerns at the conference, although nobody actually gave a presentation on it. Captain Mangouras and the Tsavliris salvage team detained in Pakistan were mentioned several times. Criminalisation does not stop with pollution, either. Lino Vasallo, executive director of the Malta registry, was quick to ask whether shipping was being seen as the scapegoat for all ills, be they connected to the environment, security or money laundering. In particular, he was concerned about the victimisation of the flag state by the port state - understandably, perhaps, since there is still a warrant out for his arrest in France over the sinking of the Erika.

Substandard shipping is certainly a convenient catch-all, but what exactly is it and how do we get rid of it? There were plenty of theories on the former on offer, but very few on the latter. The ITF’s solution is to insist on a ‘genuine link’ between ships and the flag with which they are registered, in the form of ownership, finance, manning or all three. This was not a viewpoint that was likely to be popular with delegates at the conference, most of whom represented open or international registries.

However, ITF general secreatary Jon Whitlow’s speech on the topic attracted very little comment from the floor – probably because it also attracted very few attendees. Most of the delegates preferred to use the hour to catch up on emails or drink coffee, suggesting that they do not take the ITF and its policies as a serious threat to their success. “The days of the open register are numbered,” Whitlow declared. But nobody was convinced.

Rather more attention was paid to Peter van de Vijver and Jan-Thiess Heitmann, who presented papers on the Belgian and German tonnage tax regimes respectively. Van de Vijver, a lawyer with niche firm Vand de vijver Van Clemens, and previously a partner at DLA, described the legal and fiscal background to the Belgian regime which was introduced six months ago. He outlined the most efficient method for creating a tax of this type - copying a regime that already worked. “The Belgian tonnage tax system was to a large extent copied from the Dutch example,” he says. “We don’t have to reinvent the wheel.” A word of warning to legislators who might like to try, though - “All of our original ideas were shot down by the European Commission,” said Van Clemens.

Inevitably, security and, in particular, the introduction of the ISPS code was one of the hottest topics at the conference, and one which attracted a good deal of comment. Frank Sturm of the US coastguard outlined the measures being taken both in Europe and the US to ensure safe and secure shipping around the US coast. He paid particular attention to the Qualship scheme to assess the safety of ships trading in the US, emphasising that safety and security functions cannot be separated.

Delegates were quick to point out the legal and practical difficulties with this, citing an incident where safety inspectors were barred from boarding a vessel because they presented a security risk. It will also be extremely difficult for registries to tackle the problem if their ships are being targeted for detention. “We cannot reveal what criteria are used to evaluate the necessity for inspection because of the nature of the information involved,” says Sturm. This might be good for security, but it won’t be much help to an owner explaining to irate cargo interests why the ship is being held for a third successive day with a perishable cargo in the hold.

Rather more helpful in this respect was a presentation from Simon Bennett of the International Chamber of Shipping (ICS), which set out precisely how the ICS grades flag state performance according to a set of factors, including enforcement of the ISM code, age of the fleet, previous port state detention record and ratification of key conventions. These factors apply across the industry as a whole. While they are not an infallible guide to which registers merit special attention from port state control authorities, they do at least give owners and ship registries a clue to the areas in which they are found wanting.

LISCR’s Brad Berman took a rather more light-hearted look at security and port state compliance with a presentation largely based on movies. ‘The Good, the Bad and the Ugly’ is a pretty accurate description of how some states regard the white, grey and black lists, and a reference to officials as ‘The Terminators’ was similarly apt.

What the conference really came down to is policing. Registries feel that they are fully equipped to police themselves, be it a question of safety, transparency, accident investigation or security. They are inclined to think they would be able to get on with managing their own affairs much better without outside interference from legal, political or union bodies. In turn, many of these bodies feel self-regulation does not go far enough, and that outside policing is the only way to ensure the safety and security of world shipping. For the moment, the outsiders are winning. But watch this space.