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08 November 2018IHS Markit Maritime & Trade Expert
This article by John Gallagher originally published on
Fairplay.IHS.com.
When the International Maritime Organization's (IMO's) legal
committee met for its 105th session in April, the subject of
fraudulent ship registrations was a hot topic.
The reason it had been made a priority was because several
member states had informed the IMO Secretariat over the last
several years that their flags were being flown illegally,
beginning with the Democratic Republic of the Congo (DRC) in
2015.
The fraud was discovered when the DRC was contacted by INTERPOL,
requesting authorisation to prosecute two vessels allegedly flying
DRC's flag that had been involved in illicit activities.
Following an investigation that revealed that 77 of 84 vessels
flying DRC's flag had been registered without the approval of the
country's maritime administration, Fiji reported 91 illegally
registered ships under its flag in 2017. The Federated States of
Micronesia reported 150 ships illegally registered under their flag
last year as well.
Although IHS Markit data show that the number of ships that are
fraudulently registered has dropped since DRC's assessment three
years ago, there are no signs that the problem is going away. In
fact, in the five months since the IMO first discussed the problem
in depth, at least three more member states have been victimised by
a fraudulent ship registry.
"The problem is getting worse," IMO legal affairs director
Frederick Kenney told Fairplay.
"When you look at countries like Micronesia, the DRC, and Fiji,
and the number of vessels involved, it's alarming from both a
safety and security standpoint. We've had ships with a completely
fraudulent set of certificates that look real, and if a port state
control officer isn't aware that the registry is fraudulent, they
may well let the vessel pass. God only knows what safety
deficiencies might be on board, or even what those behind the
fraudulent registry could be up to."
As reported by Fairplay last year, many fraudulent flag
registrations - the legality of which can be cross-checked with a
ship registry using their official seven-digit IMO number - have
tended to be small fishing vessels, small general cargo vessels, or
dredgers. Unless they are registered with a recognised flag
administrations, their safety and environmental standards cannot be
verified.
In addition, "because vessels that are registered under these
fraudulent flags tend to be much older vessels, such as single-hull
tankers, they're probably not properly inspected," said IHS Markit
Maritime & Trade analyst Mark Krzyzak.
Krzyzak, who monitors vessel registrations for verification with
the IMO and its member states, also pointed out that federal
governments are losing revenue because of the problem.
"Whoever's registering these vessels fraudulently is collecting
money through vessel tonnage fees that, if registered legitimately,
should be going to the legitimate flag authority, which is usually
the government of that country. That's not happening," he said.
According to the IMO, the fraudulent registration of ships
"impacts the ability of flag states to meet the objectives of the
[IMO's Instruments Implementation] Code as such ships undermine the
credibility of the legitimate registry. In cases where the member
state has no international registry, fraudulent registries and the
fraudulent registration of ships affect the reputation of the
member state."
The reputation of Micronesia - which is not an IMO member state
- is at high risk of being harmed by fraudulent registries.
According to IHS Markit records, Micronesia had about 150 vessels
flying the flag in 2017.
"We noticed suddenly a lot of vessels flying the Micronesian
flag," Krzyzak said. "It was strange because it is a flag that had
very few vessels, and we didn't think they operated an
international register - and they don't."
Krzyzak explained that after meeting at the IMO with an official
from Micronesia, it was determined that a company was being set up
called Micronesian Inter-national Ship & Business Registry,
which currently lists several official regional heads in China,
India, and Sri Lanka.
"It looks authentic, it works, and it looks good. But it turns
out, while there had been talk at one stage of the country
operating an international ship registry, it had never been
approved."
While Micronesia does flag its own ships, running an
international registry is against the country's federal law, and it
"doesn't allow vessels to be owned by foreign entities", Krzyzak
was told.
The IMO's experience with Micronesia exposed a related practice
that seems to be spreading: fraudulent crew certificates issued by
illegal companies.
"We've gotten emails from shipmasters and ship-management
companies saying that they've got a certificate, but how do we tell
if it's real," Kenney said. "If a shipowner has someone with
fraudulent certifications operating a large vessel and they're not
qualified, the consequences of that are not only a safety and
environmental problem, but if there's a spill or an accident, there
would be a liability issue as well. It's kind of frightening."
Krzyzak believes there could be "hundreds" of crew members with
false certifications, even if they happen to be issued to qualified
seafarers. "[Seafarers] thinks they're valid, but wait until they
try and go to another company and serve on another vessel. They're
going to find their certificates are worthless," Krzyzak said.
In a proposal submitted for discussion at the April legal
committee meeting (LEG 105), member states Cyprus, the DRC, Fiji,
Germany, Morocco, Spain, and Vanuatu outlined the need for action
on the problem.
"As a result of the fraudulent registration of vessels, there
are hundreds of ships sailing internationally over which there is
no effective control," they stated. "In many cases, the companies
operating them provide cover for illicit and illegal activities on
board, often related to trade with countries under United Nations
sanctions, contribute to maintaining substandard operations in
shipping and can put lives of seafarers on board those ships at
risk. It is often difficult for states that are victims of the
fraud to trace the companies illegally using their flags."
Discussing measures to prevent the fraudulent registration of
ships would ensure that legally registered ships receive
recognisable nationality from one particular state, they
maintained, which allows freedom of navigation and provides a basis
for jurisdiction, protection, and intervention.
"This would furthermore ensure that IMO's efforts to induce
greater compliance of ships with IMO's international standards
regarding safety at sea, pollution prevention, manning and
international security requirements are not undermined by
fraudulent activities," the LEG proposal stated.
In a summary report following the meeting, IMO delegates
acknowledged that the issue of fraudulent ship registries is "quite
complex" because it involves public, international law as well as
private, regional law.
"A multi-pronged approach would be necessary to effectively
address the issue and the solution would involve making accurate
information about the status of a nation's registry widely,
quickly, and accurately available to shipowners and insurers as
well as public officials," said the IMO summary. It was also
suggested that effective enforcement measures to discourage the
practice, and to prevent ships with fraudulent registration from
operating, should be considered.
The legal committee requested the IMO Secretariat conduct a
study on fraudulent flag cases that have been received so far, and
to assess whether the IMO's Global Integrated Shipping Information
System (GISIS) would be able to address the issue.
The GISIS, an IMO database that maintains 43 modules (with 20
open to the public) for tracking incidents involving marine
casualties, pollution prevention, and maritime security, could be
used to potentially include a list of national bodies authorised to
issue certificates so that shipowners would be assured that the
flag existed and had been verified and approved by the competent
authorities with the IMO.
Member states also agreed that GISIS should be used as a tool to
share information and transfer expertise and experience about
registers facing fraudulent practices.
"If port state control [PSC] knows in advance that any ship
flying the flag of the DRC, for example, is a fraudulent registry,
they'd know to detain it right away," Kenney said. "The key is
making sure PSC officers have the information they need to
recommend detaining a fraudulently registered vessel. Having good
information out there is the key to solving the problem."
LEG 105 agreed to include a new output and updates on "measures
to prevent unlawful practices associated with the fraudulent
registration and registries of ships" in the committee's 2018-19
biennial agenda, with a target completion year of 2021. It also
invited concrete proposals to LEG 106 (scheduled to meet 25-29
March 2019) for consideration, and to decide on the scope of the
update after considering the proposals.
"We're still awaiting submissions to the legal committee, and my
anticipation is that we will begin to have working groups start
addressing the problem," Kenney said, noting that the potential
outcome could eventually include some kind of legal instrument.
"We'll have to look and see what gets put on the table. There
are a lot of possibilities depending on what member states put
forward, but something will likely come out of it," he said,
suggesting an amendment to a treaty, guidelines, or a legal
committee resolution.
While false registrations from Fiji, the DRC, and Micronesia
have all dropped precipitously since the issue first gained
attention three years ago, over the summer three new IMO member
states fell victim to fraudulent registries: Tanzania, Maldives,
and the Netherlands, according to IHS Markit data (see chart,
below).
This concerning trend has member states with registries both
large and small taking heed, including International Registries
Inc. (IRI), a Reston, Virginia-based company that administers the
flag on behalf of the South Pacific island nation of the Marshall
Islands.
"It is indeed a safety and a security issue," IRI director of
marketing and communications Laura Sherman told Fairplay,
underscoring the legal committee's agreement that the fraudulent
registration of ships, along with fraudulent schemes to sell fake
registration documents from non-existent ship registries, are
issues that need to be addressed.
"This practice could also have inadvertent consequences for
unknowing seafarers and commercial users as well. The Republic of
the Marshall Islands recognises the challenges of the issue, shares
the concerns, and is actively part of the remediation plan."
As was emphasised by the seven member-state petitioners to LEG
105, as world trade expands and trade patterns shift, the problems
related to maritime fraud become more complex and international. At
the same time, they point out, there have already been measures
taken up by governments and non-governmental organisations to
combat maritime fraud, including exchanging information with the
International Maritime Bureau of the International Chamber of
Commerce.
The state petitioners warned that "there is still more to be
done concerning fraudulent practices and there is a need to
consider more efficient preventive measures".