Flag of Convenience

The term flag of convenience describes the business practice of registering a merchant ship in a sovereign state different from that of the ship's owners, and flying that state's civil ensign on the ship. Ships are registered under flags of convenience to reduce operating costs or avoid the regulations of the owner's country. The closely related term open registry is used to describe an organization that will register ships owned by foreign entities.

The term "flag of convenience" has been in use since the 1950s and refers to the civil ensign a ship flies to indicate its country of registration or flag state. A ship operates under the laws of its flag state, and these laws are used if the ship is involved in an admiralty case.

The modern practice of flagging ships in foreign countries began in the 1920s in the United States, when shipowners frustrated by increased regulations and rising labor costs began to register their ships to Panama. The use of open registries steadily increased, and in 1968, Liberia grew to surpass the United Kingdom as the world's largest shipping register. As of 2009, more than half of the world’s merchant ships were registered with open registries, and the Panama, Liberia, and Marshall Islands flags accounted for almost 40% of the entire world fleet, in terms of deadweight tonnage.

Flag-of-convenience registries are often criticized. As of 2009, thirteen flag states have been found by international shipping organizations to have substandard regulations. Only the Liberian Ship Registry (LISCR) appears both on the US Coast Guard's "white list" and the Paris MOU for open registries of over 1000 ships for 2011. A basis for many criticisms is that the flag-of-convenience system allows shipowners to be legally anonymous and difficult to prosecute in civil and criminal actions. Some ships with flags of convenience have been found engaging in crime, offer substandard working conditions, and negatively impact the environment, primarily through illegal, unreported and unregulated fishing. As of 2009, ships of thirteen flags of convenience are targeted for special enforcement by countries that they visit. Supporters of the practice, however, point to economic and regulatory advantages, and increased freedom in choosing employees from an international labor pool.