Flag of Convenience - History

History

Merchant ships have used false flags as a tactic to evade enemy warships since antiquity, and examples can be found from as early as the Roman era through the Middle Ages. More recently, this technique was used by the British during the Napoleonic Wars and the United States during the War of 1812. During the mid-19th century, slave ships flew various flags to avoid being searched by British anti-slavery fleets. However, the modern practice of registering ships in foreign countries to gain economic advantage originated in the United States in the era of World War I, and the term flag of convenience came into use in the 1950s.

Between 1915 and 1922, several laws were passed in the United States to strengthen the United States Merchant Marine and provide safeguards for its mariners. During this period, U.S.-flagged ships became subject to regular inspections undertaken by the American Bureau of Shipping. This was also the time of Robert LaFollette's Seamen's Act of 1915, which has been described as the "Magna Carta of sailors' rights." The Seamen's Act regulated mariners' working hours, their payment, and established baseline requirements for shipboard food. It also reduced penalties for disobedience and abolished the practice of imprisoning sailors for the offense of desertion. Another aspect of the Seamen's Act was enforcement of safety standards, with requirements on lifeboats, the number of qualified able seamen on board, and that officers and seamen be able to speak the same language.

These laws put U.S.-flagged vessels at an economic disadvantage against countries lacking such safeguards. By moving their ships to the Panamanian flag, owners could avoid providing these protections. The Belen Quezada, the first foreign ship flagged in the Panamanian registry, was employed in running illegal alcohol between Canada and the United States during Prohibition. In addition to sidestepping the Seamen's Act, Panamanian-flagged ships in this early period paid sailors on the Japanese wage scale, which was much lower than that of western merchant powers.

The Liberian open registry was the brainchild of Edward Stettinius, who had been Franklin D. Roosevelt's Secretary of State during World War II. Stettinius created a corporate structure that included The Liberia Corporation, a joint-venture with the government of Liberia. The corporation was structured so that one-fourth of its revenue would go to the Liberian government, another 10% went to fund social programs in Liberia, and the remainder returned to Stettinius' corporation. The Liberian registry was created at a time when Panama's registry was becoming less attractive for several reasons including its unpopularity with the U.S. labor movement and European shipping concerns, political unrest in Panama, and increases in its fees and regulations.

On 11 March 1949, Greek shipping magnate Stavros Niarchos registered the first ship under the Liberian flag, the World Peace. When Stettinius died in 1949, ownership of the registry passed to the International Bank of Washington, led by General George Olmsted. Within 18 years, Liberia grew to surpass the United Kingdom as the world's largest register.

Due to Liberia's 1989 and 1999 civil wars, its registry eventually fell second to Panama's flag of convenience, but maritime funds continued to supply 70% of its total government revenue. After the civil war of 1990, Liberia joined with the Republic of the Marshall Islands to develop a new maritime and corporate program. The resulting company, International Registries, was formed as a parent company, and in 1993 was bought out by its management. After taking over the Liberian government, Americo-Liberian warlord Charles Taylor signed a new registry contract with the Liberian International Ship and Corporate Registry, commonly known as LISCR. LISCR was one of the few legal sources of income for Taylor's regime. Taylor is now on trial at the International Criminal Court in The Hague on 11 counts of war crimes, crimes against humanity, and other serious violations of international humanitarian law.

As of 2009, the open registries of Panama, Liberia, and Marshall Islands accounted for almost 40% of the entire world fleet, in terms of deadweight tonnage That same year, the top ten flags of convenience registered 55% of the world's deadweight tonnage, including 61% of bulk carriers and 56% of oil tankers.