COLUMN | So many questions: transparency is the answer, sunlight is the best disinfectant [Offshore Accounts]

It’s Ramadan for Muslims, whilst Orthodox Easter Sunday falls on Sunday April 24. Belated Happy Easter to Catholics and Protestants, meanwhile.

Both Lent and Ramadan are periods of fasting and reflection. This week we have been doing some questioning of our own, so much so that this week’s column is two days late. I humbly ask our dear readers for forgiveness.

Do flag states ask enough questions?

Our first question relates to whether the flag state regime needs tightening by the International Maritime Organisation (IMO).

One of the biggest lessons of the sanctions on the Russian oligarchs that it has exposed the complete lack of transparency about vessel ownership to the wider world. The flag state regime is broken, and the IMO seems unwilling to do anything to fix it.

Individuals use shell companies layered on other shell companies across multiple jurisdictions, and nominee directors, to conceal who actually owns a ship. Or ships.

This is not “new” news. The catastrophic sinking of the tanker Erika in 1999 brought this problem vividly and tragically into the public domain, when it became apparent that nobody knew who actually owned the rust-bucket ship that had cracked in half and spilled 30,000 tonnes of heavy fuel oil into the sea off France.

See here for an account of the 12 offshore companies, of which eight were Liberian and four Maltese, involved in the convoluted ownership structure of the doomed vessel. The owner voluntarily came forward to the authorities. If he had not, it is unlikely that the world would have ever been able to find him.

Who owns that super-yacht?

After this shocking oil spill from Erika, the IMO rushed to do what it usually does: nothing. It got away with this for more than two decades, until Russia invaded Ukraine this February.

Suddenly the shocking truth emerged: dozens of very dodgy billionaires who had acquired billions of dollars of formerly Russian state assets for next to nothing were sailing around the world in luxury yachts worth hundreds of millions of dollars.

Something must be done, cried politicians across the western world, and they promptly began to seize the yachts of President Vladimir Putin’s closest associates.

Newspapers around the world have been full of headlines that the authorities in [insert name of country] have detained a US$[insert value] luxury mega-yacht [insert picture] believed to belong to [insert name and photo of Russian oligarch].

When pressed whether the yachts in question actually belong to the nefarious “friend of Vlad” billionaire, as claimed, officials are normally forced to confess that they don’t actually know, but they think so, even if they can’t prove it.

Shapps shoots himself in the foot

The UK tabloid The Sun has a classic instance of this here – this is the case where no less than the British secretary of state for transport, Grant Shapps, promenaded in front of Phi, a lovely Dutch built super-yacht, on a quayside in London, fulminating against the Russian elite, seemingly unaware that the gentleman in question behind the St Kitts and Nevis vessel owning company wasn’t actually on the sanctions list in the UK, or indeed anywhere elsewhere at the time.

Whoops! So much for the rule of law.

At the root of the problem lies the failure of flag states to demand that the companies registering vessels reveal the ultimate beneficial owner. Not the company that was registered for $100 in Tortola or Georgetown, or St Kitts, but the actual person or individuals who owns the ship at the end of the chain. At the moment this is not necessary, and is nigh impossible to outsiders, even governments, to establish.

Antigua asks London for help

We can see this in the plaintive coverage from the Financial Times here on Antigua’s efforts to establish whether or not the allegedly Russian-owned yachts they want to impound should in fact be impounded:

“Antigua has called on the UK government to establish whether two yachts moored on the Caribbean island are owned by a sanctions-hit Russian oligarch, after the Financial Times identified a second vessel there with links to Roman Abramovich.

“In a letter to the British High Commissioner to Antigua and Barbuda, seen by the FT, the island nation’s minister of foreign affairs Paul Chet Greene said its government had been ‘trying to establish if two particular ships could be owned by a certain Russian oligarch’.

“However, it added, it had not been able to ‘pierce the veil of secrecy that masks the beneficial owner of two vessels’.”

This is nuts. If you buy a US$1,000 banger of a Skoda, twenty years old and rusty, in pretty much any country in the world, you have to declare who actually owns the vehicle to the authorities where you register it.

But if you buy a US$100 million gin-palace yacht with helideck, mini submarine and buxom crew of blonde masseuses, you don’t declare it.

Flags of inconvenience

The IMO and certain flag states are fine with this. Some flags ask for beneficial ownership details and then shroud this information behind a wall of secrecy, far beyond the reach of the public and mere journalists. But others don’t even attempt to pierce the veil of corporate secrecy, and look into who controls the matryoshka dolls of corporate shell companies.

We have experienced this problem ourselves. You’d think that the company that owned, for example, a US$150 million light offshore construction or dive support vessel might be easily identifiable. It is not.

We were trying to run a story on the problems that a certain Asian-based company seems to be experiencing. But we ran into a brick wall. Did it actually own the vessels it claimed to own?

Who knows? The vessels were all flagged to one certain Caribbean registry, utterly far removed from the management company, and utterly far removed from the two places where we believed the vessels might be owned. The ships were all flying a flag of convenience from near to the Caribbean.

Of course.

A case study from the British Virgin Isles – touched for the very first time

If you are a journalist, or a corruption investigator, or even a government seeking to impose legal sanctions on those connected to an illegal war, these are flags of inconvenience. In the above case, the documents in the public domain suggested that the vessels we were investigating were owned by a British Virgin Islands company, despite being flagged elsewhere.

This led us to a company with a single webpage with a picture of one of the ships in question, but no further information on the company’s ownership or its directors and shareholders could be found. Well, not by us, anyway. We could find who had registered the website. We could discover that several companies with very similar names had popped up in the Panama Papers, a leak of confidential tax-haven documents, which you can search online here in the offshore leaks database. The Panama Papers database suggested that certain named Chinese individuals might be connected to the company.

Unfortunately, we can’t publish articles saying that the vessel owning company has a similar name to another company, and that maybe, just maybe, some people from a nation of over a billion people may be involved in the ownership structure. So that story died a death, which is bizarre, if you think about it. Here’s a ship worth more than a hundred million dollars, and you and I can’t find who owns it. Nobody can, not even other governments.

At least when the Exxon Valdez ran aground, everyone knew who was to blame. The IMO should be demanding that flag states do more. Transparency is the only solution.

Who protects seafarers and offshore workers?

Our second question. Who is responsible for ensuring that seafarers are treated properly? The flag state. But what happens if the flag state doesn’t take any action?

Guess what? Nothing.

I was going to write a story about a group of saturation divers who say that they have not been paid by a leading Asian offshore company. They say they are taking the company to court. I have their names and I have corresponded with some of them. In Offshore Accounts, we don’t usually wade into Twitter spats, or base our stories on social media posts, well not after our Mozambique moment (here), where we found that trusting Twitter is like believing British Prime Minister Boris Johnson – you will be disappointed and embarrassed.

But there’s a special circle in hell reserved for offshore companies that don’t pay their seafarers or staff. It is almost a public duty to warn seafarers and riggers and divers to avoid companies that have abandoned their staff and not paid them. But in this case, I can’t.

Posting claims on social media is not enough. The certain company in Singapore has not paid those saturation divers the wages they are due, I am pretty sure of that. Everyone knows, everyone is talking about it, but can I run a piece about it without the risk of Baird Maritime being sued and embroiled in expensive litigation? No.

The same company is the subject of numerous allegations of safety violations and lack of maintenance on its vessels. But again, whilst circulating anonymous claims online provides salacious entertainment in social media, serious journalists can’t publish unverified claims about the condition of such and such a ship, and whatever equipment might be rusty, missing, or defective.

If the ship is detained by the flag or port state, great, we can run that. Indeed, many port state detention records are in the public domain, a welcome piece of transparency. See here for the Paris MOU detentions, for example.

Take action in real life

Whilst protonmail does provide an excellent encrypted platform to send out all manner of claims, efforts would be better spent writing as named, interested individuals who have evidence from onboard the vessel to the flag state, to the International Transport Workers’ Federation (ITF) and to the port states involved. Even to the International Marine Contractors Association, which acts as an industry body to improve the safety of many offshore constructions and subsea operations, and to the classification society that has a duty of care to enforce standards on behalf of flag states.

If you believe a ship is unseaworthy, insist that the flag and the port act in accordance with the IMO rules, and international conventions.

If you are not being paid as a seafarer, this is a violation of the Maritime Labour Convention 2006 and the flag should take action. Publish details of the court filings and your correspondence to back up your claims to the flag state and relevant port states. Get your lawyers’ letters to the ITF, send them to journalists, so that we can verify the claims.

Facebook, Linkedin, and Twitter, as of today, have no power to stop malfeasance on ships, and no power to do anything other than cause of kerfuffle online. Flag states can and should, but they need to be pushed into action.

We can’t tell a libel judge we read about it on Facebook, or wherever, and we trusted it was true. But we can report on a vessel arrest, a documented legal filing, or action by the ITF.

The bigger problem

But how did it get to this situation? Late wages and late payment or non-payment of seafarer’s salaries is the tip of a bigger iceberg.

Flag states do absolutely nothing to check the solvency of ship owners flying their flags. As long as the ship owners pay the fees to the Panama registry, or Liberia, or St Vincent and the Grenadines, or Mongolia or wherever, then the flag state is happy.

In theory, if a complaint is received about a ship, it must be investigated by the flag state. If a flag state inspector finds a serious breach of the Maritime Labour Convention, they may stop the ship leaving port.

Does anyone really believe that the good flag states of many small landlocked countries or Caribbean and Pacific Islands were roaming the world’s ports checking whether seafarer’s wages are being paid properly or that conditions onboard are acceptable? Hint: they are not.

It seems bizarre that flag states will scrutinise every piece of paperwork regarding the endorsement of a seafarer’s certificate of competence, and will charge handsomely for the privilege of so doing. But they do nothing to scrutinise the finances of the owning company, the solvency of that company, or the source of the its funding.

Dirty money

Additionally, flag states do very little to investigate where the cash behind maritime investments is coming from.

You’re probably familiar with anti-money laundering requirements and know your customer (KYC) requirements for banks. Try taking US$11,000 in cash across an international border, or changing €12,000 (US$12,980) at a bureau de change, and you could be in big trouble. Try opening a bank account anywhere in the west without a pile of documents.

However, buy a hundred million dollar ship or a series of ships through a shell company and you’ll be fine. The offshore industry has been struggling to recover from seven years of recession, but one particular offshore company, which shall remain nameless, has committed to spend hundreds of millions of dollars on newbuild vessels.

It’s a privately held company and nobody, nobody that I am aware of, has a clear indication of where its funds come from. Ownership is concealed in tax havens and by nominee directors. I have seen paperwork confirming that the directors and shareholders are all nominees. I once spoke to its general counsel and he said he didn’t know the source of funds. But this is all hearsay.

Certainly, the flag state for this company’s newbuildings is unlikely to have connected the dots, since its own enforcement budget is considerably less than the cost of one of the vessels involved. Indeed, the Financial Times reported here that the entire annual budget of the UK’s Serious Fraud Office – the agency responsible for investigating and prosecuting fraud, money laundering and corruption – was only US$70 million. This is less than the cost of one large offshore vessel or a medium-sized super-yacht. Chronic underfunding of law enforcement against the havens of financial secrecy starts to look like a feature and not a bug of the system. Some countries like Switzerland even criminalise those who leak legitimate public interest information about malfeasance in the banking system, treating the whistleblowers worse than the money launderers and the embezzlers.

The question of where that particular company’s funding is coming from remains completely unanswered. That question has probably never been asked by the flag state or the shipyard building the vessels, or the administrators of the secretive tax haven when it is registered.

One hopes that shipyards have performed the necessary KYC checks when the yard is the subsidiary of a publicly listed company. But who knows? Yards are not banks and are not subject to the same levels of legal money laundering checks.

Wider problem of private companies

The problem of private companies is that most parts of the world permit far lower standards of disclosure than for public companies. Trying to find out who owns any Caribbean or Luxembourg holding company that wasn’t unlucky enough to be exposed in the various offshore leaks. It’s impossible.

This needs to change. Every vessel over 500 GRT should be traceable back to either a public listed company, or to a private individual or individuals. This should be searchable and in the public domain, so that shipowners are accountable when things go wrong.

Flag states should be scrutinising the provenance of the funds used to buy ships and the finances of ship owners under their registry, so that seafarers can be protected.

Sunlight is the best disinfectant and a whole web of offshore secrecy (and onshore secrecy in the United Stated and Luxembourg) needs to be thrown open to the light.

The Russian oligarchs have shown us the charade of the flags of inconvenience. Never again should the world look at a tanker split in two leaking oil onto a beach or a luxury yacht worth hundreds of millions sailing around with impunity from sanctions, and wonder who owns that?

Never again should seafarers and divers go unpaid whilst flag states sit on their hands and do nothing.

The Russian invasion of Ukraine has been awful, but maybe it can be a catalyst for change for the better in the maritime world.

Let’s hope, but I am not confident. Ukraine can be invaded by Russian tanks and thousands of civilians can be slaughtered, its cities flattened, but at the IMO, the sovereignty of  the British Virgin Isles, and St Kitts and Nevis is paramount.