What is a Flag of Convenience?

Why register a flag of convenience?

Ships registered under flags of convenience can often reduce operating costs or avoid the regulations of the owner's country. To do so, a vessel owner will find a nation with an open registry, or a nation that allows registration of vessels owned by foreign entities. A ship operates under the laws of its flag state, so vessel owners often register in other nations to take advantages of reduced regulation, lower administrative fees, and greater numbers of friendly ports.

History of open registries

The modern practice of flagging ships in foreign countries began in the 1920s in the United States after shipowners became frustrated with increased regulations and rising labor costs and began registering their ships in other nations (originally Panama). As other nations began to allow open registries a few nations became standouts in the flag of convenience industry. In 1968, Liberia grew to surpass the United Kingdom as the world's largest shipping register and, as of 2009, more than half of the world’s merchant ships were registered with open registries, with Panama, Liberia, and Marshall Islands flags accounting for almost 40% of the entire world fleet as calculated by tonnage.

Criticisms of flag of convenience systems

Many nations with open registries are criticized for having substandard regulations. For example, many shipowners are allowed to remain legally anonymous in open registry systems, making it difficult to identify and prosecute legal actions (whether civil or criminal) against these individuals. Some ships with flags of convenience have been found engaging in criminal activity, offering substandard working conditions, and spewing pollution into the environment or illegally fishing. As a result, ships flying under these flags are now targeted by other nations for special enforcement when they make call in one of the host nation's ports.

Finding the best open registry for your needs

There are about a dozen countries most widely used for open vessel registrations. Which country will be best for your purposes will depend largely on the type of shipping you intend to do, the reputations of the country of registration (i.e., whether their vessels are targeted for special enforcement), and the relative convenience and expense of registering in that country. If you have questions about the registration process and which country will best serve your needs, you should contact an attorney experienced with admiralty law.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.