Lecture 7: Offshore Ship Registration

7.1 Ship Registration

Every ship has to be registered in an internationally recognised jurisdiction to provide proof of nationality and
ownership. A ship assumes the nationality of the jurisdiction where it is registered and is therefore subject to
the regulations laid down by the governing register.

A ship's registry is a title of ownership, registered by a country. Ship's owners pay taxes on the ship to the
country of registry, and the fly the flag of that country.

The country of registry can have laws that effect the operation of the ship, the crew and the owner. For
example, American registered ships must be crewed 100% by American citizens.

The main reason for registering a ship has always been to prove its nationality. By law, all commercial vessels
sailing in International waters must be registered. Exceptions are smaller commercial fishing vessels and
charter services that do not call on International ports.

For Pleasure Vessels, the ships registry is optional... though many feel a need to do it for identification
purposes, and in larger "yachts" where the value of the yacht itself is substantial... it is usually required by the
mortgage or lienholder, and / or insurer.

The vessel "registration" itself is used as the ships security to obtain a marine mortgage which in turn is also
registered. Ownership details are fully investigated and purchasers of registered ships can obtain a "Transcript
of Registry" which shows the registered owners of a ship and whether there are any outstanding Mortgages,
or liens lodged against the vessel.

The bottom line is that "registering a vessel" is very much like having an "International Title and Title
insurance" on the vessel. It provides proof of ownership and proof of a clear title.

For the average boater, even the average pleasure passage maker, most do not register their boats, it is not
required, and there is not really any benefit. Many boaters used to think it would give them exclusive rights to
a boat name, and / or boat name protection but is does not.

The registration of ships is a time honoured practice. It began principally as a means of controlling ships
entitled to carry cargoes within the seaborne empires of Europe. In more recent times, however, it has proved
a convenient means of establishing title to the property in a vessel; in other words, who owns it. At the same
time, registration has served to determine which country's law governs the operation of a ship and the
behaviour of those onboard key concepts which today play an important part in the international law of the
sea.

Very often companies and private individuals enjoy major advantages and legal tax savings by registering their
ships in an appropriate jurisdiction, providing confidentiality and the protection and privileges offered by such
registration.

Which jurisdiction is most suitable for registering a particular ship depends on a number of factors such as in
which country the owner is resident, in which countries the ship will be mainly used, whether the ship will be
chartered to third parties or only privately used, etc.
7.2 Flag of Convenience (FOC)

In general terms, a flag of convenience is often used to describe the situation where a vessel is registered in a
country or state which is not the country or state where it was originally built or registered.

Cheap registration fees, low or no taxes and freedom to employ cheap labour are the motivating factors
behind a shipowner's decision to 'flag out

The "flag of convenience" rules have both public law and private law implications.

Private law comes into play in the employer-employee, passenger contract, and cargo contract obligations of
the ship.

Public law also interfaces with these rules in that ships and companies pick and choose flags of convenience
for individual ships based upon liability concerns such as negligence, contractual, labour, customs,
immigration, and/or environmental laws.

The "flag of convenience" arrangement, also known as foreign registries, offered by the Bahamas, Liberia,
Panama and other countries, permit ship owners to avoid most of the wage and labour laws of the home
country.

A ship is subject to liability as if it were "within" the country whose flag it flies.

Passenger tickets and contracts also make reference to this fact that all claims by passengers or employees
must be litigated in and under the law of the country whose flag the ship in question flies

Flags of convenience formally came into existence in response to the U.S. Seaman’s Act of 1915. The act made
many aspects of safety, working conditions, and meals standard on U.S. based ships. After the changes were
implemented the ship operators found themselves with operating costs much higher than their foreign
counterparts.

By the 1920’s the idea of radical changes to Flag States was well accepted among ship owners and many
sought lower taxes and regulatory requirements by transferring their interests to shell corporations in
countries with lax maritime and labour laws.

Early in 1949 the first ship was assigned to the Liberian registry. The Greek ship “World Peace” became the
first ship to join the new “Open Registry”.

An Open Registry allows ship owners to register a merchant vessel in any one of thirty countries that offer
simple registration and minimal regulations for their fleet.

The countries are:

Antigua and Barbuda, the Bahamas, Barbados, Belize, Bermuda, Bolivia, Burma, Cambodia, the Cayman Island,
Comoros, Cyprus, Equatorial Guinea, Georgia, Gibraltar, Honduras, Jamaica, Lebanon, Liberia, Malta, the
Marshall Islands, Mauritius, Mongolia, Netherlands Antilles, North Korea, Panama, Sao Tome and Príncipe, St
Vincent, Sri Lanka, Tonga, Vanuatu

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These registrations can often be done online without questions or inspection of the vessel. Of the countries
listed above, there are three that control around 40 percent of total dry tonnage globally. Liberia, Marshall
Islands, and Panama account for a huge portion of the open registry vessels operating today.

7.3 The Benefits of Offshore Ship Registration

In today's world, in the context of the global financial crisis, the legal services such as offshore ship registration
- transfer of property to the area with low taxation, or property of foundations and associations are not
obliged to taxes at all became very important for enterprises and wealthy individuals.

Offshore centres allow register the ship/yacht/vessel this will help to save a lot on taxes. Pros of "tax havens"
to conduct business are obvious - pay much less taxes and fees, there are no problems with the legislation of
the country where the company operates just enough cheap labour in the formal office in the offshore zone.

Offshore areas - the perfect solution to the banking crisis, which will allow shipowners to save on taxes and
fees paid, to register boats with minimal costs.

In addition, the firm's bankruptcy in an offshore zone is much easier than if planned through arbitration. In the
event of a dispute, shipowners can immediately apply to international arbitration to settle disputes in it.
Qualified legal assistance in the registration of ships and companies in offshore areas - it is a great way to
legally minimize their costs and to bring capital from risk areas. Offshore Ship Registration will thus enhance
asset protection and wealth concealment.

Ship Registered in offshore jurisdictions are subject to lesser regulatory control and thus, implying that
rregistration under a flag of convenience generally means an unrestricted choice of crew in the international
market; thereby lowering crewing costs. Crews are not subject to onerous national wage scales.

Shipowners are able to preserve anonymity; ascertaining the beneficial ownership of the vessel is virtually
impossible.

7.4 Challenges with FOCs

 Labour
The International Transport Workers' Federation (ITF) believes there should be a 'genuine link' between the
real owner of a vessel and the flag the vessel flies, in accordance with the United Nations Convention on the
Law of the Sea (UNCLOS). There is no "genuine link" in the case of FOC registries.

Some of these registers have poor safety and training standards, and place no restriction on the nationality of
the crew. Sometimes, because of language differences, seafarers are not able to communicate effectively with
each other, putting safety and the efficient operation of the ship at risk. In many cases these flags are not even
run from the country concerned. Once a ship is registered under an FOC many shipowners then recruit the
cheapest labour they can find, pay minimal wages and cut costs by lowering standards of living and working
conditions for the crew.

Many seafarers working on FOC ships receive shockingly low wages, live in very poor on-board conditions, and
work long periods of overtime without proper rest. They get little shore leave, inadequate medical attention,
and often safety procedures and vessel maintenance are neglected (in many cases reported to the
International Transport Workers' Federation (ITF), FOC ships have been unseaworthy). In some of the worst

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cases, seafarers are virtual prisoners on FOC vessels. The FOC countries do not enforce minimum social
standards or trade union rights for seafarers. If they did, ship-owners would soon lose interest in them. The
countries from which the crew is recruited can do little to protect them, even if they wanted to, because the
rules, which apply on board, are those of the country of registration.

 Economic Distortion
The 2011 report by the UNCTAD Secretariat blamed the freedom from fiscal obligations in flag-of-convenience
countries for the liberalization of tax concessions and increases in Government assistance in traditional
maritime nations. Certainly, this policy was successfully followed by Greece in the early 1950s in an effort to
repatriate the substantial number of Greek-owned ships operated under flags of convenience. The report
stated that there is no doubt that the existence of open registries is the major cause of the distortions that
governments have been forced to make to their fiscal regimes.

 Safety
Oil spills from Liberian-registered tankers in the 1990s and 2000s called attention to issues of inadequate
training, communication, and equipment. Working conditions aboard FOC-registered ships from such states as
Panama, Honduras or Romania are often abysmal and even life-threatening.

Much of the widely publicized maritime disasters of recent years are involved vessels registered under flags of
convenience. It is also a fact that the casualty records or open registry fleets reveal a considerably higher rate
of losses than in the traditional maritime countries.

A report by the UNCT AD Secretariat in 2011 identified 10 reasons why the non observance of safety standards
is likely to be greater under open-registry flag's than under the flags of States having genuine economic links
with vessels:
– Real owners are not readily identifiable.
– Real owners can change their identities by manipulating brass-plate companies and consequently
avoid being identified as repeated substandard operators or risk-takers;
– Since the master and other key shipboard personnel arc not nationals of the flag State, they have no
need or incentive to visit the flag State and can avoid legal action;
– Owners who reside outside the jurisdiction of the flag State can defy the flag state by refusing to
testify at an inquiry by the flag State and avoid prosecution
– Since open-registry owners do not have the same interest in preserving good relations with the flag
State, they do not feel the need to co-operate with inspectors of the flag State;
– Open-registry shipping lacks the union structure which is so essential to the application of safety and
social standards in countries of normal registry: namely, a national trade union of the flag State
representing basically the interests of national seamen on board vessels owned by owners who have
economic links with the flag State;
– Open-registry owners arc in a better position to put pressure on masters and officers to take risks,
since there is no really appropriate government to which shipboard personnel can complain;
– Port State control is weaker because the port State can only report substandard vessels and practice
to a flag State which has no real control over the owner;
– Owners can suppress any signs of militancy among crews by virtue of their freedom to change
nationalities of crews at whim:
– Enforcement of standards is basically inconsistent with the operation of registry with the sole aim of
making a profit.

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Globalisation has helped to fuel this rush to the bottom. In an increasingly fierce competitive shipping market,
each new FOC is forced to promote itself by offering the lowest possible fees and the minimum of regulation.
In the same way, ship owners are forced to look for the cheapest and least regulated ways of running their
vessels in order to compete, and FOCs provide the solution.

7.5 Offshore Ship Registration in Mauritius

Ship registration is regulated by the Mauritius Merchant Shipping Act 1986 and the Mauritius Shipping
(Amendment) Act 1992 which have been largely modeled on the British Merchant Shipping Act. Mauritius
Merchant Shipping regulates the registration of ships in Mauritius. The legislative framework governing
shipping business is seen to be very attractive for conducting shipping activities and ship registration. The
administration of the Mauritius Open Ship Registry is under the responsibility of the Director of Shipping,
Ministry of Trade and Shipping. The Home Port is Port Louis where the Head Office of the Registry is situated.

Eligibility of Ownerships
Mauritian ships are to be owned wholly by:

Owners
 Citizens of Mauritius
 Companies established under the laws of Mauritius which are citizens and having its registered office
in Mauritius.
 Companies incorporated in Mauritius or incorporated abroad, provided they receive the approval of
the relevant authorities .
 Category 1 Global Business Companies (GBC1) and Category 2 Global Business Companies (GBC2),
provided their objects are confined to the registering of ships under the Mauritian Flag and that their
shipping activities are carried out outside Mauritius.

Ships
 Age
At the time of registration, the age of the boat shall not exceed 15 years since the date of 1st construction.
 Approved Société
Ships must maintain class with one of the classified sociétés as approved by the Director of Shipping. The
Sociétés which are currently approved by the Director are as follows: a) American Bureau of Shipping b) Indian
Register of Shipping c) Lloyd’s Register of Shipping d) Korean Register of Shipping e) Germanischer Llyod
 International Maritime Conventions
Ships must provide valid certificates showing companies with International Maritime Conventions.
 Third Party Liability Insurance
Ships must show to the Director of Shipping as proof (certificate of entry, cover note or similar documents) of
3rd Party Liability Insurance. The registration procedures involve the formation of a Company licensed by the
Financial Services Commission to hold a GBC1 or a GBC2 and the registration of the vessel itself with the
Ministry of Trade and Shipping. The following needs to be provided in favor of the corporate body for the Ship
registration:
1. The corporate of the Certificate of Incorporation duly certified by the company’s director or
company’s secretary.
2. Certified copy of the Board Resolutions on its board of directors authorizing a director on the
company secretary or an original Power of Attorney signed by a director authorizing one or more
named persons to effect registration of the Ship in Mauritius.

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Why register a Ship in Mauritius?
– Offshore Ship owning companies are exempted from Mauritius taxes / exchange control.
– All personnel working on board of a Mauritius Ship is exempt from the Mauritius income tax.
– Mauritius offers political, economical and social stability.
– Good infrastructure and communication systems.
– Strategic location and time zone.
– Good offshore company legislation based on English Company Law.

7.6 The Way Forward with FOCs

The market has always been the determining factor with respect to which flag a ship fly. All decisions are
taken in order to achieve the common goal of minimising costs and maximising revenue. Therefore, it is not
possible for a shipowner to choose a flag without considering the fiscal advantages. It is believed that taking
part in competition in the market has great importance for a shipowner when considering open registry or
“Flag of Convenience” (FOC).

The history of flags of convenience dates back to the Roman Empire, but it was not until after World War II
that the desire and the need to be competitive in the world shipping markets gave rise to the spectacular
growth in the use of such flags.

The growth in open registry almost doubled over the past years and today accounts for more than 54% of
world shipping. This growth has been to the dislike of countries with "closed registry" who have been unwilling
to change.

After the transfer of American ships to the Panamanian and Honduras flags organised labour opposition to
flags of convenience began in the 1930s. In 1957 it also became clear to the business leaders of the advanced
maritime states that if no steps were taken to control the situation, the flags of convenience institution would
cause serious problems. In 1948 the ITF adopted a resolution in which it threatened to boycott ships
transferred to the Panamanian flag. In 1958 the ITF Congress decided to start a worldwide boycott of open
registry ships. The aim of the campaign was to drive the ships back to their national flags. Shipowners who
operate their vessels under the flags of convenience are supposed to employ their crews under the ITF
Collective Agreement.

More than 50 years the ITF has co-ordinated an international campaign. It has forced some owners to sign
collective agreements but has not managed to drive the ships back to their national flags. Ships still have
multinational crew, owned by a multinational company, registered in one country, mortgaged in another and
managed from a third country. So it is possible to say that we have a globalised shipping sector.

On the basis of the history of flags of convenience and present practice, everybody involved in shipping
practice knows that the flags of convenience system will continue to exist. It is time for the opponents of this
system to find a different solution rather than trying to get rid of the system.

Today some of these nations with closed registries find that change is essential or else they will have only
coastal ships to regulate their registries.

Many steps are being taken in all the Flags of Convenience states to provide for better safety. Some of the
most modern ships are operating under flags of convenience and a number of registers have taken steps to
exclude very old tonnage. Liberia, for example, stipulates that vessels seeking registration (or re-registration)

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must not be more than 20 years old, although subject to certain conditions vessels exceeding that age-limit
may be accepted for re-registration, Panama prescribes no age limitation, but vessels over 20 years of age are
subject to a special inspection before the Permanent Certificate of Registry can be issued. Bahamas generally
applies a 12-year age-limit, whilst Vanuatu follows the 20-year rule, Cyprus has a basic 17-year age-limit, but
older' vessels maybe be registered subject to a number of conditions, including the existence of a rent and
effective ownership or management link between the vessel and the island.

The flags of Convenience states are parties to the major safety conventions and more responsible registries
ensure a stricter compliance. Liberia needs a “decision maker” who is contactable 24 hours in the event of any
incident rising with the ship. Exasperation among the International community at the unwillingness or inability
of many flag States to exercise proper control has led in recent years to increasing reliance on port States to
monitor compliance with international standards, Intervention by port States is sanctioned by the 1982
Convention on the Law of the Sea and numerous other international conventions; including SOLAS, MARPOL
and STCW.

To try to do away with the FOC would be paving the doom of the maritime nations, as it is not possible. The
only way to do so is to place severe limitations on national sovereignty, which cannot be done. The response
of a number of the traditional maritime powers has been, often additionally to the traditional tax and other
financial incentives to the shipping sector, either to enable the bareboating out of vessels under their flag
(e.g., Italy) or to establish offshore or international registries, offering many of the advantages of flags of
convenience, but nonetheless retaining a link between beneficial ownership or management and the national
flag. Some like the Isle of Man registry have arisen out of accident of history. Torschlusspanik has led to the
establishment of "designer" registries, such as the Norwegian International Ship Register (NIS) and the
Madeira Shipping Register (MAR), which seek, to halt the decline of the merchant fleets of the traditional
maritime powers by allowing ship owners to operate in a low-cost environment whilst retaining the
respectability of the national flag. This retention of the link with the national flag preserves the jurisdiction of
the maritime power over vessels owned by its nationals.

Flags of convenience are manifestations of international free riding in a way that is particularly obvious. As
long as the flag states gain from running open registries and ship owners can benefit from avoiding
international standards, the phenomenon is not going to disappear. The improvements we can expect to see
in addressing FOC issues may therefore be modest. The changes come largely through increasing the cost to
FOC vessels of not adhering to international standards. A combination of international pressure and individual
incentives may therefore be what is needed to hold ships to international standards. Most frequently that
international pressure has led to increased standards when actors have been able to create some a way to
deny access to a benefit to those that do not accept the standards in question. Ironically, then, it is through
creating mechanisms of exclusion that the ability to include the widest number of actors in international
regulatory efforts is most likely to succeed.