Ships Are Flying False Flags to Dodge Sanctions

The world’s top three ship-owning countries are China, Greece, and Japan. But the top three countries under which ships sail include none of these—nor fourth-ranked United States or fifth-ranked Germany. The flag league is instead led by Panama, Liberia, and the Marshall Islands. They are flag-of-convenience states, economically weak countries that allow vessels to register in their ship registry for a much lower fee than developed countries. The lower fee comes with less service—and less scrutiny—than traditional maritime states offer. Although the former has made flag-of-convenience states popular with countless vessels over the past decades, the latter is now making them extremely attractive to vessels seeking to get around Western sanctions against Russia. Such vessels have begun switching to flag-of-convenience states—or even taken to sailing under their flag without telling them.

And these overburdened maritime nations do little to remove the squatters. Rickety tankers that should be headed for the junkyard are instead roaming the world’s oceans, bringing oil from Russia and its fellow sanctioned nations, Venezuela and Iran, to China and other customers. And it’ll take a major crisis to force the problem to the surface.

“Shipping companies that are trying to get around sanctions are targeting really small registries that are privately managed,” Lloyd’s List Intelligence maritime analyst Michelle Wiese Bockmann told Foreign Policy. “Then they either falsely claim that their ships are flagged there because the country will do nothing about it, or they legitimately flag the vessels there and get the country to issue false company IMO numbers,” referring to the International Maritime Organization (IMO). Every shipping company has an identification number with the IMO. But if a shipping company or vessel doesn’t want to be recognized, then they can trick a flag state’s registry into using fake IMO numbers—and since flag-of-convenience states’ shipping registries are often poorly resourced, privately managed, or both, officials rarely spend serious time investigating IMO numbers. And shipping companies operating under a false IMO number can be traced only with extreme difficulty.

Shifting registries to avoid sanctions has been going on for a decade or so, ever since Iran’s state-owned oil company discovered that it could get around restrictions on its oil by having its shipping companies register their vessels with twin registries maintained by Tanzania and Zanzibar. (Zanzibar is now part of Tanzania, but the registries date back to the days when it was an independent state.)

Parking the Iranian tankers in the Tanzania-Zanzibar registry wasn’t exactly legitimate, since ships are not supposed to change flags simply to get around sanctions, but as Bockmann points out, “It was done with the knowledge of the privately owned company that manages the Tanzania-Zanzibar registry.” In fact, by registering its vessels in Tanzania-Zanzibar, Iran managed to continue exporting oil. Although traditional maritime states, such as Britain and Greece, comply with sanctions on goods that travel by sea, flag-of-convenience states are often laissez-faire regarding both vessels and cargo. And the world doesn’t have a maritime authority that can track every single vessel, especially if it changes its flag registration.

Now Russia has adopted Iran’s strategy. Today flag-hopping “is on steroids,” Bockmann said. “Iran started it. Venezuela copied it. And it turned out to be a perfect template for Russia.” Flag-of-convenience states—including Tanzania, Samoa, Nauru, Belize, the Cook Islands, Gabon, Palau, Kiribati, St. Kitts and Nevis, Sierra Leone, Cameroon, Guyana, Comoros, São Tomé and Príncipe, and Micronesia—all host such new arrivals.

Mysterious tankers sailing under the flags of unwitting or inattentive flag-of-convenience states are transporting enormous quantities of sanctioned crude: every day, an estimated 2 million barrels from Iran, Venezuela, and Russia. Most of the tankers are bound for China, which means that China single-handedly is undermining some of the West’s most potent sanctions against Russia. On the way, tankers often make port calls in other countries for refueling or other logistical purposes. “Shipping companies’ tactics have evolved along with United States foreign policy,” Bockmann said. “Ship-owners make billions of dollars shipping this oil and are willing to take the risk.” So far, the United States hasn’t held China to account—and Beijing would argue that it’s under no obligation to obey U.S. sanctions against Russia, Iran, Venezuela, or any other country. And neither the IMO nor any other authority seems eager to tidy up. An IMO legal committee is investigating—but its report is not expected until next year.

Sanctions-busting breaks down the already fragile system of ship registration—and it is also making shipping extremely dangerous. Among the tankers transporting sanctioned oil to China and other customers are scores of clapped-out very large crude carriers (VLCCs), which can carry up to of 2 million barrels of oil. Like the other tankers transporting sanctioned oil, these ships can’t get the insurance that shipping normally requires—but as I’ve previously noted, the governments of Iran and Russia now offer their own insurance to such tankers. The governments of Russia and Iran can offer such insurance because unlike Western insurers, who can be punished by their own governments if found to be violating sanctions, they’re already targeted by sanctions and don’t have to worry about exposure. And fake insurers, according to Bockmann, have sprung up, which issue certificates that look real—and are thus accepted by port inspectors—but of course have no value.

The registries that suddenly have scores of new customers—known and unknown—also seem to have little interest in tidying up—mostly because they’re making plenty of money, both institutionally and likely personally. Last October, the VLCC Saint Light, formerly known as Young Yong, ran aground off the coast of Indonesia. It transpired that the Djibouti-flagged tanker was in fact linked to a Ukrainian trader named Viktor Artemov, who had made his name smuggling Venezuelan and Iranian oil. The Saint Light’s misfortune and provenance became such an embarrassment that Djibouti deflagged her. But now she’s registered in Barbados. Bockmann, a respected voice in the maritime industry, called up the Barbados registry to point out that a sanctions-busting vessel now sails under the country’s flag. And, she told Foreign Policy, “the official just said, ‘Who are you?’”

Steering the lawless tankers are crews of up to 30 people who similarly live in a legal no-man’s land—or rather, sea. If something happens to them, the flag-of-convenience state on whose registry the tanker is squatting is not going to come to their aid. Bockmann has concluded that the situation is so desperate that “the only thing that will [cause action to be taken] is a crisis like a massive oil spill.”

An Exxon Valdez disaster involving a sanctions-busting tanker would be even worse than the Exxon Valdez itself because there would be neither an insurer nor a flag state to absorb some of the blow. The world’s best hope might be that the growing cadre of open-source intelligence enthusiasts keep tracking mysterious fleets. In recent years, open-source intelligence experts—varying from employees of for-profit outfits to hobby sleuths—have added enormous knowledge about all manner of shady activities simply by painstakingly monitoring publicly accessible sources. For example, they regularly track the activities of Russian units in Ukraine. Now, a few more of them should turn their expert eyes to the tens of thousands of ships sailing the world’s oceans, especially the ones that might be behaving oddly. The 300 tankers tracked by Bockmann are most likely just the beginning.