Flags of Convenience: A Cloak for Illicit Maritime Activity (Part I and II )

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Published on Saturday, 27 December 2025 00:19

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By Tanya Tono

The Dark Side of Open Registries

In the global shipping industry, “flags of convenience” (FoC) refer to the practice of registering a vessel in a country other than where its owners are based. These open registries often feature lax oversight, lower fees, and looser regulations, attracting shipowners seeking to reduce costs or conceal their activities. Unfortunately, FoCs have also become a cloak for illicit maritime activity, enabling everything from drug smuggling and money laundering to illegal fishing and sanctions evasion.

Cocaine in the Cargo: Smugglers Set Sail

Recent cases illustrate how FoC-flagged ships serve as conduits for narcotics trafficking. In late 2022, U.S. Customs and Border Protection (CBP) officers in Puerto Rico made a stunning discovery: 877 pounds of cocaine were concealed aboard the M/V Kydon, a Bahamas flagged car ferry operating between San Juan and Santo Domingo. Traffickers had hidden 355 brick shaped packages of cocaine under the floorboards of a cargo platform on the ferry, which CBP inspectors uncovered during a routine inspection.

Earlier, in 2019, another FoC ship (the MSC Desiree, flagged in Madeira) was found carrying an even larger haul in Philadelphia. Authorities opened a container on the MSC Desiree to find 13 duffel bags filled with 450 bricks of cocaine, totaling 1,185 pounds with an estimated street value of $38 million. At the time, it was one of the largest cocaine seizures at the Port of Philadelphia.

In 2021, a multi agency task force boarded the bulk carrier Samjohn Solidarity (958 foot, Panamanian flagged) as it lay anchored in the Chesapeake Bay. Hidden in the ship’s anchor locker, they discovered 20 bricks of cocaine (approximately 44 pounds) of high purity powder bound for U.S. streets. These cases demonstrate how drug cartels exploit FoC vessels, from humble ferries to giant container ships, to smuggle narcotics, relying on weak inspections and the anonymity afforded by certain flags.

Bulk Cash and Black-Market Billions

Illicit flows are not limited to drugs. Flags of convenience also facilitate the movement of bulk cash and illicit profits by sea. A dramatic example occurred in 2020 when U.S. federal agents in San Juan seized an unprecedented cache of dirty money on a Togolese flagged freighter. Acting on a tip, CBP, DEA, and Homeland Security investigators searched the Norma H II (an aging cargo ship flying the flag of Togo) before it departed for the U.S. Virgin Islands. They uncovered 34 unmanifested boxes stuffed with $27 million in undeclared cash, shrink wrapped and hidden among household goods.

Authorities called it a historic money seizure in the Caribbean, likely tied to drug trafficking proceeds being laundered offshore. As one official noted, bulk cash smuggling has become a preferred method for traffickers to repatriate illicit earnings without detection. The Norma H II case underscores how ships registered in permissive jurisdictions can be used to ferry enormous sums of dirty money, exploiting gaps in customs scrutiny for vessels under certain foreign flags.

Human Trafficking and Illegal Fishing at Sea

Perhaps the most tragic abuse of FoCs occurs in the global fishing industry, where rogue operators use distant water fishing vessels to engage in illegal, unreported, and unregulated (IUU) fishing and even forced labor on their crews. In 2019, U.S. authorities issued a rare import ban on seafood tied to a Vanuatu flagged fishing boat named Tunago No. 61. A Withhold Release Order halted all tuna harvested by the Tunago No. 61 from entering U.S. ports after investigations revealed egregious crew abuse. Earlier, crew members had reported being beaten by officers. In one case, the ship’s captain was murdered by six desperate Indonesian fishermen who had been enslaved at sea without pay for 16 months. It was the first time the U.S. had ever blocked a fishing vessel’s catch over forced labor concerns, signaling that horrific labor conditions at sea would no longer remain invisible.

Two years later, in 2021, CBP took aim at another distant water fishing vessel, the Hangton No. 112. This Fiji-flagged longliner, operated by a Chinese national, had imported an estimated $40 million in tuna into the U.S., all while allegedly keeping its crew in slave-like conditions. U.S. officials found evidence of withheld wages, debt bondage, and confiscated passports on the Hangton No. 112, prompting a ban on its seafood. Notably, both the Tunago No. 61 and Hangton No. 112 flew flags of small Pacific nations (Vanuatu and Fiji), far from the oversight of the crews’ home countries. These flags of convenience enabled unscrupulous owners to sidestep labor laws and perpetuate abuse on the high seas in pursuit of profit.

Evasive Tactics: Hiding in Plain Sight

FoC registries not only offer lower standards but also provide shipowners a convenient veil of anonymity and an opportunity to reset a ship’s identity when trouble arises. It is not uncommon for a vessel implicated in wrongdoing to quickly reflag and rename itself to evade scrutiny. For example, a bulk carrier called Pan Jasmine (at the time registered in Panama) was expelled from U.S. waters in 2021 after inspectors in New Orleans found it had invasive wood boring insects in its dunnage (packaging wood), a major environmental threat. Within months of that incident, the ship’s owners quietly changed its name and flag. The Pan Jasmine was reborn under a new identity, now sailing as Ethra Gold under a different flag, effectively scrubbing its record clean for port state authorities.

Such shape-shifting is disturbingly easy in the FoC system. Owners move between “indifferent registries” that ask few questions, allowing vessels to obscure their histories of safety violations, environmental fines, or illicit ties. This chameleon act is employed by participants in the burgeoning “dark fleet,” a shadow network of tankers and freighters that manipulate registries, tracking data, and ship names to evade sanctions. Maritime security analysts estimate at least 600 to 1,000 vessels now make up this dark fleet, transporting sanctioned oil or cargo under constantly changing flags and shell companies. Their activities undermine global law enforcement and sanctions regimes, illustrating how regulatory arbitrage on the high seas has profound global security implications.

Shining a light on the opaque world of flags of convenience is vital for both national security and financial integrity. Whether it involves tons of cocaine packed in shipping containers, millions of illicit dollars hidden in cargo, or abused crews on distant fishing boats, the common thread is a system that allows ships to operate under flags that will not hold them accountable. These threats have come to the attention of the U.S. Federal Maritime Commission which is exploring ways to address the harm caused by FoC ships. More on this in Part II next week.

Flags of Convenience Part Two: Enforcement Gaps and a Registry Solution (Part II)

By Tanya Tono,

In practice, U.S. port inspections often treat drug seizures as isolated cargo incidents, not opportunities to investigate the ship or its owners. For example, U.S. Customs and Border Protection (CBP) officers in San Juan intercepted 573 pounds (260 kg) of cocaine hidden in containers aboard the Bahamas-flagged ferry M/V Kydon in June 2020. A few weeks later, the same route produced another 492-pound haul. These busts made headlines, but CBP’s reports focused only on the contraband value and concealment. The Kydon itself sailed on, the vessel and its nominal owner were never publicly pursued. In effect, once illicit cargo is unloaded, the ship vanishes from the case files.

This enforcement gap is no accident: CBP’s mandate ends with cargo interdiction, not maritime registry investigations. As analysts note, open registries facilitate this opacity—”vessel registration is cheap and easy, with beneficial ownership information not required,” meaning unscrupulous operators can hide behind shells. In short, smugglers can offload drugs in a U.S. port while the ship slips away unnoticed into international waters.

Despite these frequent seizures, there is little follow-up on the flagged vessels themselves. Unless a ship fails a port-state safety inspection or is interdicted by the Coast Guard at sea, it usually avoids penalty. FoC vessels simply rotate among international ports with comparatively minimal oversight. The result is a self-perpetuating cycle: criminals use opaque shipping registries to conceal illicit cargo shipments while law enforcement chases containers rather than criminal rings. This pattern is well documented in fisheries and smuggling cases, authorities catch the product but not the phantom owners behind it. In effect, each vanished shipment underscores the core flaw of the FoC system: without tracing a seized shipment back to its ship or hidden owner, the flag serves as a cloak of immunity.

The challenge is not merely one of enforcement resources but of legal architecture. Current international frameworks lack mechanisms to compel ownership transparency at the point where it matters most: when vessels seek access to major ports. This structural weakness allows the same ships and operators to continue illicit activities even after cargo seizures, confident that their corporate anonymity will protect them from consequences beyond the loss of individual shipments.

By contrastHowever, the Federal Maritime Commission (FMC) in Washington has beguncan deploying tools that target the vessel side of the problem. Under U.S. law (Section 19 of the Merchant Marine Act of 1920, 46 U.S.C. §42101), the FMC can impose strong sanctions on foreign carriers that create “unfavorable” conditions in U.S. trade. For example, Section 19 authorizes hefty port call fees (up to $1 million per voyage), limits on how often a ship can sail to U.S. ports, and even bans on certain cargoes. These powers lay largely dormant since the 1990s, but the agency has now reactivated them. On May 21, 2025, the FMC announced a broad Section 19 investigation of foreign flagging rules and open registries. This non-adjudicatory probe is gathering evidence and public comment on issues ranging from fraudulent registrations to regulatory arbitrage. In effect, the FMC is examining whether lax flags of convenience, from Panama and Liberia to the latest small registries, are harming U.S. trade and security. If so, it could eventually recommend rule changes or direct sanctions (such as new port restrictions) to curb those practices.

This shift reflects national security concerns as much as trade. FMC Chairman Louis Sola has explicitly linked FoCs to sanctions evasion, warning that carriers used by “reprehensible regimes” to dodge international rules would draw U.S. scrutiny. The FMC’s notice even cataloged abuses like “flag-hopping,” fraudulent registry certificates, and a “shadow fleet” of ships involved in smuggling or illicit finance. These problems were meant to be addressed by the global maritime regime: UNCLOS (the Law of the Sea) obligates each flag state to maintain a genuine link to its vessels, and in recent years the IMO has requiresd every ship to carry a unique IMO number and a unique company/owner ID. But as regulators now concede, those rules haven’t stopped phantom flags. In practice, without a mechanism to verify who truly controls each ship, even IMO identification schemes fall short. The U.S. investigation is effectively filling that gap by forcing transparency: if open registries won’t police themselves, the FMC may wield unilateral remedies.

Toward a Global Ship Ownership Registry

To close these loopholes once and for all, Global Financial Integrity recommends creation of a global ship registry tying every vessel to its ultimate owners. In essence, this would be a centralized, IMO- or port-state-managed database where each ship’s IMO number is linked to a verified beneficial owner (an individual or companythe Financial Action Task Force defines beneficial owner as “the natural person(s) who ultimately owns or controls” a legal entity), along with current contact details and any changes in name, flag, or owner. Port authorities could require ships to appear in the registry as a condition for call permits. 

Such a system would mirror national corporate beneficial-ownership databases but in the maritime sphere. By mandating that registry entries be kept up-to-date and publicly accessible, each port call would cross-check the true owner of the vessel. This reform would dramatically increase transparency. As one international analysis notes, requiring a history of identity and ownership for every vessel (using IMO numbers as unique identifiers) “increases operational transparency” and helps deter illicit use.

The operational implementation of such a registry would require international coordination but could build on existing systems. The IMO already maintains vessel identification numbers and has established protocols for information sharing among maritime authorities. Expanding this infrastructure to include verified beneficial ownership would represent an evolution of current practice rather than a completely new system. The key innovation would be making ownership information mandatory, current, and accessible to port authorities at the point of entry.

In sum, pairing the FMC’s renewed scrutiny with a binding global registry could close the maritime transparency gap. Good intelligence on contraband cargoes is of little use if we don’t also know which vessels carry it. A centralized vessel-ownership register, hosted by the IMO or an international consortium of port states, would ensure that any suspicious ship can be rapidly identified and held accountable. That single reform would go a long way toward neutralizing the “cloak” that flags of convenience currently provide for illicit maritime activity.

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