Shedding Light on the Dark Side of Maritime Trade – A New Approach for Identifying Countries As Flags of Convenience

In accordance with Article 91 of the United Nations Convention on the Law of the Sea, there should be a ‘genuine link’ between a vessel and its flag State. However, despite this provision and best-case scenario, maritime flags often bear little to no relationship to their flag State – either through the actual nationality of crew, captain, company, or beneficial owner of the vessel. With the advent of international agreements, such as the United Nations Port State Measure Agreement, attempting to address illegal activities at sea, identifying risk factors such as vessels flying flags of convenience (FOC) is essential to assist in addressing the lack of oversight by flag states, and prioritize vessels for further scrutiny. A novel approach to identifying the likelihood that a flag state is being used as a FOC is presented here, using a model-based scoring system that ranks countries according to their vessel ownership, vessel behaviour, and flag control patterns. This approach provides an accurate and transparent metric for ranking countries which can easily be updated as behaviour or information change. The metric compares favourably with the International Transport Federation classification of FOC and provides informative predictions for rates of inspections and detentions based on independent data. Two key reasons vessel owners use FOC are suggested – tax and reduction of oversight, which lead to different flagging preferences. This hypothesis aligns closely with the literature on international tax havens.