SHIPPING: Piracy at sea and the commerce behind it (Part 2)

It is open knowledge in financial circles that the real strength behind ocean piracy, and the hijack for ransom, is the money launderingbusiness

Is it possible that the merchant seafarers from India do not make enough of a noise about piracy to protect the interest of insurance companies and benami ship owners hiding behind their tax havens? In addition, the underlying sentiment could be that if the Indians keep quiet, getting cheaper seafarers from other countries would not be too difficult either.

Consider the issues that affect India most. First, there is a full-scale invasion and war going on right next door in the Horn of Africa. The Somalians are bound to retaliate against the Kenyan attack. And they will possibly assume that India is supporting Kenya, since the Indian Navy will be responsible for protecting sea lanes while the NATO and EU forces will be free to assist Kenya. Meanwhile, the cost of sea-trade, which accounts for over 92% by value and more by weight/volume of India’s export/import trade, is going to go through the roof and make us less competitive.

What are the solutions?

To start with, the Indian government must speak only to real ship-owners and not their agents or nominees. In addition, the real owners need to be identified publicly and held liable for their ships and the lives of their seafarers. When that happens, a large number of “real pirates” will be exposed, and they will not be in fancy dress like Johhny Depp either. This can happen only if the Indian Government starts doing what other developed country “world class” regimes do!

So far, the pirates have not captured any ship with armed guards onboard. In the short term, armed guards onboard merchant ships in the Indian Ocean would work, but it is a question of time before the pirates are armed better. Once that happens, no amount of mercenaries onboard with Kalashnikovs and some ammunition will be able to fend off pirates. There are reports of pirates acquiring long-range rocket propelled grenades and missiles. However, legal issues, such as the right to innocent passage of armed merchant ships will remain.

In the short to mid-term, ship-design will have to go through some rapid improvements like “hardening” ships and making them more resilient. The idea being that unless the pirates are determined to sink the ship, which negates the whole point of piracy and hijack, it would make sense to prevent pirates from boarding and the crew hostage. This will give the navy time to arrive and launch recovery operations as in the case of the mv MONTECRISTO on the 10th/11th of October 2011. European ship-owners are already bringing about these changes but domestic ship owners and shipping authorities are not even considering such an idea.

In the long-term, however, some bitter medicine will be needed. Bluntly speaking, financial circles know that the real strength behind ocean piracy worldwide is the money laundering business. It is the darling of all tax havens. Prominent banks, insurances, consultants and ship owners of the world operate from these havens. They make for a closed circle in the business of shipping where human life is just an inexpensive and disposable issue.

Piracy has always been an integral part of shipping. But instead of Johhny Depp in fancy costume, the power behind the pirates are probably dressed in Savile Row suits. The long term solution has to lie here. Merchant ships have, by convention and by established law have to be protected by war-ships of their flag state anywhere, especially in international waters. Whether it was British gunboats sent into China past Canton to protect opium clippers flying the British flag; or the US Navy sent to rescue the Master of the pirated and hijacked MAERSK ALABAMA; or it could be Indian warships protecting Indian flag oil-rigs in the South China sea offVietnam;– in all these cases the rules remain the same.

In modern merchant shipping, a large number of ships are registered in what are known as “flags of convenience” or “FOC”. For example, over 98% of Greek owned ships trading internationally are believed to be registered under these FOCs. Likewise, many ships of owners in developed countries, ply under these FOCs. The reasons are many – tax avoidance, cutting potential liabilities, hiding ownership where nationality comes in the way – eventually, because it makes sound commercial sense.

Nevertheless, all this comes at a price. These tax-havens do not have a state navy to protect their ships in international waters. Often, the real owner is hidden behind three or more layers of investment entities or tax havens, none of which are protected by a national navy. The Swiss flag, for example, loved by some of the largest ship owners in the world, or the newly emerging Mongolian register are land-locked countries. Even those with ports and coastlines, like Liberia, Panama or Bahamas who have links or allegiance to larger countries with a proper navy cannot protect their ships in international waters. Pirates know this.

The long-term solution to this lies in the world reverting to ships flying the flag of their own nationality – this will happen when owners and companies do not hide behind numbered accounts in tax havens.  It is the only way to ensure a sustainable solution and safe commerce via the high seas. Until then, a seafarer from a poorer country will continue to be at the bottom of the food chain and will risk his life for a livelihood. That is a simple truth.

Meanwhile, copycat piracy attacks gain speed and strength in other parts of the world: South China Sea, West Africa, Bay of Bengal, Malacca Straits, South America East Coast . . .  the list goes on.

(This is the concluding part of the two-part series)



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One response to “SHIPPING: Piracy at sea and the commerce behind it (Part 2)

  1. Pingback: Savile Row | Best Dressed Man

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