STATEMENT
OF
ALEX VINES
SENIOR RESEARCHER
HUMAN RIGHTS WATCH
BEFORE
THE HOUSE ARMED SERVICES COMMITTEE
SPECIAL OVERSIGHT PANEL ON THE MERCHANT MARINE
VESSEL OPERATIONS UNDER "FLAGS OF
CONVENIENCE" AND NATIONAL SECURITY
IMPLICATIONS
JUNE
13, 2002
Flags
of Convenience and the Illicit Arms Trade
Mr.
Chairman and members of the oversight panel, I
would like to thank you for giving me the
opportunity to speak on the subject of maritime
trade. I
have worked for the New York-based Human Rights
Watch for the last decade, during which time I
have conducted a number of in-depth
investigations into violations of United Nations
(U.N.) sanctions and how such violations were
funded. Prior
to this I worked at Control Risks, a leading
London-based international political risk
consultancy.
In April 2001 I was permitted a leave of
absence by Human Rights Watch to join the
five-member U.N. panel of experts on Liberia
established under Security Council Resolution
1343 (2001).
This year I served again on a second
Liberia panel established under Security Council
Resolution 1395 (2002) until April 11, 2002.
I testify before you on behalf of Human
Rights Watch, but also with the benefit of the
insights gained from being a former member of
the Liberia panel of experts.
According
to the U.S. Office for Naval Intelligence, 90
percent of all world freight is maritime trade
and large amounts of weapons are transported by
sea. The sheer size of this trade makes effective inspection for
illegal arms trafficking and other illicit
activities difficult, but not impossible.
Overstretched port authorities, coast
guards, and government security agencies not
checking holds properly are part of the problem.
Falsely declared cargo is a favorite
method for concealing weapons.
Human Rights Watch has recorded incidents
where weapons have been declared as car parts,
agricultural equipment, tractor parts, and even
as "fragile items." Since September 11,
there has been increased interest in the role of
flags of convenience in the illicit trade of
weapons.
Many
cases in Human Rights Watch's files on
transportation of illicit weapons to human
rights abusing parties were by flags of
convenience.
Many ships use such flags to save costs,
but also because arms dealers and their networks
involved in this trade want to avoid scrutiny.
Some flags of convenience provide ideal
cover for setting up front companies.
The operators also exploit weak controls
on transport.
They often file false manifests and
submit fraudulent documents
while sailing improperly registered ships to ply
their trade.
A few cases from HRW's files illustrate
these problems.
Sri
Lanka's Liberation Tigers of Tamil Eelam (LTTE
- the "Tamil Tigers") is one of the few
non-state armed actors to have a significant
maritime fleet at its disposal.
This fleet was built up from the
mid-1980s with the help of a Bombay shipping
magnate. The
fleet is reported in a 1999 Commonwealth Human
Rights Initiative report to have at least ten
ships, flying mostly under the Panamanian,
Honduran, or Liberian flags of convenience.
These ships tend to be crewed by Tamils
and are owned by various front companies located
in Asia. Much
of the trade appears to have been legitimate but
an estimated 5 percent has been arms and
ammunition destined for the conflict.
One
such vessel, according to the Commonwealth Human
Rights Initiative, the Honduran registered M.V.
Swanee or Swene, sailed from the
Ukraine to northeastern Sri Lanka carrying fifty
tons of TNT and ten tons of RDX explosives to
the LTTE. These
explosives were used in a suicide bombing on
January 31, 1996, of the Central Bank of Ceylon
building in Colombo, which killed approximately
90 people and injured another 1,400.
The
most dramatic recent example of a
flag-of-convenience ship being used for
gunrunning was in January 2002 when the
Tongan-flagged general cargo ship the Karine
A was seized in the Red Sea carrying fifty
tons of arms and explosives, which Israel said
was bound for Yasser Arafat's Palestinian
Authority.
Two months later another Tongan-flagged
vessel, the Monica, was apprehended by
the French navy while trying to transport 1,000
asylum seekers to Italy.
In
May the Tonga flag of convenience was
blacklisted from major western ports, according
to Reuters and Lloyds, an early casualty of an
international effort to clean up the high seas. The Tonga registry, launched in 2000, is run from the Greek
port of Piraeus and has about 200 ships under
its flag. After the flag was blacklisted, Tonga closed its maritime
registry. One
of the main port state control authorities at
the front line of contemporary ship safety
regulation, the Paris Memorandum of
Understanding (MOU), said that the registry is
due to be blacklisted until it closes in April
2003.
The
most difficult ships to monitor for illicit
shipments are those that are not owned by an
offending rebel group or state, but by privately
owned freight companies using a flag of
convenience.
The U.N. panel of experts for Liberia,
convened to examine violations of U.N. arms and
diamond sanctions, and travel bans on Liberia,
noted that during its investigations there were
persistent reports of ships unloading weapons.
The panel investigated 105 shipping
movements to Monrovia Freeport and Buchanan port
in 2000 and 2001, but was unable to obtain
irrefutable evidence of illicit arms
trafficking.
Ships under the flags of Antigua, the
Bahamas, Belize, Cambodia, the Cayman Islands,
Croatia, Cyprus, Denmark, France, Germany,
Greece, Ghana, Lithuania, Malta, Norway, Panama,
the Philippines, Russia, South Korea, Thailand,
Togo, Turkey, and the U.S visited these ports.
While many of these shipments will have
been involved in legitimate trade, some may have
carried illicit arms shipments in breach of the
U.N. embargo.
Only five of the shipping movements to
Liberia recorded were ships under the Liberia
flag.
There
were a number of suspicious incidents related to
unloading of cargo from three separate
Panamanian-, Belizean-, and Norwegian-registered
ships at Buchanan in 2001. Their activities in Liberia were characterized by heightened
security, unloading at night, and the
intimidation of curious locals that raised
suspicion of sanctions busting, but were not
irrefutable proof.
Ship
owners or crews are also known to have changed
the names of their vessels while at sea.
In 1993 an international warrant was
issued for a cargo of arms aboard the Maria,
a vessel registered in Greece. The ship's owners changed the name to Malo while the
vessel was at sea, but it was later apprehended
in the Indian Ocean by the Seychelles
authorities.
According to the U.N. International
Commission of Inquiry (UNICOI), some of the
weapons from this shipment reached the
perpetrators of the Rwandan genocide.
In 1996 authorities were tipped off by
sources in Thailand about another Tamil Tiger
vessel, the Comex-Joux 3, which was
carrying a cargo of arms, ammunition and
explosives.
The cargo was intended to replenish
arsenals that had been depleted in fighting for
the control of Jaffna in late 1995.
The consignment was shipped through
Phuket and while on route the vessel was renamed
the Horizon.
It was, however, sunk in February 1996 by
Indian and Sri Lankan navy action.
Common
methods used to hide the destination of illicit
cargoes are filing multiple destinations or
using multiple ships.
An arms prosecution was opened in Gdansk,
Poland in 1998, for illegal arms deals from
1992-1996.
The criminal investigation found that
surplus weapons were packed on ships supposedly
heading for legitimate destinations, such as
Latvia and Estonia, but ended up in illegal
destinations such as Somalia and Croatia.
For example, U.S.$2 million worth of
cargo left Gdynia harbor in 1992, supposedly for
Latvia. However,
only 300 AK-47 assault rifles with U.S.$49,000
worth of ammunition were delivered to Latvia,
according to the prosecutor.
The remaining items all disappeared.
Investigators later found that the arms
were reloaded onto a different ship off the
coast of Somalia.
In another case, only 50,000 rounds of
ammunition worth U.S.$14,000 were delivered to
Latvia of a shipment consisting of 18 million
rounds worth about U.S.$1.3 million.
More
recently, in February 2001, a shipment of 636
tons of Russian weapons traveled from Oktyabrsk,
Ukraine, to Angola.
We know about this shipment because the
Georgian- registered Anastasia was
detained when it arrived in the Spanish Canary
Islands because the ship's captain had
declared the cargo as car parts.
Initially, it was suspected that the
weapons were destined for the Angolan rebel
group, the National Union for the Total
Independence of Angola (UNITA), but the Angolan
government confirmed that the shipment was
theirs. The
shipment included 20,000 boxes of ammunition,
mortar grenades, fuses, and night vision
equipment of Russian origin.
Further investigation showed that the
ship was owned by a prominent Ukrainian national
and crewed by Ukrainians, but was falsely
registered as a Georgian vessel.
After this incident, the Ukrainian owners
re-registered the ship under the Cambodian flag
of convenience and renamed it Emir.
The
Anastasia/Emir is an interesting case.
This ship was not a regular supplier of
weapons to the Angolan government.
Some Western intelligence agencies
believe that antipersonnel mines were also on
board the ship when it docked in the Canaries,
though this has not been confirmed.
If it were, then this would be contrary
to the 1997 Mine Ban Treaty, to which Spain,
Ukraine, and Angola are signatories.
The ship was reported by one Western law
enforcement agency to have stopped off the West
African coast, raising suspicion that it might
have unloaded part of its cargo onto smaller
coastal vessels destined for Liberia.
Again, this has not been confirmed and
obtaining proof in such cases can be extremely
difficult, although satellite tracking of
suspected ships could help.
Illicit
arms traffickers rely on weak controls in
arms-exporting countries and the glut in the
arms market to ensure them access to a wide
range of military equipment at competitive
prices and with few questions asked.
Flags
of convenience offer a high a level of corporate
secrecy. Registering
a company or a ship can be very easy.
Obtaining a Liberia flag, for example,
takes only a couple of days and does not require
disclosure of share ownership or the names of
the applicant company's directors.
There is no requirement for any annual
reports or audits.
Such a system is attractive for
gunrunning, where the real owner of a particular
ship is hard to identify and therefore difficult
to hold accountable.
The
trade, of course, depends on the ability of
clients or their patrons to pay, whether in cash
or precious gems or-as the Liberia panel found
was the trend in Liberia-through direct bank
transfers to arms traffickers from government
accounts or those of private business interests
allied to the government.
Liberia's
weapons purchases from 1999 to 2001 were mainly
financed by off-budget spending by the Liberian
government, or payments made from revenue that
bypassed the central bank and was therefore not
accounted for in the budget.
In particular, income received from the
U.S.-based Liberian International Shipping and
Corporate Registry (LISCR) was used to pay for
illegal arms shipments.
After LISCR ceased the practice in August
2000, other off-budget outlays of maritime funds
were utilized.
Such off-budget spending also has been
used elsewhere to avoid scrutiny of military
expenditures.
The
Liberian Sanctions
The
October 2001 and April 2002 reports of the U.N.
Liberia panel of experts presented evidence of
violations of an arms embargo and travel and
diamond bans imposed on Liberia by the Security
Council. In
the case of weapons flows, these reports
revealed that the arms embargo imposed in 1992
on Liberia had been flouted with alarming
regularity during the period from mid-1999 to
mid-2002 and illustrated the channels through
which arms were smuggled.
It built on the work of a U.N.
investigative panel on Sierra Leone, which noted
in a December 2000 report that rebels of the
Revolutionary United Front (RUF) in Sierra Leone
had obtained arms via Liberia, in violation of
arms embargoes on both parties.
The Liberia arms embargo was initially
established following the outbreak of renewed
fighting in that country's 1989-1997 civil war
and kept in place as insecurity persisted and
spread beyond Liberia's borders.
The
1992 arms embargo on Liberia was replaced with a
new, tighter embargo in March 2001, intended to
curb arms trafficking via Liberia to the RUF, in
response to the Sierra Leone panel's December
2000 report.
The embargo on the provision of arms and
military assistance to the territory of Liberia
also encompasses the rebel Liberians United for
Reconciliation and Democracy (LURD) group that
opposes the Liberian government.
The RUF, whose forces have committed
horrific atrocities, has itself been under an
arms embargo since 1997.
Both embargoes have failed miserably,
with devastating human consequences. On May 6,
2002, the U.N. Security Council extended the
2001 embargo for a further twelve months.
The
Liberia Flag of Convenience
Liberia
has hosted a U.S.-based maritime shipping
registry since 1949.
A U.S-based company has always run the
registry and many companies regarded the
registry as a de facto second U.S. registry, but
a far cheaper one than the official U.S.
registry. The
first commercial ship was registered in March
1949 and the registry was administered by
International Registries, Inc. (IRI), of
Virginia, U.S., until 1999.
During
the 1970s, the Liberian registry grew to
approximately 75 million tons.
Liberia held the number one position for
shipping tonnage registered under its flag until
1994 when it was overtaken by Panama.
Liberia today has the second largest
maritime fleet in the world.
In April 2002, its gross tonnage stood at
54,545,000 (29,191,000 net).
There were 1,715 vessels registered under
its flag. The
registry has traditionally had a high proportion
of tanker tonnage.
In January 2001, Liberia accounted for 35
percent of all the world's oil tankers.
The
register is widely seen as one of the quality
flags of convenience with the fleet having a
relatively low average age and below average
Port State Control (PSC) detention rate.
The casualty figures are also low.
Liberia appears on all White Lists
(approved), including the International Maritime
Organization and all port state control
authorities worldwide.
Source
of Revenue for Monrovia
In
recent years, the prime concern has not been the
technical quality of the registry but what
happens to the money generated from it.
From 1949 to 1999, the registry earned
around U.S.$700 million for the Liberian
government. During the 1990-1996 civil war in Liberia and during the
interim period following that war, revenue from
the registry represented some 90 percent of the
Liberian government's total income.
When
President Charles Taylor came to power in
Liberia in 1997, he sought to obtain control of
the registry.
During the civil war he had failed to
raise funds from IRI for his war effort.
In December 1998, an agreement was signed
by the Liberian government to set up LISCR, and
a U.S. law firm was registered under the United
States Foreign Agent Registration Act to act on
behalf of Liberia.
The
Liberian government appointed LISCR as its
exclusive agent to manage the corporate and
maritime registers with effect from January 1,
2000. This
contract is for ten years with a provision for
renewal. LISCR
is based in Vienna, Virginia, and it is at this
location that ship safety, inspection,
compliance, manning, and accident-and-incident
investigation are managed.
LISCR has a New York office, where
Liberian ship registrations and ship mortgage
recording usually take place.
LISCR
is meant to retain approximately 66 percent of
the fee income of the corporate register to
cover operating costs and profit while the
remainder is paid to the Liberian government.
LISCR retains 20 percent of tonnage tax
fees, while 60 percent of the total income
generated by the registers is retained by LISCR,
5 percent is paid as dues to the International
Maritime Organization, and the rest is paid to
Liberian government.
The registry generates around U.S.$18
million a year for Liberia, which is distributed
to the government in accordance with the
agreement between LISCR and the Liberian
government.
LISCR's operation is annually audited,
until recently by Arthur Anderson.
Collections are initially deposited into
one of several registry bank accounts.
Diversion
of Funds
However,
the U.N. panel found that this standard
procedure was not always followed. Bank transfer
details for two LISCR transfers to SAN Air
General Trading at Standard Chartered Bank,
Sharjah, United Arab Emirates, for U.S.$525,000
on June 21, 2000, and U.S.$400,000 on July 7,
2000, were for arms and transportation in
violation of U.N. sanctions.
SAN
Air was found by the U.N panel to be the main
company behind sanctions-busting to Liberia.
It is an agent for Centrafrican Airways,
the main company of international
sanctions-buster Victor Bout.
LISCR
admitted to the U.N. panel that it had made four
payments to non-government accounts in 2000.
The disbursements followed written
requests from the Liberian government's
commissioner of maritime affairs.
According to LISCR, they became
increasingly uncomfortable about these requests,
and, following a further request on August 17,
2000, informed the commissioner of maritime
affairs that they would no longer diverge from
standard procedure.
Since then, the U.N. panel has not found
evidence of LISCR's funds being used for
illicit arms procurement.
Liberia's
Bureau of Maritime Affairs (BMA) then changed
its strategy, and directed three payments valued
at a total of U.S.$548,000 from their part of
the maritime revenue directly to SAN Air via
arms dealer Sanjivan Ruprah.
The U.N. panel obtained a letter signed
by Liberian Commissioner of Maritime Affairs
Benoni Urey authorizing these transfers and
details of four wire transfers from Monrovia to
SAN Air via Sanjivan Ruprah.
The onward transfer details of these
funds by Ruprah, or an employee of Ruprah,
Jacques Gakali, were also obtained by the panel.
A further direct transfer of U.S.$149,980
was made from the BMA's Ecobank account to SAN
Air on October 5, 2000.
These authorized diversions also
show up in the remittance figures of Liberia's
Ministry of Finance, for the months August
through to October 2000, as illustrated in the
Table 1, below.
The dramatic decline in remittance for
those three months was due to authorized
diversions by the commissioner of maritime
affairs to Sanjivan Ruprah for payment to SAN
Air General Trading for arms and transportation.
Accounting
for the Maritime Revenue in Monrovia
According
to official documents of the Bureau of Maritime
Affairs, the Liberian government's portion of
the funds collected directly by the LISCR
program are deposited directly into a government
account that is operated exclusively by the
minister of finance and not the commissioner. Then the BMA is supposed to be allocated 10 percent of these
funds to support its operational budget, the
Ministry of Foreign Affairs should receive 6
percent, and the Ministry of Information 4
percent.
The
U.N. panel investigations proved that both these
claims were false.
In fact, funds were remitted directly to
a tripartite account held at the Ecobank in
Monrovia. The commissioner of maritime affairs and the minister of
finance are signatories with a third
determinational signatory controlled by the
Executive Mansion - the Liberian presidency.
The
U.N. panel found that the BMA did not feature in
the payroll status of the Ministry of Finance
(March 9, 2002), and that in the government's
Bureau of the Budget's budget for July 1,
2001, to June 30, 2002, the BMA fell under the
Government of Liberia Special Commitment - a
budget line of the Executive Mansion.
Following
a recommendation by the International Monetary
Fund (IMF), in October 2001 the Liberian
authorities directed that government bank
accounts be moved from commercial banks to the
Central Bank of Liberia. The Bureau of Maritime Affairs, however, still maintains its
own three-signatory account.
This
makes tracking what happens to the money once it
reaches the BMA difficult - the more so,
because Liberia's Auditor General last audited
the Bureau of Maritime Affairs only in 1988.
When the U.N. panel tried to examine the
accounts of BMA in April 2002, it was not able
to do so. The
panel was informed that a generator had broken
down and that it would be repaired only after
the panel had left Liberia.
Liberia's
Ministry of Finance admitted that in 2001, due
to increased defense expenditure, there had been
significant diversion of maritime funds for
extrabudgetary use by the Executive Mansion.
The figures provided by the Ministry of
Finance for 2001 provided much higher
remittances than those registered by the Central
Bank of Liberia.
This significant discrepancy is mainly
due to high extrabudgetary demands on these
funds by the Liberian presidency.
In
September 2000, following an IMF staff visit to
review the January-June 2000 Staff Monitored
Programme (SMP), the IMF expressed concern about
the shortfall in maritime revenue and wrote that
"the continued decline in maritime inflows is
troublesome and should be reviewed closely so
that remedial measures can be taken if
necessary." In December 2001, IMF again noted
after its Article 4 consultations that reported
payments from the shipping registry to the
government differed from collections at the
Ministry of Finance by some U.S.$2 million,
reflecting deductions at source by the BMA or
timing differences in the transfer of funds from
offshore accounts.
Table 2 shows a further U.S.$4 million
discrepancy between the funds received by the
Ministry of Finance and those recorded by the
Central Bank of Liberia during 2001.
Maritime
remittances recorded between September 2001 and
February 2002 as received by the Ministry of
Finance (U.S.$6,255,771) more or less matched
what LISCR reported as having remitted
(U.S.$5,781,885).
The main problem with the Liberian
shipping and corporate registry is what happens
to the money once it is transferred to an
account controlled by the Liberian government.
The
Bureau of Maritime Affairs and its Long History
of Sanctions Busting
The
BMA was officially granted autonomous status in
June 1989 through a Liberian Act of Legislature.
The commissioner, officially, is the only
senior official appointed by the president of
Liberia, although, in fact, the head of state
also makes other appointments.
For example, Agnes Taylor, a former wife
of President Taylor, was appointed by him as
Liberia's permanent representative to the
International Maritime Organization and as a
Liberian deputy maritime commissioner in London.
The
BMA was embroiled in a sanctions-busting scandal
prior to the investigations of the U.N. panel of
experts. On
February 5, 1998, U.S. customs seized a Hummer
armored vehicle with a value of U.S.$146,260, in
Savannah, Georgia.
The vehicle, which was fitted with a
hardened point for attaching a weapon, was due
to be exported to Liberia via Cote d'Ivoire
without an export license in breach of U.S. law
and in contravention of U.N. sanctions on
Liberia.
An
investigation in the U.S. revealed the
involvement of a United Kingdom broker and that
payments for the vehicle were made from the
Permanent Mission of Liberia to the IMO's bank
account. British
customs and excise investigations also found
that Gerald Cooper, then Liberia's permanent
representative to the IMO in London and deputy
commissioner of maritime affairs, was involved
and had even traveled to
Atlanta, Georgia, for discussions about the
vehicle and the possibility of ordering three
more vehicles with hardened points.
On
February 12, 1999, the British Foreign and
Commonwealth Office asked the Liberian
government to waive Cooper's diplomatic
immunity so that he could be questioned about
these transactions, but the Liberian government
declined to do so, its London embassy stating
that Cooper had acted in an "official
capacity." On July 8, 1999, the British
government declared Cooper persona non grata.
Since his expulsion from the United
Kingdom, Cooper has continued to be associated
with LISCR. The latter did not investigate Cooper's past before hiring
him, but acknowledged that they were "aware
that he had to leave the United Kingdom under a
cloud, but do not know exactly why."
In
addition to Gerald Cooper's efforts to break
the arms embargo in 1998 and 1999, the U.N.
panel found that Sanjivan Ruprah, who traveled
on two Liberian passports as a deputy
commissioner of maritime affairs, played an
important role in violating the arms embargo in
2000 and 2001. Ruprah used two different diplomatic passports issued to him
by the Liberian government, one in his correct
name and one under the false name Samir Nasr.
The U.N. panel also found a document
showing that Ruprah had signed letters as deputy
commissioner, on BMA letterhead.
The
U.N. panel also documented in detail how
Commissioner of Maritime Affairs Benoni Urey
assisted Ruprah's sanctions-busting efforts,
notably by arranging payment for them from the
BMA's funds and providing logistical support.
Urey, however, has continued to deny to
the U.N. panel that he was involved in any
wrongdoing.
The
U.N. panel concluded in its October 2001 report
that Liberia's commissioner of maritime
affairs and the BMA were "little more than a
cash extraction operation and cover from which
to fund and organize off-budget expenditures,
including for sanctions-busting, and that the
funds would need to be protected from Bureau
misuse."
Diamonds
and the Liberian Corporate Registry
Commissioner
Urey, among his other interests, has invested in
diamond concessions in Liberia.
Two retired U.S. generals associated with
the maritime agents have also been involved in
unofficial diamond transactions. While working for IRI, one of these retired generals
sponsored a diamond broker but was caught at
Roberts International Airport in Liberia with
undeclared rough diamonds in 1999, according to
the U.N. panel.
The
corporate registry, part of the responsibility
of the shipping agent, has also been used for
diamond transactions.
The panel of experts on Sierra Leone
documented how numerous non-resident
corporations used the Liberian corporate
registry as a convenient cover for their
transactions of smuggled diamonds.
This practice has declined following the
imposition of a U.N. embargo on the export of
Liberian diamonds.
The
corporate registry has also been used for other
illegal activity.
The U.N. panel on Liberia found that a
broker who smuggled 1,000 submachine guns from
Uganda to Liberia was acting through Culworth
Investment Corporation.
Culworth joined the registry in 1992 and
paid its annual bills until 1997.
It became operational again in 2000
around the time of the Uganda-to-Liberia
sanctions-busting venture.
It was an off-the-shelf company used at a
particular time to provide cover for sensitive
business.
Reaction
to the U.N. Panel of Experts Reports
The
publication of the two U.N. panel of experts
reports (S/2001/1015 of October 26, 2001) and
(S/2002/470 of April 19, 2002) has heightened
international attention on how the Liberian flag
of convenience is run and what happens to the
funds it generates.
Although LISCR feared that there would be
client flight from the registry, LISCR only saw
a decline of nineteen ships from its books
between October 2001 and April 2002.
The
U.N. panel in its October 2001 report
recommended that the U.N. Security Council
committee should set up an escrow account for
all revenues generated from the shipping and
corporate registry.
It also encouraged the IMF and the
government of Liberia to reach an agreement to
audit these funds and to designate those funds
for development purposes.
The
Liberian Ministry of Finance acted quickly and
on November 23, 2001, announced that it would
audit and ring-fence the shipping and corporate
registry. On
receipt of income from the registry, the
Ministry of Finance would channel the funds
through the Central Bank of Liberia and would
segregate those funds for infrastructure,
social, health, and welfare development and
support programs.
This
was followed on December 3, 2001, by a letter
from the Ministry of Finance to the IMF
requesting assistance to set up a financial
monitoring mechanism.
The IMF replied on December 14, welcoming
the initiative, but ruled that it was enterprise
specific and therefore outside the IMF's
mandate. The
Ministry of Finance and LISCR then approached
the nongovernmental anti-corruption group
Transparency International for assistance, but
Transparency International also turned down the
request on the grounds that such an exercise was
outside its mandate.
However, they recommended that the
ministry approach Crown Agents, a United
Kingdom-based company that specializes in port
management, auditing and project management.
On
May 6, 2002, the U.N. Security Council passed
Resolution 1408 (2002) that called for an audit
of the revenues derived from the shipping
registry. It
is the first time that the Security Council has
required an audit.
The relevant portion of the resolution
calls for:
[T]he
Government of Liberia to take urgent steps,
including through the establishment of
transparent and internationally verifiable audit
regimes, to ensure that revenue derived by the
Government of Liberia from the Liberia Shipping
Registry and the Liberian timber industry is
used for legitimate social, humanitarian and
development purposes, and not in violation of
this resolution, and to report back to the
Committee on the steps taken and results of such
audits not later than three months after the
date of adoption of this resolution.
Crown
Agents may undertake the audit and is close to
signing a contract with the Ministry of Finance
following the groundbreaking Security Council
resolution.
Conclusions
Flags
of convenience offer a high level of corporate
secrecy and are easy to obtain.
Some flags appear to be particularly
inviting for illicit arms trade networks.
Overstretched port authorities, coast
guards, and government security agencies that
are unable or unwilling to adequately inspect
cargo holds are part of the problem.
Falsely declared cargo is a favorite
method for concealing weapons and the sheer size
of this trade makes effective inspection
difficult, though not impossible.
Accurate
information on ship owners, their shareholders,
and the nature of their business are important.
This nature of business needs much more
transparency.
The International Maritime Organization
could play a greater role in promoting
transparency but has to date lacked the
political will to do so.
The
Liberia registry raises a different problem.
The technical quality of the flag is
respected but the host country is under U.N.
sanctions.
Two U.N. expert panels have documented
that funds from the Liberian flag have been used
to pay for transportation and weapons in breach
of U.N. sanctions.
A company on the Liberia corporate
registry (also managed by the shipping agent)
was also used to front one of these
sanctions-busting operations and, according to
the U.N. panel, Liberia's Bureau of Maritime
Affairs was the nerve center for this operation.
An
independent audit of the funds received by the
Liberian government will be conducted.
But the audit will only be as effective
as its terms of reference allow.
This audit should be retroactive to 1997
and publicly available for independent scrutiny.
Security Council Resolution 1408, which
supports the audit, refers only to the
"Liberia Shipping Registry."
This is a potential loophole, as LISCR
runs both the Liberia shipping and corporate
registries, and they are linked.
The U.S. should ensure that both sources
of revenue fall under the Security Council
resolution's mandate and are subject to an
internationally verifiable audit regime.
The
Liberian government also still needs to ensure
that the BMA has its bank account only at the
Central Bank of Liberia in order to ensure
transparency regarding its use of shipping
revenue. Although
the Liberian government announced in October
2001 that this would be done, it has taken no
action to date to comply with this promise to
the IMF.
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