Panama: A ‘flag of convenience’ for illegal fishing and lack of control at sea

Panama: A ‘flag of convenience’ for illegal fishing and lack of control at sea
Mary Triny Zea, Michelle Carrere on 13 October 2022 https://news.mongabay.com/2022/10/panama-a-flag-of-convenience-for-illeg...

Why would a Chinese ship want to fly the Panamanian flag? This practice is known as flying a “flag of convenience” and although it’s legal, experts say it often lets shipowners benefit from lax auditing and is closely associated with illegal fishing because it can hide the identity of a vessel’s true owners.
Mongabay Latam and Bloomberg Línea investigated violations and alleged crimes committed by the fleet of ships flying the flag of Panama, the country whose flag is most commonly used.
Our analysis of an official database shows that some of the vessels operating under the Panamanian flag do business with a Chinese company that has one of the global fishing industry’s longest criminal records.

This is the first in a two-part series originally published in Spanish on Mongabay Latam. You can read the second part here.

The crystal-clear waters of the oceans surrounding Panama hold wealth beyond the abundance of fish. Legal gaps and flexibility in some of the regulations governing fishing activity have become the ideal bait, attracting companies from all over the world that seek to benefit by keeping some of their business deals in the shadows. This is one reason some experts and organizations refer to Panama as a tax haven.

In December 2019, the European Commission issued Panama a “yellow card,” a warning to nations that do not cooperate in the fight against illegal, unreported and unregulated (IUU) fishing that their seafood exports to Europe could be suspended if they don’t shape up. (Panama got a yellow card in 2012 as well, which the commission lifted in 2014.) According to the Food and Agriculture Organization (FAO) of the U.N., IUU fishing is the third most lucrative illicit activity in the world, after the trafficking of drugs and weapons. Researchers estimate that IUU fish catches are worth up to $17 billion annually.

There are several cases in which ships flying the Panamanian flag have been accused of illegal fishing. For example, in 2018, authorities from Madagascar seized a vessel that was taking marine resources from the African country. Its prime minister, Christian Ntsay, said the ship had “previously participated in the trafficking of our natural resources” and that what happened was “unacceptable.”

In October 2020, a vessel called the Nika was also added to a black list of IUU vessels after fishing in Antarctic waters without authorization.

Additionally, the European Commission stated upon issuing the yellow card that ships with the Panamanian flag that had declared they would not participate in fishing activities later engaged in these activities without having the necessary licenses. This “resulted in serious breaches of the applicable laws, regulations and conservation and management measures,” according to the European Commission. It also stated that Panamanian fish-carrier vessels were misregistered as general cargo ships and then used to transport fish without a license.

What the majority of these vessels have in common — in addition to having committed crimes — is that despite flying the Panamanian flag, they belong to foreign companies. Some of them do not even operate in the vicinity of Latin America.

A ship flying the flag of a country separate from the place the owner lives is a permitted and very common practice known as flying a “flag of convenience.” Panama is the country whose flag is used most often for this practice. This is why Panama is also the country with the longest registry of vessels: just over 8,000 ships fly its flag, which is more than 18% of the world fleet, according to bulletins from the Panama Maritime Authority.

There are many legitimate reasons why a ship might fly a flag of convenience — for example, a fishing company wanting to change locations and head to a different fishery. However, the flags can also allow companies to benefit from lax supervision, to avoid environmental regulations and stricter labor laws and even to hide the identities of the real owners of a ship, enabling them to avoid being held accountable if their ships carry out illegal activities. According to the Environmental Justice Foundation (EJF), a British environmental organization, Panama is perceived as a country with regulations and controls that benefit many fishing companies around the world.

“It is widely acknowledged that flags of convenience are disproportionately associated with illegal fishing,” says Callum Nolan, an EJF researcher who has studied this issue on a global level.

In this journalistic investigation, Mongabay Latam and Bloomberg Línea worked since February 2022 to gather details on the supervision and management of Panama’s fleet to determine how much control the country’s authorities have over the ships that fly its flag. However, the authorities’ responses to our requests for information and data were incomplete, and according to lawyers consulted, show a concerning lack of transparency. Despite the difficulty of accessing this information, the official data that were provided and analyzed reveal, for example, that some of the ships operating under the Panamanian flag do business with a company with one of the longest criminal records in the world’s fishing industry.
The Chinese fleet flying Panamanian flags

Two authorities in Panama have jurisdiction over issues related to IUU fishing. The Panama Maritime Authority regulates the flagging of ships and is the governing entity of the Panamanian fleet. The Aquatic Resources Authority of Panama (ARAP) grants fishing licenses and regulates fishing activity for vessels flying Panamanian flags that operate inside and outside of Panama’s national territory.

Mongabay Latam and Bloomberg Línea asked both institutions for a list of ships flying the Panamanian flag that were sanctioned in the last 10 years, including the reasons for the sanctions. Only ARAP submitted this information. The Panama Maritime Authority refused to provide it.

Mongabay Latam and Bloomberg Línea analyzed the database provided by ARAP and cross-checked the data with information from the International Maritime Organization — the U.N. agency responsible for sailing safety — and from the web pages of other organizations focused on ship tracking, including MarineTraffic, Equasis, and Global Fishing Watch. We found that almost all of the vessels sanctioned between 2019 and 2021 — 28 out of a total of 32 vessels— are not fishing vessels but reefers, and that all of them belong to foreign companies, especially from China.

Reefers are large refrigerated ships that can measure up to 150 meters (about 492 feet) in length. They function as enormous refrigerated storage areas that receive fish from other vessels at sea and bring it to port. By doing this, reefers allow fishers to empty their own vessels’ storage areas without having to return to solid ground. This lets them continue fishing without interruptions for long periods of time.

The act of transferring fish from one ship to another is known as transshipment, and though it can be legal, the FAO considers it one of the most common strategies to obscure illegal fishing. This is because fish caught by numerous ships are mixed inside the reefers’ storage areas, preventing the fish from being traced.

“Reefers receive cargo from many fishing vessels composed of different species that were caught in different places,” says Milko Schvartzman, an Argentine expert on marine conservation and the ocean policy coordinator of the nongovernmental organization Circle of Environmental Policies. Fish that are caught both legally and illegally “are mixed in the storage area and then no one can know which ship the cargo that came in the reefer belongs to,” says Schvartzman, who has spent years studying the Chinese fleet operating in South America.

However, the problem Schvartzman describes is exacerbated if these large refrigerated ships do not declare their transshipments to authorities. Then it becomes impossible to know even which ships the reefer met at sea and received fish from. According to the ARAP database, this is the most common infraction.

Between 2019 and 2021, the period analyzed for this investigation, a total of 13 reefers flying the Panamanian flag carried out undeclared transshipments. Another seven ships — four of them reefers — were sanctioned for illegal fishing. One of these cases involved shark finning, which has been prohibited in Panama since 2006 and consists of cutting the fins of sharks off to sell them and tossing the animals’ bodies back into the ocean. The rest of the sanctions, for various breaches of the law, total 15 cases with some of the ships accumulating more than one infraction.

Added to this is another issue. Of the 14 violations of the law that were sanctioned in 2021, five of them were perpetrated by three reefers. According to satellite information processed by the platform Global Fishing Watch, those three reefers have received cargo from fishing vessels belonging to the Chinese company Pingtan Marine Enterprise Ltd. (or its subsidiaries and affiliates), which has a serious history of illegal fishing.

A study published in March 2022 in the journal Science Advances ranks Pingtan Marine Enterprise second on a list of companies that it calculates are collectively responsible for one-third of the crimes related to fishing that were recorded globally between 2000 and 2020.

These three reefers are the Star Mariner, which belongs to Hong Kong Yaode Asia Shipping Group Ltd., the Ocean Mariner, which belongs to Good Success Transportation Ltd. and the Global Mariner, which belongs to Hongfa Shipping Co. Ltd.

According to ARAP’s database, the Star Mariner and the Ocean Mariner were each punished with a fine of $10,001 for carrying out undeclared transshipments. Meanwhile, the Global Mariner was fined on two occasions — $200,000 and $300,000 — for operating without respecting the requirements of its authorization to fish or for simply not having one, in addition to not complying with legally required conservation measures and failing to continuously transmit a satellite signal.

This last infraction, which the Star Mariner also committed, has been identified as one of the most common maneuvers among ships that commit crimes at sea, since it allows them to become “ghost ships” and conduct their operations without being seen.

These findings from the ARAP data coincide with studies recently published by research centers and nongovernmental organizations that investigate environmental crimes.

A report by the Washington, D.C.-based Center for Advanced Defense Studies (C4ADS), which uses the satellite platforms Global Fishing Watch and Windward to track the activity of the fishing vessels owned by Pingtan Marine Enterprise, reveals that the company’s ships were repeatedly in contact with various reefers at sea. Strikingly, among the reefers the company’s ships used most frequently, according to C4ADS, are the three with Panamanian flags that Panamanian authorities sanctioned for failing to report their transshipments and failing to comply with regulations: the Star Mariner, the Global Mariner and the Ocean Mariner.

A recent report called “Fishy Business” by the environmental organization Greenpeace analyzes how transshipments at sea facilitate illegal fishing. It found that the most common flag of convenience among the vessels it analyzed was Panama. The report notes that the European Commission, in issuing Panama a yellow card for the second time in 2019, “found that ‘Panama did not monitor the compliance of those vessels with national provisions governing transshipment activities’ and that ‘the sanctions imposed to vessels engaging or supporting IUU fishing activities, are not effective and deterrent.’”
The history of Pingtan Marine Enterprise

Pingtan Marine Enterprise — one of the main companies in the world perpetrating fisheries infractions, according to the Science Advances study — rose to fame in 2017.

This is when news broke that the Fu Yuan Yu Leng 999 refrigerated ship — which then belonged to Pingtan’s main subsidiary, the Fuzhou Honglong Ocean Fishing Company Ltd. — was detained by the Ecuadorian Navy after crossing the Galápagos Marine Reserve without authorization while holding more than 7,600 sharks inside.

Many of these sharks were from species considered “Critically Endangered,” and 432 were fetuses. This is one of the most symbolic cases of marine species trafficking and illegal fishing — not only because of the sheer size of the crime and its effect on marine ecosystems, but also because of its legal consequences.

The ship’s crew was jailed, the ship was confiscated, and the company was fined $6.1 million. Walter Bustos, the director of Galápagos National Park at the time, says this is “one of the few times in the entire world when the ocean crime of transporting illegal fish is prosecuted at the highest level.”

Pingtan Marine Enterprise is known in the shipping world for operating one of the largest Chinese distant-water fleets, vessels that operate outside of their national territory. According to the company’s website, it controls 143 ships.

Mongabay Latam and Bloomberg Línea used the Global Fishing Watch satellite platform to review the area where the three reefers that Panama sanctioned operate. The Ocean Mariner and the Star Mariner have both spent the past five years moving between the Arabian Sea, the Philippines, China and Japan.

The Global Mariner, however, has been active near Argentina and the Galápagos Islands off the coast of Ecuador. Satellite information from Global Fishing Watch shows the Global Mariner met with the Fu Yuan Yu 7883 fishing vessel off the coast of Argentina. Fu Yuan Yu 7883 is the property of Fujian Provincial Pingtan County Ocean Fishing Group, one of Pingtan Marine Enterprise’s subsidiaries.

The Fu Yuan Yu 7883 was involved in a case of forced labor when 18 Indonesian fishermen reported that they had not been paid for the 20 months that they worked on board between 2018 and 2020. According to the C4ADS analysis, another six ships linked to Pingtan Marine Enterprise have also been involved in cases of forced labor and exploitation, and on five of the company’s ships fishermen have died or been seriously injured.

Pingtan Marine Enterprise did not respond to Mongabay Latam and Bloomberg Línea’s questions about its participation in illegal activities by the time of this article’s original publication in Spanish.

But what motivates so many companies to want to fly the Panamanian flag as they operate on the world’s oceans?
The benefits of flying the Panamanian flag

For Panama, the activity of flagging ships generates about $87.3 million annually, according to the bulletin “Bitácora” by the Panama Maritime Authority. This process must be managed exclusively by a Panamanian lawyer.

When Panama registers a ship so it can fly the Panamanian flag, the country “does not require it to reveal the ultimate beneficial owner or owners of the activity of the vessel or its operator,” says Luisa Arauz, a lawyer from the Interamerican Association for Environmental Defense, which has offices in San Francisco, Mexico City and Bogotá. “This prevents the sanctions imposed for noncompliance with fishing regulations from having a truly dissuasive effect.”

Additionally, according to Rafael Cigarruista, general director of the Merchant Marine of the Panama Maritime Authority, the vessel’s ultimate beneficial owner does not necessarily appear on the ship’s navigation patents, documents that authorize the ship to fly the Panamanian flag.

In fact, the companies registered as the owners of a ship are often shell corporations that have no relationship with the owner nor with the nationality of the ship, according to experts consulted for this investigation.

“These shell company structures are extremely complicated,” says Courtney Farthing, director of international affairs for the fishing transparency platform Global Fishing Watch. “Maybe it’s a shell company owned by another company [that is owned] by another company. And actually the person filling out the paperwork for the vessel registry maybe isn’t even aware of the true beneficial owner,” says Farthing.

This allows the true beneficial owner to “hide their identity” and makes it “more difficult to track their prior fishing behavior,” says Arauz.

For this reason, the countries whose flags tend to be flown as flags of convenience, such as Panama, “have a responsibility to ensure that they are doing their due diligence and investigating the vessel history,” Farthing says.

According to Cigarruista, Panama does this due diligence. “Ships are rejected and ships are canceled because of international violations [such as fishing illegally],” he says. Evidence of this is that when Panamanian ships are inspected to determine whether they comply with the regulations established under the Agreement on Port State Measures — a binding international agreement whose primary goal is to eliminate IUU fishing — the level of compliance with these regulations is above 90%, according to Cigarruista.

With respect to the criticism, Cigarruista says it is “a very unusual, offensive, outdated and discriminatory opinion,” and that the reason a company may choose to fly the Panamanian flag is that Panama has economic incentives available for ships that do so.

However, several lawyers and environmental organizations indicate that this decision to fly the Panamanian flag is often made to take advantage of the country’s questionable supervision. “Both the regulations and the limited supervision capacity make our flag a very popular one for foreign fleets,” says Panamanian environmental law expert Harley Mitchell.

Miguel Antonio Bernal, a Panamanian lawyer and constitutional expert, agrees with Mitchell, adding that “this is an international issue in that Panama is the [country] that [provides] the cheapest flags, more facilities provide [flags], and where the authorities look the other way for having flagged ships that they should not have.”

For example, according to the regulations, when a ship flies a Panamanian flag, a percentage of its crew must be Panamanian. However, Arauz says, compliance with this regulation is rarely verified, and in her opinion this impedes the government from monitoring the vessels “because it is difficult for a ship to go to a Panamanian port if its crew is not from there.” In fact, according to the Panama Maritime Authority, of the 318,000 crew members on ships flying Panama’s flag, just over 1,000 are Panamanian.

Despite Cigarruista’s defense, the European Union determined that “Panama does not exercise an adequate control over its vessels.” It added that contrary to the FAO’s International Plan of Action to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing, “the procedures in place prior to the registration of vessels do not include a comprehensive verification of the history of the vessels to avoid the registration of fishing vessels with a dubious background or compliance profile.” Additionally, although the International Plan of Action maintains that states must give notice of transshipments and avoid transferring fish to or from vessels that fish illegally, this investigation found that neither of these measures is guaranteed.

Whether Panama’s yellow card will be lifted depends on the country making improvements to control its fleet. This includes — among other things — making information more transparent. It’s an issue that, as we will discuss in the second part of this investigation, is still far from being resolved.

Banner image courtesy of Kipu Visual.

This story was reported by Mongabay’s Latam team in partnership with Bloomberg Línea and first published here on our Latam site and on Bloomberg Línea on June 13, 2022.

Citations:

Sumaila, U. R., Zeller, D., Hood, L., Palomares, M. L., Li, Y., & Pauly, D. (2020). Illicit trade in marine fish catch and its effects on ecosystems and people worldwide. Science Advances, 6(9). doi:10.1126/sciadv.aaz3801

Belhabib, D., & Le Billon, P. (2022). Fish crimes in the global oceans. Science Advances, 8(12). doi:10.1126/sciadv.abj1927

C4ADS. (2022). Net Worth: How the Chinese Government & US Stock Investors are Funding the Illegal Activities of a Major Chinese Fishery Company. Retrieved from https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/626013...

Greenpeace. (2020). Fishy Business: How transhipment at sea facilitates illegal, unreported and unregulated fishing that devastates our oceans. Retrieved from https://www.greenpeace.org/static/planet4-international-stateless/2020/0...

Food and Agriculture Organization of the United Nations. (2001). International Plan of Action to Prevent, Deter and Eliminate Illegal, Unreported and Unregulated Fishing. Retrieved from https://www.fao.org/3/y1224e/Y1224E.pdf