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Yes, governments can tell you what to do

Rules are rules, whether that means compliance with sanctions or meeting flagging requirements

Shipowners sometimes argue that they are merely humble ‘taxi drivers of the sea’. But few professions are as extensively regulated as driving taxis

THE year to date has not been great for the American Club, the smallest by market share of the 12 marine mutuals that make up the International Group of P&I Clubs. And we haven’t even reached the renewal deadline yet.

Recent weeks have seen ratings agency Standard & Poor’s downgrade the New York-based liability insurer to the below investment grade standing of BB+, which would be considered junk bond territory in the fixed income market.

It has also been subjected to unwelcome media attention, with Bloomberg and the New York Times both alleging in separate investigations that it has provided cover for numerous tankers involved in sanctioned trades with Iran.

It should be stressed that the American Club has denied the accusations, but it has nevertheless mounted a cull of 15 vessels from its portfolio.

The American Club, in its defence, said that it was “impossible” for them to know on a daily basis exactly what every ship is doing, where it’s going, what it’s carrying, or who its owners are.

But ultimately they pointed the blame elsewhere. “At the end of the day, it is governments that need to step up their enforcement efforts against the illicit players, not the P&I clubs or any other marine service providers, for that matter,” a senior American Club executive commented.

That, to put it politely, is overly simplistic. Governments do have the power to make laws — including onerous ones — and order the private sector to stick to them.

Look what happens when they don’t. As we also reported this week, two sanctioned vessels are continuing to trade between Russia and Syria, despite the lack of any flag state, and with no known insurer. Heaven help us in the event that one of them is involved in a casualty.

The relevant International Maritime Organization database lists over 100 ships that are — quite literally — false flag operations. With over 102,000 ships in the world fleet, that isn’t our industry’s number one problem right now. But it shouldn’t be happening.

There are also instances of vessels repeatedly hopping between provisional registrations from one flag to another. The practice appears not to infringe the letter of the law, but surely sails a VLCC through the spirit of it.

The arguments about how far states have the power to tell shipowners what to do is an old one. Those who lean towards the libertarian side of the divide sometimes use the ‘taxi drivers of the sea’ analogy to maintain that they should be able to accept any fixture whatsoever.

But that metaphor misses the point that taxi drivers of the land are regulated to the nth degree. They even need a licence in order to trade in the first place.

They must insure against a range of risks from traffic accidents to hurting passengers; their vehicles need periodic checks to ensure they meet safety standards; and they can’t go running red lights because they need to get home in time for tea.

They certainly cannot knowingly facilitate illegal activities. Cabbies are not, for instance, permitted to leave their engines running outside a jewellery store while waiting for paying passengers to finish a diamond heist.

In fairness, the American Club is not the only IG affiliate to grumble about the ever more frequent expectation on the part of politicians that marine insurers do the heavylifting on sanctions enforcement.

Many clubs have lost out commercially after being forced to withdraw cover from Iranian and Russian owners and have sometimes had to sever business relationships that stretch back several generations.

Some of that business may disappear irretrievably. Recent reports that the Indian government is backing efforts to launch a local P&I insurer were presented as part of Narendra Modi’s agenda to make India a developed country by 2047, the centenary of its independence.

What those stories missed is that the measure will also facilitate the purchase any amount of oil or any other seaborne commodity from anywhere in the world, regardless of what stipulations the US, UK and EU impose on insurers in those jurisdictions.

Clubs can even argue with some justification that the sanctions are not even successfully achieving the goals they are designed to achieve and could even be more symbolic than substantial.

As we approach the second anniversary of the Kremlin ordering tanks over the Ukraine border, there are few signs that the Russian economy is suffering. Quite the reverse, if recent indicators are anything to go by.

On the best available estimates, Iran is failing to realise around 30% of the oil revenues that would otherwise flow into Tehran’s coffers, even though it still commands sizeable exports to China. But that has done little to hinder its ability to cause mischief in the Middle East, from Gaza and Lebanon to Yemen.

Playing it by the book while others are making large amounts of money — lawfully or otherwise — is naturally irksome.

But the bad publicity that can result from a high profile media probe should be a sufficiently strong disincentive to malpractice. Where it isn’t, huge fines likely will be.

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