FLAG registry oversight is ineffective and needs urgent structural reform to prevent further growth in dangerous *shadow fleet shipping, according to a damning new report.

The Royal United Services Institute, a think tank, highlighted “systemic gaps” in enforcement.

RUSI recommended handing responsibility to the Financial Action Task Force, the international money laundering and terrorist financing watchdog, to push flag states to up their game.

Its report, published on Tuesday, found the growth in the shadow fleet since Russia’s war on Ukraine was not an anomaly but “a natural outcome of the structural failures in flag state governance”.

“The ease with which vessels can obtain flags without scrutiny, avoid ownership transparency and escape enforcement actions has created the conditions for an entire parallel shipping ecosystem,” the report said.

“It operates in defiance of international sanctions and maritime norms and is sustained by systemic gaps in registry oversight rather than spontaneous abuses.

“If the phenomenon of the shadow fleet is not addressed urgently it will continue to expand, drawing more vessels, cargoes, and jurisdictions into a system that rewards opacity over compliance.”

The report said about 700 vessels had been subjected to sanctions in the past year, including those from the US against Iran, and the EU and UK against Russia.

“Targeted measures have been introduced to challenge the legal and financial enablers of illicit shipping activity, but these measures remain fragmented and reactive and have yet to turn the tide on the expansion of the shadow fleet,” RUSI said.

Co-author Gonzalo Saiz, a research fellow at RUSI’s Centre for Finance and Security, told Lloyd’s List the tools for hiding ownership and flag hopping were not new, but had grown quickly in recent years.

“For the longest time now we have allowed international maritime conventions to simply remain unenforced,” Saiz said.

“And this has led to the opaque and unsafe shipping ecosystem that we’re operating in now.”

Saiz said the International Maritime Organization adopted resolutions and imposed obligations on its member states. But the UN body has no enforcement powers.

“What we are seeing is flag states neglect many of those obligations and not carry out the sufficient checks into beneficial ownership, adequate insurance, the state of the vessels,” Saiz said.

The problem stemmed from lack of pressure on flag states to fulfil their obligations, and the business opportunity for states and companies in flagging ships without looking too closely at their activities.

“In the end it’s a quick buck that can be generated if you’re turning a blind eye, or you’re simply not introducing the right controls,” Saiz said.

The report said the FATF was in a unique position to hold flag states accountable.

The little-known organisation requires more than 200 jurisdictions to implement sanctions related to proliferation financing in line with UN Security Council resolutions, including freezing assets and preventing provision of services to designated people or entities.

The FATF’s ‘mutual evaluation reports’ on countries were “tremendously impactful” since a bad rating could mean greater scrutiny from financial markets, higher risk ratings and reputational exposure.

Unlike the IMO, the FATF “has a proven track record of driving tangible regulatory reforms at the national level”.

The report said the FATF should assess how jurisdictions regulate foreign registries or maritime service providers operating from within their territory.

This would encourage states to act against networks that help fraudulent or high-risk registration, “helping to close off key enablers of maritime sanctions evasion”.

“At present the burden of responsibility falls disproportionately on port states, insurers, financial institutions and naval patrols,” the report said.

“Permissive registries, which are often the root enablers, continue to escape scrutiny.

“A FATF-led process would shift accountability upstream, targeting governments that allow their commercial flagging operations to function as gateways for sanctioned shipping and those that are home to private sector operators managing registries for other states.”

FATF works in relation to UN sanctions, not those imposed unilaterally by the US.

But RUSI said flag registry abuse had become prevalent in the field of proliferation financing — funding the spread of weapons of mass destruction — which the FATF covered.

The report said: “Considering rising geopolitical tensions and the increasing militarisation of maritime sanctions enforcement, leveraging the existing multilateral FATF framework offers the most credible, scalable and preventative approach to countering the shadow fleet now and in the future.”