Offshore Exploitation

Khadija Sharife

Like Panama and Liberia, the Republic of the Marshall Islands in Micronesia is not only a tax haven but also an open ship registry. Open registries enable foreign owners and operators to circumvent many of the regulations required by the national registries of such traditional flag states as the US, UK, Japan or Germany. In 2009, only 53 oil tankers were registered in the US, compared to 557 in Panama, 460 in Liberia and 221 in the Marshall Islands, where a 50,000-tonne ship can ‘flag in’ for a fee of $15,000. Perks include same-day formation, high levels of client confidentiality, voluntary disclosure and zero taxation. Citizenship can be obtained by forming a legal entity and foreign clients never have to set foot on the islands. In all, more than 2000 vessels are registered in the Marshall Islands. Until it sank in the Gulf of Mexico on 22 April, one of them was the Deepwater Horizon oil rig.

Posing as a potential client concerned about disclosure, I was informed by the staff at the Marshall Islands registry that

if the authorities… come to our Registry and Jurisdiction and ask to disclose more information, regarding shareholders, directors of the company etc… we are not privy to that information anyway, since all the business organization and conduct of the entity is performed by the entity’s lawyers and directors directly.

Unless the name of directors and shareholders are filed in the Marshall Islands and become a public record (which is NOT mandatory), we are not in a position to disclose that information.

The reputations of flag states are determined according to statistical data compiled by organisations such as the US Coast Guard and the Paris Memorandum of Understanding on Port State Control (MOU). For some reason the Marshall Islands remains on the ‘white list’, even though the MOU found deficiencies in 45 per cent of the 215 vessels they inspected.

And it seems that the US Coast Guard isn’t as clued up as it might be. During a joint hearing to investigate the explosion and sinking of the Deepwater Horizon, Hung Nguyen, a captain in the Coast Guard, was surprised to learn from the US Interior Department’s Mineral Management Service – the unit responsible for overseeing offshore exploitation – that ‘there is no enforcement.’ Each operator ‘self-certifies and establishes what they think is adequate’.

‘Designed to industry standard, manufactured by industry, installed by industry, with no government oversight of construction or installation, is that correct?’ Nguyen asked the MMS regional supervisor Mike Saucier.

‘That would be correct,’ Saucier replied.

Standards for blow-out preventers, for instance, are set by the American Petroleum Institute, which is made up of 400 corporate members from the oil and gas industry, and checked by the MMS during rig tests only.

This system of self-regulation was formulated by Dick Cheney’s Energy Task Force. According to a document released by the Department of Energy to the National Resources Defense Council under court order in 2002,

Big energy companies all but held the pencil for the White House task force as government officials wrote a plan calling for billions of dollars in corporate subsidies, and the wholesale elimination of key health and environmental safeguards.

New draft regulations on offshore drilling, submitted to Washington in 2001 after an ‘accidental disconnect’ in 2000, have yet to be approved. 'As far as I know, they’re still up in headquarters,' Saucier said.

Meanwhile, Transocean, the Swiss company that leased the Deepwater Horizon (just one of its 138 mobile offshore drilling units) to BP for $1m a day, recently agreed at a closed-door meeting with shareholders to distribute $1 billion in dividends. It has also claimed its liability is limited to $27 million, while at the same time collecting more than $400m in insurance. Trying to regulate a firm like Transocean, with 34 rigs registered in the Marshall Islands alone, is like trying to grab a bar of soap in a bathtub filled with oil.


  • 9 June 2010 at 1:17pm
    Geoff Roberts says:
    Or grab a cormorant that is covered in oil? An excellent take on the powers of the oil companies. Sounds like the financial markets doesn't it? What's the answer?