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[H.A.S.C. No. 107–42]









JUNE 13, 2002

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DUNCAN HUNTER, California, Chairman
CURT WELDON, Pennsylvania
JIM SAXTON, New Jersey
WALTER B. JONES, Jr., North Carolina
JO ANN DAVIS, Virginia

THOMAS H. ALLEN, Maine, Ranking Member
GENE TAYLOR, Mississippi
ADAM SMITH, Washington
JAMES H. MALONEY, Connecticut

Rusty Johnston, Professional Staff Member
Alexis Lasselle, Staff Assistant


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    Thursday, June 13, 2002, Vessel Operations Under Flags of Convenience and Their Implications on National Security

    Thursday, June 13, 2002



    Allen, Hon. Tom H., A Representative from Maine, Ranking Member, Special Oversight Panel on the Merchant Marine

    Hunter, Hon. Duncan, A Representative from California, Chairman, Special Oversight Panel on the Merchant Marine


    Cohen, Yoram, Chief Executive Officer, Liberian International Ship & Corporate Registry

    Heindel, David, Secretary-Treasurer, Seafarers International Union of North America
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    Morris, Hon. Peter, Chairman, International Commission on Shipping

    Pluta, Rear Adm. Paul J., Assistant Commandant for Marine Safety and Environmental Protection, United States Coast Guard, Department of Transportation

    Schubert Capt. William G., Maritime Administrator, United States Maritime Administration, Department of Transportation

    Vines, Alex, Senior Researcher, Human Rights Watch

    Wolf, Hon. Frank, A Representative from the State of Virginia

[The Prepared Statements can be viewed in the hard copy.]

Cohen, Yoram M.
Heindel, David
Hunter, Hon. Duncan
Morris, Hon. Peter
Pluta, Paul J.
Schubert, Hon. William G.
Schubert, William G.
Vines, Alex
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Wolf, Hon. Frank

[The Documents submitted can be viewed in the hard copy.]

Excerpts from the Reports of the United Nations Panel of Experts on Liberia

Republic of Liberia, Bureau of Maritime Affairs Letter from Benoni Urey, Commissioner to Mr. Louis B. Roberts

Washington Post article ''An 'Axis' Connected to Libya'' and Additional Information Submitted by Mr. Wolf

[The Questions and Answers can be viewed in the hard copy.]
Taylor Hon. Gene


House of Representatives,
Committee on Armed Services,
Special Oversight Panel on the Merchant Marine,
Washington, DC, Thursday, June 13, 2002.

    The panel met, pursuant to call, at 10:02 a.m., in room 2212, Rayburn House Office Building, Hon. Duncan Hunter (chairman of the panel) presiding.
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    Mr. HUNTER. The hearing will come to order. I first want to thank the witnesses who have agreed to appear before the panel today. A lot of you have come great distances to provide this panel with your insights and experience.

    And I especially want to thank Admiral Pluta for agreeing to appear today because it is your organization that, perhaps more than any other, faces the daunting task of keeping our ports and waterways safe in the face of obviously mounting concerns for the safety of this country. It is literally staggering to review the sheer number of vessels that enter our ports and territorial waters each year.

    And Admiral, as your testimony indicates, more than 51,000 port calls are made each year by foreign flagships. Literally thousands and thousands of containers arrive each and every day. Unfortunately fewer and fewer of these vessels carrying these containers fly the United States flag. Today's hearing is intended to determine whether the increasing use of open registries or so-called flags of convenience raises legitimate national security concerns.

    Now from my review of certain registries, it is apparent that we have virtually no idea who owns or who controls a number of these ships. I guess, from a legal standpoint, we are now referring to this as a lack of transparency of ownership. It is also clear to me that we likewise lack a clear understanding of who is manning these vessels or even whether the documents they hold are valid or even whether they have the required training.
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    I hope the several panels that appear today will be able to offer us some viable and realistic solutions to what I see are very real and pressing problems. As I noted earlier, several of the witnesses have come great distances to appear today. So I wanted to recognize these gentlemen and thank them for their efforts.

    Mr. Alex Vines, as a member of the United Nations (U.N.) panel of experts, your recent investigations are indeed revealing. And I very much look forward to hearing your first hand experiences.

    Mr. Peter Morris, I understand you just flew in from Australia. So I particularly wanted to recognize you before we start also. And thank you for your efforts to be here. You too are a noted expert in the field of international shipping.

    I have reviewed your biographies. And I must say, I am very impressed. And the panel is indeed pleased to have you with us today.

    I would now like to recognize, before we start with our first witness, the very distinguished gentleman, who is one of the leading experts on not only a number of fields and a very I important member of the Appropriations Committee, but also one of the leading humanitarian experts, not only in this Congress, but I think in the world, Mr. Frank Wolf.

    Before Mr. Wolf testifies, I would like to recognize at this time my partner, the gentleman from Maine and ranking member of this panel, Congressman Tom Allen, for any comments he might wish to make.
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    Tom, thank you for partnering up with me on this hearing.

    [The prepared statement of Mr. Hunter can be viewed in the hard copy.]


    Mr. ALLEN. Thank you, Mr. Chairman. I will be brief. I simply want to thank you for holding this hearing and thank all of the witnesses for being here. This is an important subject matter. And it is obvious from the turnout that there are a number of people who are interested in this subject.

    I cannot recall our having a hearing on this subject before. And I am anxious to hear what the witnesses say.

    So thank you all very much for being here, and to you, Mr. Chairman.

    Mr. HUNTER. Thank you, Mr. Allen.

    And now, one of my favorite members of Congress and a guy who is very, very critical to this effort and also very critical to the funding of our maritime programs. But beyond that, a person who has worked very hard to right a lot of injustices in the world.

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    And Frank, we look forward to hearing your testimony. It appears to be very, very interesting. The floor is yours.


    Mr. WOLF. Thank you, Mr. Chairman. And I want to thank Mr. Allen for being here. And I really want to second what he said. This is really an important hearing. And I think you may be the first one that has ever really looked into this issue in depth. So I want to thank you.

    I want to thank the committee too for giving me the opportunity to testify on an issue of vital importance, both to the long-term stability of West Africa and to our country's national security interests.

    Mr. Chairman, I am specifically here to talk about Liberia. And we in America have a special relationship—or should have—because the country was founded with regard to the United States being involved. But about Liberia, its maritime flag registry and its relationship to Liberia's despotic president, Charles Taylor.

    Today I want to focus on several issues. First, I want to outline for the committee the record of Charles Taylor—because you have to understand the record of this man—and why it is urgent that our government take all steps to deny Mr. Taylor the means to maintain his grip on Liberia.

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    I also want to discuss the implications that Liberia has for our national security interests in light of Mr. Taylor's relationship with international arms dealers and even terrorist networks, including al Qaeda.

    Finally, it is critical that we are able to guarantee—guarantee—that the Liberian flag registry revenues are transparent and are going forward toward the needs of the people of Liberia who have suffered so much. If we cannot guarantee this, it ought to be shut down—clearly, without any doubt.

    Because of the time limitations, I will only be able to offer you a brief glimpse of these issues. Therefore, I would like to submit additional information to the committee, including several news reports and excepts from three United Nations Security Council reports that, read in their entirety, outline—and it is good you are having them as a witness—outline the connections between Charles Taylor, his revenue from the Liberian maritime flag registry, conflict or blood diamonds, the humanitarian disaster in West Africa and international terrorism.

    As long as the revenues support one of the most brutal regimes——

    Mr. HUNTER. And Frank, without objection, all those documents that you have mentioned will be included in the record.

    [The information referred to can be viewed in the hard copy.]

    Mr. WOLF. Thank you, Mr. Chairman.
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    As long as the revenues support one of the most brutal regimes in the world, there will be blood on the flag.

    Mr. Chairman, Charles Taylor's rise to power has been characterized by violence. In Polish author Ryszard Kapuscinski's work, The Shadow of the Sun, the chapter on Liberia is titled, ''The Cooling Hell.'' Kapuscinski describes coming upon children from Charles Taylor's infamous Small Boys Units, child soldiers that Taylor recruited to fight for his insurgent group during the Liberian civil war.

    He writes: ''I haven't walked 100 meters and I am already surrounded by small boys with swollen faces and bleary eyes, sometimes missing an arm or a leg. They beg.

    ''They are former soldiers from Charles Taylor's Small Boys Units, his most frightful divisions. Taylor recruits small children and gives them weapons. He also gives them drugs. And when they are under the influence, he makes them attack.

    ''The stupefied youngsters behave like kamikaze fighters, throwing themselves into the heat of the battle, advancing straight into flying bullets, getting blown up by mines. When they become addicted to the point of uselessness, Taylor then throws them out. Some of them reach Monrovia and end their short lives in ditches or on garbage heaps, consumed by malaria or cholera, or by jackals.''

    After Charles Taylor became president in 1997, his ruthless tactics did not change. This is a picture, Mr. Chairman, taken while I was traveling with my colleague and good friend, who was fortunately appointed by President Bush as our new ambassador to Rome and the Food and Agricultural Organization, Congressman Tony Hall.
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    We were in Sierra Leone in December of 1999. This two-year-old girl in the picture was just one of the many victims of the Revolutionary United Front, otherwise known as the RUF. It is a criminal insurgent group started by Charles Taylor, which terrorized civilians in Sierra Leone by engaging in mass amputations—mass amputations—murder, rape and torture.

    This was in a camp. All of these men here have either an arm or a leg hacked off. In fact, as they would say, the RUF would come in and say, ''Do you want a long sleeve or a short sleeve?'' And if they said a short sleeve, they would hack off the arm here; a long sleeve, they would hack off the arm there.

    Taylor's interest in promoting and supporting the RUF insurgency was driven by greed—Sierra Leone's vast diamond resources. The civil war in Sierra Leone took nearly 100,000 lives and left almost two million people as refugees.

    For years, though, Charles Taylor's trail of misery was thought to be confined only to a small corner of West Africa. Only recently though, we learned that the terror of Charles Taylor went beyond West African shores. In November, ''The Washington Post'' and several other media outlets outlined in detail how the RUF in Sierra Leone transferred blood diamonds to al Qaeda operatives in Liberia, who then traded them for cash in the European diamond market.

    These terrorists include Ibrahim Bah, a Libyan-trained former person from Senegal, a rebel who is cited as the Sierra Leone rebels' primary diamond dealer. Charles Taylor is directly implicated in these reports.
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    I am not sure why the Administration does not just pick up Ibrahim Bah and bring him back as a war criminal. There is something, there is a disconnect here in my mind about why the administration—our administration—has done nothing with regard to this.

    But Taylor is implicated in these reports for taking commissions on all deals made between the RUF and the al Qaeda network.

    Taken together, all of these facts point to an inescapable conclusion. Not only will the people of Liberia and West Africa continue to suffer as long as Charles Taylor is in power, but the importance of preventing Charles Taylor from obtaining sources of revenue to run his international criminal enterprise is now a matter of national security.

    As long as Charles Taylor has access to the financial resources, the people of West Africa will continue to be threatened by wars and humanitarian disaster and misery.

    Which brings me to the issue at hand for this committee, the relationship between Charles Taylor's criminal state and the Liberian flag registry and its implications for our national security.

    The United Nations and several news reports have revealed that the revenue obtained from the Liberian flag registry and the company that runs the registry, the Liberian International Ship and Corporate Registry, known as LISCR, made payments that violated the U.N. sanctions on Liberia.

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    Also, the United Nations has reported that LISCR was set up precisely so that Charles Taylor would have immediate access to the flag registry funding. While estimates vary, according to the October 2001 U.N. report, the flag registry accounts for approximately 50 percent to 75 percent of Liberia's annual revenue. The other comes from clear-cutting of timber in the tropical forests, in violation again of the U.N. sanctions.

    The distinction between whether this money goes to Liberia and its legitimate needs—the needs of the people—or Charles Taylor and his international criminal enterprise is of immense importance. If the flag registry revenue can be used for legitimate purposes, then I believe the flag registry should be saved. But if it cannot—and in a transparent way that we absolutely, positively, categorically know—then it should be taken away.

    But so far, as the U.N. reports and the many news stories indicate, this has not happened, the transparency. Instead, the revenue from the registry is still controlled by ''the executive mansion,'' meaning Charles Taylor.

    The U.N. report also shows that these revenues may have troubling national security implications for the U.S. as well. For instance, the U.N. report documents how certain portions of the flag registry revenues were channeled to the notorious arms dealer, Victor Bout, who is a Russian who there have been many articles. If you get briefings by our intelligence people can tell you all about him.

    Who has connections to the Taliban, who has connections to al Qaeda, and who has connections with Abu Sayyeef, the radical Muslim group in the Philippines who, just the other day, was responsible for the death of the missionary Burnham from Wichita, Kansas.
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    Finally, the U.N. report implicates the registry in playing a role in facilitating the illicit trade in conflict diamonds through the use of shell companies that trade in the so-called ''blood'' diamonds.

    Just last year his personal control was codified in a new law that states: ''The president of the Republic of Liberia is hereby granted the sole power to execute, negotiate and conclude all commercial contracts or agreements with any foreign or domestic investor for the exploitation of the strategic commodities of the Republic of Liberia.'' It is not surprising then, Mr. Chairman, that Liberia is often referred to as Charles Taylor, Incorporated.

    In closing, Mr. Chairman, I want to leave the committee with a final thought. Since my visit to Sierra Leone, I have—and working with Congressman Tony Hall, my good friend, we have worked on a number of bills with Senator Durbin and others and Senator DeWine on conflict diamonds. And there is a growing concern in this country with regard to the plight of the citizens in that region—Liberia, Sierra Leone.

    Looking at the little girl in the picture, it is unconscionable that anyone could justify a business relationship with Charles Taylor. It is just not possible. I mean, it is not possible. It would be like having a business relationship with the devil.

    But beyond this humanitarian concern, which is a major concern because until you resolve this issue, you will never bring peace and prosperity and normalcy to the poor, suffering people of Sierra Leone and Liberia and that region.

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    But beyond this humanitarian concern, the links between al Qaeda and the other international terrorist activity and Charles Taylor put this picture in an entirely new and different light. We need a guarantee that Charles Taylor can no longer exploit this resource. A financial relationship no longer just supports a brutal African dictator causing misery for a far away people; it tacitly supports a terrorist organization dedicated—dedicated—to the destruction of the United States.

    And I would also say, and it is not on my testimony, Hezbollah—and if you talk to our intelligence people will tell you—the Hezbollah gains a lot of its—Hezbollah, who was responsible for the blowing up of the Marine Barracks in 1983 in Lebanon, in October of that year and also the American Embassy earlier that year. Hezbollah gets much of its revenue from conflict diamonds and diamonds coming out of this region, with regard to diamond merchants in that region.

    So it is a major, fundamental, national security issue with regard to jeopardizing the security of our country and many others. But also, we cannot forget these people who are living in hell, who we have been—had a special relationship with Liberia. And Great Britain obviously has had a special relationship with the people of Sierra Leone.

    And with that, Mr. Chairman, I end.

    [The prepared statement of Mr. Wolf can be viewed in the hard copy.]

    Mr. HUNTER. Well, first, Mr. Wolf, let me just say that your career is a model for anybody who would aspire to be in public office. And the energy that you have expended in trying to identify problems like this around the world, far above and beyond the call of duty, is a real inspiration to all of us.
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    So thank you for everything that you do.

    And my first question would be: what is—there is obviously a purpose or a motive or a program involved in cutting people's arms off, either giving them the long sleeve that you talked about; that is, leaving them with a wrist but no hand, or giving them the short sleeve; that is, cutting their arms off at the shoulders. Why do they do that? Is that simply to immobilize them, to render them a burden on their own people or what?

    Mr. WOLF. They do. Congressman Tony Hall first got me interested in this issue. When we went there, we did not understand either.

    What they did is they intimidated the people. They would come into the villages, boy soldiers, many of them on drugs. Foday Sankoh, who is now in prison somewhere in Sierra Leone waiting to be prosecuted by the U.N. court. They would intimidate the population.

    Also diamonds. There is a whole area in that country where diamonds come out of. A lot of money. And they are alluvial, surface diamonds, where you do not have to go down into the mines, as in South Africa. But you literally go into these diamond pits with mud and find the diamonds.

    So it was to intimidate and to harass and take over the country. And they did. They successfully intimidated most of the people.

    Now conditions have begun to improve. There is a legitimate government in Sierra Leone.
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    But it was mainly to intimidate the people and to gain control of the diamond areas in order to fund the Charles Taylor government and also to fund others in Sierra Leone and last, to fund people around the world. When you go onto the runway of the airports there, you will see many planes coming out of the Ukraine and coming out of parts of Europe where they buy the diamonds.

    They bring in arms and weapons. Also with the money they get, Foday Sankoh and his group would buy drugs. And then the diamonds would go to Antwerp and different places like that.

    Mr. HUNTER. I have a list in front of me here of Liberian-owned vessels that are owned by U.S. parent companies as of January of 2001. And just reading down through this list, you have Dole Food, Alcoa, Chevron, Conoco, Eastmark, Exxon, Mobile, Texaco.

    And it goes down through the list. And a number of very well known companies who you would expect, if you showed these pictures to their top executives, would abhor any activity that arose either partially or fully financed by their transfers of dollars to the Liberian Treasury; or that is, to Charles Taylor.

    Mr. WOLF. Mr. Chairman, I do not think they necessarily knew. This started out with a certain concept. Charles Taylor, in 1997, came in and it dramatically changed.

    My sense is most of those companies would welcome an opportunity for this committee and for the U.N. and the government to take away and put a transparency in and make sure none of that money went to them. But under the circumstances now, you cannot continue to give this money to this registry without a transparency and knowing that it is going to aid Charles Taylor, keeping him in power.
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    Mr. HUNTER. Mr. Allen.

    Mr. ALLEN. Thank you very much, Mr. Wolf. We appreciate your being here.

    I was curious as to whether or not you have raised any of these concerns with the State Department or anyone else in the administration—either you or Mr. Hall—and whether you have had any reaction that is worth pursuing?

    Mr. WOLF. I have raised them. And I frankly have been disappointed with the reaction of the Bush Administration. I have raised these over and over.

    You cannot be in a war on terrorism and focus just on the terrorists. You also have to focus on the funding sources. And we clearly know—and they will tell you—that diamonds are funding it. And we know what they are coming out of this.

    And so I have been disappointed. I have had a number of personal meetings. And I have been disappointed.

    The ''Washington Post'' reporter has done a better job of tracking this down and finding this than, frankly, our intelligence community. So I have—yes, we have raised the issue. And I personally, on the record, will tell you I have been disappointed with the reaction of the Bush Administration.

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    Mr. ALLEN. Are you getting any help from either non-governmental organizations (NGOs) or some of the European governments? Is there concern building in other places that we could take advantage of?

    Mr. WOLF. There is the U.N. report. It is a tremendous report. I brought part of it. But you have the witness, the authentic persons here. And I think they can tell you.

    The U.N. has done a very good job. There have been sanctions put on Charles Taylor, which have been violated by the Security Council. We now need more than just rhetoric though. We need some process to make it transparent, to fence it off, whereby it does not go to him.

    But yes, I think most people now acknowledge, particularly after 9/11. And they do know. And there are a lot of good people that are trying to deal with it.

    But there has been no—nobody has actually put the plug in and really made it happen. There has been a lot of talk. But there are a lot of good people concerned about it.

    Mr. ALLEN. I just want to say how much I appreciate the work you have done, the persistence you have shown in getting to the bottom of this problem and bringing it to our attention today. Thank you very much.

    Mr. HUNTER. Mr. Taylor.
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    Mr. TAYLOR. I just want to thank Chairman Wolf. I have never heard a better presentation by a member of Congress in 13 years.

    Mr. WOLF. Thank you.

    Mr. TAYLOR. Absolutely remarkable.

    Mr. WOLF. Thank you.

    Mr. HUNTER. Mr. Maloney?

    Mr. MALONEY. Frank, let me ask you another question before you go, because obviously you are a policy maker too. And the other half of this, the question that would arise once you get past the amputees and the violence that is being funded with this flagging money, is why aren't these companies flagging American?

    And the initial answer is dollars, at least preliminarily. And we are going to have a lot of folks testify about this. But it is cheap.

    And when you flag American, your flag, flagging American means you are a corporate citizen of this country for purposes of taxing. And obviously, lots of other countries, Liberia being one of those primary flagging countries, do not charge as much. So if you are an Exxon or a Mobile or somebody else, you may flag a number of your ships Liberian.

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    And it is apparent that we do not gain much money in the U.S. Treasury from flagging vessels because we have, compared to the other countries of the world, it is prohibitive to flag American. Unless you are a Jones Act ship or you are in the Maritime Security Program (MSP) or some other special program with the US, it does not make economic sense.

    So the question is: should we, as members of Congress, try to make it economically feasible for American companies to flag American? Do you have any thoughts on that?

    Mr. WOLF. Well, I am not an expert and do not know very much about that. Just from a common feeling, I would think the answer to your question would be ''yes.''

    I think we should do more. We are a maritime nation. I mean, the Atlantic Ocean, the Pacific Ocean, the Gulf, where Mr. Taylor is from. I mean, we are just a maritime nation.

    And we were discovered by people who were maritime people. My wife comes from Marblehead, which is a maritime community. And Marblehead and Salem, Massachusetts and the great state of Maine.

    So the answer is ''yes.'' Somehow, there ought to be a way. I am not an expert in it. But somehow, maybe you have to be, you know, understanding the American companies to give them a little opportunity so they can compete, but also to bring it back so it is an American flag in the United States and American jobs and opportunities.

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    I get a lot of young people who want to go to the Merchant Marine Academy. There is tremendous interest in this country.

    So without knowing how, my just common sense tells me the answer to the question is ''yes.''

    Mr. MALONEY. Well, we would like you to work with us. And let's try to put together a program that will remove us from what really is a bizarre situation—or at least it appears to me—where we are going to a place where our dollars are literally dealing death to people. And yet, the practice continues unabated.

    And the initial question, I think, everybody would have is: why don't these American companies flag with their own country?

    So thank you very much. And Frank, we look forward to working with you.

    Mr. HUNTER. Our Panel II will be Captain Schubert, maritime administrator for the United States Maritime Administration, Department of Transportation; and Rear Admiral Paul Pluta, assistant commandant for marine safety and environmental protection for the U.S. Coast Guard in the Department of Transportation.

    So gentlemen, thank you for being with us. We greatly appreciate you.

    What do you think, gentlemen? Do you want to run over and vote and come back? Are we going to have two? Or are we going to have more, do you know?
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    We have two. Well, why don't we go ahead and get our opening statements out of the way here?

    Captain Schubert, you want to lead off here? We will go ahead and take opening statements, then we will go vote and come back and get into questions.


    Captain SCHUBERT. Okay, thank you.

    Good morning, Mr. Chairman, members of the Panel, I would like to request that my formal statement be entered into the record.

    Mr. HUNTER. Without objection.

    Captain SCHUBERT. Thank you.

    I appreciate the opportunity to appear before you today to discuss flags of convenience and the potential impact on national security posed by these vessels. First, I would like to thank you for holding this hearing. Our heightened need for homeland security requires that we examine the current lack of transparency within open registries, which could ultimately lead to a serious threat to our nation's safety and security.
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    Ship operators, seeking to lower costs, register their vessels in open registries for several reasons. They feature unrestrictive laws and have low tax liability, vessel registration fees, and crew costs. There is considerable variation among open registries. While some are considered quality registries, others do not enforce minimum vessel safety or design standards.

    Foreign crews are often paid low wages and live in terrible conditions, with little or no oversight or recourse in case of abuse or mistreatment. For these reasons, the International Labor Organization, or ILO, has undertaken the ambitious task of updating and consolidating dozens of seafarers' welfare conventions. And my agency, the Maritime Administration (MARAD), is leading the effort on behalf of the United States.

    Many crews aboard flag of convenience vessels do not have the same high quality training as U.S. merchant mariners and mariners from Organization for Economic Cooperation & Development (OECD) member states. Also, a ship owner who registers his or her vessel in an open registry does not need to have any connection or link to the country sponsoring the registry. As a result, the flag of convenience regimes can inadvertently open the door for criminal and terrorist activity.

    Between 1980 and 1998, countries with developed market economies, including the United States, Western Europe, and Japan, lost almost half of their vessel tonnage to major open registries; countries like Liberia, the Bahamas, Panama, Cyprus, and Malta. Open registries have captured approximately 60 percent of the capacity of the world merchant fleet. In the year 2000, four of the top five registries were open registries. The United States, the world's largest trading nation, was in 13th place in the year 2000.
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    Mr. HUNTER. Captain Schubert, why don't you describe for us what an open registry is?

    Captain SCHUBERT. Okay, an open registry—or it is actually more commonly referred to as a flag of convenience, are countries where you do not necessarily have to be—they do not require that the nationals actually own the vessels. It is open to any country, any registry—excuse me, any vessel owner from any country can use that registry, irrespective of the citizenship issues.

    Mr. HUNTER. So it is totally a matter almost of administration or paperwork. Can you register online and without ever seeing the country, even knowing where it is?

    Captain SCHUBERT. I would imagine it is possible, yes.

    Mr. HUNTER. Okay.

    Captain SCHUBERT. Absolutely so.

    Open registries, as I said, have captured 60 percent of the capacity of the world fleet. And as I said, we are now number 13. We are in 13th place as of 2000.

    It is critical, now more than ever, to have a strong U.S. merchant marine and U.S. crews. U.S. crews employed on U.S.-flag ships provide the pool of seafarers needed for both commercial and government sealift fleets in times of national emergency or crisis.
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    Encouraging shipowners to return to the U.S. flag is a daunting task, especially when compared to the economic advantages of open registries. However, the best way to protect our homeland and national security interests across the globe is for a strong U.S.-flag fleet manned by U.S. citizen mariners.

    If we did not have the Jones Act, cargo preference, the MSP program and Voluntary Intermodal Sealift Agreement (VISA) programs, I can assure you that it is unlikely that ships would remain under the U.S. flag. And the U.S.-citizen mariner pool needed for the Department of Defense in times of national emergency or war would simply disappear.

    Many maritime scholars, industry experts and some members of Congress have suggested a reexamination of the tax laws which govern merchant shipping in order to create more incentives for investment by shipowners to return to the U.S. flag. These and other options to increase the number of vessels under the U.S. registry should be fully explored and given the highest consideration.

    While it would be difficult to eliminate the lack of transparency and other problems inherent in the international operations of the open registries, there are things that we can do to further deter the threats from the maritime domain. Pre-screening of crew identification before seafarers arrive in U.S. waters is critical. U.S. authorities should have positive and verifiable identification cards for all crew members to help deter crew from using seafaring positions to illegally enter the United States.

    Unfortunately, a recent International Maritime Organization (IMO) study found that the incidence of fraudulent practices was found to be ''much higher than anyone thought. The IMO study confirmed 12,635 cases of forged certificates. In addition, around 85 percent of employers had detected fraud over the previous five years. MARAD is currently working, through the International Labour Organization (ILO), to achieve a new international agreement on positive and verifiable identification for all seafaring personnel.
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    In conclusion, I would like to stress that the United States does not need to lower its labor and environmental standards, but should continue to work with the IMO and the ILO to assure international standards are fair and universally implemented. We should, however, explore ways to make the U.S. flag more attractive to potential U.S. citizen investors, through market and financial incentives that have been successful in other seafaring countries.

    In today's environment, we should not compromise our security. And there is no better assurance to our nation's national security interests than a strong U.S.-flag merchant marine.

    As a final comment, I would like to see that the truly bad flag-of-convenience—or open registries, as I have referred to them—are relegated to a role of ''flags of inconvenience.'' We must vigorously lead international efforts to eliminate the underlying conditions that have led to notoriously weak vessel registries. And we must continue to pursue the elimination of sub-standard vessels using our port state control authority to its fullest extent.

    That concludes my opening remarks. And I would be happy to answer questions after Admiral Pluta makes his comments.

    [The prepared statement of Captain Schubert can be viewed in the hard copy.]

    Mr. HUNTER. Thank you very much, Captain Schubert.
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    We probably have about seven minutes left on this vote. So gentlemen, what do you think about, so Admiral Pluta can have plenty of time to give a full statement, maybe go down and make this vote and make the second one and then come on back.

    And then Admiral Pluta, we will pick up with you.

    Rear Admiral PLUTA. Thank you, sir.

    Mr. HUNTER. Okay, we will be out of session for a few minutes here.


    Mr. HUNTER. Okay, the hearing will resume. And Captain Schubert, you wrapped up your statement.

    And Admiral Pluta, the floor is yours, sir.


    Admiral PLUTA. Thank you, Mr. Chairman.

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    Good morning, Mr. Chairman and distinguished members of the committee. As the Assistant Commandant for Marine Safety, Security, and Environmental Protection for the Coast Guard, I want to thank you for this opportunity to appear before you today to discuss the Coast Guard's maritime security efforts for addressing the national security aspects of foreign flag ships, cargo and crew members entering the United States, specifically vessel ownership transparency and positive identity of vessels, vessel owners/operators and crew members.

    The importance of our nation's maritime transportation system cannot be overstated. Maritime industries contribute approximately $1 trillion annually to the gross domestic product of the United States.

    Over 95 percent of our overseas commerce is carried through our nation's seaports. More importantly, foreign flag vessels now carry well over 90 percent of the international commercial freight arriving in or departing from the United States. More than 7,500 foreign flag ships, originating from 92 different flag states, make approximately 51,000 port calls annually.

    As the lead federal agency responsible for the protection of U.S. ports and waterways, the Coast Guard has taken a lead role in addressing these challenges aspects through its Port State Control program and enforcement of domestic and international standards. Prior to September 11th, our program focused primarily on the quality of foreign flag ships posing the greatest safety risk to U.S. commerce and the environment.

    More recently, the important role played by the mariners—the human element—has been addressed through a Convention on Standards for Training, Certification, and Watchkeeping, or STCW, in 1978, as amended in 1995. In 1998, the International Safety Management Code, or the ISM Code, became effective under the Safety of Life at Sea Convention, dealing with proper management and maintenance of vessels.
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    As the Coast Guard continues to enforce domestic and international safety standards on the foreign shipping community at home, we continue our campaign to engage open registry flag states in reaching an objective of vessel information transparency worldwide.

    Mr. HUNTER. What does that mean? What do you try to get from them?

    Admiral PLUTA. Mr. Chairman, we want to do whatever we can, both domestically and internationally, to try to get as much information about who is owning and operating a vessel. We have good laws in place domestically. We would like to put the same sort of procedures in place internationally.

    Mr. HUNTER. Give us an example. And I do not mean to cut your testimony off. But that is really a key point. Give us an example of what information you want from a vessel that comes from open registry or a flag of convenience.

    Admiral PLUTA. Mr. Chairman, there is a proposal to create a continuous synopsis record for every vessel that would have to be maintained by both the company and the ship. And it would include the name of the registered owners and their registered addresses, the name of the company, its registered address and addresses from where it carries out its safety management activities and the name of the classification societies with which the vessel is classed.

    These pieces of information would have to be recorded over time. So that with every transfer of ownership or transfer of operator, these would be recorded. And we could track back.
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    In the United States, we require a 96-hour advance notice of arrival of this and much more information. We are about to go to a final rule on this issue. And we will require all that information well in advance so that our people can share it among the other government agencies interested in the vessel, the owners, the crew, the passengers, the cargo on board. And we can vet it through the information and intelligence systems that we have domestically to see if there is anything that ought to raise our attention on it.

    Mr. HUNTER. Now they give you names and information about the crew members coming in?

    Admiral PLUTA. Yes, sir. They do.

    Mr. HUNTER. I mean, obviously, that is key, right?

    Admiral PLUTA. Sir?

    Mr. HUNTER. That is obviously key, is to have some background on the folks that are driving this ship.

    Admiral PLUTA. Yes, sir. It is absolutely critical to our maritime domain awareness. And so the existing requirement had been a 24-hour advance notice of arrival. We extended that to a 96-hour, to four days ahead of time, or even earlier so that we could capture those names and run them through our databases and see if there is anybody on board that we ought to be threatened by or we would like to handle specially.
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    Mr. HUNTER. Okay. How accurate is that information, from your experience?

    Admiral PLUTA. There are definitely flaws in the way that we process this information now Mr. Chairman. The way that we collect it right now is by fax, by mail. And we do not have authority yet to collect electronically. But that is exactly what we are working on.

    Mr. HUNTER. But I mean, do you have any way, if they send you a bunch of John Does basically or a bunch of made-up names, you do not even have any way to tell if they are made up, in terms of the crew. Right?

    Admiral PLUTA. That is correct, sir.

    Mr. HUNTER. They certainly are not going to send you their arrest records or any background.

    Admiral PLUTA. No, sir. They will not. But with the information that we get, we screen it for whether or not it makes sense, whether or not there are names that do not seem to fit there, whether there are too many people on board. The crew should be smaller. And we will vet that information through all the agencies.

    And then we will meet the suspect vessels or anybody that seems suspicious before we let them enter port. And we will have Coast Guard, as well as other agency boarding people on board to not only to deal with this list that was submitted, check it against the identification of the crew members that are on board individually, so that we can vet whether or not they are the people that they claim to be.
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    Mr. HUNTER. Fingerprints. Do you do any fingerprints?

    Admiral PLUTA. Not on foreign flag mariners as yet, Mr. Chairman. We have a fingerprint requirement for U.S. mariners. But we are working on an international effort, through IMO and ILO. There is an International Convention on Identification for Seafarers.

    And we are working on a biometric system that will give positive and verifiable identification of all seafarers worldwide.

    Mr. HUNTER. Okay. Okay, go ahead then, admiral. Did not mean to cut in there. But that is kind of a critical point for us.

    Admiral PLUTA. That is okay, Mr. Chairman. Thank you for asking.

    After the attacks of September 11th, Port State Control has evolved and taken on a new and expanded role. Maritime security has centered on the ship, its contents, including cargo, passengers and crew, with an emphasis on vital information collection and analysis to gain a better understanding and awareness of our maritime domain.

    Maritime Domain Awareness is a concept that serves to reconcile sometimes competing interests of security and mobility in our ports and waterways and involves recognizing threats well in advance and anticipating our vulnerabilities. This 96-hour advance notice of arrival has been instrumental in early evaluation of vessel and crew.
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    A critical component of improving maritime security and information transparency worldwide is ensuring that the seafarers involved in the maritime transportation of goods and passengers have positive identification documents. Equally important for Maritime Domain Awareness is information transparency on owners and operators of ships with potential for us in supporting terrorist activities, either directly or indirectly.

    Currently, ships arriving in the United States ports are required to report the name of the registered owner as well as the operator of the vessel. However, in many cases, the registered owner is no more than an entity created solely for the purpose of being designated as a vessel owner, with no actual control of the vessel.

    The need for this information of actual ownership is highlighted by the recent media report on Osama Bin Laden's fleet and the supplies delivered to suicide bombers for the destruction of the U.S. embassies in Kenya and Tanzania. Although media reports, the idea of a terrorist organization owning and utilizing commercial ships for terrorist activities is very real.

    Mr. Chairman, partnering and internal coordination is key to our efforts. Networking and relationship building among agencies and stakeholders is a core competency of the Coast Guard. And we have been very active, both domestically and internationally.

    We have been working with the Congress staffs on an excellent legislation initiative package to improve domestic maritime security. We have been working within the Department of Transportation, with the Maritime Administration and other agencies, to make sure that our efforts at security is harmonized.
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    We have been working with other federal agencies, state and local governments and the private sector. As an example, the secretary of transportation chartered a Credentialing Direct Action Group to evaluate and develop credentialing for all U.S. transportation workers.

    The Coast Guard has been involved in a new initiative to establish a national priority in investigating and prosecuting fraudulent mariners' credentials and vessel documents. We are working with the Department of Justice to place a higher priority on investigations referred by the Coast Guard. And we have gotten a very favorable response.

    Internationally, the Coast Guard represents the United States at the U.N. agency, the International Maritime Organization. And our outreach and partnering efforts have been through that vehicle.

    We have made significant progress since we instituted the Maritime Security Initiative at the November general assembly meeting of IMO last November. And we made great progress at this May's meeting of the Maritime Security Safety Committee. And we will have international standards in place in December of this year.

    We will have amendments to the Safety of Life at Sea Convention, Chapter 11, backed up by a new mandatory, international ship and port facility security code, including a new draft regulation requiring governments to maintain and ships to hold a continuous synopsis record of key information on vessel and owner/operators.

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    In summary, Mr. Chairman, as an open society, we cherish our freedoms with our nation's busiest harbor complexes remaining wide open to thousands of maritime workers and ships from all corners of the world. The challenge we face today is balancing the security and the economic needs of our country.

    A key in meeting this challenge and preventing terrorist threats from being realized is better awareness, not only of the tremendous amount of cargo entering the country, but of the people who own, operate and service the thousands of vessels entering the United States every year. The solution will involve information transparency and having access to detailed and accurate intelligence about our adversaries—perhaps a topic for another forum—and sharing that information more effectively with our domestic and international partners in both the public and private sectors.

    The dynamics of a global system and the resultant demands on our already stressed transportation system will require a continued, coordinated, national and international effort to meet both the existing and emerging challenges for our marine transportation system.

    Thank you, Mr. Chairman.

    [The prepared statement of Admiral Pluta can be viewed in the hard copy.]

    Mr. HUNTER. Thank you, admiral. And it looks to me like you have a lot of work to do here.

    Admiral PLUTA. Yes, sir. We do. And we have been working very hard.
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    Mr. HUNTER. You know, if you break down some basic requirements, with respect to this new age of trying to hold off terrorists with high technology and homeland defense and all the rest of the new challenges that we have, probably one of the basics is: we are going to have to know what is coming into the country; and two, we are going to have to know who is coming into the country.

    A lot of the ''what'' and a lot of the ''who'' is going to involve folks coming in in maritime carriage. Now with these thousands of ships that ply our harbors each year, coming in from the four corners of the Earth, as you have stated, if you were going to rate your ability to really know who is coming in, with respect to the people operating the ships, on a one to 10 scale, what do you think you are, given the information that they give you when they come in?

    Admiral PLUTA. Mr. Chairman, it is hard for me to say. But just as a wild guess, I think we are 80 percent. It really is just a guess on my part, Mr. Chairman.

    We are getting—we are getting—the basic information that we demand by our regulations. The validity of it is another question. And that is why we ask for it so far in advance.

    Mr. HUNTER. If somebody gives you—I mean, if this is the equivalent of a bunch of kids giving phony IDs to get into the discotheque and all you have to know is that somebody gave you a phony ID, then we are not accomplishing much, right? I mean, if you are getting a bunch of John Does.
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    Have you undertaken any experiments to figure out whether you are getting the real credentials? What information will you request when have a ship, if a foreign flag ship comes into a given harbor? And you say 96 hours a head of time, you ask them for a manifest of their members, right?

    Admiral PLUTA. Yes, sir. We do.

    Mr. HUNTER. What do you ask them? What will you get typically? First, how many crew members will you have on a big ship?

    Admiral PLUTA. Roughly somewhere in the vicinity of 30 people, 25 to 30 people. Something like that, sir.

    Mr. HUNTER. Okay. What kind of paperwork will you get from them?

    Admiral PLUTA. The types of things that we will request are their names, their date of birth, their passport number, if they have seaman's documents, some indication of what their role is on board, whether they are crew, passenger or what their function is.

    Mr. HUNTER. Okay.

    Admiral PLUTA. Those kinds of things, so that we can get the information to cross check databases. There could be many people with the same name, different birthdays, different nationalities, that sort of thing, Mr. Chairman.
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    Mr. HUNTER. Well, do you ever get cross checks? Now you will take that list. You will have John Doe, Iraq. Right? And his job is seaman, first class or whatever.

    Admiral PLUTA. Yes, sir.

    Mr. HUNTER. That is what you will get?

    Admiral PLUTA. Yes, sir.

    Mr. HUNTER. Now who will you send that to?

    Admiral PLUTA. Well, Mr. Chairman, perhaps that would be a topic for another forum. But the intelligence community, the law enforcement community will help—do help—us vet all those names.

    Mr. HUNTER. Well, do you ever get any hits on that?

    Admiral PLUTA. Yes, sir. We do. And in fact, we have a system of identifying vessels that are of heightened interest to us well before they come to the United States.

    Mr. HUNTER. I understand that. But what I am saying is, is anybody dumb enough, if they are really a wanted person internationally or if they are part of a terrorist operation, is there anybody dumb enough to put down their real name?
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    Admiral PLUTA. Yes, sir. They are. [Laughter.]

    Mr. HUNTER. Really?

    Admiral PLUTA. Yes, sir. We do have hits on personnel, people that have been previously deported from the United States or people whose names appear. And we just need to get the right folks in physical touch with them before they enter our port to make sure they are or they are not the person we are worried about.

    Mr. HUNTER. Okay. If they give you a phony name, do you have any way of telling?

    Admiral PLUTA. Mr. Chairman, some registries have databases on line of the people that they license and document to sail under their credentials from that country. And so we can check. And we have ways of checking if we suspect that the name is bogus.

    Mr. HUNTER. Why would you suspect it is bogus?

    Admiral PLUTA. If it does not fit, Mr. Chairman. I do not think this happens an awful lot. But if the entire crew is Filipino and all the officers are Indian and we have one stray Iraqi who does not fit, we may want to check further, Mr. Chairman.

    Mr. HUNTER. Okay.

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    Captain Schubert, do you have anything to add on that?

    Captain SCHUBERT. Yes, I would like to add just a brief overview or update on what is happening with the ILO, which is really where we—just like the IMO on several of the Coast Guard issues, the ILO, the International Labor Organization, is on a pretty fast track to try to get a new convention in place on seamen's documents. And I had the privilege to meet with the deputy director two days ago to get an overview.

    But the purpose of the new convention would be to strengthen the reliability of the seamen's documents, the same issues that you just raised. And they contemplate the use of positive verification identification, using biometrics, which is something in the United States we feel is very essential.

    Mr. HUNTER. Now where are these? People love to use that term, ''biometrics.'' When are we going to get something to accompany the term?

    Captain SCHUBERT. Well, actually that is a related issue that our agency has also been working on, even prior to 9/11. And we are going to conduct some testing of some smart cards—is another word for what we are talking about—on some of our own Ready Reserve Fleet (RRF) ships. And we found some other volunteers to do some pilot testing of these cards.

    These will be, I think, primarily going to be used for—or to try to develop standards for the enter and exit ports. We can also use them for our own seamen documents.

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    But we would like to see the rest of the world follow this. And the ILO is the forum where we can get an international agreement on this.

    And I would also like to say that they are very keen on getting the U.S.—getting the concerns from the U.S. satisfied so that we can move forward on this. The current time track is to have this completed by June of next year, which in international regimes is pretty fast.

    And currently, they are sending out questionnaires to all the member states, including the United States, to get their feedback on this. So it is a serious issue. And I think the rest of the world recognizes that this is something.

    I mean, as I addressed in my opening remarks, just the falsification of seamen's documents is a safety issue, let alone the possible terrorist threats. I mean, you get people on these ships that do not have the right Standards, Training, Certification, and Watchkeeping (STCW) qualifications. And it presents a safety hazard.

    So this is on the fast track. And pretty much, this is the update that I got from the deputy director.

    Mr. HUNTER. Okay.

    Mr. Taylor, did you have any questions you wanted to ask? Go right ahead. And Mr. Saxton, we will go right to you.

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    Mr. TAYLOR. Admiral, what is the ''cruise to nowhere?''

    Admiral PLUTA. Mr. Taylor, I think that is a term used for foreign flag cruise ships and gaming vessels that operate in the United States and sail from a U.S. port; go out and entertain their passengers, out and cutting donuts in the ocean. And then they come back in.

    Mr. TAYLOR. Can a cruise to nowhere, in effect, home port out of an American port, never really have to go back to the country of origin or even sail to another country?

    Admiral PLUTA. Yes, sir. That is correct.

    Mr. TAYLOR. Can they have a totally foreign crew?

    Admiral PLUTA. Yes, sir. They can.

    Mr. TAYLOR. Are they foreign owned?

    Admiral PLUTA. Yes, sir. They are.

    Mr. TAYLOR. Are they foreign built?

    Admiral PLUTA. Most likely, sir. Yes, sir.

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    Mr. TAYLOR. So that ship is doing everything that the American vessel that is American built, American crewed, American owned is doing right across the dock from them. Enjoy all the same privileges, in effect, do they?

    I mean, if something goes wrong, your guys are going to go bail it out or put the fire out?

    Admiral PLUTA. Yes, sir. That is correct.

    Mr. TAYLOR. If there is a disturbance at the dock, do the local police go help out?

    Admiral PLUTA. I would assume so, sir. Yes, sir.

    Mr. TAYLOR. The channel that the Corps of Engineers dredges at American taxpayer expense, they get to use?

    Admiral PLUTA. Yes, sir. They do.

    Mr. TAYLOR. What do they pay in taxes?

    Admiral PLUTA. I do not know, sir.

    Mr. TAYLOR. Nothing.

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    Admiral, I was amazed years ago when I was running small boats for you all that I considered once getting a license to run crew boats one summer while I was in college. Went down to the maritime office. I had been running small boats for you all for, I do not know, eight, 10 years.

    Went to get a license and they said, ''What kind of time do you have?'' And I said, ''Running small boats.'' And they said, ''Well, Coast Guard time only counts for half,'' or something like that. And maybe you all have changed the rules. And I was kind of amazed at that.

    If I wanted to be the master of one of these vessels, what would it cost me to go to Panama or Liberia and get an unlimited tonnage license?

    Admiral PLUTA. I do not know.

    Mr. TAYLOR. Let's be realistic. What would it cost me? How much would I have to bribe somebody? You got to know. [Laughter.]

    Give me a ballpark figure.

    Captain SCHUBERT. I have actually got one.

    Mr. TAYLOR. I am not talking about an American license. I am talking about going to Liberia, Panama.

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    Captain SCHUBERT. Okay. There is in the IMO report that I referenced earlier in my opening remarks. And it is also in my detailed remarks. And there was reference that they had tested that very theory about what it would take to get a master's license. And I believe it was Panama, but I am not 100 percent sure.

    And I think they went in with about $2,000 and some documents. And they got a license.

    Mr. TAYLOR. Nobody checked the documents?

    Captain SCHUBERT. That is what it was in the IMO report, it was alleged.

    Mr. TAYLOR. Okay, so that guy who may really have no helm time, who paid the $2,000, can be operating one of these cruises to nowhere in any American port right now, as long as he is in a position to sail for 12 miles out to sea, turn around and come back?

    Admiral PLUTA. Theoretically, sir. I think the company might be worried about the risk to their investment. But theoretically, the answer to your question is ''yes,'' sir.

    Mr. TAYLOR. Well, can't they be—interesting phenomena. We passed—I believe all of us were here in 1990—a very tough law called the Oil Pollution Act, which made that vessel owner liable, unlimited liability. But their insurance companies are overseas, aren't they?
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    Admiral PLUTA. Most likely, sir.

    Mr. TAYLOR. So you basically have to deal with Liberian justice to collect the fine. Is that pretty accurate?

    Admiral PLUTA. Yes, sir. I think it is.

    Mr. TAYLOR. I have always considered Liberian justice to be sort of an oxymoron.

    Admiral PLUTA. Yes, sir.

    Mr. TAYLOR. Does that trouble you, admiral? Because it does trouble me, this whole concept of the cruises to nowhere. I think it really is an insult to all the Americans who live by the rules. I think it is unfair.

    Admiral PLUTA. Yes, sir. There are distinct elements of that that are truly troublesome. And that is why we work ever so hard internationally to try to get a flag state auditing system in place through IMO, to make sure that the flag states are enforcing the requirements they are signatory to.

    That is why we worked so hard on the STCW Convention to get minimal, baseline requirements for all mariners that must be met and can be challenged by port states. And we do. We make them do fire and boat drills when they come into port, so that we avoid having those unqualified mariners operating out of U.S. ports or entering U.S. ports.
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    But it is certainly not a foolproof system, sir.

    Mr. TAYLOR. So to go back to the line where—obviously, you are a master. I mean, you deserve it. But I could take a mechanic from Waveland, Mississippi down to Panama with 2,500 bucks and make him an instant unlimited tonnage master, is what you are telling me?

    Captain Schubert.

    Captain SCHUBERT. I am not exactly—I was quoting from the IMO sort of review that they did recently. And they did allege that this was a relatively simple process to get licensed. But I am, just to be honest with you, not an expert in the Panamanian licensing procedures.

    Mr. TAYLOR. So if you can get a master's license, that would mean that almost anybody on that vessel could have bogus papers then, for probably a lesser fee? Do we accept those documents on face value? Is that all they need to enter our country?

    Admiral PLUTA. No, sir. We send boarding teams on board vessels. And we observe these drills. And if the crew does not seem to know what they are doing, leading us to suspicions about the validity of their licenses and documents, then we will probe further.

    And if they have an unqualified crew on board, they are going to cease operations and replace them with qualified members. That is how our Port State Control System works, sir.
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    Mr. TAYLOR. Okay. But if you wanted to arrange for, in effect, a place for a terrorist cell to live and operate and sit there as long as they wanted until they were activated, I mean, wouldn't one of these cruises to nowhere be an ideal setup?

    Admiral PLUTA. It certainly—it and other vessels could be used for that, sir. And that is why we want to work so hard to get meaningful seafarer's documents across the board. And that is why we ask for the information far in advance and why we vet it through all the agencies and we put eyes on the people that we suspect may be problematic, Mr. Taylor, sir.

    Mr. TAYLOR. Mr. Chairman, I am sure you recall that, with your help and I believe Mr. Saxton's help; I am fairly certain of that, we passed through this body on three or maybe even four occasions, language to tighten the rules on cruises to nowhere. It unfortunately went to the Senate and nothing happened.

    But I would ask that, under your leadership, we take one more crack at that. I think it needs to be addressed. I think it is unfair to the shrimpers, the tugboat operators and all the other guys out there who live by the rules: buy an American vessel; hire an American crew; Coast Guard inspected.

    It is simply not fair to have the guy across the dock, whose got a foreign crew, foreign boat, could well be harboring a future terrorist, being able to operate out of our country under this sham of going 12 miles out to sea and turn around. Now I am going to ask that you try to, as the chairman of this panel, resuscitate that. And let's take another run at it.
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    Mr. HUNTER. It sounds like a fertile field for us to plow here. But that leads us to another question though, Mr. Taylor, and that is this. Reading the U.N. directorates to these flag of convenience countries, they are supposed to have maritime administrations that operate credentialing service, if you will.

    And yet, Mr. Wolf led off with the operative statement in Liberian law that says, ''All flagging will take place at the president's palace.'' Right? And Mr. Taylor will take care of everything. That implies to me there is not much of an operation going on there, outside of greasing a few palms when you get to the president's palace, right?

    Admiral PLUTA. Mr. Chairman, that is exactly why Mr. Schubert and I went to Tokyo, to the ministerial to sit down. And he signed a document on behalf of the United States, urging IMO to enter into a flag state audit program so that we could ensure that the flag states are not only meeting their safety requirements, but also their requirements under the STCW Convention for credentialing their mariners.

    Mr. HUNTER. But in real life, that has not happened. And I do not think you are going to see a big maritime institute blossom in Liberia, which is forthwith going to institute stiff standards for operators' credentials. Right?

    I mean, we know that is not going to happen. You are going to continue to basically have a state that operates in payoffs. And that is how they run the thing.

    And so you are not going to have this credentialing. And so, in your estimation, how should we proceed if you accept that as—Mr. Johnson says or Tonga or Malta, some other fine candidate flags of convenience? But if that is the case, how do you think we should proceed?
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    I mean, we have to live in the real world. And so you are asking these international bodies to enforce this discipline on countries who make money because they have a low overhead, right? When you just come in and pay off the head of the country, your interaction with bureaucracy is fairly limited.

    Admiral PLUTA. I am sure that is happening in some places, Mr. Chairman. The way I would suggest we proceed is we try to get this IMO-ILO partnership in place to get a positive, verifiable, biometric identification for all mariners.

    And meanwhile, we are working with both the INS and the State Department to tighten the reins on mariners that come to the United States through our own national provisions. If we can get other countries to tighten up their systems and then we cross check it, as we do today, for mariners that come here today, and use the intelligence means available, those are the best ways of doing it.

    I think we may wind up, if it is not an international initiative, having to go with some sort of unilateral U.S. requirements that complement our existing requirements to ensure a positive, verifiable, biometric identification so that we can see exactly who is coming to our country. And that is about the best you can do, Mr. Chairman. I think that would be a lock on who is coming.

    Mr. HUNTER. Thank you.

    Mr. Saxton.
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    Mr. SAXTON. Thank you very much.

    Let me just ask one quick question. And I hope that you have as specific as possible an answer to it.

    Mr. Hunter, Mr. Taylor and I, over the past several years, have asked the question similar to this from time to time. Because we know that, in today's case, the Coast Guard or Maritime Administration is oftentimes stretched pretty thin. We have given particularly the Coast Guard, from my point of view at least, more jobs to do with less resources than any other agency I know of.

    But we asked the Navy and the Army and the Air Force and the Marine Corps this question. And it is a good question. If you can give us some idea, because now is a good time.

    What kind of resources do you need in order to enable you to do what you need to do, what we expect you to do, what the American people expect you to do? I know you do not have enough resources. Can you give some specific notion of what kind of an increase you need, resource-wise?

    Admiral PLUTA. Sir, I can thank you for the support that the Congress has given us in the supplementals for this year and the support that we expect, over the coming years. It is going to take us time to build the capacity that we need in order to fulfill our domestic maritime homeland security role here.
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    I think that if we follow the augmented budget for 2003 that we have submitted and the follow-on expectations to annualize that and add the capacity in 2004 and 2005, our commandant has put us on a three to five year growth plan to get to where we need to be to do exactly that, sir.

    I do not have the details of all of that sitting in front of me. But I know that we have well thought it out. We vetted it through the process. I do not know what any reorganization impacts there might be on that.

    But I think we have well defined where we would like to be. And I can only say that if you would continue your generous support for our requests, that we would be where you want us to be, sir.

    Mr. SAXTON. So there. [Laughter.]

    Now let me use a Chairman Hunter trick. Tell us the three things you need most.

    Admiral PLUTA. Wow. [Laughter.]

    We need the capability to do better maritime domain awareness. And that is a large bag of things, sir. We are a member of the intelligence community. We are way behind in having our people in the field have access to classified information directly at their desks.

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    And we need to continue along as part of our plan. That is probably the biggest slice.

    We need the resources to respond, both domestically and then in the deep-water arena. We need smaller boats, more people, maritime safety and security teams, sea marshals to board and control vessels if they move into our ports.

    And then, should we need to interdict offshore, we need the deep-water assets of our cutters, our aircraft, in order to perform that mission.

    Mr. SAXTON. Lockheed Martin just won a contract or is in the process of being awarded a contract for the deep-water, so-called ''deep-water contract.''

    Admiral PLUTA. Yes, sir.

    Mr. SAXTON. Lockheed-Martin is the electronics part of the effort to provide the assets that you need for the deep-water mission. Is that right?

    Admiral PLUTA. I think they are the systems integrator contractor——

    Mr. SAXTON. Correct.

    Admiral PLUTA. —that is is being responsive to our contract request.
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    Mr. SAXTON. And the deep-water project, not just the Lockheed-Martin part—I probably should not have mentioned that—but the deep-water project, will that give you, once completed, the capabilities that you need offshore?

    Admiral PLUTA. If the entire package—and that contract has not been awarded. There were three different organizations competing for it and that bid has not been awarded yet, sir. But if we get all the assets over that time span of up to 20 years or 15 to 20 years. I forget exactly what it is. But all of those assets will put us in a position to defend our country offshore. Yes, sir.

    Mr. SAXTON. I also saw some paper the other day where there is a proposal out for something like 150 40-foot boats for other purposes. Is that a different program? Obviously, it is.

    Admiral PLUTA. Yes, sir. The deep-water contract—again, that has not been run out to its conclusion as yet—has not been awarded. So I do not know who the winning company is.

    But the smaller boats are part of our maritime homeland security package, in order to provide more Coast Guard presence on the water, like Mr. Taylor used to do not too long ago. But we need additional Coast Guard presence on the water to protect our critical infrastructure.

    We have new maritime safety and security teams that are going to need those assets to surge to where the next threat might be. We cannot afford to protect every port, all the time, 100 percent. So we have to use risk-based decision making and deploy them so that they can quickly go to where they are needed.
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    And those small boats and assets, the chem-bio response type equipment, we have responded to those threats to our country as well. All of that has to be put online over the next few years. And that, I think, is a part of what you are alluding to, sir.

    Mr. SAXTON. Well, obviously, we are not your funding mechanism. But we can help. And so, we want to do that.

    Admiral PLUTA. Thank you, sir.

    Mr. HUNTER. Thank you, Mr. Saxton.

    Let me run over a few questions here, Captain Schubert and Admiral Pluta, that I think we need to get on the record.

    Captain Schubert, on page four of your testimony, you talk about the so-called ''effective U.S.-controlled fleet,'' EUSC, ships that are owned by U.S. citizens, but fly another country's flag. Can you describe the arrangement that the U.S. has with these other countries that might allow us to requisition the ships in time of an emergency?

    Captain SCHUBERT. Yes, sir, Mr. Chairman. First of all, with regards to the EUSC, I would like to use this opportunity to, let's say, debunk a theory out there that some people have that these ships are really in our control. They are really not in our control.

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    Mr. HUNTER. Okay.

    Captain SCHUBERT. And many of these ships are not even military useful ships, in my opinion.

    Mr. HUNTER. So they cannot be counted on to be part of our commercial or sealift capability?

    Captain SCHUBERT. I think it would be very dubious, to say the least, to look at—we estimated there is approximately 462 vessels that are flag of convenience and another 63 other ships. But we have looked at this, especially over the last six months in view of maybe some potential requirements we might have. And in our agency's opinion, we should not look at the EUSC as a strategic sealift in this day and age.

    Mr. HUNTER. Okay. That kind of leads to the next question, Maritime Security Program. Your testimony suggests that reauthorization of that program is critical.

    What happens if we do not do that?

    Captain SCHUBERT. Well, if we do not reauthorize, in 1995, the MSP program, in my opinion, we will not have any measurable presence at all in the international trade. And that could be very devastating to both our national security interests that we have, the military requirements.

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    Another impact would be that the military may have to replicate the same—it is not just the ships. It is the whole intermodal network that they get with the ships through the MSP program. They get the trailers. They get the containers, special equipment.

    If they had to replicate that, sir, it would be at least another $9 billion to $12 billion that the taxpayers would have to pay out.

    Mr. HUNTER. Okay.

    You once did a study on foreign flag vessel crewing. What is the relationship between the flag of the vessel and the crew nationality? Is there any relationship to the flag of the ship?

    Captain SCHUBERT. Yes, we have done a study on that. And there really is very little relationship to the actual flag of the vessel. And I had some examples here I was going to give you. Just give me one second. Here we go.

    For example, the Panamanian flag, which is the largest flag of convenience, Philippines is the largest—is the primary crew of nationality is from the Philippines. For the Liberian flag, the largest single nationality for crew is China. Cyprus, it is India. The Bahaman flag is Russia. In Greece, their largest crew nationality is from the Ukraine.

    And this is from a study that we did in 2000, based on 1998 data.

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    I would like to also mention that I will be directing staff, especially after the implementation of STCW requirements. I think you are going to see a lot of other countries' crew members is going to change substantially. For example, I believe China and Russia will quickly overtake, if not completely overtake, the Philippines eventually because of the STCW requirements.

    Mr. HUNTER. Okay.

    You have talked and a number of us have talked about reexamining tax laws to encourage ship owners to return to the U.S. flag. First, in light of your question—your answer to the question that preceded this last one, what do you see as advantages of, if we could induce companies, especially American companies like some of the ones I read off that are presently flagged Liberian, to return to the U.S. flag? What are the general benefits of doing that?

    Captain SCHUBERT. Of coming to the U.S. flag?

    Mr. HUNTER. Yes.

    Captain SCHUBERT. Well, currently, I want to reflect back to the MSP, for example. That is a retainer paid, about $2.1 million per vessel currently under the current program. I want to emphasize that that does not completely offset the cost of U.S. and foreign flag, on just a pure cost basis.

    So that is an issue there.
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    Mr. HUNTER. Let me ask you, in light of that, not to digress, what is the motivation then for companies to be in that program if they are not breaking even, as you say? You are saying the payment that we are giving them is not making up for the adding cost of flagging American, if you will.

    Captain SCHUBERT. It does not pay the dollar cost, completely offset the dollar cost, compared to, for example, a flag of convenience vessel. No, sir.

    The incentives are—I would say that a lot depends on how much cargo preference we have; that is the set-aside cargoes that the military and other programs—it is government-impelled cargo.

    Mr. HUNTER. So what you are saying is there are several advantages to flagging American. One is you can be MSP. You can also have some cargo preference.

    Captain SCHUBERT. That is correct.

    Mr. HUNTER. So in bits and pieces, you may pick up enough benefits to offset the additional cost.

    Captain SCHUBERT. That is correct.

    Mr. HUNTER. Okay.

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    Captain SCHUBERT. But I wanted to make a point that even if there was cost parity between U.S. and a foreign-operated vessel under a flag of convenience, even if there was a cost parity somehow, that there is still a pretty significant disadvantage.

    Mr. HUNTER. And that is because the company that flags American is an American corporate citizen, by dent of flagging American; and therefore, subject to the corporate tax laws. Is that right?

    Captain SCHUBERT. That is correct.

    Mr. HUNTER. So you are paying income tax. You are paying corporate taxes.

    Captain SCHUBERT. You are paying corporate taxes on top of—

    Mr. HUNTER. If you flag Liberian, you are only paying Charles Taylor. Right?

    Captain SCHUBERT. Whatever that is, correct. But it is certainly not equivalent to what the Internal Revenue Service (IRS) collects.

    Mr. HUNTER. Okay. Generally, what are the advantages, from your perspective, of inducing—if we could put together a program that would induce a number of our American companies to flag American, what benefits would we receive as a country?
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    Captain SCHUBERT. Okay, the benefits—and it is very germane to the purpose of this hearing. I believe the more U.S. flag vessels with U.S. crews on board, it does add to our security. It is simply because we, as the admiral said, we have very good control over how we license and document and train our mariners.

    Mr. HUNTER. Sure.

    Captain SCHUBERT. There is improved safety.

    Mr. HUNTER. So if you have Americans on the ships, it is a lot easier to know that when somebody says he is John Doe from——

    Captain SCHUBERT. Right.

    Mr. HUNTER. —Iowa, you can probably verify that.

    Captain SCHUBERT. That is correct.

    Mr. HUNTER. Now explain to me again the relationship between the flagging and the crewing. Didn't you say at one point that your studies have shown there isn't a big relationship between flagging and crewing? So let's say we induced a number of companies that are now flagging Liberian to flag American, would that mean that they necessarily would take on American crews?

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    Captain SCHUBERT. Yes, they would have to take on American crews.

    Mr. HUNTER. If you flag U.S., you have to take on a U.S. crew?

    Captain SCHUBERT. Yes, sir.

    Mr. HUNTER. Okay. If we totally undid, if you would, the corporate taxes. And we took a scale, for example, that took the flags of convenience and arrayed them. And said we are going to have a little commission that puts together what we call a ''flagging fee,'' that maybe is somewhere in the middle of these. And that is going to be what you pay.

    And it is very ascertainable. It is predictable. And it is a flat fee.

    Do you think that would bring some of these companies, especially American companies, back to our flag?

    Captain SCHUBERT. I would suggest that if we use the models that primarily the Europeans have used recently and the successes that they have had and we look at what has worked and what has not worked, I think it would make a big difference in decisions to re-flag to the U.S. flag. The European model would be what is commonly referred to as a tonnage tax or a flat tax, in lieu of an income tax.

    Mr. HUNTER. And so the Europeans use the tonnage tax, if you will?
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    Captain SCHUBERT. Yes, I can rattle off a whole list of them here for you, Mr. Chairman.

    Mr. HUNTER. Okay.

    Captain SCHUBERT. Denmark, Germany, Greece, Ireland, Netherlands, Norway, Pakistan, Spain, and the United Kingdom.

    Mr. HUNTER. Okay. Let's take one of these big companies that is presently flagging with Charles Taylor. Let's say the Dole Company. I presume the pineapples, not the senator. [Laughter.]

    What incentive, if he is looking at his costs that he is going to incur if he flags American, he is going to have, at least at this point, he will have the corporate taxes, right? On that particular subsidiary or company that is doing that shipping?

    He will also have operating costs because he will have to take on an American crew, right?

    Captain SCHUBERT. Right.

    Mr. HUNTER. So he will have an increased operating cost. If you are looking at this as a shipper, what is your biggest cost? Is it the corporate taxes, the flagging fee? Or is it the operating costs?
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    Captain SCHUBERT. Well, the flagging fee is relatively small.

    Mr. HUNTER. It is just what it incurs or embodies that makes it difficult for you.

    Captain SCHUBERT. Correct, the flagging fees.

    But then we are talking about the issue of meeting U.S. Coast Guard requirements, which may be, in some cases, more strict than the international standards. I will say the Coast Guard has been very cooperative in recent years, through the MSP program, for example, if a ship meets international standards basically from a legitimate classification society, then the Coast Guard has worked with MARAD on that issue. And the same recently for tankers.

    But the incentives, I wanted to give you a just brief example of an exercise we did. If a vessel earned, for example, $2 million in a good year in profit and were taxed at a 40 percent tax rate, that would be about $800,000 in taxes that they would have to pay.

    Now if we looked at the United Kingdom's tonnage tax regime and we did a similar calculation of what they would pay under that system. And it would be somewhere between $16,000 and $17,000. So there is a big incentive.

    Mr. HUNTER. Okay.

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    Captain SCHUBERT. Does that answer your question?

    Mr. HUNTER. Yes. Well, it tells me one reason why they are not flagging American, obviously. But the question becomes: if we change that from an American, from one of these companies that we rattled off—Exxon, Mobil, Conoco, Dole—do you think they would be, what would be the benefit of now flagging American?

    In other words, if we have shown them that, okay, we say, ''Come back. We are not going to hit you with a giant $800,000 tax anymore.'' Would they still say, ''Yeah, but we are going to have this increased operator cost,'' right? Because we are going to have to crew American. I am just trying to get a realistic appraisal of whether you think we can bring them back.

    Captain SCHUBERT. I think it would make a difference. Yes, sir, it would.

    Mr. HUNTER. Okay. When they are sitting in the boardroom, trying to figure out whether they are now going to flag American, what would they consider? If you were the guy who was supposed to present the benefits of now flagging American, and you were in the boardroom of these companies, what would you throw out? What would you say are the benefits for us to now flag American, assuming that you are not now going to pay this prohibitive corporate tax rate?

    Mr. TAYLOR. Mr. Chairman? May I answer your question.

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    Mr. HUNTER. Sure, sure.

    Mr. TAYLOR. Believe me, I am in total agreement with you, Mr. Chairman. But it does go beyond that. And I do not know if the captain is in a hurry to get out of here, or maybe some of these things he is just failing to mention.

    Number one, if you are an American vessel—and help me out here, commander—admiral.

    Admiral PLUTA. You can call me whatever you want, sir. [Laughter.]

    Mr. TAYLOR. As a former E-1, you guys still scare me. [Laughter.]

    Believe you have to be, if you are a U.S. vessel, you have to be hauled every year and inspected by the Coast Guard. Is that correct?

    Admiral PLUTA. Yes, sir.

    Mr. TAYLOR. A foreign flag vessel, you can buy the certificate. I could probably buy it over the Internet that you have been inspected; put it up so you have saved that money.

    And again, this is why I find the cruises to nowhere so particularly unfair. If you are an American vessel, you are going to pay at least a minimum wage. And let's face it, the guys that Charlie back there represents do a heck of a lot better than that.
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    With foreign flag, you do not even have to pay minimum wage. And the truth be known, on the cruises that so many of us take, the crews live in virtual slavery. They work for their meals and about $400 a month. And where they come from, that is big money. So you are competing with that.

    You can get your officers a heck of a lot cheaper. A foreign flag officer, probably if he is well paid, makes $45,000 a year. A kid that I sent to the Merchant Marine Academy, first year out of college, is making $67,000 working six months.

    So there are a lot of things.

    And unfortunately, what really troubles me—and I am sure it troubles you—is the simple unfairness that the guys who break all these American rules have: the benefit of the Coast Guard sitting there 24 hours a day, at their beck and call; have the benefit of the local police department; have the benefit of the local fire department; have the benefit of the Corps of Engineers dredging that channel for them, just like they are living by the rules; have the Navy SEALs, should their ship be hijacked, they do not care where they are. If they have one American passenger on board, they know the United States Navy SEALs are going to come bail them out.

    And I think that is the part that is particularly unfair because the American taxpayer bears the cost. The American kids are performing those duties.

    And so it is really two things. I think we have been negligent, as a whole Congress, in letting those guys have those privileges without paying the cost. And until we start closing some loopholes like the cruises to nowhere, they are going to continue to take advantage of us.
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    Mr. HUNTER. But see, Gene, my point is you are right. There is a lot of unfair aspects, a lot of disparities in treatment.

    What I am trying to ascertain is, if you eliminate some of those disparities, is the guy in the boardroom still going to say that we still have the operator costs? We still have the sub-minimum wage we are paying the foreign flag, we are paying the foreign crew? We still are not subject to the scrutiny of the Coast Guard on these checkups that we have to do each year?

    And so therefore, I do not care as a corporate officer whether or not they have changed the corporate tax to a tonnage fee. We are still not going to flag American.

    I mean, I am trying to figure out if they are going to make that call. And so what I was trying to illicit was if you gentlemen had any other advantages that you think will be considered by corporate America, should we in fact change the tax disparity. What reasons would they want to flag American, outside of just patriotism and liking our country?

    Captain SCHUBERT. I would like to use the example just recently. We have had two ships flag in to the U.S. flag. One was a heavy lift ship, which we have not had one in 20, 30 years at least.

    Operating in the commercial, they are not receiving any MSP. And we also have a tanker application to re-flag for the foreign trade. Now we are talking for the foreign trade. It is not a Jones Act issue.
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    And there are benefits to some of our bilateral trade agreements that we have on maritime agreements. And Brazil is an example.

    Mr. HUNTER. So there are a few niches that you can fit into.

    Captain SCHUBERT. Yes, sir. There are niches out there.

    I wanted to also point out that the European models that we are looking at on tonnage tax were not just tonnage tax. Some of them combined tonnage tax—that is the flat tax that I mentioned earlier—with other provisions through the tax code that help the seamen.

    For example, if they work offshore for a certain number of months of the year, they do not pay any income tax. So there is sort of a equilibrium or agreements between the ship owner and the crew that maybe that will help lower some costs. But the crew members have received some of the benefits of this initiative.

    That crew side of the tax code also addresses another serious problem we have in the United States, which is retention of crew members that want to go to sea. You know, that is an issue that I am sure you will hear about.

    But if you take a look at the successes in the Netherlands, who implemented the tonnage tax, their tonnage increased by 40 percent between 1996 and 1998; Norway has increased——

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    Mr. HUNTER. And they have pretty good wages, don't they?

    Captain SCHUBERT. Yes. I would say that they are not the ships of shame, anyway, that we have heard about where the crews do not get paid, you know, get paid very low, if not any wages. So these are good examples.

    The United Kingdom, from July 2000 to 2001, their tonnage increased by 40 percent.

    Mr. TAYLOR. Mr. Chairman, if I may?

    Mr. HUNTER. Yes, go ahead.

    Mr. TAYLOR. And to the point, and we represent amazingly similar districts, isn't one of the factors that, in order to U.S. flag, it has to be U.S. built, and it costs more money to build a ship in Pascagoula or Southern California than it does in Bangladesh? It is just a simple fact.

    We have environmental rules. We have better wage laws. And one of the things that they skirt by foreign flagging is the U.S.-built requirement.

    But sadly, Mr. Chairman, to a certain extent, Congress has been a factor in that as well because we have granted Jones Act waivers way too often to foreign built vessels that turn around and engage in the American trade, again competing against all the guys who live by the rules and pay all the costs.
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    So I want to commend you on your line for questioning. And captain and admiral, I would ask—and all I can do is ask—that you would provide us a list of the loopholes that need to be closed, in addition to the tax-type questions that the chairman was asking you.

    And let's come up with a checklist of what we have to do, as a nation, or at least try to do, convince our colleagues to do, to resolve this problem of people, of all the foreign flag vessels, of the cruises to nowhere.

    Mr. HUNTER. Yes. That would be good if we had that list. You could title it the ''list of perceived advantages for flagging foreign,'' right? If you do not want to call it loopholes. Of if you want to call them loopholes, call them loopholes.

    But if we could get that, that would be great.

    [The information referred to can be viewed in the hard copy.]

    Mr. TAYLOR. But I share your common goal of rebuilding the American fleet. The great nations of the world have always been great maritime powers. And I do not see how we can remain a great nation if we are not a maritime power.

    Mr. HUNTER. Now we are not receiving much income right now from flagging of vessels anyway, are we? Don't we have a fairly small contingency of American flag vessels? Have we got any estimate of the government revenues that flow from that?
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    In other words, the argument is going to made, if we try to get a tax change, we are going to get a scoring evaluation that will say: here is the amount of tax money that the Treasury is losing by knocking down that $800,000 a year you spoke of to maybe the $15,000 or $20,000 in tonnage tax.

    Captain SCHUBERT. That was just an example.

    Mr. HUNTER. But that is going to be—they are look at that type of thing. In your estimation, is there much, in light of the fairly small membership of American flag ships, is there much in revenues to be lost if we, in fact, go to some kind of a flat fee or a tonnage tax fee?

    Captain SCHUBERT. Well, one of the things about the flat tax regimes that are out there is you pay them whether you make money or you lose money. And unfortunately, there are years when carriers are not making any money.

    So this would be a pretty complex, detailed evaluation that we would have to meet.

    Mr. HUNTER. Well, maybe we can let the tax people look at that, if we put this initiative before them. But I think it makes sense. If this is an international competition, it makes sense for us to place ourselves squarely in the middle of that competition. And if they are doing a flat tax or a tonnage tax that is a fraction of what some of our operators would pay, I think we ought to adopt that.
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    Captain SCHUBERT. I would like to just point out one other issue regarding the seaman wages. If you work for Brown & Root or—I do not want to mention any company names here, but if you work for a U.S. construction company overseas and you are working over six months, you do get a certain exemption already for how much, up to $80,000. Your first $80,000, I think, is exempt from taxation.

    Our crew members on the U.S. flag vessels that are working six months or longer do not get the same privilege under the current law.

    Mr. HUNTER. Okay.

    Well, gentlemen, thank you very much.

    And Admiral Pluta, did you have anything to add that you wanted to bring up?

    Admiral PLUTA. Mr. Chairman, just in comment to the Coast Guard rules and their impact on the cost, I thought it might be worth mentioning that we have been working very hard internationally to try to get the minimum safety of life at sea standards, so that all ships—there would not be—we would minimize the differential for whatever U.S. rules were over and above.

    Mr. HUNTER. Well, let me just ask you kind of a little tougher question here. It is nice to work internationally. But the security of this country should not depend on getting an international consensus as to what we can or cannot do as Americans when these ships enter our ports and people who may wish us ill comprise portions of the crews of the ships that enter our ports.
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    So we have to do what it takes to protect ourselves.

    Are you confident that you are doing everything that is necessary to protect us, in terms of homeland security, from the dangers of having terrorists enter this country or ship stuff in through maritime avenues? You think you are in control?

    Admiral PLUTA. Mr. Chairman, I think given the size and the capability of the Coast Guard and our partners to focus on this threat, under the current circumstances, we cannot do everything that we would like to be doing today. And so we are using risk-based decision making techniques to apply our limited resources to the biggest threats at hand.

    And over time, Mr. Chairman, I think that we will get to the point where we can. But we are not there today.

    Mr. HUNTER. You think we are taking big risks right now?

    Admiral PLUTA. I did not say that, Mr. Chairman.

    Mr. HUNTER. Well, I tell you what, this is the only hearing we are going to have on this. You have to tell me like it is.

    Admiral PLUTA. Mr. Chairman, we are using the risk-based decision techniques to find where our vulnerabilities are. And we are applying our resources to where those vulnerabilities are.
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    Mr. HUNTER. What risk-based—we use that all over the place—what risk-based implies is you are taking a chance because you do not have enough resources to cover all the problems.

    Now my question to you is, if you had to give a candid analysis of whether or not you feel confident that we have a reasonable level of security, understanding you do not have all the resources you want, do you think we are there? Do you think we have major vulnerabilities, in terms of port security?

    Admiral PLUTA. Mr. Chairman, I think we are not where we want to be. We have a plan to get there. And we are addressing all of the threats and vulnerabilities as they come along.

    Mr. HUNTER. Are you confident when people—that you have a handle on the personnel?

    Admiral PLUTA. On the seamen coming to the United States?

    Mr. HUNTER. Yes. Are you confident you have a handle on that? That you have a genuine ability to validate the credentials of those people in a real way?

    Admiral PLUTA. Not as good as we would like to, Mr. Chairman. But given the number of times that a vessel has had a hit on it and vessels have come to port where we have found things when we got on board, we have done—and with our networking with immigration and naturalization services (INS), partnering with them in the field, we have put a good blanket on what is coming in our direction right now.
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    But it needs to be better because we do not have the validity of the paperwork that you have been asking me about that we are trying to work internationally. The best we can do is demand it domestically right now.

    Mr. HUNTER. Okay. So if somebody wanted to come in who is a terrorist, we have seen these publications that show how you can go down on the streets of Panama and buy credentials off the streets. And assuming that that person has a sufficiently phony name that when you send it up to the intelligence agencies, when it comes in on your 96-hour notice, that it does not ring any bells. No red flags go up. That person can enter the country quite easily, right?

    Admiral PLUTA. Mr. Chairman, we are working—and again, this might be another one to delve deeper in a different forum. But we are working with the government of Panama on this issue. And there are special measures in place for that particular threat.

    But we are definitely not nearly as good as we need to be. But I think we are addressing the most vulnerable areas and the highest threats that are coming in our direction.

    Mr. HUNTER. Okay.

    And last, the cargo containers that are coming in, that is obviously under the aegis of the Customs Department, in terms of review of what is coming in through our ports, right?
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    Admiral PLUTA. Well, it is a partnership, Mr. Chairman.

    Mr. HUNTER. Okay, but you folks do not do any of the non-invasive searching of the cargo containers, do you?

    Admiral PLUTA. Mr. Chairman, we are embarking on several demonstration projects, in cooperation with many, including customs, to do just that.

    Mr. HUNTER. Okay. Who buys these big x-ray machines that survey the cargo containers?

    Admiral PLUTA. That would be customs, sir.

    Mr. HUNTER. Okay.

    Admiral PLUTA. The U.S. Customs Service has been an integral member of our delegations as we go to IMO. And we have encouraged IMO to partner with the World Customs Organization so that we can solve that problem overseas. If the container with the dirty bomb arrives at the United States and runs through our x-ray machine, in my opinion, it is too late.

    We need to do those kinds of things before it ever gets loaded on a ship coming to the United States. And so we have been working at IMO to make sure that the master has discretion to prevent cargoes that he does not know sufficient information about from being loaded on a ship bound for the United States.
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    Mr. HUNTER. Aren't a lot of the cargoes that come into our country come in from COSCO, from the China Ocean Shipping Corporation?

    Admiral PLUTA. Yes, sir.

    Mr. HUNTER. Well that is, for practical purposes, controlled by Beijing. And that is, for practical purposes, the Chinese Merchant Marine.

    Admiral PLUTA. Yes, sir.

    Mr. HUNTER. Corporatized. How the heck are you going to enforce a surveillance or a pre-trip check on the Chinese government?

    Admiral PLUTA. If we can get an international standard in place—

    Mr. HUNTER. Is that right?

    Well, we were supposed to check the last 163 supercomputers we sent them. And we have checked precisely—we have been allowed to just check precisely one out of one 18-month period. I mean, they do not let us check anything.

    I like your discussion about these international groups. But I think those things are good for some small talk and some warm handshakes and maybe some good food. You are not going to get any agreement to be able to do pre-checks on COSCO containers.
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    We have found those guys with missile components. We caught them with 2,000 machine guns being shipped into California. The captain claims that somebody must have put them on while he was at the Dairy Queen. [Laughter.]

    This is the Chinese government. So why are you giving me this stuff about the international institutions that are going to regulate the Chinese? That is not realistic.

    Admiral PLUTA. Mr. Chairman, I probably am being idealistic as I mention these things. But we do not have the jurisdiction to go past the ships. So what I was describing to you was what is within our own jurisdiction, to try to make sure that the masters of ships are on notice not to permit suspect cargoes from coming in our direction and trying to put an international regime in place to have something. Because we have nothing today, sir.

    I know customs is working on bilateral agreements with different countries. In know that the people who buy all this stuff—the Wal-Marts and the Targets and the General Motors of the world—have great influence over this.

    And so there is a container security working group that is a large interagency group with private input as well, trying to work on how do we get a grip on this complicated problem, Mr. Chairman.

    Mr. HUNTER. Okay.

    Mr. Taylor.
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    Mr. TAYLOR. Admiral, I remain as concerned about someone either intentionally steering a ship or hijacking a ship and using it as a weapon. In fact, right now, much more so than an airplane. I am pleased to see the steps the FAA is taking.

    What percentage of the red flag vessels—the petroleum vessels, the chemical vessels—what percentage of them would have a sea marshal on board now?

    I know you cannot do every vessel. But particularly the Benzynes, the Styrenes, the gasolines, something that could hurt a lot of people.

    Admiral PLUTA. Sir, I do not know exactly, but probably no more than 10 to 20 percent, something in that range. Ten percent, maybe.

    The guidance that we have given to our captains at a port is to—we have given them classified guidance on which kinds of commodities are the highest risk. And so all of those are designated as high-interest vessels. And all of them are dealt with in a special way.

    The rest of the cargoes that may be very flammable—oils, those sorts of things—are not necessarily included in that group. And so there is a high percentage of those trafficking in the Gulf Coast that would not pop up to be given special treatment.

    That is why we look at the crew. That is why we look at the passengers that might be on board. Because even commercial or cargo vessels have passengers sometimes.

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    And see whether or not, from where it has been, from other information that we are collecting, that it causes us to identify it as a high-interest vessel anyway. We board all of those. And we vet the crews. And we may very well leave sea marshals on board to make sure that nobody can use this vessel as a weapon.

    That is the rubric that we have been operating under, sir.

    Mr. TAYLOR. Given the extremely high profile case of the American turned al Qaeda in Charleston. And knowing the very large port there and the number of bridges there, what additional steps is the Coast Guard taking to ensure maritime safety there, since that guy is, at the published reports, at the Charleston Naval Station?

    Admiral PLUTA. I am not aware of any special steps. I would be happy to get back with you on that, sir.

    Mr. TAYLOR. Would you, please?

    [The information referred to is retained in the committee files and can be viewed upon request.]

    Admiral PLUTA. But I really do not know whether we have taken any special steps. That would be a local determination or district determination that I may not be aware of.

    Mr. TAYLOR. I am curious and I am taking a wait and see attitude on the president's proposal and Senator Lieberman's proposal to include the Coast Guard in this new agency of homeland defense. One of the things I would like to know is: what input is the administration seeking from people like yourself, from the commandant, as to what additional assets and what additional hours does the Coast Guard need to adequately fulfill what I consider is a very strong need and a very obvious vulnerability?
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    I think our waterside security at so many installations is lacking because you do not have the local police to help you out. It really does fall entirely to the Coast Guard.

    Admiral PLUTA. Well, there are several. In anticipation that there might be a reorganization, the are several transition teams: one to identify overarching issues; and there is a special one dealing with legislative authorities. Both of those, I know, are actively working now to identify those kind of things, should we transition to a different organization.

    Does that answer your question, sir?

    Mr. TAYLOR. Hopefully, the administration is asking for what additional things you need. If that is their request, I would very much appreciate a copy of what you say you need in order to do your job better.

    And you cannot—let's face it. It has not happened. So you are batting 1,000.

    But we have zero tolerance constituencies. We cannot fail. And particularly when the stakes are as high as someone crashing a styrene tanker into the River Walk at New Orleans on Super Bowl weekend, Mardi Gras weekend, taking out the Golden Gate Bridge.

    I mean, there are so many horrible scenarios, that you all have an extremely tough job. And as the chairman says, let us know the things that you need to make this happen. And if the administration is not asking that question, then it becomes our job to ask that question.
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    And I hope you will not be shy about it.

    Admiral PLUTA. Thank you, sir.

    We definitely are trying not to be shy in what we need and following the process to get there. And as I said, you have been very generous. And the administration has been very supportive. And it is just going to take us time to get where we need to be because we just cannot fill our forces with experienced people overnight. It is going to take time.

    Mr. TAYLOR. Thank you, Mr. Chairman.

    Mr. HUNTER. Okay.

    Thank you, Mr. Taylor.

    And gentlemen, thank you very much for your testimony, for your patience. And we look forward to working with you. And we will now go to our next panel.

    And we are going to have: Dr. David Heindel, secretary-treasurer, Seafarers International Union of North America; Mr. Peter Morris, chair of the International Commission on Shipping; and Mr. Alex Vines, senior researcher, Human Rights Watch and member of the United Nations Panel of Experts. And also, we have Mr. Yoram Cohen, chief executive officer for the Liberian International Ship and Corporate Registry.

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    And Mr. Cohen, why don't you take your place with this panel, so we will do this all with one panel? And that way, we will be able to expedite our hearing.

    Everybody will have plenty of time to make their statement.

    We will start right here, left to right.

    Mr. Heindel, why don't you lead off, sir?


    Mr. HEINDEL. Thank you.

    Mr. Chairman and members of the panel, I am David Heindel, second vice chairman of the Seafarers' Section of the International Transport Workers' Federation. We are also known as the ITF throughout the world. And I am appearing here on behalf of David Cockroft, the organization's general secretary.

    The ITF is an international federation of 594 transport trade unions in 136 countries representing approximately five million transport workers. The ITF appreciates the opportunity to express its views with regard to the phenomenal growth of flag of convenience vessels and registers and their negative implications on national security.

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    I ask that the ITF is prepared, in-depth testimony be submitted for the record.

    Mr. HUNTER. Without objection. In fact, the testimony of all four witnesses will be taken into the record.

    Mr. HEINDEL. Thank you.

    Mr. Chairman, I am also secretary-treasurer of the Seafarers International Union (SIU), which represents thousands of merchant seamen employed on U.S. vessels engaged in both domestic and international maritime trades. The SIU concurs with the observations made in the ITF's testimony and takes this opportunity to share our views on this issue.

    Throughout the history of the debate over the flag registration of world shipping, various terms have been used to describe flag of convenience. Oftentimes, they have referred to convenience flags as ''runaway flags,'' meaning that the operators of those vessels escape legitimate scrutiny, regulation and obligations to national security.

    They have also been referred to as ''mercenary flags'' because of the belief that they are literally for sale, where flag loyalty and protections become a matter of profitable annual registration fees rather than the honest legacy of a true nation. These governments see registrations as a service that can be sold to foreign ship owners wishing to escape the financial, safety, and social consequences of registration under their own national flags.

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    The convenience countries likewise have neither the desire, the power, nor the administrative machinery to impose regulations that temper the narrowest private economic concerns with social objectives. If they tried to, they would cease to be convenient.

    One of the most serious deficiencies of the FOC system is the lack of transparency in corporate structure, that both the ITF and SIU view as a facilitator of transnational criminal activities as well as terrorism. FOC vessels have been linked to the registration of hijacked ships, phantom ships, fraudulent mariner documentation, illegal unreported and unregulated fishing, illegal alien smuggling and, most recently, to international terrorism.

    The ITF submission clearly demonstrates the link between the Liberian flag, money laundering and terrorism. Yet FOC forces attempt at every opportunity to portray themselves as supporters of an open registry in both philosophy and practice. The ongoing and frustrating search for Osama bin Laden's ships, as outlined in the ITF testimony, illustrates the supposed openness of convenience registries and the problems that this system has spawned.

    Mr. HUNTER. Have we gotten a fix on which ships are the ones he is operating?

    Mr. HEINDEL. I could not tell you, Mr. Chairman. My understanding is based on the information that I would read in the newspaper or pick up in the community.

    Mr. HUNTER. Okay. We are going to have a classified briefing on that a little later anyway. Okay.
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    Mr. HEINDEL. The international hunt for the business of Osama bin Laden and the al Qaeda network has thrown into sharp relief the secret nature of shipping and the FOC system. Soon after the terrorist attacks on September 11th, specialist corporate investigators were hired to track down companies owned by al Qaeda members. The group is thought to control up to 80 front companies in 50 countries worldwide, involved in construction, trade in products such as sugar and peanut oil and shipping.

    There is speculation that al Qaeda vessels have been used to smuggle heroin and hashish from Afghanistan as well. Bin Laden's covert shipping interests were first revealed during the trial of suspected bombers of the U.S. embassies in Kenya and Tanzania in 1998. A rusting freighter was found to have delivered supplies for the bombers to the port of Mombassa, Kenya.

    Ships can also be used to move personnel, equipment and their weapons of mass destruction around the world. For example, just recently, it was reported that 25 terrorists linked to Osama bin Laden's network illegally entered the United States as stowaways aboard cargo vessels in the ports of Miami, Savannah, and Long Beach.

    Because of the severity of the situation and the implications to national and maritime security, the trade union movement has sought to have the lack of transparency addressed within the IMO. In a paper submitted to the Legal Committee by the International Confederation of Trade Unions, the organization proposed a definition of ''beneficial ownership'' and a definition of ''control,'' to be used in the context of maritime security.

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    As an aside, generally speaking, the beneficial owner is the person, company or organization gaining ultimate financial benefit from the shipping operation while the operator is the person, company or organization responsible for the day-to-day operation of the ship. In a subsequent paper, the ICFTU proposed that, in order to provide for complete transparency of ownership, there should be available on board at all times details of the beneficial ownership of the vessel and the individual or corporation which has effective control of the ship.

    The United States submitted a paper on this issue, noting that ''transparency of information on the ship's owner or operator plays an important role in ensuring that ships are not used to support terrorist activities, either directly or indirectly.''

    As succinctly stated by a U.S. Coast Guard official, ''You have to know that a ship is owned and operated by legitimate people. You could have a dummy company operating a vessel and an owner who wants to ship weapons of mass destruction.''

    The SIU wholeheartedly supports this position. We believe that a requirement for transparency of ownership must be part of any new maritime regime.

    Unfortunately, position supporting true transparency and mandatory disclosure of a ship's beneficial ownership to relevant authorities upon request did not prevail at the Legal Committee. Ship owners worldwide mobilized against this position.

    And to our dismay, a U.S. delegation took a conciliatory stance and reasoned that knowledge of the beneficial owner would not necessarily breed greater security. The Legal Committee concluded that the central or fundamental question in matters relating to ownership and control of vessels for maritime security purposes is who has effective operational control of the ship.
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    Given this situation and the fact that the United States has been the victim of a terrorist attack of such magnitude, we urge the U.S. Congress on a unilateral basis to enact legislation authorizing the U.S. Coast Guard to refuse entry to U.S. ports to any foreign flag vessel that does not provide transparency and/or full identify of the vessel's beneficial ownership.

    Undoubtedly, the lack of transparency in the corporate structure of flag of convenience vessels is a threat to national and maritime security. Speaking as an American labor representative, one can also posture that the nautical choice of an American owner registering a vessel under a flag of convenience that ignores all legitimate safety, security, environmental and social concerns is also a threat to U.S. maritime and defense security.

    Today, approximately 562 oceangoing vessels in the U.S. foreign trade are owned by U.S. companies flying a foreign flag and crewed by foreign seamen, while only 147 fly the American flag and are crewed by American seamen.

    Mr. HUNTER. Give those numbers again.

    Mr. HEINDEL. Approximately—and this is in the U.S. foreign trade, under FOC, vessels—562. There are 562 oceangoing vessels crewed by foreign flag or illegal nation crews. Under the U.S. flag, there are 147 ships in the U.S. foreign trade, crewed by American seamen.

    Mr. HUNTER. Okay.
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    Mr. HEINDEL. The option for an American owner to register his ship in a country not his own, predominantly an FOC registry, and the use of that vessel to ply the U.S. foreign trade negatively impacts the stance of the U.S. flag fleet. This situation leads to the continued decline of the U.S. Merchant Marine, a vital asset to this nation's defense posture.

    As we lose ships, we lose the cadre of skilled American citizen crews needed to man the 100-plus organic ships owned by the Department of Defense and operated by American companies and crews in a contingency. Further, proponents of the FOC system cite that U.S.-owned vessels registered in Panama, Honduras, Liberia, the Bahamas, and the Marshall Islands are under the effective control of the United States. But, in fact, currently 33 tankers and 25 dry cargo ships in this program are militarily useful to the United States defense needs.

    Further, potential changes in attitudes of the flag of convenience host countries and crews make availability and readiness questionable. And we must remember, FOC vessels are crewed by foreign nationals—Philippines, Chinese, Indians, Pakistani, Russians, Ukrainians, as well as Koreans, as well as those from other countries that could pose a threat to U.S. security.

    The SIU advances that we must, as an international leader of the free world, have the means under our own flag, with our own American crews and under our own control, to fulfill our commitments and supply our military programs. In my view, it is the policy decisions of the United States that have served to encourage the flag of convenience registry.

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    The problem, as I see it, involves the formulation of maritime policy decisions that conflict with other overriding policies to which the United States is committed, such as a strong U.S. flag capability ready to serve in times of peace and war. If the best interests of the United States are to be protected, some limitation must be placed on the use of flag of convenience registries, if not the total elimination.

    That concludes my report. Thank you.

    [The prepared statement of Mr. Heindel can be viewed in the hard copy.]

    Mr. HUNTER. Okay. Mr. Heindel—it is Heindel, is that right?

    Mr. HEINDEL. That is correct, sir.

    Mr. HUNTER. Thank you very much for an excellent statement.

    Mr. Morris.


    Mr. MORRIS. Mr. Chairman, my statement is more an addition to the submission already received and enlarges and expands on some of that. First, I would like to thank you and your colleagues for the opportunity to participate in today's proceedings. And thank you very much for your kind words of welcome.
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    I wish to add some comment in respect of the International Maritime Organization, IMO, you have heard frequently this morning, the International Labor Organization, ILO and the Organization for Economic Cooperation and Development, the OECD, which also has a role to play in the sea.

    In overall terms, IMO in its 43 years of existence, has performed a valuable role in setting uniform technical standards for the safe operations of international shipping. IMO has traditionally concentrated on the status of ship construction, maintenance, operation and equipment. The realization in more recent years that the human factors were a major influence in ship incidents, collisions and groundings led to the development of the Convention on Standards for Training, Certification and Watchkeeping.

    Mr. HUNTER. That is a way to make everybody happy, right?

    Mr. MORRIS. Oh, yes.

    Mr. HUNTER. We have the regulations, but nobody has to worry about them.

    Mr. MORRIS. Well, you mentioned nice comments about how you make you feel good, some nice feel good words and things. We seem to be attracted to that kind of process, but it does not get the result.

    The contrast between the audits of the International Civil Aviation Organization, ICAO, of its members compliance, we contrast that ICAO with the powerlessness of IMO. And the ironic thing is there are nations within both organizations, common to both organizations, that have supported ICAO being given power to carry out compulsory audits of the performance of member states, but have refused to give that same kind of power across to IMO.
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    The inability of IMO to require flag states to comply with IMO's safety and technical requirements has enabled delinquent flag states to flourish. I think the best example to point to over time is in 1992 when we prepared the original ''Ships of Shame'' report.

    The Flag State Implementation Committee was established within IMO. And its task was to deal with this problem, Mr. Chairman, colleagues, of flag states that did not carry out their responsibilities under the conventions to which they had subscribed.

    Well, what is this? 2002? And we are still talking about it.

    The nearest they have, the progress they have made is a form of voluntary self-assessment of one's performance as a flag state. And I liken that to like burglars writing their own character references. That is about how much value it has to me because the people, the flag states that do not carry out their responsibilities are never going to carry out their responsibilities.

    That is the problem. We have to use some other method.

    But the fault lies not with IMO the organization. The fault lies with the member states. And that is a political problem. Because in some ways IMO, parts of IMO, have become more like a branch of the Foreign Affairs Service, rather than a regulatory organization to ensure international uniformity and the safety of operation in shipping.

    IMO could play a far more effective role in eliminating substandard shipping and enhancing ship security if its members gave it the power to ensure compliance with the standards and regulations.
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    Sister organization the International Labor Organization, is much older, having begun in 1919. But like the IMO, it has played a good role in setting standards for conditions of the employment of seafarers. And unfortunately, like the IMO, the ILO lacks the power to ensure compliance with the provisions of its conventions.

    ILO has been the lead international agency dealing with seafarers' working and living conditions since 1919 and the main body dealing with the Joint Maritime Commission. But the current task of revising, consolidating and updating employment conditions has been given a five-year timetable. And in short, ILO lacks the power and resources.

    Mr. Chairman, if you are a seafarer suffering at sea today and you are not being paid and you are not getting medical care and you are not getting home to your family, there is a process, sir. There is a process you can go through, through the ILO, where you can make a complaint.

    And if the ILO then wants to proceed with that complaint, they have very limited resources to deal with complaints. The words say, ''Oh, but you can call other resources in.'' Well, you try that.

    But the process itself is so slow and the process within ILO, as another international agency, of dealing with serious and urgent problems in that industry, is so slow that you will be dead or ashore before the necessary legislation is put into place that would implement correction to the problem that you are suffering from.

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    Mr. HUNTER. Well, then the problem is taken care of.

    Mr. MORRIS. That is another way, isn't it? There are some words that will appear on the record that says that the process and the problem is being dealt with. But whether you survive to get the result, that is up to you.

    It is difficult—I want to make this point as firmly as I can because I have listened to the discussions and presentations and questions from you and your colleagues this morning on security. For me, having looked around the world at most of the systems and from my own experience in earlier life, I find it extremely difficult to see how an effective regime of ship security can be constructed when a sector of the international industry, a substandard sector, is built upon and embodies deception, deceit, fraud, abuse and exploitation of its workforce.

    It is papering over the cracks. It is not dealing with the fundamental problem.

    Now there is not going to be, in my view, the itinerant seafarer that seeks to mask his or her identity. Here you have an established system of longstanding built on those criteria of performance. There for a purpose and linked to that of the users of those services.

    And so may I suggest to you, to your colleagues, that it is not enough just to look at the owners and operators of that sector, but the users.

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    Who are the users? Because they are party to the whole set of practices. In they, you are more likely to find the problems and find the information you are looking for.

    Turning to the OECD, it has produced a number of important reports that have highlighted important aspects of international shipping. Its report on the competitive advantages achieved by operating substandard or ignoring the international obligations of maritime safety gives you a cost saving of somewhere between 15 and 16 percent.

    The title of our report, in our report, ''Ships, Slaves, and Competition,'' which copies are available to committee members, the word ''competition'' in that title is the important word. Because the existing unequal competition between, as you mentioned earlier, the U.S. flag vessels that meet all of the requirements and incur all of the costs in meeting those requirements and that element—the 10 to 15 percent of the industry that do not meet the requirements—take the 15 to 16 percent saving and undercut the market. So the right cutters become the right sitters.

    And meanwhile, politicians around the world are clamoring for ways of how to deal with this problem. Well, you start with the customers. And you start with complete transparency, complete accountability. I prefer to use accountability, rather than transparency because it is a much abused word.

    But those who own, operate and use those vessels have to be accountable to their nations and to the public in general for what they do.

    OECD, in our judgement of listening to what we had seen—listening to what we are told, rather—and what we saw was that the OECD plays an important role in creating a wider understanding of the economic implications of shipping. The OECD has the essential ability to bridge from the narrow, technical brief of safety regulation across to the economic and commercial aspects of international shipping.
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    And I would suggest, Chairman, to you and your colleagues as legislators, that this is an area that is much more within your purview, with a much greater impact than just looking at the narrow definitions and requirements of the safety regulation. OECD, I believe, has an important responsibility to perform in the improvement of the safe operation of international shipping and eliminating the abuse and exploitation of seafarers.

    Just let me conclude with these few words. And I put this probably, in a way, as somewhat of a plea to the committee. That the segment of the industry, those who are slaves in the industry, suffer enough already from exploitation and abuse. And broad-brush attacks just upon the seafarers themselves does not help. They are not the ones that are going to be guilty.

    It is a much more sophisticated operation than the people at the very bottom of the stack. The confinement of all visiting seafarers aboard their ships adds to the already onerous conditions of many thousands of seafarers. Long periods away from home and family, often isolated with the same small group of people, with their racial differences and whatever happens there, for many months on end, necessitates opportunity to contact family and friends.

    Surely, risks in this area could be better addressed by limiting ship confinement to targeted companies, targeted operations, targeted individuals, as Admiral Pluta was referring to earlier, that kind of approach, rather than the broad-brush approach where you are all captives, you all stay on board.

    You cover the lot. But you are not looking for the lot. You are looking for the few. And many of those people are suffering more than enough already.
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    The primary task, as I conclude chairman, is to address the integrity of the international system of shipping regulations, compliance and treatment of seafarers. Playing around the edges is not going to solve the problem. It might make people feel comfortable and sleep easier in their beds. But it is not going to solve the problem.

    There is a fundamental flaw in the integrity in the system of international shipping, is that 10 to 15 percent. And that needs to be addressed head on and rooted out. And there, I think, lies the best solution to it.

    May I conclude with just a few words—last words? You asked questions earlier of other witnesses in respect of the benefits of U.S. flag. As one with a similar interest may say, ''Look ashore.''

    The benefits that come to you as a nation and in economic and commercial benefit, it is not just having some jobs on ships. It is the flow-on effect to shoreside of all the professional tasks.

    Who finances the ship? Who are the maritime lawyers? Who insures the ship? Who loads the ship? Who trains for the ship, the crews? Who provides your tug masters? Who provides your pilots?

    All of the flow effect. And there is a veritable army of shore-based activities and operations that contribute to the national economy that flow from having a presence in international shipping.
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    Mr. HUNTER. I understand that, Mr. Morris. But my question was a little different. It was in the view of the company that we are trying to induce now to flag American, rather than flag a foreign flag.

    Mr. MORRIS. Yes, I heard the question clearly.

    Mr. HUNTER. What other things, from a corporate perspective, can we offer? That was the question.

    Mr. MORRIS. Well, it depends on the criteria in which a nation is to operate. If a nation is to operate in the provision of vital services like that had the most serious aspects to them, is it simply a matter of, say, we will just get the cheapest rate we can get? Because that is all the board really will be interested in.

    What you have to say to the board—I do not mean you, sir—what one needs to address to the boardroom is, given these are the standards of performance that we require in the national interest, of vessels involved in our international trade and the carriage of our international trade, these are the conditions you are going to have to meet.

    Now you have back doors, as you can do with the way of an imperfect system of regulation. And all of the other problems arise out of that.

    So it goes beyond simply the commercial aspects. But the boardroom will be looking at profit and loss account, revenue this side, expense that side, quality of service. There is much more to the picture, I think, that supports the argument that you are raising.
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    I volunteer that.

    [The prepared statement of Mr. Morris can be viewed in the hard copy.]

    Mr. HUNTER. Okay. Thank you very much.

    Mr. Morris, thank you for a very excellent statement.

    Mr. Vines.


    Mr. VINES. Mr. Chairman and members of the oversight panel, I would again like to thank you for having me here to have the opportunity to speak on the subject of maritime trade. And thank you for your kind remarks.

    I would also like, just for the record, to make a clarification that I am currently a senior researcher at Human Rights Watch, a New York-based NGO. I am a former member of the U.N. panel of experts on Liberia. I have served on it twice. But that panel does not exist at the moment.

    It ceased to exist in the middle of April. It may well—a third panel may exist again in a few months time. It will be at the discretion of the U.N. secretary general whether I will be on that or not. I do not know at this moment in time.
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    One other thing, Mr. Chairman. I will, in my oral testimony, refer to a couple of other pieces of paper. These—two of these—are annexes to the first U.N. panel of experts' report on Liberia, annexes nine and 10. For some quaint U.N. reason, I am afraid these annexes do not appear on the Internet. So I think that your committee will have access to the Internet version, but not a hard copy.

    But these are actually the real documents of which I will be referring to, just to demonstrate that what I am saying is no hearsay.

    There is a third document, which is a photocopy of a passport, and that is a copy of an original passport, which has not been submitted in public before. But I thought it might help your hearing also. I will refer to that in the testimony.

    [The information referred to can be viewed in the hard copy.]

    Mr. Chairman, Human Rights Watch has increasingly got concerned about the use of flags of convenience because of its work on the illicit arms trade. 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, as we have heard already, 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.
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    In the written submission that I have provided to you, Human Rights Watch has highlighted a number of cases, including that of Sri Lanka's Tamil Tigers that maintained a fleet of ships from the mid-1980s, including ships that were flying mostly under the Panamanian, Honduran, or Liberian flags of convenience. Indeed, one such vessel, the M.V. Swanee or Swene, sailed from the Ukraine to northeastern Sri Lanka carrying 50 tons of TNT and 10 tons of RDX explosives to the Liberation-Tigers of Tamil Eelam (LTTE).

    These explosives were used in a suicide bombing on January 31, 1996 of the Central Bank of Ceylon in Colombo. Approximately 90 people were killed and another 1,400 injured.

    Mr. HUNTER. Let me just ask you one question. Do those same ships ply American ports?

    Mr. VINES. I do not know that. I do not have an answer to that.

    Mr. HUNTER. I presume their credentials would be——

    Mr. VINES. They could be easily tracked if they still exist under those names. We have not done that. This information derives from a Commonwealth of Human Rights Initiative study of the illicit trade, which had a particular case study on Sri Lanka. That is where this information derives from.

    Mr. HUNTER. Okay.

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    Mr. VINES. The most dramatic recent example was in the press early this year, in January 2002. It is the Tongan-flagged general cargo ship Karine A, which was seized in the Red Sea carrying 50 tons of arms and explosives, which Israel said was bound for Yasser Arafat's Palestinian Authority.

    In May, the Tonga flag of convenience was blacklisted from major western ports. I understand that it is due to close now in April 2003. But it just gives another indication of the problem of these sorts of flags of convenience with this trade.

    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. During my time on the U.N. panel of experts for Liberia, we found it very, very difficult to monitor and to find tangible evidence of illicit trade of arms in violation of U.N. sanctions to the ports of Monrovia Freeport in Liberia or Buchanan. We investigated over 105 shipping movements, countless ships which we have listed in the testimony to you, including Antigua, Malta, the Philippines, Thailand, Togo and so on.

    We believe that some of these ships were probably carrying illicit shipments in breach of U.N. sanctions. The reason to be suspicious is the behavior pattern when these ships were unloading. They were characterized by heightened security, unloading at night, intimidation of curious locals. But this is not irrefutable proof.

    Ship owners or crews are also known to have changed the names of their vessels at sea. Again, we highlight in our written submission to you a number of cases.

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    I will draw your attention, for example, to the case of the Maria, a vessel registered in Greece. In 1993, there was an international warrant for this ship. The ship's owners changed the name to the Malo and it was later apprehended in the Seychelles by the authorities there.

    Alarmingly though, according to the U.N. International Commission of Inquiry, UNICOI, in its excellent second report, they found that some of those weapons from that shipment reached the perpetrators of the Rwandan genocide. Indeed, very worrying.

    More recently, in February 2001, a shipment of 636 tons of Russian weapons traveled from the Ukraine to Angola. Obviously, the trade to Angola, if it is to the Angolan government, is not illegal. But there are reasons to believe that on that particular ship, the Anastasia, there may well have been, in addition to 200,000 boxes of ammunition, mortar grenades, fuses and night vision equipment, possibly antipersonnel mines, which would be contrary to the 1997 Mine Ban Treaty to which Spain, Ukraine and Angola are signatories.

    Once there was international scrutiny on that particular incident, including by my own NGO, Human Rights Watch, that ship has since reflagged under the flag of Cambodia and has renamed itself the Emir.

    This ship should still be monitored because it still plies the route under this new flag and under its new name. And indeed, it stopped suspiciously off the West African coast late last year. And there are some reasons of suspicion that it might have unloaded part of its cargo onto smaller coastal vessels, which could have been destined for Liberia in violation of U.N. sanctions.
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    This is dreadfully difficult to try and monitor, particularly by a U.N. panel that has no technological facilities at its disposal. But satellite tracking of such suspected ships could help.

    So what I am saying, Mr. Chairman, is that illicit arms traffickers rely on these weak controls and use these flags of convenience because they offer a high a level of corporate secrecy and they are underlying the lack of transparency and the culture and environment which can make this sort of trade conducive.

    Turning to the Liberia panel and Liberia itself, this raises a difference issue, which is that the Liberia International Shipping Corporate Registry does provide a professional international service that many around the world think, from its technical standards, are impressive.

    The October 2001 and 2002 reports of the U.N. Liberia panel, however, show that the big problem with Liberia is where the money goes. What happens to this money? Well, we think that Liberia generates about U.S. $18 million a year, the registry to Liberia.

    But the investigation that I was involved in for the U.N. panel showed that there had been a diversion of funds. For example, the U.N. panel found that the Liberian International Shipping Corporate Registry (LISCR), the agent, verged from standard procedure that that registry was meant to do under its agreement with the Liberian government and made two bank transfers in 2000, through BB&T, which is a bank in this area of the United States, direct to the Standard Chartered Bank of Sharjah, the United Arab Emirates, for two sums of U.S.$525,000 and $400,000.
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    These were, we found, for arms and transportation in violation of U.N. sanctions. They were to SAN Air General Trading, which we found was the main company behind sanctions-busting to Liberia. It was an agent for Centrafrican Airways, the company of international sanctions-buster that we have already about, Mr. Victor Bout.

    And I would like to draw your attention to annex 10.

    Mr. HUNTER. Now hold on for a second. Run that last exercise by us again here.

    Mr. VINES. What happened was that there were two transfers of money.

    Mr. HUNTER. Okay. And this is from the Liberian International Shipping Corporate Registry?

    Mr. VINES. Shipping Corporate Registry, direct from their offices here in the United States, via their New York office, direct to the United Arab Emirates. And in annex 10 that you have in front of you there, this is the BB&T transfer slip. As you will see, it is for U.S. $400,000. The address of LISCR is there.

    It then is transferred through Standard Chartered Bank in New York to Standard Chartered Bank Dubai and then through to SAN Air General Trading, Sharjah—at Sharjah. There is an error in that. The geography of the bank is wrong. Sharjah is the United Arab Emirates. It is not Israel. That is indeed the United Arab Emirates.
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    Mr. HUNTER. Okay.

    So what that tells us is that the registry, the Liberian Ship Registry, sent two sums of money?

    Mr. VINES. Two sums of money that they had been requested to do by the Bureau of Maritime Affairs in Monrovia. They were requested. And they gave two direct transfers, not through the regular pattern, which they should have fulfilled, which is a transfer of money to a Liberian government bank account. But these are two direct transfers to a non-government account, which in turn was actually the bank account of sanctions-buster Victor Bout in the United Arab Emirates.

    Mr. HUNTER. Now what is that? And tell me, what was the entity they sent it to?

    Mr. VINES. They sent it to a bank account in Sharjah, in Standard Chartered Bank. And the U.N. investigation showed that what it was for was transportation and assault rifles that had been procured by the Liberian authorities.

    Mr. HUNTER. Okay. Presumably, if the Liberian registry had simply sent all the money that they are receiving for registration to the treasury in Liberia, right? I presume it is all controlled by Charles Taylor in the end anyway, right?

    Mr. VINES. That is right.
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    Mr. HUNTER. So what I am trying to understand—and I presume that Charles Taylor buys large amounts of weapons and does other things with the money, as some of the testimony from Mr. Wolf has explained, on a regular basis, right?

    Mr. VINES. Yes. I mean, what happened here is that there were only two occasions—I mean, there were four transfers that we found in 2000 where LISCR transferred money to non-government accounts, which it is not meant to do under its contract.

    Mr. HUNTER. Directly. I understand.

    Mr. VINES. What then happened was that after LISCR got concerned about the regularity of these requests to do something that was not standard practice for them as part of their contract with the Liberian government, LISCR said that they would not do that anymore. And so what then happened was that Liberia's Bureau of Maritime Affairs commissioner wrote to his deputy commissioner, who is based here in the United States.

    And I refer to annex nine that you have in front of you. That is a letter by Benoni Urey to Mr. Lewis Roberts, saying, ''Well, okay, since LISCR is not prepared to make these direct payments, can you now make these additional payments from the money that LISCR puts into our bank account and then transfer it through Sanjivan Ruprah,'' who is an arms dealer, ''to the SAN Air General Trading bank account in Dubai?''

    And so what you do then is you see a variation of the pattern. The money is the Liberian government's. LISCR initially did it direct.
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    What then happened is that the money went via—it went into the Liberian government accounts and then was transferred.

    [The letter referred to can be viewed in the hard copy.]

    Mr. HUNTER. So the reason you have walked through this transfer of money is to show basically that, in the end, it is used to purchase arms, at least in these cases?

    Mr. VINES. In these cases, it is irrefutable that they were used to pay for arms and pay for transportation of those arms.

    Mr. HUNTER. Because the money went directly from the registry to the arms purchase, in these cases, until they were told to knock it off and simply take it out of the treasury once it gets there.

    Mr. VINES. That is right, Mr. Chairman. That is what happened. And then what I go on to show in the submission to you, under table one, is that the figures in table one, on page six of the submission, is that if you look at the figure for 2000, for August through to October, you have a steep decline in revenue that is registered by the Ministry of Finance. Just U.S. $200,000 for August, $0 in September and in October, $200,000.

    That directly relates to the period that we are talking about from the LISCR payments and then the direct payments from the Bureau of Maritime Affairs (BMA). So there is a consistent overlap there that I have seen in Monrovia.
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    Mr. HUNTER. So basically, you are showing the irrefutable connection of the registry money with arms purchases.

    Mr. VINES. That is what was shown in 2000.

    Now I need to draw your attention also to table two, on page seven, because what the U.N. panel has subsequently—and this is new information that did not feature in the U.N. panel report. I have done this analysis for you here in the committee. Again, what we find is that there is a significant discrepancy in 2002 between the finance that is registered by the Ministry of Finance in Liberia on maritime revenue remitted. You have a total from January through to October last year of $9,437,000. And the Central Bank, which is $5,430,000.

    That means that there is a discrepancy of U.S. $4 million. The concern is: what has happened to that money? Where has it gone? It is not accounted for.

    And given the discrepancy that we saw in 2000 and given the context of Liberia at the moment, there would be a serious concern that this has also been diverted for extra-budgetary opaque needs; indeed, arms and transportation would be a possibility, in violation of U.N. sanctions.

    I would also like to say that the Bureau of Maritime Affairs in Liberia itself is very much a branch of the executive mansion. The commissioner of maritime affairs is appointed by President Taylor. And indeed, Agnes Taylor is the Liberian permanent representative to the IMO. And the Liberian deputy maritime commissioner in London was also a political appointment by the president of Liberia.
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    The BMA has not been embroiled in sanctions busting for the first time. Indeed, in 1998, a U.S. customs investigation seized a Hummer armored vehicle in Savannah, Georgia. This vehicle was fitted with a hardened point for attaching a weapon. And it was due to be exported to Liberia via Cote d'Ivoire, but without an export license in breach of U.S. law and in contravention of U.N. sanctions.

    An investigation in the U.S. revealed the involvement of a UK broker. And payments were, for this vehicle, were made from the Permanent Mission of Liberia to the IMO. 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, meaning that they could have carried weapons on top—again, violation of U.N. sanctions.

    To cut a long story short there, the British government approached the Liberian authorities to waive a diplomatic immunity for Mr. Cooper, which was declined. So he was expelled from the United Kingdom as a persona non grata. He has subsequently been hired by LISCR as a consultant. When the U.N. panel queried this with Mr. Cooper—sorry, with LISCR on why they had hired him, they acknowledged that they were aware that he had to leave the United Kingdom under a cloud, but do not know exactly why.

    Our experience of LISCR in this affair was that they had shown a significant degree of lack of due diligence in their dealings with the Liberian government and in their hirings, in both this case and in the payment of those four payments to non-government accounts.
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    What I would like to emphasize though, is that subsequent investigations by the U.N. panel have found that there has been no more areas of concern about LISCR itself and what it has done. It seems to fulfill its contract with the Liberian government and remits the money made out of the Liberian registry to the scheduled bank accounts that they have in their agreement with the Liberian authorities.

    Mr. HUNTER. In other words, they don't make any more direct purchases of arms?

    Mr. VINES. Exactly, that is what I am saying.

    Mr. HUNTER. Okay.

    Mr. VINES. The U.N. panel also documented how the commissioner of maritime affairs, Benoni Urey, assisted a Kenyan national, Sanjivan Ruprah, who is one of the main characters in sanctions-busting in the Liberian context. He is, by the way, now in jail pending trial in Belgium for issues related to money laundering and sanction busting.

    I do submit to you, as one other document, a copy of his passport. This has not been seen in public before. And as you will see, it is a Liberian diplomatic passport. It is Mr. Ruprah's photograph because I have seen and met him. And you will see also under his photograph, that he is described under his photograph on the diplomatic passport as a deputy commissioner of the Bureau of Maritime Affairs.

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    I just draw your attention to that because the commissioner of maritime affairs of Liberia continues to deny to the U.N. panel that there has been any wrongdoing. And indeed, he continues to insist that he never had any dealings with Mr. Ruprah.

    I think the evidence itself, including also annex nine, which was signed by Benoni Urey—and we have verified that signature—does prove that there is an inconsistency between what Mr. Urey is saying and what the U.N. panel is documenting and indeed, what I am highlighting to you here today.

    So where are we now on this? What is the reaction to the U.N. panel of experts' report?

    The two U.N. panel reports 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 a client flight from the registry, LISCR only saw a decline—as far as I know—of 19 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 International Monetary Fund (IMF) and the government of Liberia to reach an agreement to audit these funds and to designate those funds for development purposes.

    I must add that the Liberian Ministry of Finance did act quickly on this. In November, it 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 these funds for infrastructure, social, health and welfare development and support programs.
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    This was followed in December with a letter by the Ministry of Finance to the International Monetary Fund requesting assistance to set up a monitoring mechanism. The IMF replied that this was outside its mandate because it was enterprise specific. But the Ministry of Finance and LISCR then approached the non-governmental anti-corruption group Transparency International for assistance.

    They, in turn, turned down the request. But they have recommended an approach to Crown Agents, which is a United Kingdom-based company that specializes in port management, auditing and project management.

    I would also like to draw your attention to a very important development, which was on May the 6th, this year, when the U.N. Security Council passed Resolution 1408. That resolution extends the sanctions embargo on Liberia for one more year. But it also, for the first time in a Security Council resolution, called for an audit of revenues, including those derived by the shipping registry.

    This is ground breaking. And since then, we have seen movement—discussions between the Ministry of Finance of Liberia and Crown Agents about the undertaking of an audit. I would say that that sounds like a positive development.

    What are the conclusions of this? Well, the conclusions are that flags of convenience offer a high level of corporate secrecy and are easy to obtain. Some flags do appear to be particularly inviting for illicit arms trade networks and need attention.

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    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.

    As we have heard previously, I do like to reiterate the importance of accurate information on ship owners, their shareholders and the nature of their business. These are important. This business clearly needs much more transparency.

    I do believe also that the International Maritime Organization could play a greater role in promoting transparency, such as a flag state audit program. And indeed, to have more teeth. But it has lacked the ability to do so to date.

    The Liberian registry raises a different problem, as I have highlighted. There is no doubt about the technical quality of the flag. And it is respected across the world.

    But 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, which is also managed by the shipping agent, was also used to front one of these sanctions-busting companies. 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—I hope—will be conducted. But the audit will only be as effective as its terms of reference allow. The audit should be retroactive to 1997 and publicly available for independent scrutiny.
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    Security Council Resolution 1408, which supports the audit, refers only to the Liberia Shipping Registry. In my belief, this is a potential loophole, as LISCR runs both the Liberian 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 Bureau of Maritime Affairs has its bank account only at the Central Bank of Liberia, in order to ensure transparency regarding its use of shipping revenue.

    At the moment, its bank account is a tripartite one, which is: one, the Bureau of Maritime Affairs is one signatory; the second signatory is the Ministry of Finance; and not surprisingly, the third signatory is a determinational one by the executive mansion, meaning the presidency of Liberia.

    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. And I would say that this is an urgent issue that needs attention.

    Thank you, Mr. Chairman.

    [The prepared statement of Mr. Vines can be viewed in the hard copy.]

    Mr. HUNTER. Well, thank you, Mr. Vines. And we have a—that is a nice segue there because we have with us Mr. Cohen, who is chief executive officer for the Liberian International Shipping Corporate Registry. And Mr. Cohen, I am sure, wants to respond.
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    And Mr. Cohen, the floor is yours.


    Mr. COHEN. Mr. Chairman, thank you inviting me here.

    Mr. HUNTER. Sure. Thanks for being here.

    Mr. COHEN. Thank you.

    I am the chief executive officer of LISCR, Limited Liability Company (LLC), a U.S. company that operates the Liberian ship registry. I appear in that capacity only, and not on behalf of the Liberian government.

    The Liberian registry is the premier open registry, not a flag of convenience. The distinction between the terms is important to national security.

    The Liberian registry registers about 10 percent of the world's ocean-going ships. These ships are of strategic importance to the United States.

    LISCR has taken the initiative to enhance security measures in relation to Liberian flagged ships; in particular, seafarer identification procedures and ship security. Such measures, if required for other flag states, will minimize risk to U.S. national security from ships calling at U.S. ports.
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    Management and operation of the Liberian registry by a U.S. company began in 1948 when former U.S. Secretary of State Edward Stettinus set up the Liberian registry to provide a way for U.S. commercial interests to compete in world maritime trade and international business and have the ships still remain within the U.S sphere of influence. Liberian ships are available to U.S. in times of military necessity.

    The legal and beneficial owners of LISCR are exclusively United States citizens. LISCR has its headquarters in Vienna, Virginia. The professional members of LISCR's staff are U.S. trained. Many are alumni of the U.S. Coast Guard. They are engaged on matters of compliance with international regulations regarding seafarers' identity and qualifications, responsibility for ship operating and safety and pollution prevention.

    We provide a global enforcement mechanism. This is essential to both proper identification of seafarers and supervision of Liberian flagged ships.

    LISCR scrutinizes carefully the source of registrations and carries out checks substantially in excess of those exercised by other registries, including the most respected national registries. And I would like to give you an example.

    In the last two years, we received an application from a very reputable source to register a newly built ferry. We checked on the route it was proposed to operate and found it was a route well known in Europe for smuggling illegal immigrants and substances. We entered into detailed discussions about all the participants in the transaction and checked with local authorities.
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    Subsequently, about a year-and-a-half later, from the same source we received a second application to register a new ferry to be used on a different route at the other end of the Mediterranean, but with similar characteristics. This time, we investigated the background of the shipbuilder, the ship owner, the operator and the source of finance. We even looked at the business plan to determine the viability of the project as a legitimate operation, as well as checking with local enforcement agencies.

    We did this notwithstanding that the application for registration came from an unimpeachable source, a highly respected firm of lawyers in Scandinavia, in association with a legal firm of similar status in New York. Throughout the exercise, we had cooperation from our client.

    It is this approach, as well as our procedures on seafarer identification and ship inspection and regulation, that characterizes the Liberian registry as an open registry—and incidentally, the best open registry and not a flag of convenience. The Liberian registry is acknowledged by the International Maritime Organization and port state control authorities to be among the best-regulated registries in the world, with good laws, high quality of ships registered, rigorous seafarer identification and qualification examination and well-enforced compliance with all international standards.

    Despite having a preponderance of the world's tonnage of tankers and bulk carriers, the Liberian registry is among the best for its safety and pollution record.

    Concern has been raised and expressed about the use by Liberia of its share of the income of the registry. The report of the Security Council of the United Nations of the panel of experts on Liberia made in October 2001 reported that LISCR had ring-fenced the income of the registry and recommended that the IMO be asked to monitor the expenditure by Liberia of its income from the registry.
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    Although this recommendation was accepted by the Liberian government, the IMF felt that such a task was outside its scope. So another qualified body of international experience, which my colleague on my right referred to as the Crown Agents, was identified. And discussions are well underway to complete an agreement for monitoring capacity.
The U.N. panel drew the distinction between the registry, which it acknowledged was among the best in the world, and the internal affairs of Liberia. The panel endorsed the role of the Liberian registry as an open registry and expressed their concern that it should not be damaged.

    ''The panel recognizes that the open registry business is very competitive. The panel would not wish to see an exodus to other open registries of ship owners currently with LISCR.''

    Now as to current security issues, clearly, as the U.S. operator of the Liberian registry, we have a responsibility to U.S. national security and welcome the opportunity to assist. We have resources that we wish to make available to the relevant U.S. authorities and which may be helpful in setting the standards that U.S. expects from all foreign shipping.

    The significance of the Liberian flag is quite evident from official U.S. statistics. Liberian flagged ships carry the largest volume of cargo to the U.S., including one-third of crude oil imports. Imported oil accounts for 53 percent of U.S. oil consumption.

    Nearly two-thirds of U.S. international trade is carried on ships of flags of convenience. Looked at from the point of view of homeland security, the bulk of foreign shipping coming to U.S. ports flies the flag of an open registry or a flag of convenience.
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    So the reality is that U.S. authorities will need to set standards for this shipping and find a way to monitor compliance pre-entry to U.S. waters, not post-entry. It is in this exercise that the difference between quality open registries such as the Liberian registry and flags of convenience will really show up.

    Cost, lack of unnecessary bureaucracy and efficiency of service are major considerations. But price alone is not a deciding factor for responsible ship owners in choosing a registry.

    Reputation for high standards of safety and pollution prevention and crew documentation is as important. We know that if we lower our standards, ships will leave us. And if they do, they will then be outside the sphere of influence.

    Ships entering U.S. waters pose a potential threat to national security. The Coast Guard has identified the critical issues of concern, namely: who are the crew? Who has control of the ship? Who can communicate with the ship effectively? Who knows where the ship has been and how she functions?

    The Coast Guard officer receiving details from a ship approaching U.S. waters wants to know: how can I cross check the accuracy of this information? It has long been a requirement of the Liberian registry that a ship owner shall supply for each ship the name and 24-hour contact details of a responsible person ashore, as well as those of the captain. LISCR computer systems make this information readily available online.

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    These same computer systems increase access to information of all kinds about the ship. We offer the Coast Guard access to this data so that officers can verify details provided to them as part of the Coast Guard initiative to require the submission of information electronically from ships approaching U.S. waters.

    LISCR has the largest digitized database of seafarers and their qualifications in the world. Period. The unique contribution of the Liberian registry can make—the Liberian registry can make the U.S. national security the easy offer we now make of access to this information on a real-time basis to check the identity of all personnel on Liberian ships.

    We are now taking the next step in seafarer identification. We are in the process of introducing biometric identification measures for seafarers to the same standard that we understand the U.S. Passport Office is planning to use. The system will allow remote data checking prior to a seafarer joining a ship's crew and at periodic intervals thereafter.

    It will fit very well into the Coast Guard planning of identifying who are the people on the ship 96 hours before they enter the territorial water of the U.S. We are proud to say that, in keeping with the tradition, the Liberian registry has also taken the initiative, in advance of any other registry, to develop a comprehensive security manual for ship operators.

    This has been made available to the IMO at its recent conference. The manual will be distributed as an advisory document to all Liberian flagged ships in advance of any international requirement.

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    Our resources and our commitment are significant in terms of information and monitoring available to U.S. authorities. Our commitment to standards is important to attract key ship operators worldwide and their strategic ships to the registry. As a U.S company, we pledge our support to improve security measures and stand ready to assist the Coast Guard or other U.S. agency in any way we can. Thank you very much.

    [The prepared statement of Mr. Cohen can be viewed in the hard copy.]

    Mr. HUNTER. Okay, thank you, Mr. Cohen.

    Mr. Cohen, are you saying that you have—that you give all of the facts of ownership, including beneficial ownership, of the ships that are registered with your registry?

    Mr. COHEN. We do not have records of beneficial ownership. But we do give all records as to who operates the ship and who is responsible from a management standpoint.

    Beneficial ownership is not something that we have on record. And it is something that, in the corporate structure, is very difficult to identify.

    Mr. HUNTER. Well, it is not difficult to identify if you ask them for it and they give it to you.

    Mr. COHEN. Mr. Chairman, I can ask. But when you ask a corporation, an offshore corporation, I cannot tell who is behind it.
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    Mr. HUNTER. If they refuse to tell you. The can obviously tell you if they want to.

    Mr. COHEN. A corporate entity—let's take the aviation industry, for example. Most carriers in the United States, almost all carriers, are publicly traded companies. Do we know who are the shareholders of those corporations?

    What we concentrate on is who manages those corporations? That is the key.

    Mr. HUNTER. But it may or may not be the key. For example, if the corporate ownership is distributed among literally hundreds of thousands of people, like General Motors, then the fact that Flossie James in Iowa owns two shares is probably not relevant.

    But if you have an entity that owns over 50 percent of a corporation and you see that at a number of areas where we have national security concerns, where they have a controlling interest, then there is high relevancy. But you folks do not examine the beneficial ownership. And you do not request that from the people that register with you.

    Mr. COHEN. We do not request it.

    Mr. HUNTER. Okay.

    Mr. COHEN. And it is a direct result of the nature of the industry.
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    Mr. HUNTER. Okay.

    Now Mr. Vines went over this transaction where—and Mr. Vines, correct me if I misstate your statement. But you went through this transaction where you presented us with these documents that showed money going directly from the registry to purchase arms. Is that right?

    Mr. VINES. Or transportation of arms.

    Mr. HUNTER. Or transportation of arms. Okay.

    Mr. Cohen, were you familiar with that transaction?

    Mr. COHEN. Yes, I am.

    Mr. HUNTER. How was that presented to you when you did it?

    Mr. COHEN. It was in the summer of 2000, way before there was any investigation of Liberia. We were during our first six months of operation. And there are agreements with Liberia, which is a statutory agreement.

    We are required to follow directions by the Bureau of Maritime where to make payments.

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    Mr. HUNTER. In other words, you are under the control of Liberia?

    Mr. COHEN. No, we are not.

    Mr. HUNTER. What does required to follow directions mean?

    Mr. COHEN. We have contractual obligations. And as long as we fulfill those contractual obligations, we are in full compliance with the agreement.

    Mr. HUNTER. Okay.

    Mr. COHEN. If we are required to do something outside the scope of the agreement, I can refuse and I should refuse to do it. So what happened then, the Commission of Maritime instructed us to make payments with the Liberian government's share of the money. And we followed those instructions.

    Mr. HUNTER. Now what were the instructions, to your memory?

    Mr. COHEN. To make payment to a non-governmental entity.

    Mr. HUNTER. What did you know about that entity when you made the payments?

    Mr. COHEN. Nothing.
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    Mr. HUNTER. So you did not know you were providing for the transportation of weapons?

    Mr. COHEN. Nothing.

    Mr. HUNTER. All you knew is they told you to send some payments directly to this entity?

    Mr. COHEN. In fact, Mr. Chairman, when we conducted an internal audit, we discovered ourselves, before there was any U.N. investigation, before there was any U.N. investigation of Liberia, that we made those payments. We brought it up to the Liberian government. And we asked, ''What is it for?''

    Because at the time, we were afraid that people are pulling us by the nose to be engaged in self-enrichment. Nothing else. Nothing short. And we refused to do so.

    Mr. HUNTER. Now what do you mean, you thought you were going to be engaged in self-enrichment?

    Mr. COHEN. If a governmental official gives instruction to make payment and he has that authority, I have to follow the instruction according to our agreement. But we felt that the irregularities of those instructions were increasing. And we were concerned that that may be leading us to a practice whereby some individuals might have been engaged in self-enrichment. So we refused to cooperate with it.
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    And we made our position very, very clear, in writing and official. And ever since then, we refused to allow any payment to a non-governmental account.

    Mr. HUNTER. What did you know about this entity when you sent this money to them?

    Mr. COHEN. Nothing.

    Mr. HUNTER. You did not know anything?

    Mr. COHEN. No.

    Mr. HUNTER. When did the U.N. talk to you about it? Did they make any inquiry of you?

    Mr. COHEN. The U.N.?

    Mr. HUNTER. Yes.

    Mr. COHEN. The U.N. talked to us about it about a year—almost a year-and-a-half after the event.

    Mr. HUNTER. Okay.

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    Mr. COHEN. And we are engaged in hundreds, if not thousands, of wire transfers for Liberia.

    Mr. HUNTER. Okay.

    Now Mr. Cohen, you sat and listened to Mr. Wolf, Congressman Wolf, as he went over the uses that, from his investigation and the information that has come to light that a number of organizations have undertaken, that this money that goes to the registry is used by the government of Liberia to maim people, to kill people, to be involved in arms transactions, to be involved in what are arguably terrorist transactions.

    From your perspective, that is outside your contract, so you do not worry about that?

    Mr. COHEN. Mr. Chairman, the way we look at the situation is that we work under a very, very difficult set of circumstances.

    Mr. HUNTER. I say you do.

    Mr. COHEN. We do.

    Mr. HUNTER. Especially if you have to think about it too long.

    Mr. COHEN. Admit it. Admit it. And I have to say to you that almost 90 percent of the people who work for LISCR are U.S. citizens. The rest are all over the world, so they are not necessarily U.S. citizens.
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    But we all like to feel part of what we do. We all like to feel that we provide a very good service to our clients. And we all like to think that you always work within the framework of law.

    Now interestingly enough, in this country, we have a moralistic law, the Foreign Law. And this is our 10 commandments. And we adhere to this law very, very strictly.

    Mr. HUNTER. Now I am missing something here. You know now fairly conclusively that the money that you are taking in is used to maim, kill and torture people. But you feel that your actions are consistent with a moral standard? I mean, you do not have to volunteer that. But I am trying to figure out where you are coming from.

    Mr. COHEN. No, no, no. Life is usually in the gray. And I always cherish an emotionally and intellectually honest discussion. And I am willing to discuss it emotionally and intellectually.

    Mr. HUNTER. And that is what I am asking you for. And what I am asking you for is the link of logic between what you have heard about the—and probably knew before this hearing—about the use that Liberia makes of registry money and the fact that you are the guy that collects that money for them, or your registry is the entity that collects the money for them.

    Mr. COHEN. Mr. Chairman, we have worked relentlessly—and my colleague on the right can testify to that—relentlessly in putting in place a monitoring capacity on how the Liberian government spends the money we generate for them. We were very instrumental in discussion with the IMF, both with the Liberian government and the IMF.
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    We were very instrumental with the State Department of finding an alternative. We are very instrumental in discussion with the Crown Agents to see to it that it happens because we feel that it is important.

    Mr. HUNTER. Well, if you feel it is important, that implies that you feel that there should be a desired outcome; that is, that you want to see some conformance with civilized standards with respect to the use of that money. Now if you do not see compliance with what you might consider civilized standards—that is, refraining from maiming and killing people with the money—that would imply that you wish to take some action to divest yourself of that particular position that you hold. Is there some outcome that you are seeking from the Liberian government?

    Mr. COHEN. Absolutely.

    Mr. HUNTER. What is the outcome?

    Mr. COHEN. The outcome that we are seeking is to see to it that the Liberian government will be in full compliance with the United Nations Security Council resolutions. The government of Liberia committed itself to that.

    Mr. HUNTER. You say you think—now the government of Liberia is Charles Taylor, right?

    Mr. COHEN. Yes.
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    Mr. HUNTER. Now wait a minute. Do not run past that one. You say he has committed himself to complying with United Nations' standards?

    Mr. COHEN. His government did. No, what I did say is ''his government committed to be in full compliance with the United Nations Security Council resolutions,'' which call, among other things, to monitor the Liberian Maritime Registry funds to the government.

    Mr. HUNTER. Well, that is a little different between determining how this money is going to be used—and it is fairly clear that the evidence is the money is used in some fairly horrendous ways—and simply disciplining the process so that you folks do not have a problem with the way the money is dispensed before it goes back to the government.

    Mr. Vines, you have heard Mr. Cohen state that Mr. Taylor's government is committed to following the United Nations' directorates. Do you have any comment on that? Have you seen a change in behavior? Because that is important.

    If they are now coming around. And they are going to, as George Bush the first said, join the community of nations, we want to know about it.

    Mr. VINES. Yes, Mr. Chairman. The first is that on violation of the arms embargo, Liberia does not seem to be trying to fulfill its obligations at all. Indeed, the most recent investigation that the U.N. panel conducted in March/April this year was around a suspicious plane crash just outside Robertsfield International Airport. That is the international airport of Liberia.
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    The plane crashed at night. It was then a whole subsequent of three or four hours of subsequent explosions.

    We as a U.N. panel tried to investigate that—tried to get to the crash site, tried to get documents, tried to get information on who was on board. But the Liberian government blocked it. It always said, ''No, we cannot do it now.''

    It then described the scene of the plane crash as insecure. It put every single logjam up to stop the U.N. panel from getting anywhere near that crash site. It was very Kafkaesque, trying to get into the castle, but never getting there.

    On our last day in Liberia, they said, ''Yes, you can go in the morning.'' Then at 2:00 in the afternoon, the Liberian authorities then said, ''Well, sorry. The area is insecure. There is rebel activity.''

    By chance, we passed through that airport a couple of hours later than that to depart from the country. It was completely quiet.

    Mr. HUNTER. What were they looking for?

    Mr. VINES. Well, the investigative team was looking to investigate the crash site, which under ICAO and other international regulations, there should be an inspection of it. But what had happened, because we saw the plane crash from the air, was that the plane had been buried. The fuselage was just by the airport, on the perimeter fence.
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    It was very quiet. And you could see the clean soil over the crash site. So clearly, something was being hidden.

    And U.N. panel members' investigations in the area found out that the local people were told to keep away and to keep their mouths shut and were very frightened for their lives. That is one point.

    The second point is about even getting access to the financial data that is needed to continue this investigation related to the Maritime Registry. I tried, because I was the person responsible for this, to get access to the Bureau of Maritime Affairs' files and bank accounts in Monrovia. The BMA's headquarters is there.

    Unfortunately, the day that I had arranged to go and get access to this and go through their files, the generator broke down. And I was then told that the generator would not be fixed until a day that was clearly determined after my departure from Liberia.

    This just goes to hint at the difficulties that may emerge for any proper investigation. I hope it will work. But the U.N. panel experience in April was not a happy one on the Liberian government's authorities trying to facilitate the investigation.

    Thank you.

    Mr. HUNTER. Okay. Let me just ask you and then go back to Mr. Cohen here. Mr. Wolf led off with this picture of this child that had had its arm cut off and then showed a picture of a number of individuals with their legs amputated, if you will. And he told about the shirtsleeving—whether you want a long sleeve or a short sleeve.
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    From your perspective, why does that occur? And what connection does that have with Charles Taylor and with the government of Liberia?

    Mr. VINES. Well, the context was that Liberia found Sierra Leone, its neighboring country, a very lucrative source of diamonds. And indeed, one of the key reasons for sanctions on Liberia in 2001—a strengthened embargo, including a diamond embargo—was the large amounts of diamonds that were going through Monrovia and onto the international market.

    Those had been actually, a number of those were being transferred through the Corporate Registry, which is part of the Liberia Shipping Registry. It is the kind of sister bit of the product that LISCR provides.

    That, since U.N. sanctions have been imposed, has declined. And in fact, most of the diamond trade from Sierra Leone goes through Freetown. And indeed, Liberian diamonds now actually transfer through Sierra Leone. The embargo seems to be working pretty well.

    As for the war in Sierra Leone, that is over. There have been clear elections. It is very peaceful. There is a very successful U.N. operation there.

    But you still have a war in Liberia, which is very ferocious, with numerous human rights abuses. And the international fear is still that Liberia could be a destabilizing factor in the region, which is why in May a Security Council resolution was passed extending sanctions for another year.
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    Mr. HUNTER. Okay. But my question to you, to go back to the amputation, how does that come about? Do you have any ideas on that?

    Mr. VINES. Well, the amputations are a use of terror, to send certain messages. The numbers of amputees are actually rather lower than the congressman cited. But how many is not really the issue here; that they happened and that they even occurred to children as young as four-and five-year-olds is just unbelievable. There is no other country that I have worked in in Africa where that has happened.

    Mr. HUNTER. What entity engages in the amputations?

    Mr. VINES. Well, these were RUF leaders mostly.

    Mr. HUNTER. And the RUF is what?

    Mr. VINES. The Revolutionary United Front. They are now a political entity in Sierra Leone. They contested the election. But they were a very brutal rebel group.

    Mr. HUNTER. But what is their connection with Charles Taylor?

    Mr. VINES. Charles Taylor was involved in encouraging their creation. And the reason for this was the economic eye on the gains of Sierra Leone. Some of the very best quality rough diamonds in the world are from Sierra Leone.
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    I think there is a link here, which is that the decline of the diamond trade through Liberia and therefore the denial of that revenue to the executive mansion, Charles Taylor, has meant that he has had to seek other sources of revenue. And so what you see, I think, is an increased pressure on the maritime revenue, for example, because the purse is contracting.

    The timber industry is another area that is under more pressure now than it used to be because the diamond trade, which used to be the mainstay, has declined because the access to the diamonds in Sierra Leone is now denied.

    Mr. HUNTER. Okay.

    Mr. Cohen, you have a registry of mariners that you said is fairly unsurpassed.

    Mr. COHEN. Yes.

    Mr. HUNTER. What is the background of the mariners or the extent of background analysis that you have on a given mariner?

    Mr. COHEN. First of all, I would like to note here that you cannot come to the Liberian registry and buy a certificate, as was suggested before. You have to go through an examination. You have to go through a rigorous environment, whereby what you have done in your past, in terms of maritime experience, is checked and verified.

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    Mr. HUNTER. Now who does that? Do you do that?

    Mr. COHEN. We have agents out there in the field who do that for us, yes. And in addition to that, we have a full staff of people in our offices. And we welcome your staff to come and see how we actually do it in practice.

    Mr. HUNTER. Okay.

    Mr. COHEN. There is verified information. They verify the supporting documents—which maritime school the seafarer went to, their background and all other documents that they are supposed to supply by law, submit by law.

    Mr. HUNTER. Now when you say you have agents who do this, are these agents in a number of other countries? Or agents in the United States? Or are they dispersed throughout the maritime world?

    Mr. COHEN. Most seafarers in the world now come from the following countries: the Philippines and India. Okay?

    Mr. HUNTER. Okay.

    Mr. COHEN. And the recruiting process obviously has to take place in those countries. And we have qualified agents in those countries that they do the work.

    Mr. HUNTER. How do you know that they are qualified?
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    Mr. COHEN. Who? The examiners?

    Mr. HUNTER. Well, you have understood that part of the flow of the testimony that has preceded your testimony has been to the effect that the depth of the credentialing of a number of these people, of the crews who were not American crews, is somewhat suspect.

    Mr. COHEN. Agree.

    Mr. HUNTER. And the fact that you can get—apparently, you can buy credentials on the street for cash money. So my question to you is: what depth of examination have you done with respect to your credentialing agencies that are in places like the Philippines? How much confidence do you have in them?

    Mr. COHEN. A great deal of confidence, sir. First of all, just to make the point even stronger, a Liberian seafarer document, for example, in India in the black market, you will buy it for $500. So why is that? Because people see the value in the document and believe in the integrity of the system.

    Now we work with law enforcement agencies—for example, the Interpol—almost daily in terms of identifying fraudulent documents. Now the people who come to get those documents, the seafarer must go through maritime academies. Those academies are certified in the countries.

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    And when they go to the crewing agencies that work with us, they have to present the documents for examination. The question may be asked: how do you trust your agents?

    Well, we work with them. We check on them. We make sure that the system keeps honest.

    Mr. HUNTER. Mr. Taylor? And I apologize, Gene, for not getting to you earlier here.

    Mr. TAYLOR. No problem.

    Mr. Cohen, what is the minimum wage in Liberia?

    Mr. COHEN. There is no minimum wage requirement. However, on Liberian flag ships, all those in the Liberian registry respect all ILO conventions. In addition to that, I feel that I need to dispel some myths about seafarers and their treatment under the Liberian flag or open registries in general.

    Figure the following. I am a ship owner. The most important asset that I have is the ship. It is worth several tens of millions of dollars. It is worth hundreds of millions of dollars.

    Mr. TAYLOR. Can I ask the questions?

    A guy or a lady is injured on a Liberian flagged ship, is there workman's compensation under Liberian law?
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    Mr. COHEN. No, there is not.

    Mr. TAYLOR. So there is no set standard if he loses a hand, a leg, of compensation for that?

    Mr. COHEN. No, there is not by law.

    Mr. TAYLOR. Is there drug testing?

    Mr. COHEN. I could not hear you, sir.

    Mr. TAYLOR. Is there drug testing of Liberian crews and captains?

    Mr. COHEN. No, there is not.

    Mr. TAYLOR. There is not. Who does the competency testing periodically to make sure that someone did not buy a fake?

    Mr. COHEN. We do.

    Mr. TAYLOR. And how do you do that? Where do you do it?

    Mr. COHEN. We check our agent. We see that they keep honest.
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    Mr. TAYLOR. Do you do spot inspections? Will a ship from—registered in Monrovia show up in New York and you will go on there and say, ''Okay, captain, here is the test. We are going to give you a spot inspection?''

    Mr. COHEN. Every application has to be sent to our office in Virginia. Every single application. And every single application has to be processed in our office in Virginia.

    We have U.S. trained people, Coast Guard alumni, who go and see that every application has the proper supporting documents.

    Mr. TAYLOR. They look at the paperwork. I understand that. But do they actually go out and look at the person making the application and give that person a test in a manner that they cannot already have the answers.

    Mr. COHEN. All Liberian seafarers must go through an examination that is equivalent to the standards set by the Coast Guard. There is no difference, sir.

    Mr. TAYLOR. Have you got the contents of that examination?

    Mr. COHEN. We can provide it for you.

    Mr. TAYLOR. Please, if you could provide that for the record, we would like to have that.
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    Mr. COHEN. By all means.

    [The information referred to is retained in the committee files and can be viewed upon request.]

    Mr. TAYLOR. Okay.

    I would like to make an observation, Mr. Cohen. I did not read your whole report. But to the question of testing the testers, ''If I were looking for a character reference, I would be happy to reply on the account of our business,'' to the report, pages nine to 11, 85 to 93.

    In particular, I would like now to refer you to pages nine and 10 ''LISCR has ring-fenced the revenue it generates from the Maritime and Corporate Registries. Their accounts are audited annually by Arthur Anderson, LLP, an auditing firm of international repute.''

    You might consider changing that.

    Mr. COHEN. Pardon me?

    Mr. TAYLOR. You might consider changing that portion of your testimony.

    Mr. COHEN. I did not say it. It is my colleague to my right that said it.
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    Mr. TAYLOR. Okay, that was yours? I apologize.

    Mr. VINES. It was the year——

    Mr. TAYLOR. Mr. Vines.

    Mr. VINES. My investigator.

    Mr. TAYLOR. You might consider changing.

    Mr. HUNTER. Mr. Taylor, let me recommend that we have a vote on, on the marriage penalty. Let's go take this vote. Let's come back and continue your line of questioning.

    Mr. TAYLOR. Well, Mr. Chairman, I have no further questions.

    Mr. HUNTER. Okay. Well, I have more questions that I need to ask. So why don't we go take this vote? We will back in about 10 minutes.


    Mr. HUNTER. Okay, folks, we will resume. And please pardon that brief interruption here.

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    And Mr. Morris, you had indicated you wanted to say something on this subject as we were having a discussion here.

    Mr. MORRIS. Thank you.

    What I wanted to add, in talking about the certificates, it is not just a question of fraudulent certificates. There is a range of certificates. It can be fraudulent or a forged certificate, to the extent that you sought to create a document that purports to be something else and it is not, where it is a forged qualification certificate, whether it is a master's or engineer or whichever.

    Then you go to the other, there is another type. That type is where the actual document itself, without the information on it, is genuine. It can either be stolen or in some cases, sold. Stolen inverted commerce, but actually sold. Or it can be genuinely, actually stolen and the details filled in. So in terms of testing the document for authenticity, it appears to be genuine.

    Then there is another group where you find, if you look at the performance of some of the training skills and particularly in the Philippines with STCW 95 now, a large number of maritime training skills in the Philippines that the government has removed from the accreditation list.

    Mr. HUNTER. Now which government?

    Mr. MORRIS. Philippines government.
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    Mr. HUNTER. Which government confers accreditation? Is that the Philippine government?

    Mr. MORRIS. In this case, the Philippine government.

    Mr. HUNTER. On the school?

    Mr. MORRIS. Yes, accreditation on the school.

    Mr. HUNTER. And you have schools where they go and they receive their training.

    Mr. MORRIS. Yes. What we learned from our inquiry was that there are several businesses where you could not work out why, in the Philippines where there is already a substantial surplus of ratings. They are still turning out 30,000 a year more ratings.

    The reason is there is an industry in training ratings, the services. So ratings being the able seaman, ordinary seaman, those people, the general task—the non-officers or engineers.

    So they need a constant flow. They are recruiting mostly in the countryside, people away from ports, to get their flow of students to keep up their cash flow.

    As to the appropriateness, whether the level of competence and skill justifies the award of certificates is another issue. So people have credentials, unless you have knowledge of the training skill and the credential may not be worth anything. But it is a genuine credential in that sense.
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    So when you look at the question—when one looks at the question of credentials, certificates, it is a much broader picture than just the false—

    Mr. HUNTER. Well, I understand. Understanding that that picture is one that is difficult to assemble, in your judgment, are we turning out in these schools—and let's take the Philippines, for example, because they obviously supply a good part of the maritime force. Are we turning out competent personnel?

    Mr. MORRIS. I have asked the question myself. And the skills that turn out competent personnel are those that are accredited usually directly by the shipping companies. So you will find that the Norwegian government—there are various forms of aid programs going to the Philippines, so some skills are accredited by shipping companies. And they draw their staff only from those skills.

    Mr. HUNTER. Now are saying the companies themselves—you are talking not the registries, but the companies accredit some schools. Because a company wants to have competent people running its operations, right?

    Now what percent is that?

    Mr. MORRIS. I cannot give you a percent. But it is not hard to get some figures. I am thinking directly of the shipping council out of Cyprus. There are a number of companies that operate the membership of that. That will readily tell you which schools they accredit because they are quite proud of that.
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    You take the German shipping lines, there are some German shipping lines, they support training skills in Kiribati in the Pacific, down up above Papua New Guinea. They are using islanders. Then there are others that use Fijians.

    But they have people trained to the level of competence that justifies the award of those certificates because, as Mr. Cohen was mentioning earlier, if you invest in a new vessel, you want competent people working on that vessel. That is that market.

    But then there is another market altogether, being people who want just to train students. That is the maritime training schools. Quality does not matter there, as long as they get people through.

    But then the critical part in all of that—and going back to this question and investigation of crew members on a ship—the critical part, particularly coming out of Asia, are the manning agents. In the Philippines, there are some 300 manning agencies. There are about 200 of them in the Manning Agents Association. There are roughly about another 100 who are not in the Manning Agents Association.

    Some of the worst abuses of seafarers, they all originate with the manning agents. What we were told is that you will sometimes find a liaison between a training school—so there is a Morris training school—and the manning agency. And I have an arrangement with you, when you want people, you come to me. And I get the people churning through. All you are interested in is getting your commission from places——

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    Mr. HUNTER. Well, I understand that.

    Mr. MORRIS. And that sort of stuff. So there are those relationships.

    But it is the manning agents, in terms of authenticity and identity and competence, particularly coming out of the Philippines and, to an extent, there is something of it also in India. But in the Asian scene, there needs to be close identification and observation of the manning agents.

    Mr. HUNTER. If you were going to compare the maritime industry with respect to the personnel, to the credentialing and the competency of the personnel and our ability to monitor that credentialing and competency, compare that to the airline industry.

    The maritime industry to the airline industry. Where do we stand?

    Mr. MORRIS. Significantly behind and that is because of the weakness of IMO because IMO and ILO have not been given the powers that member states have given——

    Mr. HUNTER. Okay. Let me go to another question here then.

    If you assume that the IMO and these other international organizations, in the end, are not going to have the political will to really enforce this monitoring and this credentialing to the degree that they should. And I think one reason that is not going to happen is because cargo needs to get delivered.
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    And you have big, legitimate organizations like the Exxon and the Mobile and the other American shippers that we named off who need their cargo to be at certain places at certain times. And if that delivery is going to be held up by a new discipline, if you will, a more intense scrutiny of the wherewithal to get it there—that is, the shipping—then you are going to have a lot of distraught people in business.

    So you have a very compelling force that moves commerce around the world because items have to get from point A to point B within a certain time range. And the complaints—and I think legitimate complaints—in terms of competency of the shippers, are always going to be subservient to the need to keep the railroads running on time, right? Or to keep the cargo showing up on time.

    Mr. MORRIS. Can I pose as an outsider a question to you as a U.S. legislator?

    Mr. HUNTER. But if you assumed—yes, so that is what I am getting down to. If you assume that the international organizations are always going to crumble before what I would call the political force or the political impetus of commerce. And they are not going to come up with tough regulations.

    That leaves it, as I mentioned to the admiral, that leaves it up to the United States to unilaterally impose some limitations. And I think, as Mr. Heindel recommended, where you do not have that credentialing and you do not have that competency in crews, they should be denied entry into the United States.
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    That is their perspective. Do you think, Mr. Morris, in real terms that, absent tough unilateral action by the United States, we are ever going to upgrade that? Get rid of the bad apples and upgrade this capability/

    Mr. MORRIS. Well, the U.S. is not known for being reticent about imposing unilateral solutions. I mean, over 90 is the example of that. And it may well be, in these circumstances, the only options you are left with is unilateral action.

    I do not have any difficulty with that because of the powerlessness of some of the international organizations.

    Mr. HUNTER. Mr. Cohen is here. And you have heard him talk about he has got high confidence in the credentialing of their personnel. You have agencies that have done that in the various locations in the world.

    Do you disagree with his assertion that his personnel are highly competent?

    Mr. MORRIS. I cannot pass judgment on his personnel. I have seen something of the systems they have in place. But that would be a Morris-Cohen judgment of each other. That is not the exercise.

    But rather, what he is outlining are the processes that his registry follows in respect of recognition of the authenticity of certificates. What might be asked of Mr. Cohen also—but it spreads much more beyond Mr. Cohen—is what certificates of other nations are recognized by their registry?
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    I mean, a common practice in this area, when you get down the Foley scale is, if you have a Belize certificate. Now I have seen a Belize—I have seen a Panamanian captain's certificate down in Miami and a captain's Panamanian certificate. And it only happened to be about seven months out of date, in Miami River.

    But when you looked at it, it was for command of vessels up to 300 tons. But somebody had added another zero to it, so it became 3,000 tons. So some nations—at that time, Panama recognized Belize certificates of competency. One needs to know those. And that is where Mr. Cohen can come in. I do not know which ones they recognize.

    Mr. HUNTER. Well, Mr. Cohen, what do you——

    Mr. COHEN. Mr. Chairman, let me explain things from our standpoint, the way we see the maritime industry. If I am to divide the industry into two segments: the substandard operators and the quality operators, we have the benefit of attracting to our registry the quality operators.

    Now there is a reason for this. We have a robust enforcement system of our laws, with respect to safety, environmental issues, pollution prevention and so on and so forth. Okay?

    Ship owners, it works for them commercially in the following sense. If you, for example, were a tanker owner. There is a matrix in the system because you want your ship to be chartered by the big oil companies to carry oil.
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    Now usually, you would carry it to one of the major developed industrial countries. If you come to the United States and you have good quality operators and you carry a quality flag like the Liberian flag, the Coast Guard, more likely than not, will give you some benefit of the doubt in how often they will check you.

    The Coast Guard does stop ships from time to time, irrespective of who they are, to keep the system honest. But if you are not stopped to be examined, you do not lose time and time is money.

    So ship owners of quality do maintain quality ships. As a result of this, they have to have quality crews because if you do not take care of your crew, they will not take care of your asset.

    Mr. HUNTER. But you are repeating platitudes, which in some cases are truisms. On the other hand, there are a number of ways to own apartments. One is to have high-class apartments and have high-class renters.

    And the other is to have very low maintenance and low costs; and therefore, build a little bigger delta between your expenses and your income. And you can also make money that way.

    So we live in a real world. And as I understand the picture that is been painted here is that you have some ships where you have owners who have an incentive to take care of their ships, obviously are not going to put them in the hands of fools who are going to run them aground. On the other hand, if they have an opportunity to save several hundreds of thousands of dollars in labor costs over a given cycle, they are probably going to avail themselves of that opportunity, even if it means they do not have crews that have the highest of capabilities, but nonetheless are able to move the ship from point A to point B.
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    And so, what I am trying to get at here is whether or not we have a handle, whether there is really any way of validating the competency and the capability, the credentials, of the folks that crew the maritime industry. Probably the best way to do that is through the ship owners themselves, as Mr. Morris has pointed out. Nobody takes better care of their ship than the guy that owns it. And they probably have a fairly competent school.

    But on the other hand, Mr. Morris, you say that there is a number of uncredentialed schools that want to turn out graduates. And they get paid per graduate.

    Is there a way, absent the IMO taking a position on that or taking a strong disciplinary position, is there any way in which we can bring that about?

    Mr. MORRIS. There is a process on the way, the revision of STCW 95. And what they did there was globally look at all of the nations and say which nations—whose training facilities are capable of producing people with required levels of competence? Some nations missed out. But most nations passed through.

    The next step then is a close examination of the performance of the training facilities of each of the nations. And that process is still working through.

    But the market will determine. You want a quality ship and I want a quality of people running my ship. And I will try to create—good seafarers are scarce. But as you get down the line, then there is a different market that you come into. As some people say here in the States, they just want a group of people to put on board a ship.
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    I think in some of those, yes, there are ways and means of judging that. And the industry—and very quickly, the Coast Guard—can tell you which trainees, where you would rate them. And you would probably rate in the first grouping people that had been trained in the OECD nations.

    You take it the other way for a second, demand. What is the greatest demand? The greatest demand is for people trained in the OECD nations. But they are aging out because going to sea is not attractive.

    Then the next group probably would go to—this is just a Morris rating, my gleaning of what it is—is probably trained in India, these officers and engineers. And then there is another market, we will pick up the next one down probably—and could be equal in some respects to that—are some Filipinos, depending on the school at which they have been trained.

    Japan prefers to employ Filipino officers and engineers. And that is why you had that figure earlier of the number of Panamanian—Filipinos employed on Panamanian-registered ships. Of course, Japan is 40 percent of the Panamanian flag. So that is the link of that going together.

    Then once you get past the Philippines, then you start to go all over the place. And it will be case by case.

    But the U. S. Coast Guard would have a pretty good handle on that, chairman. They could tell you pretty quickly what their rating was. And it is obviously a factor when you are looking at the competence, competent operations and, in the case of the U.S., the safe operation of vessels. They could give you a pretty good grasp or pretty good prioritization of which ones they would be happy with and which ones they would be more concerned about when they are targeting.
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    Mr. HUNTER. Okay.

    Mr. Heindel, tell me a little bit about your perspective in terms of the importance to national security of having American crews on ships.

    Mr. HEINDEL. Well, generally speaking, the United States has been a maritime nation since its inception. We are surrounded by water, practically. And our commerce, whether being imported or exported, is done so by vessels, not by road transport. And it is imperative that for us to protect ourselves, we have to have a merchant fleet; that is to say that if—and I really do not have to tell you this—but in order for us to protect our assets, we have to make sure that we have the ability to do so.

    In order for us to protect our assets, we have to be prepared to move equipment or the necessary means for the military to protect our interests abroad. And without a maritime industry to do so, we obviously would have to rely on foreign nations to move our cargoes.

    Mr. HUNTER. What do you pay your folks?

    Mr. HEINDEL. It varies obviously per rating. But I would say on the average of maybe $2,500 a month. Depending on the rating, maybe on average about $2,500 to $3,000 a month. That is for the unlicensed ratings. Of course, the officers are a scale above.

    Mr. HUNTER. Okay. What is that—and anybody can answer this—but how does that compare with somebody from the Philippines, for example?
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    Mr. HEINDEL. About $1,000 a month, if you are lucky.

    Mr. HUNTER. About $1,000?

    Mr. HEINDEL. Yes, on average, $1,000 a month.

    Mr. HUNTER. Mr. Cohen, have you had—you do this, you have this monitoring of personnel. And you have a bank of personnel information that you utilize. Is that right?

    Mr. COHEN. We have a database.

    Mr. HUNTER. You have your database. What is in that database for most people? You pull a name, what will it have?

    Mr. COHEN. It will have all related documents in terms of supporting documents—the schools, the academies, which is the training background, and all related licenses and tests and examinations. And we are in the process of adding identification such as fingerprints, so you can identify whether the person is real or not.

    From a standpoint of not competency, but from the standpoint of national security, you want to know that the person who presents himself as John Doe is John Doe.

    Mr. HUNTER. Now are you taking these fingerprints now?
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    Mr. COHEN. We are in the process of introducing it. The concern that we have is that if you are in the first in the technology, how do you know that on the receiving end, for example, the INS will have the same technology? So we are trying to figure out which technologies are going to be used in the United States, either by the INS or by DOD or any other related agencies.

    Mr. HUNTER. Well, why don't you just fingerprint people?

    Mr. COHEN. We will.

    Mr. HUNTER. Have you fingerprinted anybody yet?

    Mr. COHEN. We are in the process of making all the plans to start doing that. And in fact, we will be the first ones doing it.

    Mr. HUNTER. Have you done it yet?

    Mr. COHEN. Not yet. It is a new technology.

    Mr. HUNTER. Do you have a record so the people that you have scrubbed for security—and how do you go about scrubbing people for security?

    Mr. COHEN. We are not vetting for security. We are vetting for identity.
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    I cannot tell you whether a person is a security risk or not because we do not have intelligence resources.

    Mr. HUNTER. Do you turn those names over to the Coast Guard?

    Mr. COHEN. We will be very happy; in fact, we were suggesting for quite some time for the Coast Guard, for the INS. We have these assets. It is free. It costs no money.

    We feel that we are a U.S. company and we have to have our commitment on security issues right there, in keeping with the times and the necessity. But I do not want to sound as I criticize them because they are busy and trying to figure out what they need to do. But this is an asset that it screaming for people to use.

    I will give you an interesting example. When we get, two weeks after September 11th, an application from Karachi, it tells you that you have to be alert. It tells you that maybe something is going wrong here.

    Now if the Coast Guard has the need to identify who comes on board ships and they required the ship owner or the ship management company to provide the list of the seafarers on board the ship, how do they know that these are the real people if they do not identify with the flag state that there is a match? Just to get a list of people, in my judgment, is meaningless. And that issue I heard in the prior session here.

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    However, if you get a list from the ship owner of who are the people on the ship and you match it with the database that we have, then you know that those people are for real.

    Mr. HUNTER. That is if you have something to identify them on the database.

    Mr. COHEN. Yes. And we do, at least name, address, date of birth, all the usual respects that will tell you whether this is the real person or not.

    Mr. HUNTER. Mr. Vines, do you have any other—now you went through this transaction that was made where the registry sent the money directly to the folks that were running the guns. And Mr. Cohen said that was kind of an oversight or something they did not like to do and that they are not going to do that anymore.

    Do you have any other information with respect to the present day activity of Charles Taylor or the government of Liberia, with respect to this money? And first, how much money are we talking about in terms of the registry money?

    Mr. VINES. The total remittance per year ranges, depending on how good the business is going; $15 million to $18 million a year is remitted to Monrovia.

    Mr. HUNTER. How much—Mr. Cohen, what do you folks take from that for your services?

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    Mr. COHEN. The split is roughly 60 to 40 percent pretax and pre-expenses. We have considerable expenses on our part, in addition to that.

    Mr. HUNTER. Okay.

    Mr. VINES. So the concern is that, at the moment, if we look at the 2001 figures, you still see a very significant discrepancy between the Ministry of Finance and Central Bank of $4 million-odd dollars. So at the moment, there is still this opaqueness of what happens to the money.

    And I think the challenge will be what this new audit will be, if an agreement is reached with Crown Agents and an audit takes place. Then there will need to be verification, independent verification of what those figures actually show. And indeed, it will be worth questioning Crown Agents how they experience the audit system.

    How did they go about it? Where did they find problems? Were there any obstructions?

    I mean, just one point is that the auditor general in Liberia has not audited the accounts for over 15 years from the Bureau of Maritime Affairs. This is an area that is extremely opaque.

    Mr. HUNTER. Okay. Well, why don't you keep in touch with the committee on this, if you could? And we want to know how this goes, as you walk through it.

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    Mr. VINES. I certainly will do, sir.

    Mr. HUNTER. Okay. Please do that.

    Mr. Morris, any final points you would like to make here before we finish up?

    Mr. MORRIS. Yes, briefly, chairman. The problem we have been talking about crew credentials and we are talking about 1.25 million seafarers in the international trades. About 200,000 of those are Filipinos. About 80,000 to 90,000 are from Indonesia.

    Then you have from Turkey, then from the various European nations and even from India. And the resources that are there that we sort of think of here—or I think of in Australia—for validating or for inspecting. And the databases just do not exist in some of those countries. So the task is really gargantuan. And I just mention this to highlight it.

    The last matter is I suggest to the committee not to accept the kind of proposal that, ''Oh, we will transport—the cargo has to get there.'' And I draw the analogy that within the United States, you have requirements on the condition of your road vehicles and your rail vehicles.

    And if you want to be in the road transport business, you meet the conditions, in terms of vehicle condition and driver competency or you are not in the business. And because that is not applied equally to shipping and international shipping, that you can bend the rules or you can have non-compliance or you can have the abuses because the cargo has to get there.
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    That is not an argument. If you want to be in shipping, then these are the requirements—the safe entry and the safe cooperation—that have to be met.

    Mr. HUNTER. Yes.

    Mr. MORRIS. Thank you very much for the opportunity. I hope I have been able to make some contribution.

    Mr. HUNTER. Okay.

    Mr. Heindel?

    Mr. HEINDEL. Yes, the only point that I would like to mention again is it is important that we as a nation protect ourselves from forces out there that are looking to harm us. And that could be done, as we have seen it done most recently in September, where our transportation services are being used as weapons against our own people.

    There are employers out there, ship owners, in particular, that derive a benefit from trading with the U.S., coming into our country, earning money for transporting goods to and from this country. And they are allowed to operate at a bigger advantage than a U.S. carrier is in the international trades.

    It is time that the government takes a look at this and makes it an even plain field for the foreign operator.
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    Mr. HUNTER. Okay.

    Mr. Cohen, any final remarks you would like to leave us with?

    Mr. COHEN. In final remarks, I would like to touch upon the political issue regarding Liberia and the security issue regarding the United States. We are fully committed. And we are doing whatever we can in our sphere of influence and ability to see to it that there is a monitoring mechanism of the money we generate and which goes to the government of Liberia.

    We have been involved intimately with the Crown Agents, which is the proposed entity to provide this monitoring capacity. And we are hopeful that something positive will come out through the next coming weeks. And I will be very happy to update the committee on that.

    On the national U.S. security side, we think that LISCR has tremendous assets that can be helpful to U.S. security and national interests. And we are here, committing ourselves to do whatever we can in our ability in providing those assets to the responsible governmental agencies.

    Mr. HUNTER. Okay.

    Mr. COHEN. And thank you for the opportunity.

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    Mr. HUNTER. Okay.

    Well listen, thank you for being with us. We respect your position in terms of monitoring the government of Liberia. I think the problem is you work for a guy who is a murderer. And I do not think he is going to be inclined to change his position as a result of any contacts with you folks.

    And that means that part of the flagging fees that go into your coffers and ultimately into Liberia's coffers are going to be used to, in some cases, to cut kids' arms off and, in other cases, to do maybe less heinous things, but nonetheless, things that are not considered to be civilized.

    So that is just a fact of life. And I would think it is going to be a sad day for the United States if we are depending on Liberia's agent for the national security of the United States. We may get information from you. But I do not think you are going to be a reliable rock of foundation for our national security apparatus.

    You know, what I would conclude out of this is that I think we have a compelling national interest to have a maritime force in this country, both from the security aspect, which is now becoming preeminent, but has always been there to some degree, but also from the jobs aspect. We have American consumers buying these goods in unprecedented numbers, both in terms of the dollars expended and in terms of the tonnage of cargo that is delivered. And yet, we do not have Americans delivering the goods.

    I think we have an interest in doing that and removing some of these obstacles. My one question that remains is even if you remove major obstacles like the tax problem, is there enough of an inducement there to get heretofore foreign-flagging shippers to flag American? And I do not know the answer to that one. I think we need to work more on that question.
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    Mr. Taylor, do you have any closing comments you would like to make?

    Mr. TAYLOR. Mr. Vines, I think you need to change your publication with reference to Arthur Andersen. And Mr. Cohen, you need to quit quoting Mr. Vines' publication because Arthur Andersen does not have a whole lot of credibility anymore.

    For the people in the maritime industry, I have made the same request of, as you know, the admiral and generally from the Maritime Administration. In addition to everything that the chairman said—and I am in total agreement—I do think that the loopholes that have evolved over the years—the U.S. flags being put on foreign-built vessels; the exemption for this guy because he has got a powerful friend who is a senator or a congressman or the exemption for this—I think it has also poisoned the well for people wanting to operate under the U.S. flag. Because they get all the advantages if they go away. And they do not pay any of the costs associated with being an American.

    I would also ask you gentlemen to make me aware of any loopholes that you feel need to be addressed.

    I am encouraged—you know, I would certainly prefer to see the Democrats in the majority. And I hope that is the case come November. But if that is not the case, I am encouraged that this gentleman will be the chairman of this committee and that someone who is of the mind to start fixing some of these problems will be the chairman.

    And so either way, I would hope we would have that information in hand so that we can go to work on it, step by step. Take the steps we need to get us to make us a maritime power again.
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    So I am asking for your input. And I hope you will follow up on it.

    Mr. HEINDEL. Congressman Taylor, we certainly would love to work with your office in providing you the information necessary to help us promote the U.S. maritime industry and make it a viable organization for operation for not only the operators of the United States, but also for the crews that want to work on those vessels.

    Anything we can do to help you, we will be sure to do that.

    Mr. TAYLOR. Thank you, Mr. Chairman.

    Mr. HUNTER. Okay, thank you, Mr. Taylor.

    Folks, thanks for being with us and sticking around and having some endurance here and to everybody who was here. And to all of our staff, thank you for supporting us today. Appreciate it.

    [Whereupon, at 2:49 p.m., the subcommittee was adjourned.]