U.S. regulator opens probe into flags of convenience after drug busts show registry gaps
The U.S. Federal Maritime Commission opened a broad investigation into flags of convenience on May 21, 2025, after two drug seizures in San Juan showed how open registries let smugglers vanish.
Source: Global Financial Integrity · July 24, 2026 at 11:01 PM · AI-assisted report
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KUALA LUMPUR, 25 JULY 2026 —
The U.S. Federal Maritime Commission opened a broad investigation into flags of convenience on May 21, 2025, after two drug seizures in San Juan showed how open registries let smugglers vanish.
Market Impact
U.S. Customs and Border Protection officers intercepted 260 kg of cocaine on the Bahamas-flagged ferry M/V Kydon in June 2020 and 492 kg on the same route weeks later, according to CBP filings. The reports listed only the contraband’s value and concealment, leaving the vessel and its nominal owner untouched. The Kydon sailed on while the case files closed.
Analysts at Global Financial Integrity say CBP’s mandate ends at cargo interdiction, leaving open registries unchecked. “Vessel registration is cheap and easy, with beneficial ownership information not required,” they said, enabling operators to hide behind shells. Smugglers can unload drugs in a U.S. port while the ship slips away into international waters.
Unless a ship fails a safety inspection or is interdicted at sea, it usually avoids penalty. Open-registry vessels rotate through ports with minimal oversight, creating a cycle where criminals exploit opaque registries while law enforcement chases containers rather than rings. Global Financial Integrity found authorities often catch the product but not the phantom owners behind it.
The Federal Maritime Commission is now deploying tools that target the vessel side of the problem. Under Section 19 of the Merchant Marine Act of 1920, the FMC can impose up to $1 million in port-call fees, limit sailings, or ban cargoes. The agency reactivated these powers after decades and opened a non-adjudicatory probe into foreign flagging rules and open registries on May 21, 2025.
FMC Chairman Louis Sola has linked flags of convenience to sanctions evasion, warning that carriers used by “reprehensible regimes” to dodge rules will draw scrutiny. The probe catalogs abuses such as “flag-hopping,” fraudulent certificates, and a “shadow fleet” tied to smuggling or illicit finance.
Global Financial Integrity recommends a global ship registry tying every vessel to its ultimate owners. The system would link each ship’s IMO number to verified beneficial owners—the natural person(s) who ultimately owns or controls the entity—along with contact details and ownership changes. Port authorities could require registry checks for call permits.
The registry would mirror national corporate beneficial-ownership databases but in the maritime sphere. Mandating up-to-date, publicly accessible entries would let each port call cross-check true ownership and deter illicit use, Global Financial Integrity said. Implementation would require international coordination but could build on existing systems.