Mongolia’s Paper Fleet Is Helping Russia Dodge Sanctions

Mongolia is the world’s second-largest landlocked country. On paper, though, it sails more than 3,000 ships. The North Asian country has established a shipping registry that, like other nations taking advantage of shipping’s sketchy rules, has become a preferred choice for a dubious clientele of shipowners.

The decades after the 1920s—when some U.S. companies began reflagging their ships to Panama to be able to serve passengers alcohol—saw decidedly modest maritime powers such as Panama, Liberia, and the Marshall Islands establish the concept of “flag of convenience,” as they allowed shipping companies from any country to register their vessels under their flags. The flag-of-convenience states made money, and the shipping companies could circumvent their own countries’ pesky rules and regulations. Today, Panama, Liberia, and the Marshall Islands are the world’s top three shipping countries measured by dead-weight tonnage.

Now Mongolia is gaining clients—especially shipping companies transporting sanctioned Russian goods. In the shipping industry, Mongolia is one of the world’s most notorious flag-of-convenience states, and now it seems to be flaunting its sorry record to undermine international sanctions. But not even Mongolia’s egregious behavior is likely to put an end to the shipping world’s favorite dodge. It’s more likely to cause lethal maritime accidents.

“The sign says ‘Maritime Administration’ over the door of the one room office which has a handful of computers, a fax machine, ship models for décor, and two civil servants that oversee the ‘Mongolia Ship Registry,’” the Maritime Executive reported in July 2004.

The Maritime Executive was baffled at Mongolia’s arrival in the flag-of-convenience community. Mongolia is the world’s largest landlocked country, a sparsely populated nation mostly known for having more horses than its 3.2 million people, and of course for a famous medieval ruler named Genghis Khan. “A Mongol without a horse is like a bird without wings,” a local saying goes.

The new Mongolian registry, the Maritime Executive found during its 2004 visit, was owned by a Singaporean company that had for years operated Cambodia’s shipping registry, which in turn had lent its flag to many North Korean ships. The year before, the North Korean freighter Sosun had been intercepted carrying 15 scud missiles, conventional warheads, and rocket propellant while sailing under Cambodian flag. When Cambodia reformed its ship registry and Japan introduced more stringent checks on North Korean-flagged ships around the same time, the number of Mongolia-flagged ships quintupled.

It was an unorthodox start for a country wishing to capitalize on fast-accelerating globalization and its most indispensable component, global shipping. “Mongolia is registering anything that floats and can pay the fee,” the Maritime Executive concluded.

And so it continued. Even as the traditionally pastoral country embarked on an economic transformation that has seen it become a major exporter of minerals, it kept wooing regulations-shy shipping companies with its decidedly laissez-faire ship registry. “The Mongolia Ship Registry is the extreme end,” Neil Roberts, head of marine and aviation at Lloyd’s Market Association, told Foreign Policy. “Underwriters are very cautious or averse to this one and similar third-division division flag-of-convenience countries.”

The registry—administered by a for-profit company—isn’t even located in Mongolia; it instead operates out of a Singapore address. So poor is the Mongolia Ship Registry’s standards that the International Chamber of Shipping gave it seven red flags in its 2022-23 Shipping Industry Flag State Performance Table. Panama, Liberia, and the Marshall Islands received no red flags. In its most recent annual report, the Tokyo MOU—a multilateral organization monitoring maritime safety—blacklisted Mongolia as well as Togo, Sierra Leone, and Dominica.

But insurance by fine Western underwriters seemingly matters little to the kinds of shipping companies attracted to the Mongolian registry. “As of today, Mongolia Ship Registry registered approximately 3000 vessels while around 500 vessels having [sic] regular registration. Although Mongolia is a landlocked country, the total tonnage and number of Mongolia registered vessels are more than that of some countries which have sea access,” the registry proudly explains on its website.

And in recent months, the registry has added a slew of new entrants. The Mumbai-based ship operator Gatik Ship Management saw St. Kitts and Nevis—a flag-of-convenience state—cancel the flag registrations of 36 of its ships after it emerged that Gatik was using them to transport sanctioned Russian oil. But no matter: Gatik quickly registered at least four of those ships, including two named Horai and Mercury, in Mongolia, Lloyd’s List Intelligence reports. (Other sanctions-busting Gatik ships have found refuge in Gabon’s registry, which is based in the United Arab Emirates.)

“In registering its vessels with Mongolia, Gatik is scraping the absolute bottom,” Michelle Bockmann, the Lloyd’s List Intelligence analyst who first reported on the transfers, told me. “And Gatik is also sending an incredibly provocative signal to the shipping world. They’re essentially saying, ‘You won’t insure us, you won’t flag us, but what are you going to do about it? We’re going to do as we like anyway.’”

Mongolia’s vessels—both the longtime members and the newly registered ones—are busy. When I checked their movements during the last days of May, the Horai was in the North Sea on a journey from the Russian port of Primorsk to Maceio, Brazil. Previously named Lisca Bianca M and sailing under Italian flag, the Horai was bought by Gatik earlier this year. The Mercury had traveled from Primorsk and was heading into the Suez Canal. Another tanker, the Irbis, which had traveled from Santos, Brazil, was off the British coast and heading in a northern direction.

The longer the sanctions against Russia continue, the busier Mongolia’s ship registry is likely to become. While more prestigious flag-of-convenience countries such as Panama and Liberia may not support the sanctions, their ship registries can’t afford to be involved in activities that are too risky for Western insurers and that may incur penalties from the U.S. Treasury’s Office of Foreign Assets Control, which administers U.S. sanctions.

A bottom-ranked flag-of-convenience state such as Mongolia, by contrast, doesn’t much care about building a reputation or relationships in the world of shipping—especially since it has no ocean shipping. Instead, its registry is merely a cash generator, and the vessels now entering it can, if all else fails, get the cargo insurance now offered by a Russian state agency. “If there’s a regulatory rabbit hole, many shipping companies will jump down it,” Bockmann said. “There are so many ways of evading international maritime rules.”

The existence of flag-of-convenience states has implications far beyond the implementation of sanctions. According to the United Nations Convention on the Law of the Sea, there must be a “genuine link” between the owner of a vessel and the vessel’s flag. An American ship owner, say, should fly its vessels under the U.S. flag. But since the world lacks a maritime police—the International Maritime Organization has no such enforcement powers—the flouting of U.N. convention has been allowed to proliferate. Today nearly three-quarters of the world’s merchant fleet is estimated to sail under flags of convenience. Flag-of-convenience countries are mostly emerging economies (and two EU member states: Cyprus and Malta), and many of them are known to abdicate responsibility during accidents and other crises.

The ammonium that caused a devastating explosion in Beirut three years ago had arrived on a Russian ship sailing under the flag of Moldova, another flag-of-convenience country. The ship’s owners had gotten into trouble and left the ship stranded in Beirut, and Moldova had failed to act; this prompted Lebanese authorities to remove the more than 3,000 tons of ammonium nitrate on board lest the cargo sink with the ship and cause a deadly disaster. Then the Lebanese authorities apparently forgot about the lethal substance they were now holding—and it exploded.

The rickety tankers transporting Russian oil and other dangerous substances under Mongolian flag are also floating hazards. “They’re accidents waiting to happen,” Bockmann said. “The only chance to secure compliance with maritime rules is for countries to conduct checks when these ships call on ports.”

But Russia has no incentive to check the ships, she said. Instead the vessels will enter the world’s oceans. If they break down or have an accident, as the Gabon-flagged sanctions-busting tanker Pablo did in April, the Mongolia Ship Registry (employee count: 11 to 50), is unlikely to fulfil its flag state duties. Good Samaritan countries will have to help. What would Genghis Khan make of his country’s current claim to international fame?