special report: THAILAND fractures over CLAS AND JOBS – Pages 2- 4

JULY 2010 N o 1007

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Oil makes its own laws

The system under which offshore drilling rigs, and now oil tankers, operate was set up at the end of the second world war to ensure that the US was supplied with the cheapest possible oil without having to consider, or pay for, the consequences

KHADIJA SHERIFE

CharlElie – ‘Left Glove’ (2007)

Fouling all our futures

Chinese investors and British pensioners did not think on 20 April that the black tide off the coast of Louisiana would reach them so soon. Down in the Gulf of Mexico, 11 workers on an oilrig lost their lives, fishermen in St Louis Bay lost their livelihoods and everyone lost their precious environment and their brown pelicans. Far away from the fouled areas, the Beijing authorities and British pension funds suffered damage of a different kind: 48% of the value of their BP shares was wiped out in just two months. In China – and in Kuwait and Singapore – prime investors would be wise to lose their enthusiasm for western oil companies (1).

The pension funds’ plight is of particular interest when European states, under pressure from the financial markets, are “reforming” (ie cutting) social security. The steady reduction in government spending on health and pensions predictably and purposely forced many workers to turn to private insurance or pension funds. In the UK, the pension funds were naturally tempted by the $59bn in annual dividends offered by BP, star of the London Stock Exchange. Eventually they came to depend on BP for one sixth of their income.

The return on the pension funds was all the more attractive because BP cut costs, by neglecting security measures where costly. But the US is not a no-go area or a little country whose president must always kowtow to a foreign multinational. It can defend itself against the destruction of its flora and its shores, and insist the polluter pays – $4,300 for every barrel of oil (159 litres) spilled at sea. This oil slick, which may turn out to be 17 times the size of the Exxon Valdez spill in Alaska, might cause BP’s shareholders to regret the minor savings their company made in order to increase its profits.

The absence of state-funded retirement means that the prosperity of UK workers in their old age is inexorably bound up with the fate of their pension funds. They are naturally dismayed by US retaliatory measures that have affected the value of BP stock and already substantially reduced the company’s credit rating. When President Barack Obama announced that the company would pay for all the damage caused by its recklessness, the former Labour minister Tom Watson expressed his concern: “This is now a serious crisis facing millions of pensioners in the UK.”

Take millions of men and women seeking security after working all their lives and turn them into greedy robots, closer to the directors of BP than the fishermen of Louisiana. That is the nature of the system, kept going by the misplaced loyalties which one crisis after another expose.

SERGE HALIMI

Translated by Barbara Wilson

(1) According to Bloomberg, Norway, Kuwait, China and Singapore have lost $5bn since the black tide hit Louisiana.

inside this issue Iran: why Rafsanjani had to go Page 4 Iran still needs Russia, but the trust has vanished Page 5 Israel sees humanitarian aid to Gaza as a threat to national security Page 6 Report from Kandahar: crime, corruption and militias are the real enemies Page 8

Could work damage society? Page 10 The worrying trend towards criminalising kids in US schools Page 11 Observers no more: Salafists step into the Islamic political arena Page 13 Paid-for pundits: TV’s opinion-formers have hidden political ties Page 14

The offshore drilling company Transocean celebrated the explosion on the Deepwater Horizon in a luxury hotel in Zug, Switzerland, where the company is based. On 14 May, three weeks after the blow-out, the owners of the Deepwater rig, which was valued at $650m before the accident, were expecting the first instalment of their insurance payout: $401m. At a closed meeting they agreed to pay $1bn in dividends to shareholders. Oilrigs are classed as ships under international maritime law, and Transocean’s lawyers had been able to argue that the company’s financial liability should be limited to the post-accident value of the rig, barely $27m. (The same law – the 1851 Limitation of Liability Act – allowed the owners of the Titanic to pay only $95,000 to its victims, the value of the safety equipment and lifeboats.)

Transocean is trying to emerge from the disaster unscathed, while the multinational operator of the rig, BP (formerly British Petroleum), has become the focus of criticism. The other big oil companies have started to dissociate themselves from BP, suggesting that the Deepwater leak was avoidable and that they would not have gone ahead with drilling that well (1). The White House has now agreed a deal with BP to suspend dividends for a year, with the money put in a special account to cover compensation claims. The oil companies are not happy about the six-month moratorium on offshore drilling imposed by President Barack Obama: they want to return to business as usual as quickly as possible, even though that business has led to environmental catastrophe.

The headquarters of International Registries Inc (IRI) are in Reston, Virginia, on the outskirts of Washington DC, a long way from the disaster in the Gulf of Mexico. It’s a small office: IRI’s activities do not require a large staff. The company offers clients the opportunity to circumvent maritime regulations by registering vessels under the flag of countries with more relaxed laws, such as the Marshall Islands, two chains of coral atolls in the Pacific Ocean, with a population of 62,000. IRI boasts of being the most experienced maritime and corporate registry in the world, covering oil drilling as well as transport. Among its clients are Transocean and BP.

Last year the Marshall Islands was ranked the world’s fastest growing maritime registry, with 221 oil tankers sailing under its flag of convenience: four times more than the US,

Khadija Sherife is a journalist and co-author of Aid to Africa: Redeemer or Coloniser?, Pambazuka Press, Cape Town, 2009

home to major corporations such as Chevron and ExxonMobil. Like Panama and Liberia, the Marshall Islands is also a “secrecy jurisdiction” – a tax haven and offshore financial centre.

To register under its flag of convenience, and create a Marshall Islands “corporation, partnership, limited partnership, limited liability company or foreign maritime entity” (2), there is no need to set foot on the archipelago. As I found out, a few faxes or emails suffice. Pretending to act for a client who wanted to escape the regulatory constraints of his home country, I made contact with IRI after the Deepwater Horizon explosion. In the first email I learned that forming a Marshall Islands company could be done in a day for an initial filing fee of $650, plus annual maintenance fee of $450. We would immediately benefit from Marshall Islands jurisdiction, including zero taxation, high levels of client confidentiality (extending to shareholders, directors, members and limited partners) and voluntary disclosure.

I explained that my client wanted to register a vessel the size of the BP rig. By email, IRI suggested an initial registration fee of $15,000, with a small annual fee of 15 cents per net ton (3). Our correspondent offered a 50% discount for “registering 10 or more vessels that are 15 years of age or less”. By registering in the Marshall Islands, corporations can evade taxes and royalties, and circumvent employment laws, environmental legislation and other regulations. It is no surprise then that Transocean, the world’s largest offshore drilling corporation, has registered 29 of its 83 ships there, with the others sailing under Liberian or Panamanian flags.

But, I wrote, my fictitious client was worried about what would happen if there were an accident and the authorities wanted to know his identity? Within the hour I had received this reassurance: “If the authorities come to our Registry or Jurisdiction and ask us to disclose more information regarding shareholders, company directors etc, please note that we are not privy to that information anyway, since all the business organisation and conduct of the entity is performed by the entity’s lawyers and directors directly. Unless the name of the directors and shareholders are filed in the Marshall Islands

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