Flag states play a key role in keeping the maritime industry compliant and accountable, but when they fall short, the consequences ripple across global trade.
A flag state is the country under whose laws a vessel is registered or licensed. Every commercial ship must be flagged under a state, and that state is responsible for enforcing international regulations on the vessels in its registry.
Their enforcement role includes registering vessels, certifying them for international compliance, and verifying that they carry valid insurance coverage. While flag states do not provide insurance themselves, they are responsible for ensuring that ships under their flag are properly insured and meet all regulatory obligations.
This level of oversight is critical to ensuring maritime security and protecting the integrity of global trade. When flag states lack effective screening and sanctions compliance procedures, they create openings for deceptive actors and sanctioned entities to exploit the system, often unknowingly. And as enforcement efforts grow more sophisticated, these oversights pose increasing risks for everyone in the maritime supply chain, from operators and charterers to insurers and national regulators.
When Oversight Slips, Risk Escalates
When a flag state registers a vessel linked to sanctioned or high-risk actors, the consequences can cascade well beyond its own registry. These vessels may be involved in deceptive shipping practices, sanctions evasion, or other illicit activities that expose the vessel operator and anyone interacting with the vessel to legal and reputational fallout.
Another challenge is that the risk isn’t limited to already-sanctioned entities. Many vessels operated by illicit actors fly under the radar, engaging in suspicious behavior without appearing on official lists. Weak oversight by flag states, especially around ownership transparency, beneficial control, and insurance verification, provides a convenient entry point for these actors to operate with minimal scrutiny.
One especially troubling dynamic is the emergence of flag states or affiliated bodies acting as “insurers of last resort.” When private insurers refuse coverage, often due to the vessel’s risk profile, flag registries without adequate due diligence processes in place may lack visibility into the vessel’s true insurance status, allowing it to sail with insufficient or unverifiable coverage. With stronger screening, these cases could be flagged or prevented before registration.
Lessons from the Registry
Recent incidents offer a clear view of what can happen when flag state oversight doesn’t keep pace with risk. From re-flagging controversies to reactive deregistrations, the following cases show how insufficient oversight can enable risky behavior and force course corrections only after damage is done.
- Tanzania’s controversial re-flagging of Iranian tankers drew international scrutiny, raising questions about the extent of due diligence applied during the registration process. These cases highlighted the risk of unintentionally enabling sanctioned actors to operate under legal cover.
- The expansion of the “dark fleet” and the “gray fleet” has been fueled in part by poor due diligence on the part of some flag registries. The dark fleet – tankers that engage in deceptive shipping practices like AIS disabling, location (GNSS) manipulation, and location or identity tampering – has existed for years but has grown significantly since the Russia oil ban and associated price caps. In parallel, vessels no longer able to operate under the Russian flag have sought out registries with minimal vetting, including Gabon, Comoros, and Barbados, to obscure ownership and continue trading under a veil of legitimacy.
- In early 2025, Panama deregistered over 100 vessels linked to sanctions breaches, a rare and notable example of a flag state taking retrospective corrective action. While the move was widely viewed as a positive step, it also underscored how many high-risk vessels had slipped through the cracks in the first place.
These examples make one thing clear: flag states must move beyond box-checking and embrace dynamic, risk-aware approaches to vessel oversight.
Systemic Gaps in Flagging Practices
Many flag states operate under increasing pressure, balancing commercial demands, limited resources, and rapidly evolving compliance expectations. But in too many cases, critical risk signals are missed because key elements of the vetting and monitoring process are either outdated or underdeveloped.
Here’s where the cracks often appear:
- Inadequate KYC on beneficial owners and operators: complex ownership structures make it difficult to identify who truly controls a vessel. Without robust KYC processes, registries may unknowingly flag ships connected to high-risk or sanctioned actors.
- Insufficient insurance validation: registries may accept insurance documentation at face value, without confirming the insurer’s credibility, financial stability, or membership in a recognizable P&I club.
- Outdated list screening without dynamic risk assessment: relying solely on sanctions lists, without factoring in behavioural patterns or emerging red flags, means high-risk vessels can go undetected until after issues arise.
- Overreliance on third-party agents: many registries delegate onboarding tasks to agents, but without clear oversight, this can lead to inconsistent vetting and accountability gaps.
- Little to no post-registration monitoring: risk doesn’t stop once a vessel is flagged. Without monitoring fleet behavior over time, registries may miss evolving threats, from suspicious port calls to risky ship-to-ship transfers.
These gaps don’t always stem from neglect, but they do create opportunities for risk to slip through. As global regulations tighten and deceptive practices become more sophisticated, closing these gaps is essential for protecting fleets, registries, and the broader maritime ecosystem. Effective flagging demands a proactive, intelligence-driven approach. And without the active collaboration of flag registries, the global effort to shut down sanctions evasion will continue to face major blind spots.
What Flag States Can Do, and Why It Matters
While no flag registry operates in a vacuum, the steps taken at the flagging stage can either mitigate or amplify risk. Strengthening sanctions compliance helps flag states uphold maritime safety, maintain credibility, support operational continuity, and stay aligned with evolving global standards, while reducing the risk of regulatory fallout.
Here’s how flag states and their partners can close the most critical gaps:
- Move beyond static list screening: adopt predictive tools that incorporate vessel behavior, ownership patterns, and emerging risk indicators, going beyond identity-based checks to assess real-world activity and intent
- Implement robust KYC and sanctions screening: ensure processes align with OFAC, UN, and EU guidelines, and apply them consistently across new registrations and ongoing validations
- Verify insurance credentials: go beyond documentation by confirming insurer legitimacy, P&I affiliation, solvency, and claim history where possible
- Build internal compliance procedures: don’t outsource all responsibility; establish escalation paths, training programs, and internal accountability for vetting and monitoring
- Continuously monitor flagged fleets: use AIS data, behavioral analytics, port records, and class information to track vessels and detect anomalous or deceptive activity in real time
- Enforce de-flagging policies: define clear criteria for removing vessels that present unacceptable risk, and follow through when thresholds are met
- Collaborate across the ecosystem: engage with other flag states, classification societies, insurers, and enforcement agencies to share intelligence and align on risk mitigation – a principle reinforced in both OFAC and EU guidelines
Closing these oversight gaps helps flag states reduce risk, strengthen operational resilience, and demonstrate leadership in an increasingly complex maritime environment.
A Shared Responsibility
Flag states sit at a critical intersection of policy, operations, and enforcement. When oversight falls short, the impact is rarely isolated – it affects every layer of the maritime supply chain.
Stronger registration, screening, and monitoring practices help protect a flag’s reputation, ensure the safety of crews and cargo, and uphold the integrity of global trade. But meeting these expectations requires more than basic list checks, it demands continuous visibility into risk, vessel behavior, ownership structures, and regulatory shifts.
Windward’s Maritime AI™ Risk & Compliance solution equips flag states and maritime stakeholders with the tools needed to proactively manage this responsibility. From pre-registration screening to ongoing monitoring, the platform delivers behavioral risk indicators, ownership insights, and sanctions compliance checks, all powered by AI models trained on over a decade of maritime data.
With MAI Expert™, the industry’s first maritime Gen AI agent, teams can streamline decision-making and optimize compliance workflows using pre-built, multilingual templates. And with mobile vessel screening, decision-makers can assess risk and take action in real time, even while away from their desk. Whether you’re validating insurance, reviewing behavioral flags, or assessing ownership history, Windward ensures you’re equipped with the insight and speed needed to flag confidently.
Flagging a vessel is only the beginning. Windward helps ensure you can stand behind every flag with context, clarity, and compliance built in.
Strengthen Your Flagging Process Today
FAQs
What is a flag state, and what are its responsibilities?
A flag state is the country under whose laws a vessel is registered. It is responsible for ensuring that vessels under its flag comply with international regulations, hold valid insurance, and meet safety, environmental, and operational standards.
Do flag states provide insurance for vessels?
No. Flag states do not insure vessels directly, but they are responsible for verifying that vessels have valid, legitimate insurance from reputable providers.
Why are weak flagging practices a compliance risk?
When flag states fail to properly screen vessels, high-risk actors can exploit those gaps, operating under legitimate cover while engaging in sanctions evasion, deceptive shipping practices, or trading without sufficient insurance.
What does continuous fleet monitoring involve?
It includes tracking vessel behavior post-registration using AIS data, behavioral analytics, and ownership changes to detect emerging risks like dark activity, suspicious STS transfers, or route deviations.
How does Windward support flag states and registries?
Windward’s Maritime AI™ Risk & Compliance solution enables proactive screening, ownership validation, and behavioral monitoring. It provides real-time risk insights and Gen AI-powered tools like MAI Expert™ to streamline decision-making across the flagging process.
