Revealed: How a UK company is using a Caribbean tax haven to cash in on scrapping toxic ships in one of the world’s poorest countries

A UK company that acts as a formal outpost for a tiny Caribbean tax haven is a facilitator for one of the world’s deadliest trades – the scrapping of toxic ships on the beaches of south Asia.

It can now be revealed that The St Christopher and Nevis International Ship Registry Ltd, based in the east London suburb of Romford, is the official seller of shipping flags for the twin islands of St Kitts and Nevis 4,000 miles away.

The company, known as Skanreg, has been cashing in on the demand from unscrupulous ship owners who want to scrap vessels in countries such as Bangladesh, India and Pakistan, by charging them lucrative fees for ship registration.

Dozens of ships can be seen in satellite images of the notorious beach “yards” of Chittagong, Bangladesh, with long stretches of seafront spoiled by abandoned vessels likely to contain poisonous and carcinogenic substances including asbestos, arsenic and mercury.

When a rusting ship is dropped at such a yard, the workers who rush to break it up are provided with little or no protection.

In a report to the UN Human Rights Council (UNHRC) in 2018, Special Rapporteur Baskut Tuncak said ship breaking was “another egregious example of an industry that continues to externalise impacts on poor workers and communities in developing countries”.

He also noted the “abhorrent working conditions and abysmal environmental protections” common in the beach yards of south Asia.

Conditions at the yards have for years attracted international attention, but what is less well known is the pivotal role played by the offshore world.

New figures from the NGO Shipbreaking Platform showed that almost half the 532 ships broken on the beaches of south Asia in 2018 flew flags of just three tiny offshore tax havens – the Comoros islands in the Indian Ocean, Palau in the Pacific and the Caribbean islands of St Kitts and Nevis whose flag was found on 29 of those vessels.

Under European state-controlled port inspection regimes, all three flags are blacklisted due to their poor enforcement of international conventions.

In the past three years, 143 St Kitts and Nevis vessels have been scrapped on south Asia’s beaches, according to Shipbreaking Platform’s figures.

An investigation for The Independent by Finance Uncovered has discovered that all those registrations were arranged by Skanreg, a company described by one industry source as a “bottom feeder … whose stock in trade is registering ships going to scrap”.

When we asked Skanreg’s founder and part-owner, Nigel Smith, whether his company should carry any responsibility for sending toxic ships to the beaches, he said: “That is a commercial matter for the parties involved in that transaction.”

However, he added that in mid-2018 Skanreg had taken the strategic decision to reduce the number of ships it flagged for scrap, registering 25 for such purposes that year as opposed to 56 in 2017.

Responding to the investigation’s findings, shadow transport secretary Andy McDonald said they highlighted “the impact of this loophole whereby the ship-breaking industry can flout poorly enforced international regulations to extract maximum profit from shipping assets at the expense of some of the world’s most vulnerable workers, including children”.

He added: “It’s imperative that the government address this global market failure.”

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Mr Smith, a 62-year-old British maritime engineer, founded Skanreg in 2004, and is now semi-retired. The company is currently run by Liam Ryan, a former clerk at Dagenham council who Mr Smith says is currently studying for a diploma in maritime business management from Lloyds Maritime Training Academy as part of his continuing professional development.

The company makes its money from charging ship owners and agents a fee for registering their ships with St Kitts and Nevis.

Charges are also levied for providing the documentation a vessel needs to leave port.

The St Kitts and Nevis government takes a cut of revenue earned by the company but Mr Smith, who represents the islands at the International Maritime Organisation, has been ordered not to disclose the islands’ percentage share.

However, he did reveal that the islands had earned around $500,000 (£390,000) from his company in 2016 alone.

He owns 50 per cent of Skanreg and, according to accounts at Companies House, was paid £100,000 in dividends in 2017.

Mr Smith refused to disclose who controls secretive Panamanian corporate entity St Christopher Holdings & Investments SA, which owns the other half of the company.

Although Mr Smith says only a very small percentage of Skanreg’s revenue comes registering vessels destined for scrap, that part of its business risks casting a shadow over the reputation of the St Kitts and Nevis islands.

EU rules have banned ships from being exported from European ports to south Asia since 2006.

A new regulation was added in January 2019 so that it is now also illegal for any ship carrying a European flag to be sent to the south Asian beaches.

But for ship owners, the financial incentives to send vessels there remain huge. A beaching yard can pay up to $10m (£7.8m) for an oil tanker, whereas ship owners may have to pay for it to be dismantled in a safe, clean facility approved by the EU.

To avoid the new flag-based rules, the ship owner can buy the services of Skanreg. The company offers short-term registration, which is popular for “end of life” journeys, for around £5,250.

Finance Uncovered discovered Mr Smith’s company after tracing the monies and key players involved in a 2016 scandal in Bangladesh.

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In that year, the North Sea Producer, a hulking oil platform that had accumulated radioactive material in its hull after 17 years’ work in the North Sea oil fields, was towed from the Tees in Middlesbrough for what would be its final voyage.

Three months later, its arrival in Chittagong caused international outrage. Investigative journalists from Danwatch in Denmark had been tracking its movements and filed explosive reports to TV audiences.

At the same time, environmental lawyers in Bangladesh secured an injunction to prevent its scrapping as tests showed illegal levels of radioactivity.

Investigations, including one by the UK Environment Agency, into how it was allowed to travel from Britain to Bangladesh are ongoing.

While operating in the North Sea, it had been part-owned by Danish shipping giant Maersk, which had leased it to US oil major ConocoPhillips.

Before leaving port, the Maersk-linked company sold it to Conquistador Shipping Corporation, a company registered in Nevis.

At some point it was renamed “Producer” and reflagged from the Isle of Man to St Kitts and Nevis.

According to emails obtained by Finance Uncovered under freedom of information laws, it was Skanreg which arranged for the provision of certificates for the ship to leave port in Middlesbrough.

Mr Smith said his company was told the ship was “to be taken down to west Africa” for ongoing use and that the journey to Bangladesh was not authorised by Skanreg.

However, the documents also show that the agents for Conquistador were GMS, the world’s leading ship-breaking company – and that Conquistador was set to receive $6.6m (£5.1m) from the Chittagong yard.

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The company is cooperating with the Environment Agency and there is no suggestion of any wrongdoing by Skanreg.

The Bangladesh Environmental Lawyers Association (Bela) challenged the legality of the import by what they call an “untraceable” offshore company in the Bangladesh courts, and have argued that the government must regulate the import of ships from blacklisted flags like those operated by Skanreg.

Bela’s injunction is ongoing and GMS said it was involved in the “safe and responsible recycling of ships.”

According to Ingvild Jennsen, director of NGO Shipbreaking Platform: “Poor implementation and enforcement by St Kitts is what makes this flag particularly attractive at end of life because the ship owners … will take advantage of the lack of rigorous compliance checks by its registry.

“Until private ship registries like Skanreg stop making a business out of jurisdictional loopholes, meaningful regulation of this toxic trade will be hard to come by,” she added.

However, Mr Smith said ship “recycling” was a “legitimate and necessary part of the shipping industry” – and a trade that boosted the economies of countries such as Bangladesh.

He strongly denied his company was either a specialist or a facilitator in the scrapping sector, pointing out that in 2018, Panama, Comoros and Palau all flagged many more scrap ships than St Kitts and Nevis.

He added that ship breaking was an inherently dangerous business, as was merchant shipping generally.

“Ships have accidents and sinkings resulting in injury and sometimes deaths,” he said. “No one is asking for shipping to stop.”

He also said that the St Kitts and Nevis government was a supporter of the Hong Kong Convention, an agreement drawn up by the International Maritime Organisation, the UN’s body for shipping. The convention, which is not yet in force, includes guidelines on ship recycling but it has been criticised by campaigners because it would allow the “beaching method”.

Labour’s Mr McDonald said: “This is a reminder of the ongoing problem which is flag states being allowed to sell their maritime register to disreputable operators.

“I’m concerned that some ship owners disregard the responsible ship recycling option by selling off these assets for a final lump sum to dubious intermediaries, very often UK-based, who then use tax havens to sidestep regional regulators who often don’t have the capacity or political will themselves to properly enforce the law.

“Many shipping companies do the right thing and recycle their vessels in safe and regulated facilities, and they must be supported too but the worst practices must be tackled first.”

Margot Gibbs is a reporter at Finance Uncovered, a London based non-profit which trains and works with journalists on illicit-finance investigations