LIBERIA INKS MORE TRANSPARENT DEAL FOR SHIP REGISTRY

UNCLAS MONROVIA 000479 SENSITIVE SIPDIS E.O.12958: N/A TAGS: ECON EWWT EINV LI SUBJECT: LIBERIA INKS MORE TRANSPARENT DEAL FOR SHIP REGISTRY REF A: 08 MONROVIA 751 REF B: MONROVIA 70 ¶1. SUMMARY: The Liberian Ship and Corporate Registry (LISCR) signed a new 10-year deal with the GOL June 30 to manage the country's lucrative "flags of convenience" business. Weary from years of haggling with the Bureau of Maritime Affairs (BMA) over control of revenues, and spurned by specious allegations of corruption, LISCR CEO Yoram Cohen insisted on a simplified revenue sharing agreement that ensures all future funds bypass the BMA and are deposited directly into the coffers of the Central Bank of Liberia. END SUMMARY. ¶2. Cohen met June 30 with the Ambassador, hours after the conclusion of protracted negotiations with the GOL, to share the details of LISCR's new 10-year contract to manage Liberia's ship registry. According to the agreement, the GOL will receive two-thirds of revenue and LISCR will retain one-third, from which it will pay operating costs and International Maritime Organization dues. In a departure from the past, when the BMA enjoyed extra-budgetary authority for all proceeds from the ship registry, funneling it to former President Charles Taylor and enriching its commissioners, LISCR now will remit all GOL revenues directly to the Central Bank. ¶3. (SBU) Cohen said he hoped to accomplish three things with the new contract: insulate LISCR from future accusations of corruption while sidelining the BMA; pre-empt politically-motivated charges that LISCR enjoys an exploitative share of revenues from the ship registry; and guard against frivolous lawsuits from any future Liberian government. ¶4. (SBU) Evincing a distrust of both President Ellen Johnson Sirleaf and BMA Commissioner Binyah Kesselly, Cohen said he wished to avoid the repetition of scandals that plagued LISCR and the BMA over the past year. In August 2008, e-mails emerged claiming LISCR had bribed government officials in order to maintain the ship registry (ref A). Although the GOL later determined the e-mails were fraudulent, Cohen resented the slight to his reputation and wants to extract LISCR from any future political tug-of-war over profits from the ship registry. In 2008, LISCR disbursed $20.8 million to BMA, but the BMA, as a "self-funded" entity separate from the GOL's direct revenue streams, sent only $14.6 million to the CBL. The remainder funded legitimate training initiatives and security upgrades, but also subsidized travel and salary expenses (reported to be exorbitant) that remain hidden from the public (ref B). ¶5. (SBU) Cohen believes the GOL will receive more revenue from the new contract. But if they do not, he was careful to add, the contract's simplicity, and the fact that Liberia bears no risk or cost burden, should forestall charges that LISCR retains an unwarranted portion of the proceeds. In exchange for a greater share of revenues from the ship registry, the GOL agreed to reduce its cut from the offshore corporate registry, an ancillary business that LISCR also manages, from 80 to 67%. However, he thinks the trade-off will prove no great sacrifice for Liberia: the ship registry continues to grow while offshore banking is unlikely to do the same, given President Sirleaf's distaste for offshore banking as a form of tax evasion, and Liberia's imperfect reputation with international investors. ¶6. (SBU) Although Cohen remains optimistic that President Sirleaf will be re-elected in 2011, he insisted upon safeguards in the contract against political risk. A new government cannot rescind the contract without arbitration in the United States, and the GOL must pay LISCR $10 million in the event of a lawsuit that U.S. courts later deem frivolous. ¶7. (SBU) COMMENT: The BMA's financial independence may not be as unambiguously sinister as Cohen suggests. With ample funds, Kesselly has overhauled a once-languishing agency, meeting International Ship and Port Facility Security Code requirements, and moving to re-open a Liberian Maritime Training Institute. However, Kesselly came under intense media scrutiny in June, when reports surfaced that he granted himself a $240,000 annual salary from BMA, received an additional $180,000 from LISCR, and racked up $500,000 in travel expenses. Although he denied the claims, he refused to produce internal documents revealing his compensation. Cohen confirmed that Kesselly's actual salary is only $180,000, which is still quite substantial by Liberian standards. On balance, the new contract is a positive development, which should impose fiscal discipline upon the BMA and ensure more budgetary transparency. END COMMENT. THOMAS-GREENFIELD