Aprile 21, 2020

The Modern Odyssey of Offshore Cruisers

   Currently, there are approximately 100 stranded cruise ships floating on the high seas void of passengers but home to more than 80,000 crew members some of whom are infected with the corona virus. Due to the Covid-19 pandemic, these massive floating luxury liners have become veritable modern day lazarets.

  And while the corona virus is the primary reason they can not find a port of call, there is another underlying reason behind their persona non-grata status. That’s because most of cruise ship companies are incorporated in offshore tax havens and their ships are flagged there as well. 

  The desperate circumstances the cruise companies now face as they burn through hundreds of millions of euros in cash and facial potential collapse is not only an expensive penny-wise-and-pound foolish lesson. But it is also an important reminder of the need for companies to exercise vision when it comes to corporate, social, environment and governance responsibility

   For the cruise ship companies their immediate dilemma is related to their decision to incorporate outside of the U.S. or a European country where they would have paid hundreds of millions in corporate taxes. But as both the U.S. and Europe put together bailout packages worth trillions of dollars to help ravaged businesses large and small, many politicians from both sides of the Atlantic Ocean as well as in Australia have made it clear that the cruise ship companies should be excluded.

   “The cruise industry often registers abroad to avoid U.S. taxes, environmental regulations, worker rights,” tweeted U.S. Democratic Senator Charles Schumer after the U.S. Senate passed a $2 trillion bailout bill at the end of March. “Cruise companies registered or organized off our shores won’t qualify.”

  The cruise industry does have a powerful ally in U.S. President Donald Trump who is arguing the companies should receive taxpayer bailout money because of the jobs they provide both directly and indirectly. And in the case of the U.S. it is the executive branch in the U.S. that is charged with doling out the bailout funds.

  Indeed, the indirect cruise ship economic fall out for both U.S., European, Asian and other coastal destinations will be significant for hotels, restaurants, tour companies and other components of the tourism industry. But Schumer’s remarks stem from long-running concerns that large cruise ships with capacity as many as four thousand passengers not only do not pay their fair share of taxes but also cause significant long-term negative social and environmental impact. The Brussels-based advocacy group Transport and Environment raised just such issues in a report in 2019.

  The cruise industry has adamantly rejected the criticism. The leading cruise companies are now engaged in an intensive campaign to find some country where they can bring their ships to shore. One cruise ship CEO wrote an op-ed published at the end of March insisting that to “slam the door” on the ships “betrays our deepest human values.”

  The cautionary tale exposed by the cruise ship dilemma is not only about taxes paid or not paid. As mentioned earlier, it cuts to the core of corporate social responsibility issues that will be ever more crucial for companies seeking financing in the years to come when the European and other countries around the world get back to implementing the Green Deal and the fight against climate change. Central to this reality are new EU sustainable financing rules for banks, insurance companies and stock markets approved in 2019. These laws rules will be underpinned by specific “taxonomy” criteria currently being finalised.

  Leading credit rating agency Moody‘s emphasized this point in an April 13 report stating that “we expect environmental, social and governance considerations to be of growing importance in our assessment of issuer credit quality.”

  For the cruise ship industry to embrace this reality a first step would be transferring their corporate headquarters away from offshore tax havens. If nothing else this “good corporate citizen” move would also likely help break the de facto blockade facing its flotilla of ships and their thousands of crew members.