In many articles and texts, the decline of the American merchant fleet in the 1860s has been attributed to the combined effect of cruiser sinking and flagging-out. Commentary during the war predicted such a result, and subsequent works repeated the claim. A scholarly treatment by George Dalzell in 1940 titled The Flight from the Flag made this argument.3 In a modern and well-researched treatment, historian Chester Hearn reiterated the claim that the cruisers destroyed Union commerce.4
During the Civil War, Confederate cruiser commanders, including Raphael Semmes and James Waddell, would always check the documentation of commercial ships they encountered, stopped, and boarded on the high seas. If the master of the detained merchant ship flew a British or other foreign flag, but the design of the ship and the New England accents of the officers and crew suggested the ship was actually American and simply flying false colors, the Confederate officers would carefully examine the merchant ship papers, including the ship’s log, and interrogate the crew to ensure that the vessel was legally entitled to fly the foreign flag. If all was in order, and the evidence proved the ship was not American, the Confederates would release the vessel; otherwise, if the ship was demonstrably Union-owned, the crew would be taken off the ship and the ship would be set afire and destroyed. In some cases, the ships were seized and operated with a prize crew. The application of the rules closely resembled the British practice of right of search a few years earlier. In time of war, the right of search, applied even to neutrals, was understood to be necessary to inspect documentation, uncover contraband, or detect false flag usage. In the light of the methods of later naval warfare, especially submarine sinking of merchant ships in World Wars I and II, it is remarkable that the Confederate cruisers destroyed so many private, commercial Union vessels without a fatality among any of their crews or passengers.
Under these circumstances, during which the ship’s papers would be subject to inspection, it was not sufficient for an American merchant shipmaster to avoid destruction by hoisting a foreign flag as a ruse de guerre. Obtaining the protection of a foreign flag required that the ship be legally transferred through re-registry abroad and carry the proper papers to prove the transfer. In the case of British registration, the transfer had to entail an actual sale to a British subject and had to include the issuance of registry documentation, which could be accomplished through a British consul abroad.5
The Civil War practice set a precedent for the later use of flags of convenience. The term “flag of convenience” did not come into common usage until 1949 and 1950, when U.S. labor leaders used it to describe the transfer of U.S.-owned ships to Panama and Liberia. However, even in 1863 at least one reporter described the practice as “transfer of ships to a foreign flag for convenience and safety,” anticipating by some eighty-six years the later common use of the term “convenience.”6
Early in 1861, in the months before the war, British observers noted the likelihood that ship transfers would take place, and the Liverpool press obligingly published accounts of the proper procedures required to seek shelter under the British flag. The Philadelphia North American and United States Gazette quoted from the Shipping and Mercantile Gazette of Liverpool:
The transfer of American shipping to the British flag can only be effected by vesting the property pro tempore in a British subject or subjects. To enable a ship to claim the protection of the British flag (supposing that protection to be sufficient during the impending hostilities) she must belong bona fide to natural born British subjects or to persons made denizens by letters of denization, or to be naturalized; and such persons must, moreover, during the whole period of their being owners, be resident within the Queen’s dominions, or members of a British factory or partners in a house actually carrying on business in the United Kingdom, or within the Queen’s dominions, and must have taken the oath of allegiance subsequently to the period of their being so made denizens or naturalized.7
The Philadelphia paper went on to editorialize:
It would seem therefore that the transfer of a foreign ship to British owners must be by absolute sale—a fact which probably, many American owners who may contemplate registering under the British flag would not be aware of. . . . It would be humiliating to have to resort to a foreign flag for protection in our own waters, though if such a thing must be, we doubt not that England who throughout this melancholy crisis, has maintained the noblest sympathy for the Union, would render us every assistance. She would do this as well for her own sake as for ours, for it is manifestly to her interest that her vast trade with this country should not be impeded.8
The editorial comment that “it would be humiliating to have to resort to a foreign flag” captured the contradiction between the business logic of such transfers and the traditional association of the maritime flag with national honor. In the code of honor, gentlemen studiously avoided humiliation.9
Within days of the firing on Fort Sumter, the practice of transfer began and was reported in both Britain and the United States. Some accounts noted quite openly that the transfers, entailing a sale for one dollar, were a “ruse.”10 In Britain, the practice had critics and supporters who engaged in publicly reported debates. Some shippers feared it would set a precedent harmful to Britain. In future wars, they argued, British ships might transfer out and thus diminish the British merchant marine.11
In Liverpool, those owners who had purchased U.S. ships defended the practice, claiming the sales were bona fide. Those British shipowners who had not engaged in the nominal purchase of U.S. vessels argued that most or all of the transfers were fraudulent and represented a corrupt usage of the British flag; they called the purported British owners “godfathers.” A correspondent to the Liverpool Chamber of Commerce provided a clipping of a U.S. ship broker advertisement as evidence. In the advertisement, the ship broker offered to make transfers to the British flag, while allowing American owners to retain their interest. Others denounced that particular practice as an atypical fraud, asserting that 90 percent of the transfers had been entirely legitimate. Even so, another correspondent to the Liverpool Chamber of Commerce warned that the transfers “involved a species of evasion of the law which could only be carried out through misrepresentations on the part of those making the declarations of ownership.” Of course, such “misrepresentations” would become the norm in twentieth- and twenty-first-century usages of flags of convenience by shadow corporations in Panama, in Liberia, and later, in small, mostly island countries around the world. The delicate language of 1863 suggesting “a species of evasion” reflects the underlying premise behind seeking a favorable foreign jurisdiction for legal, taxation, diplomatic, or other purposes.12 The modern establishment of tax-shelter states like Bermuda, Andorra, and Monaco is perfectly described as “a species of evasion,” and moving personal citizenship offshore reflects a similar underlying premise that an individual or business can seek the shelter of a foreign sovereignty. Thus, the British flagging of U.S. ships during the Civil War should be viewed as a clear precedent for the later practices, including those of corporations and individuals, as well as those of shipowners.
Other flags besides the British drew some Union-owned ships. When the Alabama cruised into the Indian Ocean, U.S. shipowners found that insurance companies refused to write policies for any U.S. ships trading in the region. As a consequence, the New York Times reported, American owners sought transfers to “Peru, Prussia, and Portugal.”13 With less hyperbole, the U.S. consul in Curaçao, in the Dutch West Indies, reported that the U.S. bark Venus reflagged under the Dutch flag to avoid capture by Confederate cruisers, and the consul expected many other U.S. ships plying between that port and New York to do the same.14
Statistics demonstrated, even in the war, that the cruiser attacks were diminishing the size of the U.S. fleet, not just by attacks but by the process of flagging-out. In 1863 a Journal of Commerce editorialist suggested that shipowners and others should petition the Navy for better protection.15
After having reviewed statistics, a large group of New York shipowners and insurance company officers did in fact protest to the Navy Department that the process of flagging-out was destroying the U.S. merchant marine. The group respectfully asked the Navy for greater efforts in tracking