Similar to banking and financial services companies, information technology (IT) companies have known the benefits of conducting their businesses offshore. Tax avoidance is usually not the main reason for locating in an offshore jurisdiction. Off-shoring enables an IT company to find a more hospitable jurisdiction where its business interests are better served and protected. Offshore havens provide the advantages of, among others: little or no government regulation, certain activities not being prohibited or regulated by law, minimal reporting requirements, better access to and less restrictive rules on the movement of funds, no or de minimis taxation, lower operating expenses, and having a legal regime that safeguards privacy and confidentiality of corporate ownership and business dealings. Online gambling companies, for example, have located in offshore “data havens” such as the Isle of Man, Gibraltar, the Netherlands Antilles and Antigua where gambling is not or is less stringently regulated.

It seems, however, that IT companies are no longer content with merely locating their businesses in friendly jurisdictions. They want to operate in a place where they are completely free from all types of regulation and are not subject to the jurisdiction of any country or authority. The people behind The Pirate Bay, a BitTorrent tracker site, considered buying Sealand, a former naval platform in the North Sea that is reputedly its own micro-nation.

The search for the ideal base of operations has led IT companies to consider doing business in what seems to be the most radical place of all – the high seas. By locating their operations in vessels in international waters, these companies believe that they can completely escape the laws and regulations of any state since no state has power or jurisdiction over the high seas. Seacode is one such company.

For Seacode, the high seas is better than offshore. The business plan of Seacode is to: “Take a used cruise ship, fill it with programmers, and park it three miles off the US coast so that it is no longer subject to US laws and regulations (like OSHA rules, overtime pay, etc). Pay the programmers less than $22,000 a year and make then work 10 hours a day.” The idea is novel enough but fails to properly understand the laws that apply to a vessel in international waters.

First, Seacode cannot locate its ship just three miles off the coast of the United States because the territorial jurisdiction of the U.S. extends up to 12 miles from its coast. Seacode has to move its ship farther.

Second, while it is true that, under a customary rule of international law, “the high seas are open to all states, and no state may validly subject any part of them to its sovereignty”, the high seas are not a no man’s land. The general rule is that ships on the high seas are subject to the exclusive jurisdiction and authority of the state whose flag they fly. This principle of exclusivity of flag state jurisdiction is firmly rooted in the order of freedom of the high seas. Thus, a flag state has the same exclusive right to exercise legislative and enforcement jurisdiction over its vessels on the high seas as it does over its territory. Seacode cannot use a ship without a flag because to do so would render the vessel “stateless”. The problem with stateless vessels is that they are generally subject to the jurisdiction of all nations. They enjoy the protection of no state; public ships of every state may approach any private vessel encountered on the high seas to ascertain her identity and nationality. If it is discovered that such vessel is stateless, the public ship may arrest the stateless vessel and place it under the jurisdiction of the public ship’s flag state.

Third, since ships on the high seas are subject to the principle exclusivity of flag state jurisdiction and are subjected the laws and rules of the flag state, there is practically no difference if the company located its business in Antigua or on a ship flying the Antiguan flag. There is no significant benefit to taking to the high seas and operating a ship is far more costly than having an office on land.

Is there really a place where a company or an individual will be truly free from all regulation and control? After the failed attempt to acquire Sealand, The Pirate Bay is looking at other islands to purchase where it can set up its server farm and escape the reach of copyright laws of other nations. The trouble with these attempts to go offshore or take to the high seas is that, in the reality of a global and connected world, it is impossible not to comply with the rules of other people or not to be subjected to some form of outside rule or control. Even “cyberspace” provides no means of escape since whatever is done in the virtual world is the result on actions done by a person in the real world.

Like the postal and telephone systems, the Internet too requires obeying rules or protocols that everyone else has agreed to follow. It would be extremely hard, if not impossible, to exist outside these existing global systems – whether they be political, socioeconomic or even communications networks. In a connected world, no island, ship or company can opt not to be linked-in.

This was originally posted on 24 February 2007 at: http://lawnormscode.sync.ph/?p=40

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