Palau has taken full control of its national ship registry after serious problems emerged involving U.S. sanctions, frozen money, and management failures. The move marks a major change in how the country manages vessels that sail under its flag and earn revenue for the government. The decision follows months of review, political debate, and concerns about Palau’s reputation in global shipping.
What the Ship Registry Is and Why It Matters
A ship registry is a system that allows ships to be registered under a country’s flag. Many countries, including Palau, run an “open ship registry”, allowing ships from around the world to register under their flag. Ships pay fees for registration, which generate income for the country. In return, the country ensures ships follow international rules on safety, labor, and the environment. Failure to do so can harm its reputation.
For years, Palau outsourced the registry to International Shipping Bureau Management Ltd. (IML) and its affiliates, including P.C. IKE Palau International Ship Registry Inc. and Palau International Ship Registry Ltd. (PISR). These companies handled day-to-day operations under a contract starting in 2011 and updated in 2018.
Over time, concerns arose. Some Palau-flagged vessels were linked to blacklisting and compliance problems. Payments to the government were often late, and oversight was lacking. These issues raised questions about whether the registry was being managed properly.
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Sanctions Trigger Financial and Operational Problems
The situation worsened when the U.S. government sanctioned businesses linked to the Padilla brothers, associated with the registry’s private operator. The sanctions were part of broader measures targeting activities connected to Iran. Bank accounts tied to the registry were frozen, blocking revenue and preventing payments to Palau.
The frozen funds caused major disruption. The registry could not function normally, and Palau faced risks to its international reputation. Local media reported that the sanctions harmed Palau’s image and created uncertainty about the registry’s future.
In September 2025, President Surangel Whipps Jr. issued a notice ending the contract with the private operator due to oversight failures, reputational harm, sanctions-related freezes, and chronic late payments. The notice was briefly withdrawn in November for an audit, and after review, the termination was renewed on December 16, 2025. The government concluded the registry no longer met required standards.
Government Takeover and Political Debate
With the private operator gone, Palau needed a functioning registry to ensure ships maintained legal status and revenues continued. The government moved to take direct control, protecting both income and compliance with international rules.
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The decision sparked debate in the Congress of Palau, especially within the House of Delegates and Senate. Lawmakers added a rider to a Senate bill on public construction bonds, granting the president temporary authority to run the registry. The rider allowed a short-term, procurement-exempt contract of up to six months if needed and required at least 50% of revenues to go directly to Palau.
The rider also permitted appointing a registry administrator or special agent and delegating responsibility for registry-related fees, including international membership costs. Supporters called it necessary to maintain operations, while critics questioned the expansion of executive power.
Senator Eldebechel noted that the registry was originally created as a joint operation between Palau and the Padilla brothers, administered by Panos Kirnidis. Letters confirmed that U.S. sanctions had directly affected businesses linked to the registry, freezing assets and revenue, making the private operator unable to continue.
The move returned the ship registry fully under state control and highlighted how global sanctions can affect small nations when key industries are connected to international systems. It also emphasized the importance of direct government oversight for maintaining revenue and reputation in global shipping.