It is derided by critics as a "sham" company -- a hastily formed Delaware corporation with no office, employes or even a phone number at its official mailing address in downtown Dover.
Nevertheless, the new Chesapeake Shipping Inc., created six weeks ago by representatives of the Kuwaiti government, has suddenly turned into a key instrument of U.S. foreign policy.
As a lawfully incorporated U.S. company, Chesapeake Shipping is the prime vehicle for implementing President Reagan's controversial plan to place 11 Kuwaiti oil tankers under the U.S. flag and give them naval escort on their journeys in the Persian Gulf.
When the reflagging plan surfaced in the spring, many in the maritime community assumed it faced stiff hurdles, if only on regulatory and procedural grounds. How, they asked, do you convert a Kuwaiti oil tanker, built in Japan and manned by Arab and Filipino sailors, into a U.S. vessel fit to fly the Stars and Stripes?
But as the creation of Chesapeake shows, the Kuwaitis, working closely with administration officials, have shown unusual skill at navigating the rocky shoals of U.S. maritime laws. Having formed a U.S. company to take title to their ships, the Kuwaitis quickly won a series of special waivers from federal ship safety and operating standards, thereby qualifying the foreign-built tankers to fly the U.S. flag.
The expeditious way in which the Kuwaitis reflagged their fleet has aroused harsh criticism in the U.S. maritime industry, which complains that American ownership and crew-manning laws have been flouted in the process.
"I've never seen anything like this in 30 years of practicing maritime law," said Allan Mendelsohn, a Washington maritime lawyer and critic of the plan. "They created a quickie company in order to put a U.S. flag on a foreign vessel."
In clearing the plan through the federal bureaucracy, Mendelsohn added, "I think the administration has gone about as close to the end of the line of the law as they possibly can."
Administration officials and lawyers for the Kuwaiti government contend there is nothing improper in the way the reflagging proposal has been handled and the required regulatory approvals won.
"We're not putting any pressure on anybody," said Mark P. Schlefer, a Washington maritime lawyer retained by the Kuwaitis to represent Chesapeake. "The law for many, many years has provided for this kind of reflagging procedure. . . . We could go ahead and do this without waiting for anybody."
The law's provisions have been used often in the past to reflag foreign vessels, although they have usually been under contract with the Military Sealift Command to transport materials for the Navy.
In setting the reflagging operation in motion, Kuwait has operated through Santa Fe International Corp., an American oil and drilling company that was purchased by the government-owned Kuwait Petroleum Corp. for $2.5 billion in 1981.
In mid-May, the American officers of Santa Fe created Chesapeake Shipping, a firm its officers acknowledge has only one reason to exist: to assume title to the 11 tankers and then -- in another paper transaction not uncommon in the maritime industry -- charter them back to their original owner, the Kuwait Oil Tanker Co., a wholly owned subsidiary of Kuwait Petroleum.
Six of the 12 listed directors of Chesapeake are officers of Santa Fe, based in Alhambra, Calif. The rest are based in Safat, Kuwait, with three of them officers of Kuwait Oil Tanker, the sole shareholder of Chesapeake.
Schlefer adamantly denies that Chesapeake is a "paper company," contending that it soon will have real assets of $350 million -- the estimated value of the 11 tankers -- and has retained Gleneagle Ship, a Houston-based ship management company, to operate the vessels. In recent testimony before the House Merchant Marine and Fisheries Committee, Schlefer also stated that Chesapeake maintains offices at 229 S. State St. in Dover.
The Dover telephone directory, however, lists that as the office of Prentice Hall Corporate Service, a corporate filing agency that, according to a woman who answered the phone there last week, forms instant Delaware corporations for fees as low as $130 apiece.
The woman, who would not give her name, confirmed that Prentice Hall had filed the papers forming Chesapeake and serves as the shipping company's mailing address -- a service it provides for more than 70,000 other companies it has registered under the laws of Delaware, she said.
"There's nothing unusual about it, we form corporations all the time," said B. Boyd Hight, a director of Chesapeake and vice president and general counsel of Santa Fe.
"Our purpose here was to facilitate the reflagging of the tankers by ensuring that we met the organizational requirements of U.S. maritime law," which state that U.S. flag vessels must be owned by U.S. companies, Hight said.
Once Chesapeake was in place, however (and the ships given new, American names), the Kuwaitis faced other obstacles. The tankers had never been inspected by the Coast Guard and did not meet all of the safety standards required of U.S. flag vessels. That problem was corrected, however, when Undersecretary of Defense William H. Taft IV asked the Coast Guard to exempt the tankers from federal safety and operating standards on "national defense" grounds.
The Coast Guard immediately granted the request, giving the Kuwaiti tankers a one-year waiver. In addition, a requirement that U.S. ships be drydocked annually to be inspected for defects was waived for two years.
Nicholas Sandifer, a Coast Guard spokesman, said that such national defense waivers had never before been granted for ships carrying nonmilitary cargo. But, he said, the Coast Guard has since inspected all the ships and concluded there were no serious safety problems on board, noting that all of the tankers, which were built between 1977 and 1983, met international standards set by the London-based International Maritime Organization.
"There's nothing manifestly unsafe or grossly out of line" with the ships, Sandifer said. "All we did was waive for one year those standards that exceed the international standards."
American maritime unions, which have staunchly opposed the reflagging operation, contend that there are larger issues at stake that could affect safety on the ships. They argue that problems could arise because Kuwait plans to use all-foreign crews, mostly Arabs and Filipinos, with only an American captain aboard.
The unions say openly that their primary concern is jobs for their members, who are highly paid by world standards but are suffering because of a prolonged international shipping slump.
But, they say, in approving Kuwait's plan, administration officials have neglected the safety and crew compatibility issues and, in the process, have "debased" the U.S flag as a symbol on the high seas, turning it into a "flag of convenience" not unlike those of Liberia or Panama.
"It used to be that the U.S. flag meant something," said Tony Dresden, spokesman for the Joint Maritime Congress, a Washington lobbying group funded by the Marine Engineers Beneficial Association District One. "A U.S. flag ship could be counted on in times of national emergency. . . . It meant you could depend on the crew, that they were all well-educated and met all the licensing standards. We don't know who the hell's going to be on these ships."
The Coast Guard's Sandifer, however, dismisses those concerns. "The maritime unions are annoyed because we're not putting full American crews on these ships so Americans can get shot up in the gulf," he said.