In this context, a "flag of convenience" means a flag that offers benefits of some kind.
Let's say a ship was built in Argentina, is owned by a ship owner in Bolivia, is staffed with a crew from Chile, and is normally docked in Denmark. I'm no maritime law expert, so I'm not sure which flag would fly over a ship like that. But I do know that a "flag of convenience" might be Ecuador, or France, or Greece. That is, there may be a way to register the ship in one of those nations and derive some sort of benefit.
So, if there were a whole fleet of such ships, and I were walking along the docks, I might ask:
"How come I don't see any Bolivian flags? Doesn't the owner of this fleet live in Bolivia?"
And you might answer:
"He does, but he prefers to flag out much of the fleet to flags of convenience. He pays a lot less tariffs and taxes that way."
As you guessed, it's not a full sentence, but a phrase that could be found in a longer sentence.