A bit of background: until the 90s, obsolete ships, including government-owned ships, were 'broken' or scrapped at foreign yards, frequently in the third world. Environmental and worker safety standards were [are] somewhat lacking. The social safety net, however, is almost nonexistant. A Bangladeshi who is not working doesn't receive unemployment protection.
The government agency responsible for scrapping these ships is the Maritime Administration. MARAD was required by law to get best value for scrapped ships; therefore, almost all of them went overseas.
That's changed now. Read it here.