Piracy - US Presidential Order on payment of ransoms and recent developments

At the time of writing the shipping and marine insurance industries are still trying

to digest and understand the full ramifications of the US Presidential Order signed on April 13th 2010.

Confusion reigns, which is unsurprising in the face of a lack of written clarification from the US State or Treasury Departments. The fact that a non-attributable, off the record briefing took place on Friday 16th April has been widely reported, but given that the criminal sanctions include a twenty year prison sentence and the civil sanctions a fine twice that of the value of the transaction, the industry (especially those with any type of US nexus) can be forgiven for approaching the payment of ransoms or the indemnification of owners who have paid ransoms with anything other than absolute caution.

In what must have been a co-ordinated initiative the US and the UN Sanctions Committee (whose role includes naming designated groups and individuals under UN Resolution 1844) both issued lists on 13 April naming Al Shebab as a group and nine others described as members of Al Shebab or similar groups, whose activities (in the language of both the Presidential Order and Resolution 1844) undermine the security and stability of Somalia. The US went further and named two men said to be connected with piracy, an activity that the US Order expressly stated as undermining Somalia's security. Why these two men were singled out is unclear. There are others whose prominence in the piracy world is also widely reported who, for the moment, have slipped through the net.

Those designated by the UN are to have their assets frozen, and are forbidden to travel. Whilst the US Order makes similar sanctions against those named on its list, the effect on those wishing to pay a ransom or give support to those needing to pay a ransom is less clear. The Order makes no specific reference to ransoms and the US authorities say they remain sympathetic to owners caught up in a hijacking and who are forced to pay a ransom to release, in particular, their crew. The aim, it is therefor said, is not to prevent the payment of ransoms, but to lay the groundwork to bring action against those who may be supporting piracy. We can expect, surely in the future, further names to be added to the list. Although it is understood thatthose named will only be pirates or terrorists, the Order does not make this clear.

This is very much a US issue and anyone involved in a hijacking must take US legal advice, but picking up on the issues and common themes reported in the press and by US legal commentators, it seems that a ship owner with no US nexus can pay a ransom, as long as it is not paid to one of the designated people or groups. In respect of Al Shebab, given its naming as a terrorist organisation by the US, this is nothing new. In the UK anti-terrorist legislation means that no payment can be knowingly made to a terrorist organisation which has committed a violent act, particularly one involving fire arms, where the act was motivated by politics, ideology or religion. No direct link (in terms of funding) has been established between the pirates and Al Shebab, but it remains to be seen whetherthe industry remains prepared to make payments or indemnify those that make payments directly to the pirates. The move by the US to name piracy as an activity undermining Somali security seems to have altered the landscape completely.

Implications

Insurers (and especially those with US connections) still reeling from the severity of the Iranian sanctions should approach this latest Order with caution. Fundamental to falling foul of the Order is if payment goes to one of the designated people. But for owners and insurers the question is how do you know if the ransom is going to one of the designated people? What level of due diligence will the US authorities require? In practical terms it is nigh on impossible to know with any certainty to whom a ransom is being paid. Pirates rarely use their real names and often hide behind nicknames. That can be seen in the US list where Mohammed Abdi Garaad is named. Garaad means "white beard", which for obvious reasons is unlikely to have been bestowed on him by his mother. Even the translators employed by the pirates use generic names like Ali or Chermake and will change them from ship to ship. Beyond this the crew may learn the names of the pirates on board, but they are just foot soldiers employed to guard the ship. The "investors" ashore who form the committees that control negotiations are shadows, whose identities can only be guessed at.

For non-US entities problems may arise where cargo or other interests are being asked for a contribution in GA or other indemnity to cover the ransom and ancillary costs from companies with a US nexis. US insurers and companies will not make payment without clearance from the relevant US Treasury Department (OAFC). It is unlikely that the intention of the US government was to give US interests a public policy type defence to all payments that may be deemed to be funding a ransom. That would be protectionism at its worse and would severely affect the US insurance market's abilityto write marine or specialist policies that may cover ransom payments. That would impact not only on K&R insurance, but also hull and war cover where ransoms may form legitimate sue and labour and General Average costs. We would hope that the Order will be explained and clarification given and are optimistic that the ramifications of this may not be as wide reaching as they first appear.

Other Developments

Recent IMB headlines suggest that piracy incidents are decreasing. Applied to Somalia that is surely misleading, given that half the reported cases took place off east Africa. January and February gave some cause for comfort but the levels of activity for March and April are now in excess of the corresponding period of last year. Attacks are taking place further south and further east than have previously been seen. Indeed, this is fast becoming piracy off India with the last attack on a tanker being at 68 degrees East. In the last few days at 69 degrees East two fishing vessels were taken, some 350 miles off India. It will be interesting to see if this leads to a reaction from the War Risk Committee and whether the Additional Premium (AP) area is also pushed further East. The AP area is moved to take into account new pirate activity but the pirates react to that by moving their operations to the east of that line. Vessels are running out of sea and it would be interesting to know how many ships other than those calling at Somali ports have been attacked and hijacked whilst in the AP area as it existed at the time of the attack.

The military has begun to take the fight to the pirates but a greater appetite to arrest pirates coincided with Kenya making it clear that it had taken its share and would accept no more. At one stage the French had forty pirates on board one of their naval vessels, who were distributed between Puntland, Seychelles and Kenya (the last to be allowed in). The Dutch Marines received well-deserved plaudits for their recapture of the German flagged Taipan, with special forces fast roping onto the vessel when the pirates were on board. The crew had retired to a citadel and the Dutch placed themselves back under national control in order to carry out the attack, thereby circumventing the more bureaucratic central command of EUNAVFOR. It is thought the pirates captured in this incident are being sent to Germany for prosecution.

The last quarter also saw the capture of another VLCC, the Samho Dream with a second tanker evading capture with the use of an armed security team. There is no doubt attitudes on the use of arms on board are hardening as the industry faces up the fact that no ship has been taken where armed guards have been deployed. But there has also been the first reported shooting of a pirate by a private security company raising again the spectre of escalation. So far the pirates have shown no willing to use anything other than the AK 47 and an RPG and it is to be hoped that this will not change. The rescue of the crews of the Taipan and the Moscow University show that the use of citadels can have a successful outcome, but these are dependant on there being a military force nearby. Again, this brings a risk of escalation.The stakes remain high for all, not least the crew who bear much of the risk to ensure trade gets through. With over two hundred being held the final thoughts should be with them and their families and for Rachel and Paul Chandler who were taken on their yacht in October 2009 and still await release.

Piracy - US Presidential Order on payment of ransoms and recent developments

By: Ince & Co

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