Thursday, December 13, 2012

A Ban on Ransoms?

A few days ago, the UK’s Piracy Ransom Task Force (RTF) issued a set of recommendations after a series of three meetings beginning on 10-11 September of this year.

The RTF, which includes representatives of 15 seafaring nations (Australia, Denmark, France, Germany, Italy, Liberia, Malaysia, Norway, Panama, Philippines, Spain, the Ukraine, the UAE, the US, and the UK), had been created pursuant to a pseudo-decree from British Prime Minister David Cameron at the London Conference on Somalia in February. From day one, the RTF appeared bent on promoting a complete ban on shipowners paying ransoms to pirates:

“Let’s create an international taskforce on ransoms,” Cameron had announced at the London Conference. “And let’s set the ultimate ambition of stopping these payments because in the end they only ensure that crime pays.”

In the same vein, Cameron welcomed the RTF's recent recommendations, commenting that they should "make it harder for pirates to receive, and to profit from, ransom payments."

The following is a short excerpt from an article I recently wrote for Risk Intelligence's trade publication, Strategic Insights, detailing why a ban on ransoms would only end up hurting seafarers:



Could a Ransom Ban Be Effective?

One option is for the RTF to take its recommendations directly to the Security Council, which could potentially result in a global prohibition on ransoms under Chapter VII of the UN Charter. But given the controversy that such a measure would engender among seafaring member states, it is difficult to envisage the council agreeing on any ban with real teeth to it.

Short of a blanket worldwide ban on ransoms, it is simple enough to predict how shipping companies would react to domestic injunctions, namely by shifting the entire ransoming process—from insurance, to banking, to crisis response and negotiation and delivery—to the doubtless numerous jurisdictions in which paying ransoms will remain legal (Singapore seems a likely candidate). Industry sources I spoke with appeared most concerned not that a hypothetical ban in the UK would end ransom payments, but that it would make life more difficult for shipowners attempting to secure the safe release of their seafarers. The US Office of Foreign Assets Control’s (OFAC) existing sanctions against a handful of senior pirate leaders has contributed towards US and UK banks’ refusal to facilitate ransoms payments, for fear of that the cash may end up in the hands of the censured individuals, or, what is worse, with al-Shabaab militants. For UK banks, even a flirtation with sanctions busting could jeopardise their US-dollar licenses with the Federal Reserve, making the potential downside far greater than the benefits. What defines an infraction, moreover, is not clear in advance; when shippers and insurers consult OFAC in order to ensure that a forthcoming ransom complies with the sanctions regime, one industry insider lamented to me, they are never given an unequivocal green light to proceed. Rather, the body’s rulings consistently fall within an ambiguous “grey area,” which could leave companies paying ransoms exposed to future penalties.

To reiterate: a wider proscription of ransoms across countries would not prevent outright the paying of ransoms; there will continue to be Cayman Island-esque jurisdictions where banks willing to finance ransom packages will operate. But the shrinking pool of banks willing to risk punitive action from the expanding numbers of “anti-ransom” nations would predictably lead to an demand-driven increase in transaction costs, as well as a concomitant rise in the risk associated with dealing with less established and reputable institutions.

In short, piecemeal bans in individual countries would be largely unenforceable, serving only to create additional delays and financial hurdles and prolong the suffering of captive seafarers.

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For the complete article, kindly contact Risk Intelligence. 

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