Paying piracy ransoms ‘still legal’

The Counter Terrorism and Security Bill was presented to the UK parliament this week. Photo: PA

By Stephen Spark
Friday, November 28, 2014

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A new Counter Terrorism and Security Bill, which was presented to the UK parliament on Wednesday, will not change current rules on piracy ransom payments, insurance industry experts and maritime lawyers believe.

The bill is a response to heightened concerns over radicalisation and threats from Islamic State. The government hopes it can be fast-tracked through parliament and enacted into law before the UK general election in May.

The bill aims to prevent insurers providing kidnap and ransom cover, and paying out on that cover, for ransoms that will finance terrorism.

In response, London-based marine solicitors Waltons & Morse (W&M) issued a briefing, stating: "The present position under English law is that contribution to ransom payments by insurance companies is considered legitimate, but this has always been subject to the understanding that the payment will not be used to fund any terrorist organisations." W&M added: "The proposed legislation does not change this to any great extent." The test, the firm suggests, is "whether the insurer is making a payment under the insurance contract in relation to a demand made for the purposes of terrorism".

In UK law, terrorism is defined as "use or threat of action designed to influence the Government or to intimidate the public or a section of the public and is done for the purpose of advancing a political, religious, racial or ideological cause". The new bill uses the same definition, which therefore excludes purely 'commercial' acts of kidnap for ransom, devoid of any ideological purpose, as practised by Somali pirates, for example.

Richard Neylon, partner at Holman Fenwick Willan (HFW), told IHS Maritime: "Most commentators (and governments) agree that there is no link between Somali piracy and [Somalia-based al-Qaeda affiliate] Al Shabaab." However, studies by the United Nations Security Council, the UN Office on Drugs and Crime and other bodies suggest that al-Shabaab has benefited financially, albeit indirectly, from piracy, by collecting 'taxes' from pirates and levying dues on cargoes and vessel movements at ports it controlled, such as Kismaayo.

In a briefing, HFW stated: "In our view, the new offence is not intended to have any application to reimbursements in respect of sums paid to secure the release of hostages kidnapped by criminals or pirates lacking the necessary 'terrorist' motive."

In deciding whether the payment of ransoms was against English public policy, precedent was set in 2011 by the Bunga Melati Dua case, which concerned a ship pirated in the Gulf of Aden on 19 August 2008. Noting that there was no law in England that prohibited ransom payments, the appeal court judges rejected the shipowner's argument that these payments were so much against the public interest that it was not part of an insured's duty to preserve his property from loss by acceding to a ransom demand.

In its summary of the Bunga Melati Dua case, W&M noted: "The reality is that as long as there remains no practical alternative for shipowners and their insurers, the practice [of paying ransoms] will continue."

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