April 2010
On 13th April 2010 the U.S. Government issued an Executive Order in response to the security situation within Somalia and at sea off its coast which is now considered to constitute sufficient threat to the national security and foreign policy of the United States to warrant the declaration of a national emergency.
The Order imposes restrictions on persons deemed to be contributing to the political instability in Somalia. The Order specifies activities that constitute threats to the peace, security and stability of Somalia and includes amongst these, acts of piracy and armed robbery at sea. The property, and interests in property of persons involved in such activities has been blocked, and dealings with such people are prohibited. Annexed to the order is a list of eleven named individuals, and one entity. These individuals have been identified by the U.S. Government as either participating in acts of piracy, or contributing to the political instability. The Secretary of the Treasury, in consultation with the Secretary of State has authority to increase the number of entries on this list as may be necessary. The Order and the Annex are available for download below.
The Order does not specifically mention the word ransom, but refers to the prohibitions within it encompassing the making of any contribution or provision of funds to, or for the benefit of any person whose property is blocked pursuant to the Order.
The obvious question for all shipowners is to what extent might payment of a ransom to secure the release of vessel and crew from Somali pirates amount to an infringement of the terms of this Order, particularly in situations where it may be far from clear who may be backing the pirates involved in any particular attack?
Lawyers advising the International Group of P&I Clubs are monitoring the situation very closely and have been liaising with representatives from the Department of State and the Treasury Department’s Office of Foreign Assets Control (“OFAC”) in an attempt to gain a better understanding of the scope of the Order, the manner in which it might be enforced, and the practical implications of it in relation to current and future negotiations for the release of vessels and crews held hostage. The situation is still rather uncertain but the following details have emerged so far:
1. It is clear from the Order that U.S. persons, including any overseas branch of U.S. companies, and other persons in the United States, are caught by its provisions, but the Order does not directly address the extent to which foreign entities having a U.S. presence might be affected. According to OFAC, a foreign entity does not become a “U.S. person” within the meaning of the Order simply because it has operations, or maintains an office, in the United States. However, U.S. officers and employees of such an entity would be prohibited from making any transaction involving any of the named individuals. The Treasury Department has been asked to consider the legal ramifications of the Order in relation to a number of factual scenarios. For example, what is the position in relation to a foreign shipowner who may wish to pay a ransom to recover a U.S. flag vessel owned by a U.S. affiliate?
2. Another area of concern is the U.S Government’s expectations concerning the due diligence that should be exercised by shipowners to determine, in the context of any ransom that may be under negotiation, whether any of the named individuals are involved, and this is currently being considered by the Treasury Department. The U.S. Government emphasizes that it will be necessary as a minimum for shipowners to consult authorities such as the U.S. Coast Guard and the Treasury Department, in relation to the identity and affiliations of those involved in an act of piracy. This raises an obvious concern that once the identity of the individuals holding a particular ship has been determined, if they are not currently named in the Annex, it must follow that they are then highly likely to be added, thus potentially creating a further obstacle to release.
3. It is understood that the Treasury Department construes the Order’s ban on “any contribution . . . for the benefit of” a blocked individual quite broadly. Consequently it has been said that it would be a violation for a U.S. insurer to indemnify a foreign shipowner for payment of ransom to a blocked person after the fact. Following the same reasoning, U.S. re-insurers would be prohibited from paying a claim directly related to ransom paid to a blocked person. Similar difficulties could also be expected in relation to contributions to ransom in general average from U.S charterers or cargo interests.
The primary impact of this Order will be felt by U.S. persons and companies. There is great concern about the potential for this Order to increase the risk to personnel and property by making it more difficult to release hijacked vessels, their cargoes and their crews. Various shipping interests are in discussions with the U.S. State Department concerning the Order and further information and clarification will be published as and when this becomes available.
