Pirates and legitimate business are uncomfortably close

Dealing with Kalashnikov-toting sea dogs is a risky business for lawyers: an error in negotiations could cost captive sailors their lives, says Richard Easton

In 2010, Harvard Business School waggishly honoured the Gulf of Aden's pirates with the accolade of business model of the year. True, Somali pirates have netted up to US$413m in ransoms from 154 hijackings between 2005 and 2012. But the Harvard awarding panel overlooked the fact that the average boardroom's death rate is far lower than that of Somali pirate gangs, 30 per cent of whose members are lost at sea.

Pirates and legitimate businesses might, however, be uncomfortably close when it comes to ransom payments. A World Bank report on Somalian piracy published in November last year suggests that shipping companies and their lawyers might find the moral and legal seas choppy when sailing in pirate-infested waters.

In its Pirate Trails report, the World Bank identified a coterie of unnamed London law firms as 'leaders in the provision of advice regarding piracy matters'. The City lawyers anonymously interviewed by the World Bank claim to scramble into action within half an hour of a hijacking, ready to assist in the striking of ransom deals and to 'support […] operational matters' relating to payment by ensuring that the cash is parachuted alongside the captured ship. Pirate bosses will then pour this bounty into real estate, the khat trade and into consolidating their power as warlords.

Money laundering regulations

Dealing with Kalashnikov-toting sea dogs is, however, a risky business for lawyers: an error in negotiations could cost captive sailors their lives. But, more prosaically, what of money laundering regulations? Some pirate lawyers assured the World Bank that 'in terms of compliance […] financial institutions contacted for cash withdrawal were made aware that the cash would serve as a ransom payment'. But others were less concerned by the Proceeds of Crime Act 2002. While some lawyers reported ransoms to the Serious Organized Crime Agency (now the National Crime Agency), the majority did not. And why would they? Ransom cash only becomes the proceeds of crime, arguably, in the hands of the pirate payee not the ransom payer.

Or is delivering a ransom itself illegal? Surely giving into the pirates' demands encourages the crime.

Paying ransoms was legal until the 1782 Ransom Act, which prohibited 'His Majesty's subjects' from entering into ransom contracts with ships' captors; the Georgian statute patriotically did not, however, ban British privateers from ransoming enemy ships. The 1782 Ransom Act's repeal came in 1864. So, as the Court of Appeal concluded in Masefield AG [2011] EWCA Civ 24, the payment of ransoms following piratical seizure now appears lawful.

However, the London lawyers interviewed by the World Bank conceded their knowledge of ransom monies' final destination was 'limited'. The World Bank troublingly reports, though, that some Somali pirates pay tributes to the jihadist militant group Al-Shabaab.

As ransom funds might be passed on to Al Shabaab, a proscribed organisation in the United Kingdom, does the payment of ransoms come perilously close to funding terrorism? Could lawyers and those who instruct them fall foul of, say, the Terrorism Act 2000? Under section 17 of the 2000 Act, for instance, it is an offence to be concerned in the transfer of funds which one has 'reasonable cause to suspect [...] will or may [emphasis added] be used for the purposes of terrorism'. Were the National Crime Agency's (NCA's) prior consent to a ransom payment not obtained, would those involved in payment be open to prosecution? The defences under sections 21ZB and 21ZC of the 2000 Act might assist: where lives are at stake, a delay in notifying the otherwise-approving NCA or a failure to inform the NCA at all, had there been an intention to inform the agency, might be reasonable. But what if one had no intention of telling the NCA? Could the defence of duress apply where crew are in immediate danger? Can a shipping magnate 'reasonably regard himself as responsible' (per Lord Bingham in Hasan [2005] 2 AC 467 at [21]) for sailors' safety for duress to begin to operate as a defence?

The alleged piracy-terror nexus led the USA to press for ransom payments to suspected Somali pirates Abshir Abdillahi and Mohamed Abdi Garaad to be outlawed through UN sanctions, a move the UK ultimately thwarted in 2010. That same year, President Obama signed Executive Order 13536, which unilaterally imposed sanctions against Abdillahi and Garaad: 'US persons' who pay a ransom to either buccaneer will risk a $1m fine and up to 20 years' imprisonment. A ransom-paying shipping company with a registered office in the US might, therefore, have its assets frozen or receive a hefty fine, although individuals in this country would be most unlikely to be extradited to America unless the UK's law were (eventually) to mirror the USA's. Would criminalisation of ransom payments in the UK run counter to the state's positive duties under Article 2 (the right to life) or Article 3 (the prohibition against torture or inhuman treatment), as a 2012 Chatham House report suggested?

Incidental costs

The UK's current approach to ransoms is, though, to treat the Gulf of Aden as a toll gate, an incidental cost of the lucrative international trade that tankers and containerisation have created. As Rix LJ concluded in Masefield AG (ibid, at [71]), there is an 'unexpressed complicity between the pirates, who […] maintain their ransom demands at levels which industry can tolerate; the world of commerce, which […] advocates the freedom to meet the realities of the situation by the use of ransom payments; and the world of government, which stops short of deploring the payment of ransom but stands aloof'.

The World Bank's report's recommendation to the world of government is now to follow the pirates' money, monitor the dealing of khat (a soon-to-be class C controlled drug in this country) and sharpen oversight of Somalian money transfer services. But just as piracy threatens Somalia's stability, so too might overregulation of the money-transfer market: a quarter of Somalian families receive remittances according to the UN Development Programme. Interestingly, on 5th November last year (a day after the Pirate Trails report's publication), a Somalian money transfer company won a High Court interim injunction after arguing that Barclays Bank had unjustifiably abused its alleged dominant market position by cutting off its banking services over concerns about money laundering and terrorist financing: Dahabshiil Transfer Services Ltd [2013] EWHC 3379. The 'humanitarian benefits' to Somalia of remittances was raised by Dahabshiil in support of its application.

But as for Somalia's pirates, perhaps Harvard Business School was right - it is all just business as usual.

 

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Richard Easton is a solicitor at GT Stewart Solicitors and Advocates www.gtstewart.co.uk. His wife is reputedly a distant relative of pirate Captain Kidd.

 

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