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April 26, 2010

How Executive Order on Somalia impacts ransom payments to pirates

President Obama's recent executive order on Somalia does, indeed, impact payment of ransom to pirates ... and cargo owners are among those affected.

A client briefing just released by law firm Winston & Strawn notes that the order blocks payments and other transfers of assets to certain persons listed in an Annex. In addition to the terrorist group Al Shabaab and certain warlords and gunrunners, the Executive Order also lists four persons associated with piracy off the coast of Somalia. 

The Executive Order, says Winston & Strawn, "has caused some concern within the maritime industry that it could be used to prohibit the payment of last resort ransoms to obtain the release of crews, ships, and cargoes.  Such an outright prohibition could put shipowners, maritime employers, and cargo interests in an untenable position in the event of the seizure of a ship in which they have an interest."

The briefing says that guidance provided by government officials has clarified that a ransom payment would be prohibited only if (a) it is made or facilitated by a person subject to U.S. jurisdiction, and (b) to one of the persons listed on the annex to the order, either directly or indirectly.

"Two of the persons currently on the list ... reportedly control over 1,300 pirates, collectively, which creates a significant risk that a ransom payment to a Somali pirate group could be linked in some way to one of those persons," says the briefing. But it adds that  "the standard of care likely to be required of ship or cargo owners by the Treasury's Office of Foreign Asset Control (OFAC) will be whether the potential ransom payor knows, or would have reason to know, whether the designated person would have a property interest in the potential ransom payment.  Therefore, the issue will not be whether a listed person claims some form of operational control over a specific pirate group, but whether some portion of a ransom payment could reasonably be expected to reach the person."

"If reason exists to believe that a ransom payment is likely to reach a listed person, then companies formed in the U.S., or present in the U.S., will not be permitted to make, or facilitate, such payments without OFAC permission.  If a company is faced with a demand for payment, either directly from a pirate group, or indirectly as a result of an indemnification or general average demand, the company will need to communicate with a number of governmental agencies, including OFAC and the Department of Justice (DOJ) for authorization and guidance.

"Therefore, if a U.S. vessel, U.S. crew, or U.S. cargo is captured by pirates, the owner, employer, or cargo interests should notify the U.S. government immediately through the Coast Guard's Maritime Operational Threat Response system.  Officials will designate a government liaison who will assist the company in addressing the situation.  Such assistance could include facilitating advice and coordination with the OFAC and the DOJ with regard to whether the payment of ransom, or a related payment, may be a permitted alternative."

Read the complete briefing HERE
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