Somali Pirates Battled in London as Banks Curb Dollar Supply
June 22, 2012
8:28 AM EDT
The fight against Somali pirates, responsible for
hijacking about 170 vessels in four years, is starting to draw in British banks,
until now a major source of the stacks of dollars used to pay ransoms.
The
supply of dollars from U.K. banks dwindled since Prime Minister David Cameron
created a 14-nation task force in February to halt payments, said Michele White,
the general counsel to the International Association of Independent Tanker
Owners, the industry’s biggest trade group. Ransoms reached $160 million last
year, according to One Earth Future Foundation, a nonprofit group based in
Broomfield, Colorado.
Governments, which spent almost $1.3 billion in 2011 on
military interventions including naval patrols, are seeking to restrict the
payments because they encourage more hijackings by pirates in Somalia, the
world’s fifth-poorest nation. The banking curbs will make it harder for ship
owners and insurers to get back the 227 seafarers and 12 vessels still held
hostage.
“The only way you release a crew is by payment,” said Cyrus Mody,
the assistant director of the International Maritime Bureau in London, which
tracks piracy. “It’s true that ransoms are the key fact that keep piracy going,
but unless there’s another option available, then pirates are going to take out
their frustrations on the crew if they aren’t paid.”
Task Force
Payments
to pirates operating off Somalia averaged $4.7 million a vessel this year,
according to the European Union naval force patrolling the region. The pirates
hijacked more than 170 ships since 2008 and took about 3,400 seafarers hostage,
according to the IMB.
Cameron held a conference of more than 40 nations in
February to discuss restoring stability to Somalia and announced the creation of
the International Pirate Ransoms Task Force, which met for the first time May
30. Members include the U.K., U.S., and Panama and Liberia, which have the two
biggest ship registries. U.K. banks are concerned they may face penalties in the
future for being involved in such transactions, White said.
“The very
existence of the task force is making the payments much more difficult,” she
said, citing insurers and lawyers in London directly involved in ransom
negotiations. “The ransom lawyers are on the very margins of their ability to
raise physical dollars to pay ransoms.”
U.S. President Barack Obama signed an
Executive Order in April 2010 barring citizens from financial dealings with
pirates. Since the February conference, the U.S. government has increased
pressure on its allies to curb the transfer of payments to Somalia, said Michael
Frodl, the founder of C-LEVEL Maritime Risks, a Washington-based company
advising banks, transport companies and insurers.
Executive Order
“The
Treasury Department does not determine private business decisions of foreign
banks outside the U.S.,” John Sullivan, a spokesman for the Treasury, wrote in
an e-mailed response to questions. “There has been no change in Treasury’s
policy regarding the implementation” of the 2010 Executive Order, he
said.
U.K. banks were “a location of choice” for paying cash to pirates until
about six months ago, according to Stephen Askins, a London-based partner at law
firm Ince & Co. and a former Royal Marine who helps owners and insurers
release hostages.
As much as 95 percent of the world’s war-risk insurance is
placed in London, and ship owners will go elsewhere if U.K. underwriters can no
longer arrange payments, Askins said. Ships need an additional premium for
war-risk insurance when passing through waters deemed to be high-risk piracy
areas.
‘Sensitive Payment’
“The issue is one of intense international
debate and action, and banks will comply with their legal obligations,” the
British Bankers Association, which represents 200 lenders, said in an e-mail.
“As with processing any sensitive payment, a range of factors need to be
considered by the bank concerned.”
Crews are being subjected to increasing
levels of violence, the foundation said in a report today. More than 50 percent
of seafarers held hostage last year by Somali pirates were abused or used as
human shields, it said.
Hostages are being held for an average of eight
months, according to the IMB. An outright ban on ransom payments would
jeopardize crews, said Allan Graveson, the senior national secretary of
Nautilus, the U.K. and Dutch seafarers’ union.
“Banks are worried by the
commercial threat, even though payment of ransoms is legal,” Graveson said. “So
these dollars do not come from U.K. or U.S. banks, who have been frightened off
by talk of a ransom ban.”
To contact the reporter on this story: Michelle
Wiese Bockmann in London at
mwiesebockma@bloomberg.netTo
contact the editor responsible for this story: Alaric Nightingale at
anightingale@bloomberg.net