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New U.S. Sanctions Against Somalia Terrorists Link Piracy and Terrorism

Maritime Developments Advisory

On April 13, 2010 President Obama issued an Executive Order imposing economic sanctions against persons contributing to the deteriorating situation in Somalia, including acts of piracy offshore Somalia.  Authorized under the International Emergency Economic Powers Act (IEEPA) as responsive to a threat to U.S. national security and foreign policy, the sanctions took effect immediately.  Although the Order initially applies only to dealings with the eleven individuals and one entity listed in the Annex to the Executive Order (Order), the Secretary of the Treasury may designate additional persons as subject to the Order.  This power, coupled with the broad language of the Order, has sparked concern and uncertainty in the global maritime community about the impact of the Order on those making ransom payments to pirates to secure the release of crews and ships.

Analysis of the New Sanctions

Like other list-based sanctions administered by Treasury’s Office of Foreign Assets Control (OFAC), the Order applies only to dealings with persons explicitly designated under the Order for addition  to OFAC’s list of Specially Designated nationals (SDN List).  U.S. persons (U.S. entities, citizens and permanent residents and persons in the United States) are prohibited from engaging in any direct or indirect dealings with SDNs and all assets of SDNs in the United States or coming within the control of U.S. persons (including U.S. banks and their foreign branches) are “blocked” or frozen and may not be dealt with in any manner by U.S. persons.  The Order further clarifies that the blocking of SDN assets prohibits the making or receipt of contributions of funds, goods or services by, to, for the benefit of, or from any SDN. 

This clarification, although feared by some to be targeted specifically at ransom payments, in fact tracks the language of regulations implementing other OFAC sanctions programs designed to counter terrorist threats (Section 204 of the Global Terrorism Sanctions Regulations, for example).  In addition, as in the case of other Executive Orders targeting terrorism, the Order also invokes the President’s authority to prohibit humanitarian donations of the sort not normally subject to IEEPA embargoes (food, clothing and medicine intended to relieve human suffering).  Finally, the Order contemplates the issuance of regulations implementing the Order—but while OFAC regulations typically offer at least some clarification and interpretation of the intended scope of its sanctions programs, publication of the regulations usually does not occur until at least several months after issuance of an Executive Order.

The initial list of SDNs designated under the Order is comprised of individuals said to have links to al-Qaida and al-Shabab, a militant Islamic movement also reportedly allied with al-Qaida.  However, the Order permits additional designations of persons determined to:  (1) have engaged in acts that threaten the peace, security or stability of Somalia; (2) have obstructed the delivery, access to, or distribution of, humanitarian assistance to Somalia; (3) have supplied, sold or transferred arms or related material to Somalia; (4) have assisted, sponsored or provided financial, material, logistical or technical support for activities or persons targeted by the order; or (5) be owned or controlled by, or have acted on behalf of, any person with assets blocked under the Order.

Applicability of the Order to Piracy Ransom Payments

The Order does not contain a general ban on the making of ransom payments to Somali pirates.  However, the Order explicitly deems acts of piracy a threat to the peace, security or stability of Somalia, thereby opening the door to designation of known Somalia pirates as SDNs pursuant to the Order.  The Order also permits designation of those who “have assisted, sponsored or provided financial, material, logistical or technical support for activities or persons targeted under the Order.”  Senior Administration officials have stated that two of the individuals listed in the Annex to the Order, Mohamed Abdi Garaad and Yemane Ghebreab, are known supporters of the piracy efforts and are designated as SDNs in part for that reason.  Thus, ransom payments to or for the benefit of these or any other SDNs would be an activity prohibited under the Order.  Although the sweeping language used to convey the authority to designate financial supporters of piracy or designated pirates may be viewed as sufficiently broad to permit future designation of persons involved in the paying of ransom to both designated and undesignated pirates, the Administration has not signaled any intention to pursue such designations at this time.

At a joint government/industry roundtable meeting on April 16, 2010, senior Administration officials confirmed that for the moment the Order applies only to dealings by U.S. persons with persons listed in the Annex to the Order, of whom only two are known pirate associates.  Furthermore, in the absence of any U.S. nexus, the Order does not extend to payments made by non-U.S. shipowners in currency other than U.S. dollars.  The officials also emphasized the need to consult with OFAC when considering payment of ransom from a U.S. source or in circumstances in which the Executive Order might apply.  Unfortunately, however, this guidance does little to quell the fears of the maritime community given the industry’s global interconnectivity and the need to move quickly when ransom demands hold lives and property in the balance.  In addition, there are no assurances that the U.S. government will agree prior to the payment of ransom in order to free captured crew members that it will not pursue civil or criminal action against those persons or entities making the ransom payments.  Furthermore, now that the U.S. government has explicitly recognized a link between piracy and terrorism financing, the specter of future sanctions remains and it is unclear whether OFAC will move to minimize uncertainty and concern by issuing policy guidance prior to publishing regulations.

Conclusions and Recommendations

Stakeholders should continue to monitor this situation for additional designations and policy developments.  Should an incident occur involving piracy and the taking of crew members, stakeholders should confer immediately with appropriate government officials to confirm whether the Order applies to a particular incident and if so to determine the U.S. government position regarding possible ransom payments.

Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome. The information contained herein is abridged from legislation, court decisions, administrative rulings, and other sources and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.