Meadow Clendenin, "no Concessions" With No Teeth: How Kidnap and Ransom Insurers and Insureds Are Undermining U.s. Counterterrorism Policy

• Publication year: 2007

"NO CONCESSIONS" WITH NO TEETH: HOW KIDNAP AND RANSOM INSURERS AND INSUREDS ARE UNDERMINING U.S. COUNTERTERRORISM POLICY

INTRODUCTION

The U.S. Government will make no concessions to individuals or groups holding official or private U.S. citizens hostage. . . . [I]t is U.S. Government policy to deny hostage takers the benefits of ransom, prisoner releases, policy changes, or other acts of concession.¹

The United States' policy for dealing with terrorist demands is clear: absolutely no concessions.²No ransoms shall be paid to hostage takers.³The policy is stern, but the government's bark is worse than its bite because only the government is required to comply, not private entities. Private entities pay millions of dollars in ransom money every year, and scores of insurance companies sell kidnap and ransom ("K & R") insurance policies to reimburse those entities for ransom payments.⁴An entire criminal industry surrounds the extortion of multinational corporations through kidnap for ransom-a criminal industry that insurance companies are financing by paying ransoms to hostage takers in direct opposition to U.S. government policy. One respected journalist wrote: "'In an unintentional conspiracy, the terrorist, the victim, and the insurance companies have found a level at which they are all prepared to work. The kidnappers get their cash, the victims have insurance, and the insurance companies get their premiums.'"⁵

Not only are insurers funding terrorist activity and profiting from K & R premiums, but they are also undermining sound public policy designed to prevent additional crimes. The U.S. government's "no concessions" policy is toothless when American companies, supported by their insurers, continue to comply with terrorist demands. This Comment suggests that the insurance industry could and should help put the bite back into U.S. counterterrorism policy by voluntarily adopting a no-pay policy.⁶

As kidnapping for political or criminal gain has become more prevalent, multinational companies and nongovernmental organizations ("NGOs") increasingly purchase K & R policies.⁷Since the U.S. invasion of Iraq in

2003, more than 430 foreigners have been abducted in that country⁸and at least 40 were subsequently killed.⁹The recent wave of kidnappings in Iraq has led to significant media coverage and congressional attention.¹⁰In fact, as part of the USA Patriot Act, the kidnapping of a U.S. national overseas is considered an act of terrorism.¹¹However, this problem is not confined to

Iraq. U.S. passports seem to mark Americans as kidnapping targets in many parts of the world.¹²As a result, U.S. companies interested in conducting business in the Middle East or other unstable regions must address the risk of employee abductions.

Many companies are managing the risk of kidnapping by purchasing insurance.¹³Just as organizations insure against fire, auto accidents, and worker injuries, they also frequently insure against the risk of kidnap, ransom, and extortion. Transferring the risk of employee abduction to an insurance company may be a sound financial decision. However, if an incident occurs and the K & R policy is triggered, multinationals may be faced with a dilemma: either finance terrorist organizations by paying a ransom or conform to U.S. policy directives and possibly subject their employee to additional harm.

This Comment suggests that neither insurers nor insured entities should have the option to diverge from U.S. government policy. K & R insurers should stop reinforcing terrorist behavior by paying ransoms. K & R insurance should continue to exist but without provisions for ransom reimbursement. Instead, K & R insurers should provide their customers with enhanced kidnap prevention training and crisis management services. Shifting the focus of K & R policies from reactive services to preventative mechanisms would allow the K & R insurance industry to exist without undermining the U.S. government's "no concessions" stance.

This Comment explains the functionality and history of commercial kidnap, ransom and extortion insurance products and assesses the conflicting public policy ramifications of "one of the world's murkiest legitimate businesses": K & R insurance.¹⁴Kidnap victims typically fall into one of four categories: (1) expatriates and employees of high-profile companies, (2) business travelers, (3) tourists, and (4) wealthy local residents and their families.¹⁵This Comment focuses on K & R policies for businesses and nonprofit organizations, which typically cover scenarios in which employees¹⁶are kidnapped and held for ransom in a foreign country.¹⁷

Part I of this Comment discusses the emergence of kidnapping as a tool for extorting funding for criminal activity and compelling political action. Part II describes the genesis of K & R and the basic concepts of insurance that permit organizations to insure the lives of their employees. Part II.D discusses a key

K & R policy benefit: access to security consultants who advise before and during kidnapping incidents. Part III reviews U.S. law and government policy surrounding abductions of U.S. nationals overseas and explores some of the conflicts between those policies and certain aspects of K & R insurance. Part IV proposes that the insurance industry should voluntarily adopt a no-pay policy to encourage consistent application of U.S. "no concessions" policy and to discourage future kidnappings.

I. THE RISE OF KIDNAPPING FOR MONETARY OR POLITICAL GAIN

In 2004, London-based insurance broker Willis Group estimated between

8,000 and 10,000 kidnap-for-ransom incidents occur worldwide each year.¹⁸

Victims around the world include previously anonymous businesspeople,¹⁹high-profile political figures,²⁰and humanitarian aid workers.²¹According to the National Counterterrorism Center,²²33 Americans were kidnapped in foreign countries in 2004 and 13 were killed.²³In 2005, 12 Americans were reported kidnapped overseas and 6 perished.²⁴One professional kidnap consultant believes the actual numbers are 40 to 50 each year.²⁵Since the

2003 American-led invasion of Iraq, the Iraqi Interior Ministry reports that at least 425 foreigners and 5,000 Iraqis have been taken hostage in Iraq.²⁶

Although Iraq has recently received most of the attention, New York-based security company Kroll Risk Consulting estimates that half of all kidnappings in the world occur in Latin America.²⁷Kidnapping is most prevalent in Colombia, where 1,411 abductions were reported in 2004.²⁸Contrary to a Colombian government report, Kroll believes that approximately half of the incidents go unreported, and therefore the actual number is probably closer to

4,000.²⁹Disturbingly, kidnappings are also on the rise in countries that were traditionally not considered dangerous, such as Mexico.³⁰

In addition to a rise in the number of kidnapping victims, K & R insurance sales have increased significantly in recent years. Sales went up twenty percent following the terrorist attacks in 2001.³¹Although updated sales volumes are unavailable, insurance agents confirm that interest in K & R insurance has swelled tremendously since the U.S. invasion of Iraq³²and the subsequent kidnappings there.³³Both the frequency of incidents and the number of organizations purchasing K & R policies are probably greater than public statistics reveal because kidnapping victims, insurers, and policyholders have reasons not to report the information. Insurers do not want ransom values disclosed for fear of increasing future demands,³⁴victims may stay silent because of threats of further harm, and multinational policyholders may want to avoid negative publicity.

While many recent incidents in the news have been politically motivated,³⁵the kidnapping business has also proven to be a lucrative fundraising tool. Britain's Foreign Policy Center estimated that kidnappers netted $500 million in ransom money in 2001 alone.³⁶Other estimates claim that from 1978 to

1998, multinationals paid out more than $1 billion in ransom to release kidnapped executives.³⁷

Throughout the history of terrorism, guerilla and terrorist groups have used kidnap for ransom as a means of funding their operations.³⁸In recent history, the Revolutionary Armed Forces of Colombia (FARC),³⁹the Irish Republican Army (IRA),⁴⁰and Al Qaeda-linked terrorist cells⁴¹all have adopted the tactic. Of these groups, Colombian guerrillas seem to be the most successful profiteers. Between 1995 and 2000, FARC received approximately $632 million in ransom for freeing kidnapped foreigners,⁴²most of whom were employees of multinational corporations.⁴³

Huge ransoms have established precedent for modern-day extortionists.⁴⁴

In 1975, Sears paid over $1 million dollars for the release of an executive held for three months in Colombia.⁴⁵One year prior, Exxon paid $14.2 million for the release of one of its executives.⁴⁶An Argentine multinational corporation once paid a $60 million ransom for the safe return of an abducted employee.⁴⁷

More recently, following the end of the full-fledged military operation in

Iraq, hundreds of foreigners have been kidnapped by Iraqi insurgents desperately seeking funds and media attention.⁴⁸One of the most distressing cases is of British-born Margaret Hassan.⁴⁹Mrs. Hassan was a 59-year old humanitarian aid worker for CARE International, a London-based NGO.⁵⁰

The fact that she was married to an Iraqi and acquired Iraqi citizenship did not stop her kidnappers from killing her.⁵¹Her abduction and murder led to the discontinuation of CARE International's operations in Iraq.⁵²

In some cases, while the goal of the initial kidnapping may be financial, criminal gangs may actually sell their victims to militants with goals more ideological than mere fundraising.⁵³"Experts believe that actually up to 90 percent of the kidnapping[s] in Iraq are carried out by criminal gangs, which if they do not get their ransom that they demand within the first few days, they will sell their...