AuthorMartin, Christian
  1. Background 361 II. Hypothetical 362 III. What is Piracy? 364 A. Economic Cost of Piracy 365 1. Direct Costs 365 2. Secondary Costs 367 B. Jurisdiction 368 IV. The Achille Lauro Controversy: Marine Terrorism 370 A. The Convention for the Suppression of Unlawful Acts of Violence Against the Safety of Maritime Navigation (SUA Convention) 372 V. The Anti-Terrorism Act: 18 U.S.C.A. [section] 2331 374 A. Rothstein v. UBS AG 375 VI. International Response to Piracy: Duties of Flag and Port States 376 VII. Ransom Payments as General Average 378 VIII. Marine Insurance and Piracy: Perils Clauses vs. Kidnap and Ransom (K&R) Insurance 382 IX. Conclusion 384 I. BACKGROUND

    The modern notion of piracy is largely based on portrayals from popular culture. Perhaps Captain Richard Phillips of the in-famous M/V MAERSK ALABAMA put it best when he opined, "I don't think a lot of people realize that piracy is out there, and it's not a Disney-esque or Johnny Depp-esque type of thing." (1) The history of piracy dates back to the beginning of maritime commercial activity. Of all the nations that battle the never-ending ordeal of securing the seas against pirates, England has one of the most sordid pasts. Under Queen Elizabeth I in the 16th century, piracy was encouraged, if not state sanctioned. (2) The High Admiralty Court issued Letters de Marque, which allowed ambitious captains to engage in piracy against England's enemies. (3) Sir Francis Drake became a hero for his efforts capturing Spanish galleons transporting gold and silver from the New World back to Spain. (4) The United States has battled piracy ever since gaining independence from Great Britain. President Thomas Jefferson is credited with creating the United States Navy, which was initially commissioned to combat the Barbary pirates in the Mediterranean Sea. (5)


    Sailing off the coast of Somalia, a cargo ship is intercepted by a terrorist cell of al- Shabaab, an Islamic extremist group allied with al-Qaeda and the Nigerian-based group Boko Haram. (6) Al-Shabaab emerged after Ethiopian forces drove the Union of Islamic Courts out of Mogadishu in 2006. (7) Somalia is a fragmented state, and al-Shabaab maintains control of the southern rural provinces while the central, northern, and western regions of Somalia lack a strong, unified government to combat the incursion. (8)

    The terrorists carry automatic rifles, with the intention to sail the vessel with crewmembers aboard into the territorial sea (9) of Somalia. Some of the crewmembers are American citizens working as mariners. In their effort to fend off the pirates, the crew discharges cargo, often using the cargo as projectiles meant to dislodge the pirates from the side of the vessel. The vessel also employs the use of water cannons mounted on the bow and the stern, but there are no armed personnel or any firearms on the vessel. The captain of the vessel orders his crew to stand down and allow the pirates to board, fearing that any more attempts to dissuade the pirates may cost his crew their lives. Before the pirates take full control of the ship, the captain sends out a mass SOS broadcast over the radio.

    A United States frigate is nearby and moves to intercept the hijacked vessel. The frigate's captain knows that time is of the essence. Using the GPS distress signal of the cargo ship, the captain estimates that the hijacked vessel is only 15 miles from Somali waters. If the vessel reaches Somali waters, he cannot pursue the hijacked vessel into the territorial sea without express permission from Somalia authorities. (10) To make matters worse, the Somali authorities refuse the Captain's request to pursue into Somali waters, as it will undermine the sovereignty of the Somali government. Despite the best efforts of the frigate, the hijacked vessel enters Somali waters. Upon entering the territorial sea, the "pirate" Captain contacts the U.S. frigate Captain, informing him of their Al Shabaab affiliation. The pirate then demands ransom payment in the amount of $15 million US dollars to be wire transferred into a bank account of his choosing, warning the U.S. Captain that any attempt to recapture the ship will end in the execution of all the crewmembers on board and the complete destruction of the vessel.

    The frigate continues to communicate with the Somali authorities and the United States Department of State. The State Department orders the frigate to maintain patrol, but advises to sever communication with the pirates. The State Department contacts the owner of the vessel and informs the company of the situation. All the crewmembers aboard are employees of the company. The company's owner wishes to enter negotiations as soon as possible. However, the State Department warns of the possible liability associated with funding terrorist organizations. If the ransom is paid, the owner will save the lives of the crew and the vessel. Could the owner be criminally liable for funding terrorist activities even at the expense of saving his crew? What about the cargo owners? If the cargo owners contribute to the ransom payments, will they too be criminally liable?


    Piracy on the high seas (11) is a plague that affects both developed and under-developed nations. Although piracy has recently resurfaced around the world, its presence has appeared since the beginning of maritime commerce. It is important to note that the international community has defined piracy (12); however, no definition of piracy is binding on independently sovereign nations. (13) The United States adheres to the definition of piracy delineated in UNCLOS while reserving the right to punish pirates according to federal law. (14) The United States imposes mandatory life sentences on individuals convicted of engaging in piratical activities. (15)

    1. Economic Cost of Piracy

    In addition to its violent nature, piracy also imposes huge economic costs on the maritime industry. According to a study conducted in 2010, maritime piracy imposes costs between $7-$12 billion a year on the international maritime industry. (16) The study admittedly states that the cost is likely higher because reporting incidents of piracy increases the burden on the industry by increasing premiums on insurance policies. (17) As a result, the under-reporting of pirate attacks is a major concern. For example, Neal Choong, head of the IMB's Piracy Reporting Centre, claims that nearly half of all pirate attacks go unreported. (18) Both private companies and governments downplay the economic impact for political and commercial reasons. (19) Further, the economic cost is examined in a two-fold model: 1) Direct cost and 2) Secondary cost.

    1. Direct Costs

      Direct costs of piracy includes: ransom payments, insurance, re-routing ships, installing deterrent equipment, naval forces, piracy prosecutions, and piracy deterrence organizations. (20) The average ransom payment increased from $150,000 in 2005 to nearly $6 million in 2010. (21) The highest reported ransom payment is $9.5 million for the release of a South Korean oil tanker, the Samho Dream. (22) Further, the increase in ransom payments has led to drawn-out negotiations and heightened costs. (23) As a result, comparties are reluctant to pay the high ransoms, which leads to longer captivities for seafarers, sometimes as long as four months. (24) The total cost of ransom payments is estimated to be twice the actual amount paid for the release of the crewmembers. (25) The total cost of ransom payments from 2009 and 2010 combined is estimated at $415 million. (26)

      Insurance payments represent another direct cost of piracy. Maritime insurance companies responded to piracy by increasing premiums and shipping rates, especially in high-risk areas. (27) Insurance companies classify certain areas like the Gulf of Aden as "war risk" areas. In war risk areas, the cost of premiums increase as much as 300 times. (28) The average premium cost for a ship traversing the Gulf of Aden is $150,000 per voyage. (29) Kidnap and ransom insurance premiums have increased ten-fold. (30) Cargo insurance on ships traversing piracy regions has increased from $25 to $100 per cargo container. (31) It is estimated that hull insurance premiums have doubled. (32) Across the board, piracy increases insurance premiums for maritime commerce.

      Many ships, especially slow-moving vessels, opt to avoid high-risk waters entirely. Instead of transiting the Gulf of Aden, these larger, slower vessels choose to go around the Cape of Good Hope. (33) Re-routing a ship from Saudi Arabia bound for the United States around the Cape of Good Hope adds roughly 2,700 mile to the trip while a ship bound for Europe from the Far East can expect an additional week to its journey. (34) In total, the cost of re-routing ships to avoid pirate infested waters cost the shipping industry $2.3-$3 billion yearly. (35)

      Other costs that attribute directly to the economic burden caused by piracy are deterrence, naval forces, and prosecution costs. (36) Deterrence costs include the expenses of adding security personnel, sonic deterrent equipment, barbed wire, sand bags, and electric fencing. (37) In total, this adds between $360 million and $2.5 billion per year to the industry. (38)

      Naval forces from more than 27 countries contribute ships and manpower to assist in the global fight against piracy. (39) Operation Atalanta was launched by the European Union in 2008 with the primary purpose of protecting ships supplying humanitarian aid to Somalia. (40) Other initiatives include the now terminated Operation Ocean Shield, which was sponsored by NATO. According to the Governmental Accountability Office (GAO), the cost of operating a United States Naval vessel is $82,794 per steaming day. (41) The total cost of naval operations to combat piracy is roughly $2 billion a year. (42) Due to low prosecutorial capacity of countries like Somalia, the international community provides funding...

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