Since 2005, the scourge of sea piracy has resurfaced with a vengeance. The old pursuit has taken new life, advanced by modern navigation and weapons technology. This article examines emerging practical and legal guidelines for private marine security providers and the shippers, insurers, and vessels they protect.
The shocking and much-publicized increase in sea pirate activity, particularly in the straits of Malacca, the Indian Ocean, and off the coast of Somalia, has shaken the international shipping industry and left it searching for protection from this menace to profits and safety. The sustained onslaught of pirate attacks has also impacted a trade almost as old as seafaring itself: the maritime insurance industry. Because eighty percent of world trade in goods travels by sea, and more than half of sea vessels must pass through areas considered high-risk for pirate attacks, the cost of piracy has soared into the billions of dollars. Shippers, insurers, and consumers worldwide ultimately pay this cost. Insurance brokers reportedly estimate that sales of marine Kidnapping and Ransom (K&R) policies have risen to about $125 million per year since 2008 when the insurance product was developed. Maersk, the world’s largest ocean shipping company, estimates that it has increased its security surcharge by up to 50% on a standard 40-foot container shipped through the Indian Ocean, the Arabian Sea, or the Gulf of Aden.
Individual states and non-governmental and multinational organizations have made efforts to reduce piracy in various ways. Some entities have attempted to alleviate the social and political troubles they view as root causes of piracy. Other states and organizations have aimed to fight the pirates themselves, sending military patrols through waters where pirates prey on merchant vessels. Because the prizes of piracy are so tempting, however, and the political and social problems in pirates’ home countries so intractable, political efforts have had little effect. Certain military efforts have produced results (most notably the extraordinary rescue operation performed by U.S. Seal Team 6 on April 12, 2009), but the waters considered high-risk piracy zones cover a surface area roughly equivalent to the continent of Europe, so military patrols cannot feasibly cover enough territory to guarantee safe passage for shippers.
Private Marine Security Escorts
The increasing hazard of pirate attacks and the practical difficulties hindering governmental responses have led shippers to turn to private marine security forces for assistance. The first marine private security companies began to spring up after Lloyd’s of London labeled the Straits of Malacca a “war-risk zone” in 2005. Since that time, an increasing number of existing private security companies have entered the marine security sector, and a spate of startup companies have entered the private marine security industry directly. These security companies offer services, including the provision of trained security specialist teams housed on shipping vessels during a voyage and separate escort vessels equipped with weapons and technology sufficient to see a shipping vessel safely through a high-risk area.
Shipping insurers are taking note of the value of private marine security escorts protecting the cargoes they insure. Insurers and shippers are necessarily tight-lipped regarding the prices of K&R insurance, because they do not want prospective pirates to factor those prices into ransom demands. Lloyd’s List has reported, however, that a number of K&R insurers are demanding the presence of armed guards on vessels traveling through the Gulf of Aden and the Indian Ocean before they will provide coverage. It was also reported that other insurers are offering discounts of up to 35% and 40% on K&R policies for vessels using private marine security companies. Some private marine security companies have even teamed with insurers to create a more seamless integration of their services into the reduction of shippers’ insurance costs.
Private marine security companies may help reduce a vessel’s K&R liability and increase the safety of cargo and crew, but shippers, insurers, and security companies now must face the puzzling question of how to prevent security forces from raising a vessel’s legal liabilities in other ways. Armed security forces aboard shipping vessels have to comply with a complex web of international and foreign legal regimes as well as U.S. regulations. The shippers, insurers, and security companies that anticipate the potential legal pitfalls and design compliance measures to avoid possible violations and define defensible security activity likely will keep the potential costs of a private marine security from outweighing its benefits.
International Legal Compliance
Unfortunately, the body of international law related to piracy is both scant and vague. The United Nations Convention on the Law of the Sea (UNCLOS) defines piracy, but only those acts actually committed on the high seas are considered piratical. Attacks on vessels in territorial waters would not fit under the UNCLOS definition of piracy. The Convention for the Suppression of Unlawful Acts of Violence Against the Safety of Maritime Navigation (SUA Convention) prohibits acts of violence against vessels in any waters, but both UNCLOS and the SUA convention authorize only government forces to respond to piratical attacks through force. The conventions do not discuss private marine security forces carrying arms aboard ships, escorting vessels in armed ships, or engaging pirates either before or after an attack.
Foreign Legal Compliance Issues
Generally, when a vessel is operating on the high seas, it remains under the jurisdiction of its flag state. When the vessel enters a nation’s territorial waters or is docked in a foreign state, the vessel is typically considered subject to the foreign state’s jurisdiction. Traditionally, however, matters related to the vessel’s internal management or discipline are not the concern of local foreign law. They are regarded, by the principle of international comity, to be under the ship’s jurisdiction. Where the vessel or its crew disturbs the peace of the foreign state, on the other hand, the crew and its vessel would likely be considered subject to the laws of that state.
Further jurisdictional complications arise in international straits. A vessel engaged in “transit passage” (as defined in the UNCLOS) should, under the UNCLOS, refrain from any threat or use of force against the sovereign state. If the vessel is engaged in “innocent passage,” UNCLOS prohibits the exercise or practice with weapons of any kind.
It is also likely that a vessel in an international strait will be in the territorial waters, or at least the claimed territory, of a sovereign state. For example, the strait of Malacca, through which 40% of the worlds shipping travels, is claimed by three countries bordering the strait: Singapore, Indonesia, and Malaysia.
An initial issue that arises in these scenarios is whether the security forces may be armed under the law of the flag state, the law of a foreign state’s territorial waters, or under UNCLOS. The countries surrounding the straits of Malacca, for example, maintain severe restrictions on weapons ownership and possession. Where a security force takes action, a new series of issues may arise: if a private marine security force engages a prospective attacker, uses force to repel an attack, and/or resorts to lethal force, what legal regime will govern the actions and what authority will enforce that legal regime?
Emerging Practical and Legal Compliance Guidelines
The modern industry of private marine security is still too new to have resolved the myriad legal questions that have arisen around it. Consequences that cannot be foreseen, however, may still be forestalled. A carefully crafted compliance policy and protocols could help protect a private marine security company, first, from the occurrence of legal violations and second, from liability arising from an employee acting outside of the policy and protocol of the company. Further, the protection of a strong compliance policy and protocols would likely assuage ship insurers’ concerns that armed private security could create potential liabilities offsetting the risk reduction they provide.
U.S. Legal Compliance Issues
In addition to the patchwork of foreign legal obligations that may be applicable to private marine security companies, companies based in the United States or employing U.S. persons must also contend with U.S. regulations on international activity. Private marine security companies will have to navigate the U.S. regulatory regimes of the International Trafficking in Arms Regulations (ITAR) and U.S. sanctions.
The ITAR generally prohibit the export from the United States, even temporarily, of items designed or modified for military use without a license from the U.S. Department of State Directorate of Defense Trade Controls (DDTC). Applications for licenses under the ITAR typically require specific information on the destination of any ITAR-controlled security equipment export. Private marine security companies planning to escort vessels to numerous ports, therefore, may require assiduous compliance personnel or counsel to acquire ITAR licenses and to ensure that the ITAR-licensed security equipment is not transported outside of the countries to which it was licensed for export.
The ITAR also control the export of defense services to foreign countries or persons. That is, U.S. private marine security personnel could not, without a license, train the crew aboard a vessel they protected in the use of ITAR-controlled security equipment if those crew members were foreign nationals. Further complicating matters, the U.S. State Department maintains an embargo on the export of any ITAR-controlled item, technology, or service to China. This adds a challenge for U.S.-based private marine security companies, because so many potential-client vessels likely will dock in a Chinese port.
The U.S. Department of Treasury Office of Foreign Assets Control (OFAC) maintains sanctions against a number of countries, governments, and individuals that generally block U.S. persons from conducting business with these sanctioned parties. These regulations may add to the potential compliance challenges private marine security companies face, particularly where a U.S. company or security force including U.S. persons works for a foreign national shipper or vessel. While that U.S. company or person may be subject to U.S. sanctions regulations, the foreign shipper or vessel may not be subject and therefore not under the same prohibitions on doing business with sanctioned parties or in sanctioned countries.
Compliance Policy and Protocol Solutions
In our experience working with private marine security and with insurers, simple and practicable solutions can be designed to resolve or reduce these complex compliance concerns. Our clients in the industry have considered a number of measures and best practices to protect against potential liability for violations of foreign law, including designing and implementing specific use-of-force protocols, providing training for security team captains on the legal framework underlying policies and protocols, and negotiating and entering into agreements with local authorities in countries with pirate-ridden territorial waters. Best-in-class companies in the industry also work to implement systems designed to ensure compliance with U.S. regulations including due diligence questionnaires for employees and potential clients, proper ITAR registration, and training to company executives and personnel to help them understand the ITAR and U.S. sanctions and avoid potential violations.
Good compliance is risk management, and a compliance policy tailored to the unique activity, potential liabilities, and myriad legal obligations of a private marine security company could significantly reduce that company’s legal liabilities.