Reuters Exclusive on Somali Sanctions and OFAC

Yesterday, Reuters came out with an excellent article on the impact of sanctions on Somali pirates. From their article, it doesn’t sound as if sanctions are making that much of a difference in curbing the efforts of pirates off of the coast of Somalia from kidnapping and extorting those operating in the waters they patrol.

Some of the more interesting points in the article quote a Treasury representative’s view on the issues. That representative made it clear that the policy underlying Executive Order 13536 and the Somalia sanctions is to deny pirates the benefit of ransom payments and other types of financial support. However, the representative openly admitted that these sanctions are only enforced if there is a U.S. person or entity involved. The reason for this is that the United States Department of the Treasury Office of Foreign Assets Control (OFAC) only has authority over U.S. persons. This is a point I have often made. Although sanctions target a country or a specific group of individuals engaged in some conduct detrimental to U.S. national security interests, the burden of the sanctions falls upon U.S. persons, because that is the group over which OFAC can assert jurisdiction.

The Treasury representative also stated that although shipowners have previously sought guidance from OFAC on how to handle pirate ransom situations and what legal restrictions they may be under in regards to transactions with Somali pirates. The representative clarified, however, that OFAC has never licensed or authorized any ransom payments between these shipowners and Somali pirates. This representative further stated that any correspondence that has come from OFAC on this issue was not to be considered an authorization to make a ransom payment or a non-objection to such payments.

Finally, the Treasury representative made it clear that the sanctions against Somali pirates were a powerful tool, not because they would prevent individuals from joining the pirate ranks, but because they could be used to stifle the financial networks through which the ransom payments are laundered. The Treasury representative went on to say that there is currently an OFAC investigation into such matters taking place.

The problem with OFAC administered sanctions is always how to enforce them and promote respect for them. As is evidenced by the Reuters article, many shipowners are paying the ransoms, without concern for U.S. sanctions. This may very well be because they know that OFAC cannot assert jurisdiction over them. I do think that the results of this current OFAC investigation into Somali pirate ransom payments may lead to a large penalty; potentially one that will cause those shipowners considering the payment of ransoms to Somali pirates to think twice.

Those of us who regularly follow developments in this field may recall that 6 or 7 years ago, there were not as many problems transferring money between Iran and the United States. However, after a series of massive penalties in 2009-2010, there are very few foreign banks that will facilitate such transactions even when they are authorized by OFAC. A massive penalty for a violation of the Somalia sanctions may lead to a similar result.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

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