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Piracy Threat at seaA risk analysis

Knowledge series

2006Mnchener Rckversicherungs-GesellschaftKniginstrasse 10780802 MnchenGermany

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2006Mnchener Rckversicherungs-GesellschaftKniginstrasse 10780802 MnchenGermany Tel.: +49 (89) 38 91-0Fax: +49 (89) 39 90 56http://www.munichre.com

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Picture creditsCover: Michael S. Yamashita/Corbisp. 4 (1): Royalty-Free/Corbisp. 4 (2): Bettmann/Corbisp. 4 (3): Mike Goldwater/Alamyp. 5 (1): AP Photo/Michel Lipchitzp. 5 (2): Robert Wallis/Corbisp. 5 (3): Reuters/Corbisp. 6: Royalty-Free/Corbispp. 8/9: Bettmann/Corbisp. 10 (1): Vanni Archive/Corbisp. 10 (2): Bettmann/Corbisp. 11: Stapleton Collection/Corbispp. 12/13: Mike Goldwater/Alamyp. 14: Michael S. Yamashita/Corbisp. 17: ALI MUSA/AFP/Getty Imagespp. 22/23: AP Photo/Michel Lipchitzp. 25: Crack Palinggi/Reuters/Corbisp. 26: AP Photo/Vincent Thianp. 30: Reuters/Corbisp. 31: SUPRI/Reuters/Corbispp. 32/33: Robert Wallis/Corbisp. 35: SEBASTIAN DSOUZA/AFP/Getty Imagespp. 38/39: Reuters/Corbisp. 41: Marine Robotic Vessels International (MRVI)p. 42: American Technology Corporationp. 44: ATEF HASSAN/Reuters/Corbisp. 46: U.S. Navyp. 47: U.S. Navy

Piracy Threat at seaA risk analysis

Knowledge series

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Munich Re, Piracy Threat at sea

Piracy Threat at sea

In the latter part of the last century, governments, shipping companies, and marineinsurers witnessed a steep rise in the number of pirate attacks on merchant ves-sels. There is a clear connection between mounting prosperity and increasinginternational trade in one part of the world and political instability, wars, and grow-ing poverty in others. The main hot spots are the coastal waters off Southeast Asia,West Africa, Somalia, South America, the Caribbean islands, and some countriesin the eastern Mediterranean.

Since the hijacking of the passenger ship Achille Lauro in 1985, a further dangerthat is related to piracy, terrorism at sea, has moved into the focus of internationalattention. As a rule, this has less to do with committing robbery and murder forpecuniary gain than with causing harm to the economic and other interests ofcertain states.

Every year, hundreds of ships are attacked and hostages taken, hundreds of sailorsare injured, traumatised, or killed, and there are losses totalling billions of dollarsand the danger of environmental disasters when oil tankers, for example, arecaptured reason enough for marine insurers and reinsurers to be very concernedand to think about control and prevention measures.

This latest work in Munich Res knowledge series has been written as a contributiontowards the international debate on this topical issue. Piracy Threat at sea pro-vides a risk analysis of the danger emanating from piracy and marine terrorismand explains the legal position at national and international levels. It highlightsunderwriting aspects and describes ways of minimising the risk.

Global commitment in the fight against piracy is growing. The intention of thisbrochure is to give it vigorous support.

Christian KlugeMember of the Munich Re Board of Management22 September 2006

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Combat piracy through active involvement

Piracy is a crime which often affects foreign seamen on board a foreign ship carry-ing a foreign cargo which just happens to be passing through national waters. It does not automatically feature high on the national law enforcement agenda. Without the active involvement of governments and their law enforcement agen-cies we cannot combat piracy. Like all crime, deterring piracy requires the arrestand prosecution of pirates.

Information on piracy is vital to getting policy makers in governments understandthe nature of this crime and help push it up the list of law enforcement priorities.With this will come a better allocation of resources vessels, staff and equipment and hence a more meaningful, energised response. In the past fifteen years, it hasbecome evident that when governments respond to piracy with determination, theattacks come down almost immediately.

Shipping and underwriting businesses also need to understand the restrictions in dealing with piracy and the options available. A crime which often transcendsterritorial waters, involves a potential risk to the environment and of injury anddeath to crew members in countries where maritime law enforcement is weak,poses special challenges.

Ships trade from one part of the world to another. Attacks against ships in thecurrent hotspots in Southeast Asia, Somalia, Bangladesh, and West Africa, all havetheir own unique features, driven largely by local political and economicconditions. Solutions have to be tailored to these specific circumstances, againstthe backcloth of international conventions and standards.

Towards these objectives, this publication fulfils a vital need. It is a comprehensivestudy of modern piracy. It looks at the types of attacks, the statistics, the high riskareas, how underwriters look at piracy, the legal framework, and issues ofresponse.

The IMB is delighted to assist in launching this publication on its 25th Anniversary.I recommend it to all those seeking answers to this scourge. We may never elimin-ate it, but with relevant, timely information determining the right strategies, wecan keep it down to acceptable levels.

Cpt. Pottengal MukundanDirectorICC international Maritime Bureau22 September 2006


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IntroductionPage 7

History of piracy Page 10

Antiquity and the Roman EmpirePage 10

The Victual BrothersPage 11

16th to 19th centuriesPage 11

Piracy todayPage 14

Forms of modern piracyPage 14

New trendsPage 15

Facts and figuresPage 17

Contents

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Munich Re, Piracy Threat at sea Contents

Legal situationPage 24

United Nations Convention on theLaw of the Sea of 1982 (1982 Convention)Page 24

Convention for the Suppression ofUnlawful Acts Against the Safety ofMaritime Navigation of 1988 (SUA Convention)Page 27

National jurisdictionPage 28

Definition of piracy by the IMBPage 30

Insurance aspectsPage 34

New risk assessment for particularlyhigh-risk regionsPage 34

Marginal chances of obtainingrecoursePage 34

Lines of business affectedPage 34

Financial burden for the insurancesectorPage 37

Measures in the fight against piracyPage 40

Greater international cooperationPage 40

Technical developmentsPage 41

Codes of conductPage 43

Service and training offered by theIMBPage 43

Risk management: An important toolagainst piracyPage 44

Measures for a safe future at seaPage 45

AnnexPage 48

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Pirates the very word conjures up visions of rogues withpeg legs and eye patches, swinging cutlasses under a blackskull-and-crossbones flag, red corsairs heading a bravecrew in the battle against evil, and all those famous heroesfrom adventure novels and films. But these only playedbrief minor roles in the long history of piracy. Armed rob-bery against ships is as old as maritime navigation itselfand like commerce, transport, and political conditions has evolved and developed over the centuries. Even today,the risk of pirate attack remains ever-present for shippingcompanies, crews, cargo owners, and marine insurers.

The act of piracy ranges from simple armed attack throughinternationally organised crime to acts of terrorism. Hun-dreds of such crimes are committed worldwide every year yet it remains difficult to prevent or solve them andto adjust the associated losses. The most common reasonlies in the legal situation, which differs from one country tothe next. An international consensus in the fight againstcrime is only slowly being established.

Munich Re not only gathers information on every possiblerisk aspect related to shipping: as a marine reinsurer with a worldwide network of operations, we are often directlyaffected by losses from acts of piracy. Although theselosses are relatively small in relation to the total volume of ocean transports, international world trade which isgrowing at a rate of roughly 8% per year and mostly takesplace at sea requires the same effective security andprotection as civil aviation.

For example, a new Airbus A 380 has an insured hull valueof between US$ 250m and 300m. Add to that the personalinjuries and possible losses on the ground if such an air-craft were to be involved in an accident. A container vesselof the latest generation, by comparison, has a hull value of around US$ 150m while the cargo is worth betweenroughly US$ 800m and 1bn. This figure similarly does notinclude the possible claims for damages by members ofthe crew and the possible losses caused by a ship with thebridge left unmanned after an attack.

The shipowners and cargo owners themselves are usuallyinsured against pirate attacks. It is far more difficult for theinsurers to reduce the incurred loss. Efforts to combat andpunish piracy as a crime are frequently nipped in the budby legal loopholes, inadequate cross-border cooperation,and the lack of political will in some places. Action is stillurgently needed, although the situation is improvingnoticeably.

This brochure outlines the current threat to shipping frompiracy and explores the reasons that make it so difficult to prosecute this crime. For insurers, it contains a compre-hensive presentation of the risk situation and a catalogueof measures with which they can avert modern piracy andcombat it more effectively.

Introduction

1880: Pirates attack a merchant vessel.I need know no navigation:war, trade and piracy an inseparable trinity.Mephistopheles in Goethes Faust


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Antiquity and the Roman Empire

In Greek mythology, piracy was considered a professionlike hunting and fishing and was closely linked with theslave trade, for serfs were particularly coveted as booty in addition to the usual merchandise. Then as now, thosestates which engaged in maritime trade sought to protecttheir ships against pirate attack and signed treaties withtheir neighbours, for example. The only really successfuloption, however, was to deploy their naval forces. Suchwas also the case in ancient Rome 70 BC: pirates hadseized control of important sea routes supplying theRoman Empire. Famine threatened Rome, and a militaryconfrontation appeared to be its last chance. An armada of 500 warships destroyed more than 1,700 pirate ships.The supply of provisions and pax maritima (maritimepeace) were restored.

History of piracy

Copper engraving from 1820: Evenwhen taken captive by pirates,Julius Caesar continues to issueorders.

Ancient Greek mosaic: Dionysos turns piratesinto dolphins.

Julius Caesar kidnapped by pirates

Julius Caesar was kidnapped by pirates during a journeyin 74 and 75 BC. Plutarch wrote: They demanded a ran-som of 20 talents from him, but he laughed at them,saying they had no idea whom they had kidnapped, andpromised to pay 50 instead. Caesar ordered his men tobring the ransom money. When the 50 talents had beenpaid, Caesar was taken ashore and released. He lost notime in punishing his kidnappers and personally crucifiedthem.

Piracy is as old as the history of seafaring itself and is still a serious risk both for shipping and for ocean marine insurers today.

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Munich Re, Piracy Threat at sea History of piracy

The Victual Brothers

Sweden and Denmark were at war from 1389 until 1392.Noblemen from Mecklenburg fought on the side ofSweden and seized ships for them. During wars at sea,privateering was in those days a right of capture at sea,legitimated by the sovereign. The men from Mecklenburghired a group of freebooters known as the Victual Brothersto assist them. Even after the war was over and peace hadbeen signed, they continued their raids and were widelyfeared as pirates with their slogan Gods friends and thewhole worlds enemies. It was several decades beforethey were conquered by the Hanseatic League. One of thebest known leaders of the Victual Brothers was KlausStrtebeker, who was captured and executed by Hanseaticforces in 1401.

16th to 19th centuries

Piracy experienced another great era during the age ofdiscovery and conquest, as Portugal, Spain, and Englandextended their territories to other continents. Maritimetrade flourished on the worlds oceans and the piratesscented rich booty. They did not always act on their ownbehalf, however, for the feudal powers legalised their raidsin order to capture their own share of the New Worldsriches and to protect their own ships against attack.

The Barbary pirates or corsairs wrote another importantchapter in the history of piracy. They operated out of theBarbary coast of Northwest Africa and were known as thescourge of all merchant ships in the Mediterranean.They were authorised by their states and waged a fiercepirate war on all Mediterranean countries from the 16thcentury until well into the 19th century. Many countrieswere defenceless against their violence and paid protec-tion money. The success of the Barbary pirates is a primeexample of the obstacles encountered in combating piracyeven today: for a long time, conflicting interests of thecountries concerned made it impossible to launch a jointoffensive against the threat from Africa. It was not until1830 that the French finally conquered Algiers and closedthe chapter of the Barbary pirates.

Although piracy lost its official legitimation when the ParisDeclaration on Maritime Rights put an end to state-author-ised privateering in 1856 and the Brussels Act finallyabolished slavery in 1890, it has nevertheless survived, asa criminal act, right up to the present day.

Illustration: Klaus Strtebekers execution in Hamburg.

Klaus Strtebeker a legendary pirate

October 1401. A merchant fleet sails from Hamburg stocked with weapons instead of merchandise. Theirintention was to eliminate the biggest enemy of merchantshipping on the North Sea coast: Klaus Strtebeker. Hehas established a base on Helgoland, setting sail when thetide is high, assailing merchant ships in the Elbe estuary,and returning to the safe haven of his island before thetide has ebbed. But his luck runs out today: the merchantsstop the pirate just off Helgoland. Battle rages almost thewhole day, but the merchant fleet proves stronger andStrtebeker is forced to surrender. Even as he is about tobe executed, this Robin Hood of the Seas continues tofight for his men, demanding the release of all those hecan walk past after being beheaded. According to legend,his body walked past eleven men before being tripped up by the executioner.

Pirates in the South China SeaEquipped with the latest weaponry ratherthan cutlasses, they comb coastal waters in fast-attack boats. Their trump card: theelement of surprise.


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The 21st century. Todays pirates use state-of-the-artweapons instead of cutlasses and canons. They combcoastal waters in high-speed boats and operate on the highseas from motherships. Surprise is the most importantelement in their raids. In many cases, they come aboarddisguised as coast guards or harbour police. Modernpirates operate both in ports and on the open sea. Theircrimes range from simple theft to stealing entire ships andmurder.

Forms of modern piracy

The International Chamber of Shipping (ICS) classifiespirate attacks into three basic categories:

1. Low-Level Armed Robbery (LLAR)

An attack with the intention of stealing, usually undercover of darkness. The culprits take whatever they cancarry from the deck and the hold. Violence only occurswhen the crew tries to stop them.

2. Medium-Level Armed Assault and Robbery (MLAAR)

Armed assault with violence or threats of violence. Thepirates usually come on board unnoticed and force thecrew to hand over their cash and valuables. Cargo is alsostolen if possible. Each raid is over in less than an hour.The financial loss is usually in the order of betweenUS$ 10,000 and 20,000.

3. Major Criminal Hijack (MCHJ)

Carefully planned theft of the entire cargo. The piratesknow every detail of the cargo and the ships stowage plan.While some of the attackers hold the crew captive belowdeck, others transfer the cargo to another ship. When theraid is over, the ship drifts in the ocean with the bridgeunmanned. This type of attack usually results in a double-digit million dollar loss.

Piracy today

469 merchant ships were assailed in 2000 five times as many as in 1994. Although the number of incidents declined for a shorttime in the wake of 11 September 2001 and the tsunami disasterin December 2004, the threat remains. Kidnapping at sea, forexample, is increasing continuously, as is global terrorism.

Indonesian pirates use bamboo sticks to make boathooks.

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Munich Re, Piracy Threat at sea Piracy today

In the worst case, the entire ship is hijacked along with itscargo, with organised gangs operating to order in somecases. The crew is marooned at sea or killed and the cargotransferred to another vessel or discharged illegally in aport other than the original destination. The ship is re-registered in a foreign port, given a new name, a new flag,and a new coat of paint. It is then supplied with false papersand loaded with goods which will never reach their ori-ginal port of destination. These so-called phantom shipshave been a familiar phenomenon since the 1980s, espe-cially in Southeast Asia. Organised crime operates hand-in-hand with corrupt officials in local authorities: withoutbribery, it would be almost impossible to obtain falsepapers and sell the cargo.

ISPS Code (International Ships and Port Facility Security Code)

High hopes of successfully combating this organised crimeare placed in the ISPS Code, which was developed in thefight against terrorism. Until now, it has been relativelyeasy to operate a phantom ship with false papers and cer-tificates and to sail into ports unrecognised. However, theregulations and requirements of the ISPS Code make itextremely difficult for a phantom ship to remain unnoticed.It is not enough simply to have false ISPS papers and cer-tificates on board, as the ISPS certification is additionallyregistered in databases like Seasearcher or Equasis. Thisentry is based on information provided by the issuingauthority and theoretically cannot be changed. The ISPSCode also requires the vessel to have its IMO numbervisibly marked on the hull, making it more difficult for thevessel to assume a false name. The ISPS Code shouldprove to be an almost insurmountable hurdle even forwell-organised criminals.

New trends

Attacks on barges and barge trains are becoming morefrequent. Such combinations yield two major advantagesfor the attackers: they are quickly repainted and outwardlyaltered, and they usually carry goods that sell fast, such aspalm oil or sugar.

Hijacking a ship and demanding ransom for the vessel orthe kidnapped crew is another variety of modern piracy.The Somali coast is considered a particularly dangerousarea at present. One spectacular case made headline newsin June 2005, when pirates captured the MV Semlow carry-ing 850 tonnes of rice from the international food aid pro-gramme for victims of the tsunami disaster. Months later,the ship and crew were released in return for a ransom.Somalia has been without a central government and with-out a functioning legal system since 1992. Ships are there-fore generally advised to give the Somali coast a wide berth.Hijacking of vessels is also common in coastal waters ofSoutheast Asia. Further hotspots include the waters offIndonesia, Malaysia, and the Philippines.

Somalia Horn of Africa

In the political chaos prevailing in Somalia, local clansdecide what is right and what is wrong. Like a state withinthe state, they have their own laws, claim their own sov-ereign rights for their sea territories and divide thecoastal region among themselves. In groups of five toseven, heavily armed clan members ride far out to sea insmall open boats in search of booty, usually seizing ships

and demanding ransoms. The sea off the Somali coastshould therefore be avoided without fail. A safe distanceof at least two hundred nautical miles is recommended.Yet there is also hope of improvement: the new inter-national military presence and the possible inclusion ofclan leaders in the struggle against terrorism could soonput an end to piracy off the coast of Somalia.


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Attacks on yachts

Pirates have also been known to attack private yachts incertain coastal regions far from the usual commercialshipping routes. Traditionally high-risk regions include theCaribbean, Philippines, the China Sea, the Somali coast,and the Gulf of Aden. Elsewhere too, as poverty increasesin some coastal regions, there is a growing readiness toassure survival by illegal means, with the result thatattacks have also been reported off the coasts of SouthAmerica, Morocco, Mauretania, and Albania in recentyears.

It is difficult to estimate the precise number of attacksevery year. Although the International Maritime Bureau(IMB) includes sailing yachts and motor yachts in its statis-tics, other sources such as the Yacht Piracy InformationCentre for Blue Water Sailors cite much higher numbers.Experts estimate that the number of unknown cases couldbe twice as high as the number of reported cases.

Terrorism at sea

Of late, piracy has increasingly been linked with terroristattacks at sea. 80% of the worlds cargo is carried by sea. Inmost cases, it has to pass through a narrow body of water,such as the Straits of Malacca or the Suez Canal, at leastonce during its journey. Even a partial blockage of thesepassages would have a serious impact on world trade andgive rise to additional costs in the order of billions of euros.It is argued that terrorists could adopt the same methodsas pirates to seize a ship or utilise their knowledge toachieve their ends. The distinction between acts of terror-ism and piracy is relevant from a legal point of view, par-ticularly with regard to rights of pursuit and the possibilityof penal sanctions and will therefore be discussed in moredetail in the sections devoted to the legal situation. Theattackers motives are ultimately of no concern to the vic-tims. And the insurers must indemnify the loss in eithercase, insofar as corresponding covers have been agreed.

Present danger Terrorism

The Malacca Straits are 500 nautical miles long, just ninenautical miles wide at their narrowest point, and only30 metres deep in some places. It is one of the mosthighly frequented waterways in the world. A vesseltransits the Straits every ten minutes, including many oil tankers carrying 40% of the worldwide output. Almostthe entire Far Easts oil supply depends on whether or not this waterway can be transited. Any blockage due to ter-rorist attack would have a devastating effect on the worldeconomy.

Terrorists specifically exploit the western economiesdependence on oil prices. This is clear from such recentincidents as the attacks on oil wells in Basra. Followingthe attack on the French tanker Limburg in October 2002,for instance, Osama bin Laden announced further attackson the economic interests of the western industrialisednations and particularly their supply of oil.

According to the Institute for Southeast Asian Studies(ISEAS), al-Qaedas intention is to disrupt maritime tradeas the backbone of the modern global economy. If a primi-tive nuclear bomb or radioactive substances were to fallinto the hands of this terrorist network, according to theInstitute, it would use this weapon in a major port orocean strait.

According to a western intelligence source, al-Qaeda hasits own naval manual with entries showing which pointsto target on a vessel, how to attach limpet mines, how tofire rockets from a motorboat travelling at high speed andhow to transform gas tankers into floating bombs. Terror-ists are allegedly also trained to use high-speed boats,trawlers, and similar vessels packed with explosives todestroy larger vessels or oil and gas depots in ports.Apparently, the possibility of terrorists coordinating theirattacks with pirates in Southeast Asia cannot be excluded.

If the Straits of Malacca were to be blocked by a terroristattack, ships would have to make a detour of roughly1,000 miles, leading to higher freight rates and conse-quently also to higher commodity prices. Considering that 80% of Japans oil is imported from the Middle East,for example, such an attack would clearly have a signifi-cant impact on the world economy.

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Facts and figures

As with the attacks on private yachts, there are no precisefigures available on the losses in commercial shipping dueto piracy. Many of these attacks are not reported, as ship-ping companies fear their customers will lose confidencein them or because they know their countrys represen-tatives cannot help anyway. It is not uncommon for diplo-matic offices to lack both the personnel and the know-howneeded to provide professional support. Political reasonsmay also prevent them from helping and mobilising thelocal authorities.

There have also been cases in which victims reported theattacks and then became involved in other legal imbrogliosin the course of investigations or were even declared to be offenders themselves. The investigations may be verylengthy. The associated costly loss of time similarly detersmany shipping companies from reporting an attack. It istherefore difficult to state any precise figures as to thenumber of attacks. The IMB Piracy Reporting Centreassumes that 50% remain unreported.

When victims become offenders

A container ship sailing under German flag was raided inPort Harcourt (Nigeria). The pirates boarded the ship undercover of darkness as it was being unloaded. They brokeinto a 40-foot container on deck with spare parts for com-mercial vehicles and stole most of the shipment. When thecrew noticed what was happening and raised the alarm,the robbers made off in their boats and disappeared in thenearby mangrove swamps. The ships officers reported theattack to the local authorities. After checking the papers,the authorities charged the officers with having importedundeclared and uncustomed goods an offence for whicha large fine was imposed. The local authorities appearednot to display any interest in the reported robbery. So faras is known, they did not follow up the crews information,no-one was arrested, and the stolen goods were neverfound.

Heavily armed Somalian securitypersonnel guard a shipment of reliefgoods against attacks by pirates.


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Number of incidents

Between 1991 and 1994, the number remained fairly con-stant at around 100 cases per year, but then the figureincreased dramatically. The IMB lists 469 cases in 2000.The increase is no doubt partly due to the fact that the IMB,which had only been set up in 1981, was now known tomore and more shipowners and management companies,with the result that more cases were being reported. Yetthere is also a clear trend here: the figure is almost fivetimes as high as in previous years the momentary peak in a sad development. After 2000, the number of attackstemporarily declined, but there is no cause to sit back. In all probability, the temporary respite was attributable toUS military presence worldwide, the effects of the tsunamiin December 2004, and the increased number of patrols inthe Straits of Malacca.

Personal injury

The number of hijackings is rising steadily. More peoplewere taken hostage in 2005 than ever before: 453 as com-pared with 243 in 2004. Twelve hostages were still missingat the end of 2005. The number of cases of bodily injury,brutality, and murder similarly rose considerably: from10 cases in 1994 to 103 in 2004. Although the figuredeclined to 30 in 2005, there is no sign of a lasting turn-around. Apart from 2005, the incidence of violence hassteadily increased over the last ten years.

Hostages taken 2.4%

Crew threatened 4.7%

Crew maltreated 1.2%

Crew injured 2.7%

Crew missing 89%

Attacks registered in 2005

There were noinstances of deathscaused by piracy in2005. On the otherhand, there was adramatic increase in thenumber of kidnappings.

Source: IMB

Source: IMB

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0

100

200

300

400

500

Attacks and kidnappings: 19942005

Although there werefewer attacks in 2005,the number of kidnap-pings almost doubledover the previous year.

Attacks

Kidnappings

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After the tsunami: The return of the pirates

3 March 2005. For the first time since the tsunami on26 December 2004 in Southeast Asia, pirates assailed aship in the Malacca Straits. Firing machine gun rounds,they stopped a freighter carrying coal on its way to Lumutin northern Malaysia and took two hostages. Maritimeexperts had presumed that the tsunami had also destroyedthe freebooters infrastructure.

Under cover of darkness, the pirates approached thefreighter High Line 26, drawing up alongside unnoticed intheir high-speed boat. Suddenly the attackers opened fireand shot the freighters chief engineer in the leg. 50 naut-ical miles southwest of the Malaysian island Penang, theunarmed seamen finally decided to give up and stoppedthe engines. The pirates boarded the freighter in a flash.Captain and First Officer were taken hostage, and severalhours passed before the other seven crew could be res-cued by a naval ship. The trade world was shocked by thisfirst pirate attack after the tsunami tragedy.

We had hoped that the flood wave had also destroyed the pirates equipment, such as boats and weapons, yethere they are again, says Noel Choong, head of the inter-national shipping office in Kuala Lumpur. The methodused is very similar to that of earlier attacks off the coast of Sumatra. It seems that some pirate gangs have resumedtheir activities.

Source: Peter O. Walter, www.esys.org

Financial losses

The loss suffered by national economies as a result ofpiracy is difficult to estimate. The estimates presented bydifferent observers are too far apart to allow a seriousstatement. Besides, the basis underlying the figures is veryrarely cited. We do not wish to share or add to such specu-lation and will therefore abstain from giving an estimate ofour own here. At first glance, the overall loss attributableto piracy appears slight in relation to the total value ofgoods transported by sea. If we take a closer look at indi-vidual cases, however, we will see that the losses involvedcertainly constitute a considerable financial risk. In 1998,for example, the reputed average loss per reported attackwas in the order of 50,000. This figure also includesopportunistic spontaneous attacks. If the cargo or even theentire vessel disappears, the loss can easily reach tens orhundreds of millions of dollars. The direct losses due torobbery and ransom payments are aggravated by indirectlosses, such as loss of hire, contractual penalties due todelayed delivery, additional pay for sailors, higher insur-ance premiums, or costs incurred in the fight againstpiracy. In addition, pirate attacks also entail the risk ofenvironmental disaster, such as if an oil tanker is left tosteam on at full speed with the bridge unmanned after apirate attack and then collides with another vessel or runsaground.


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Regional distribution

80% of all registered attacks occur inside territorial waters,i.e. in coastal waters. In recent years, more than two-thirdsoccurred in the following high-risk regions: Southeast Asia,around the Indian subcontinent, in the Red Sea and Gulf ofAden region, and in the region between the Ivory Coast andGulf of Guinea. Most of the remaining attacks are concen-trated in the waters of Latin America and East Africa.

Africa

On Africas west coast, there were 27 registered attacksaltogether in 2005, including 16 in Nigeria. On the eastcoast, Somalia stands out in particular, with 35 out of 42 attacks in 2005 alone compared to two reported attacks in 2004.

India and Bangladesh

A growing number of attacks have been reported in Indiaand Bangladesh in recent years. Following the dramaticrise to 55 acts of violence in Bangladesh and 35 in India in2000, the IMB has called on the authorities to take action inBangladesh. Increased coast guard and navy patrols werepromised, but the situation has hardly changed. In 2005,the highest number of attacks inside a port area anywherein the world was recorded off Chittagong, the largest seaport in Bangladesh, with the sad trend continuing in thefirst six months of 2006.

Indonesia

With almost one-third of all incidents, Indonesia continuesto head the list of attacks worldwide.1 The reasons essen-tially lie in the geographical conditions and tense politicaland economic situation. Pirates can easily let smallerbarges and vessels disappear in the myriad of Indonesianislands and sell the stolen goods without undue risk onlocal markets.

SPAINPORTUGAL TURKEY

GREECE

KENYA

ETHIOPIA

ERITREA

SUDAN

EGYPT

NIGER

MAURITANIA

MALI

NIGERIA

SOMALIA

NAMIBIA

LIBYA

CHAD

SOUTH AFRICA

TANZANIA

ANGOLA

ANGOLA

ALGERIA

MADAGASCAR

COMOROSMOZAMBIQUE

BOTSWANA

ZAMBIA

GABON

CENTRALAFRICANREPUBLIC

TUNISIA

MOROCCO

UGANDA

SWAZILAND

LESOTHO

MALAWI

BURUNDI

RWANDA

TOGO

BENIN

GHANA

COTED'IVOIRE

LIBERIA

SIERRA LEONE

GUINEA

BURKINA FASOGAMBIA

CAPEVERDE

CAMEROON

SAO TOME & PRINCIPE

ZIMBABWE

CONGO

DEM. REP.OF CONGO

EQUATORIAL GUINEA

WESTERNSAHARA

(occupied by Morocco)

DJIBOUTI

SENEGAL

GUINEA BISSAU

Canary Islands

JORDAN

ISRAEL

KUWAIT

QATAR

BAHRAIN

U. A. E

YEMEN

SYRIA

IRAQ

IRAN

SAUDI ARABIA

1

1

1

3 316 2

7

1

35

10

10

Pirate attacks in Africa in 2005

More pirate attacks areregistered off Somalia thananywhere else in the coastalwaters of Africa.

Source: IMB

1 ICC-IMB, Piracy and armed robbery against ships. Annual report for 2005

21


Straits of Malacca

The potential risk remains high in the Straits of Malacca,although the number of attacks has declined appreciablysince Indonesia and Malaysia stepped up their coast guardpatrols in this narrow body of water. Gurita 2005, a large-scale exercise by the Indonesian navy with pin-pointed air-borne surveillance in July 2005, also had a positive side-effect, with the number of raids declining from 38 in 2004to 12 in 2005.

South China

Chinas immense demand for raw materials and consumergoods made the countrys southern part an ideal locationin the 1990s, especially for phantom ships. Corrupt localofficials aided the sale of stolen goods. However, thephantom ships have been more or less without a chancesince Chinas central government launched its major initia-tive to contain corruption.

Reasons for the regional increase in piracy

Where piracy is concerned, regional growth trends arealways directly related to economic crises and inadequatelegal and security systems. Somalia is one recent example.When the Barre regime was deposed in the early 1990s, thestate lost control of its own coastal waters. Trawlers fromother countries were able to fish in Somali waters unhin-dered, jeopardising the livelihood of local fishermen andleading to violent disputes. The local fishermen were moreor less defenceless against the large foreign trawlers andincreasingly turned to piracy to safeguard their own sur-vival. This battle still continues, accompanied by the power struggle between the warlords, which has now been extended to the sea. The warlords are using thepower vacuum in Somalia for their own private attacks onships, above all with the intention of demanding ransoms.

KYRGYZSTAN

TAJIKISTAN

AFGHANISTAN

PAKISTAN

INDIA

C H I N A

KAZAKHSTAN

NISTAN

UZBEKISTAN

MYANMAR

THAILAND

CAMBODIA

NEPALBHUTAN

VIETNAM

SRI LANKA

LAOS

BANGLADESH

MALAYSIAMALAYSIA

BRUNEI

SINGAPORE

PHILIPPINES

TAIWAN

I N D O N

I N D O N E S I A

JAPAN

MONGOLIA SOUTHKOREA

NORTHKOREA

EASTTIMO

Pirate attacks in Asia in 2005

Indonesia still has the high-est rate of attacks not only inAsia but throughout theworld.

Source: IMB

5

2

2

5

1

21

12

1

7

3

10

6

4

79

Hijacked, destroyed by fire, sunkThe hijacking of the Achille Lauro in 1985 leadsto the SUA Convention, which is signed inRome on 10 March 1988. In 1994, the vesselcatches fire and sinks in the Indian Ocean.


24

The complexity of an individual case often makes criminalprosecution and loss adjustment difficult. What kind ofpiracy is involved? Where did the attack occur? Whichcountry is investigating the case? Which law applies? Timeand time again, numerous ambiguities create legal vac-uums which let the pirates get away scot-free. The insur-ance company which has to indemnify the loss often facesthe problem of asserting rights of recourse. It is thereforein the best interests of the insurance sector to combat andprosecute cases of piracy. The first step towards this end isto clarify the legal situation. In piracy cases, a distinction ismade between international law, national penal law, andcivil law; in addition, every legal system has its own defin-ition of the act of piracy.

United Nations Convention on the Law ofthe Sea of 1982 (1982 Convention)

The term piracy was defined by the Geneva Conventionon the High Seas in 1958. This definition was adopted bythe 1982 Convention. By 31 January 2005, the Conventionhad been signed by 157 states and ratified by 148.

Definition of piracy according to the 1982 Convention

For acts of violence against ships, persons, or property onboard to be classified as piracy in accordance with Articles101 and 102 of the 1982 Convention, the following condi-tions must all be met simultaneously:

The act of violence must be

committed by the crew or passengers of another vessel,

illegal and serve private purposes,

and it must be committed on the high seas or at a placenot subject to state sovereignty.

Article 101 of the 1982 Convention defines the act of piracyvery narrowly. Politically motivated acts, such as terroristattacks, are not included according to the 1982 Convention.

The definition is unclear on the meaning of the word il-legal. It is left to the courts of the prosecuting countries to decide whether the act is to be designated illegalaccording to international law or according to the nationallaw of the prosecuting countries.

Right of intervention against piracy

When an act of piracy has been established, the next stepis to clarify the action to which the countries concerned are entitled. This is governed by the principle of freedomof navigation as a basic element of maritime law. Accord-ing to this principle, which has applied in maritime law fora long time, all states are entitled to allow ships to sail thehigh seas under their flag. Article 92 of the 1982 Conven-tion specifies that the state whose colours are being flown,i.e. the flag state, also exercises exclusive sovereignty overits vessels, and only that state has the power to imposeand enforce laws. The possibility of intervention by thirdparties is excluded as a matter of principle, althoughexceptions are possible:

Exception permitted by Article 110 of the 1982 ConventionThis exception grants warships the right to stop othervessels for the purpose of verifying their right to fly aflag. However, this is not a general right. It must be basedon certain reasons, such as the suspicion of piracy, slavetrading, or statelessness. The warship may send a so-called boarding team on board the stopped vessel inorder to verify its right to fly the flag. The vessel may besearched if the suspicion is confirmed after inspectingthe ships papers (Article 110, paragraph 2, 1982 Conven-tion). When exercising this right, however, the command-ing officers must remember that, if the suspicion provesto be unfounded, Article 110, paragraph 3 of the 1982Convention stipulates that the shipping company bereimbursed for all losses incurred.

Legal situation

Case example: A vessel flying a Panamanian flag is carrying ashipment from Japan. The cargo is insured in Germany, the crewcomes from the Philippines and the Netherlands. The vessel hasbeen boarded on the high seas by Indonesian pirates. Which lawapplies?

25

Munich Re, Piracy Threat at sea Legal situation

Exception permitted by Article 105 of the 1982 Convention According to the first sentence of Article 105 of the 1982Convention, every state may take action against pirates(arrest and seizure) at any time in international waters (= high seas and waters not controlled by any state). Thesecond sentence of Article 105 states that the courts ofthe state which has seized the vessel (i.e. whose coloursare being flown) can also decide on the penalties to beimposed and on the action to be taken with regard to thevessel or property. The decisive point is that all states areentitled to take action against pirates, and not only thosein which the acts of violence take place. This makes it clearthat pirates are considered to be enemies regardless oftheir nationality and that all enforcement mechanismsare based on the so-called principle of universality. At thesame time, Article 105 of the 1982 Convention specifiesthat a pirate ship cannot be pursued further once it hasreached national waters.

Article 107 of the 1982 Convention, however, restricts theright of such intervention in international waters towarships or other ships which are clearly marked andidentifiable as being on government service and areauthorized to that effect.

Exception: consent of the flag stateNormally, the unauthorised intervention of a foreignstate violates the sovereignty of the flag state, but thisviolation can be negated with the consent of the stateconcerned, provided that the act was committed on thehigh seas or at a place not under state sovereignty.However, this also means that there is no legal founda-tion for taking action against piracy other than on thehigh seas.

Indonesian naval officers handover suspected pirates to theauthorities in the port of Jakarta.


26

Article 38 of the 1982 Convention guarantees all states theright of transit passage in narrow bodies of water or straits.When exercising this right, the vessels must refrain fromany threat or use of force against the sovereignty, territor-ial integrity or political independence of a state borderingthe strait (Article 39, paragraph 1b, 1982 Convention). Thismeans that a foreign warship cannot take action againstpirates in coastal waters without the consent of the coastalstate. Any intervention depends on the existence of corres-ponding bilateral or multilateral treaties.

Criminal prosecution

Although a pirate attack constitutes a crime according tonormal understanding, it cannot simply be prosecuted bythe community of states. A specific legal basis is needed inorder to exercise criminal jurisdiction. Such a basis couldarise from Articles 100 to 107 of the 1982 Convention. How-ever, they only authorise the community of states to takepolice action at sea. Article 105 of the 1982 Conventionallows offenders to be punished, but only grants this rightto the state which seized the vessel [] and not to thecommunity of states as such. One major disadvantage ofthe 1982 Convention is that it does not give rise to anydirect penal sanctions. Article 100 merely empowers thestates to issue the required penal standards, with the resultthat the punishability of a crime depends solely on whetheror not a corresponding national legal standard exists.Munich Re believes that this defective legal situation shouldbe made the subject of discussion on an internationallevel.

Summary

Articles 100 to 107 of the 1982 Convention merely allow thecommunity of states to take police action at sea but not toprosecute offences. On the high seas, this right is reservedfor the individual states and based on their national law.

The 1982 Convention in itself is not sufficient to ensureadequate protection against piracy. Since the offence isrestricted to the high seas, many cases do not qualify aspiracy, for some 80% of all attacks occur in territorial watersand in ports. A further shortcoming of the 1982 Conventionis that an attack only qualifies as piracy according to theConventions own definition if it is committed for privatepurposes. The rights of intervention granted by the 1982Convention therefore do not encompass the growingnumber of terrorist acts.

Furthermore, Article 100 of the 1982 Convention obligesthe states to work together in the fight against piracy. That,however, does not mean that the states are under any obli-gation to incorporate standards penalising piracy in theirlegal systems.

Malaysian police boats are con-stantly on patrol in the Straits ofMalacca.

27


Convention for the Suppression of UnlawfulActs Against the Safety of MaritimeNavigation of 1988 (SUA Convention)

The purpose of the SUA Convention was to fill the loop-holes of the 1982 Convention. The Convention for theSuppression of Unlawful Acts Against the Safety ofMaritime Navigation was signed in Rome on 10 March1988 and was prompted by the Achille Lauro incident in1985. Members of the Palestine Liberation Organisationhad seized the Italian liner and held the passengershostage. One passenger was killed. At this moment itbecame clear that the international rulings in force werenot sufficient.

It is interesting to note that the Convention is based on aninitiative by Austria, Egypt, and Italy, none of which can beconsidered a leader in maritime navigation. By 30 April2006, 135 states had acceded to the SUA Convention,including China, India, Japan, Korea, Vietnam, and Nigeria.Important coastal states, such as Indonesia, Malaysia, thePhilippines, Singapore, Thailand, and Somalia are stillmissing, however.

Definition of piracy according to the SUA Convention

While the first two Articles of the SUA Convention aredevoted to the scope and definition of a vessel, Article 3and the following articles are concerned with the definitionand response to illegal actions against maritime naviga-tion. Among other things, illegal actions include the unlaw-ful seizure of vessels, the attachment of materials to orinstallation of materials in vessels which could lead todamage or destruction of the vessel in question, and thekilling of persons on board. Consequently, the SUAConvention, unlike the 1982 Convention, mainly relates topolitically motivated terrorist acts. But it can also beapplied to acts of piracy.

In addition, it covers a significantly larger geographical ter-ritory than the 1982 Convention. According to Article 4 ofthe SUA Convention, the vessel can be at sea anywhere atthe time of the illegal act on the high seas, in the exclu-sive economic zone, in coastal waters and also on inlandwaterways. However, the vessel must be in internationaltransit at the time of the illegal act, i.e. it must have comefrom a foreign territory or from the high seas or it must bepassing through or heading for such areas at the time ofthe illegal act. A loophole arises if the vessels only transitthe territorial waters of one state but that loophole couldbe filled by national laws.

Right of intervention permitted by the SUA Convention

Unlike the 1982 Convention, the SUA Convention does notgrant any powers to take action against pirates and avertpirate attacks. Only the flag state (under the so-called flagstate principle) and the state whose coastal waters arebeing transited by foreign vessels (territoriality principle)or whose citizens commit the offence (personality prin-ciple) have the right to take such action. According to Art-icle 9 of the SUA Convention, however, rulings in inter-national law remain unaffected, with the result that policeaction by foreign states can be based on these rulings if anact of piracy as defined by Article 105 of the 1982 Conven-tion has been committed. This means that the SUA Con-vention, like the 1982 Convention, does not provide stateswith any right to pursue offenders in the territorial watersof other states.

Criminal prosecution

Unlike the 1982 Convention, however, the SUA Conventiondoes provide a legal foundation for the prosecution ofpirates. Article 7, paragraph 1, SUA Convention obliges thetreaty states to detain suspected persons in their territoryor to take other measures to prevent their escape. Thisapplies until criminal proceedings or extradition proceed-ings are instituted. In addition, Article 7, paragraph 2, SUAConvention requires that a provisional investigation bemade immediately to establish the facts. Article 10 of theSUA Convention obliges the member states to extraditeand prosecute the offenders. The specific details andprosecution procedure, however, remain a matter for thenational law of the country concerned. Whether or notoffenders receive due punishment therefore remains anopen question.

Summary

Although not all the loopholes of the 1982 Conventionhave been filled, the SUA Convention does constitute afurther step towards repressing violence at sea. It compelsstates to make more efficient use of national legal stand-ards. The signatories must exercise jurisdiction against allsuspected offenders or extradite them. Unfortunately,however, this still does not mean that the offenders willalso be punished.


28

National jurisdiction

National law ultimately plays an important supplementarypart in the fight against piracy, for it is

the only statutory basis for vessels which have beenattacked and which only transit the territorial waters ofone state, and

the only statutory basis for criminal prosecution wheninternational law does not permit criminal prosecution(1982 Convention) or international law refers to nationallaw (SUA Convention).

Points of contact for international prosecution

Since piracy is usually an incident extending beyondnational borders, it is not always clear exactly whichnational legal system should be applied. For example: a vessel flying a Panamanian flag is carrying a shipmentfrom Japan. The cargo is insured in Germany, the crewcomes from the Philippines and the Netherlands. Thevessel has been boarded on the high seas by Indonesianpirates. Which law applies?

Territoriality principle

Points of contact are sought in international penal law inorder to determine which national law applies here. Theterritoriality principle is the most important point of con-tact. According to this principle, a state can judge alloffences which are committed in the country according toits own domestic penal law regardless of the nationality ofthe offender or victim.

In terms of maritime law, the country includes its inlandwaterways, coastal and archipelagic waters, the continen-tal shelf, and, for economic purposes, the exclusive eco-nomic zone (EEZ). If there is a collision between differentlegal systems, the place at which the act was committed(scene of the offence) and not the place where the damageoccurred (place of damage) is decisive for the territorialallocation.

Flag state principle

According to the flag state principle, all acts committed onboard a ship are subject to the penal law of the countrywhose flag is flown by the vessel concerned. This meetsthe demand for security on board. If the vessel is in foreignterritorial waters, the criminal jurisdiction of the state con-cerned ranks alongside that of the flag state, with prioritynormally being given to the territoriality principle.

Coastal area, territorial waters, andexclusive economic zone (EEC). Whenterritorial waters overlap in borderareas, they belong to each of the neigh-bouring countries in equal shares.

Source: Munich Re

* 1 nautical mile (nm) = 1.852 km

Country X

12 nm*

6 nm

Coastal area, territorial waters

Exclusive economic zone

High seas

200 nm

Country Y

Diagram of international maritime boundaries based on a fictive coastal region.

Active personality principle

This principle applies when a state also prosecutes actionscommitted by its citizens in other countries. It conse-quently encompasses all actions by seamen, regardless ofwhether they are committed on board vessels flying for-eign colours, on the high seas, or in foreign waters. Thismakes it impossible for offenders to evade prosecution byfleeing to their home country.

Passive personality principle

Action according to the passive personality principlemeans that a state prosecutes acts committed against itscitizens in another country. The principle has long beendisputed, especially in Anglo-American law, but is recog-nised by German penal law. According to current courtrulings, the territoriality principle and the active personal-ity principle take precedence in cases involving collisionsat sea.

Principle of vicarious criminal justice

The principle of vicarious criminal justice means that thedomestic power of sentence must be applied whereverlegal or factual reasons prevent the foreign criminal justicewhich should actually apply from enforcing its right topunish. Many international conventions against particu-larly dangerous crimes are based on this principle. Itensures that criminals cannot escape criminal liability bymoving to another country.

Universality principle

The universality principle or principle of worldwide uni-form law, as it is also known, protects legal interests ofcommon international importance. It is based on the or-iginal right of every state to prosecute certain crimes whichare equally dangerous for all states. However, this principleonly applies if none of the other principles outlined abovecan be applied. In most cases, it concerns rights which arerecognised by international conventions or common inter-national law, such as the 1982 Convention.

Answer to our case example

In the case outlined above, the ship was boarded on thehigh seas. The territoriality principle therefore does notapply, as the act was not committed in territorial waters.According to the flag state principle, Panamanian lawwould apply, as the ship is flying Panamanian colours.However, the active personality principle takes precedenceover the flag state principle. Since the pirates are Indones-ian citizens, Indonesian law must be applied. The crewsPhilippine and Dutch citizenship is irrelevant, as it merelydetermines the law which would apply according to thepassive personality principle, but that is subordinate to theactive personality principle. Indonesian law consequentlyapplies on the basis of the active personality principle.

No punishment despite definition of the law

Even if national law applies, this does not mean that theoffence will also be punished. Indeed, this is the greatestshortcoming in the international network of laws to com-bat piracy. National penal laws are exceedingly diverse.Some penal codes demand that a whole variety of condi-tions be met for an offence to qualify as an act of piracy.Others do not even mention piracy. In the latter case, suchoffences as robbery, bodily injury, or murder must beapplied. Such substantive shortcomings are often sup-plemented by procedural shortcomings, with the resultthat offenders cannot be arrested, extradited, or taken tocourt even if the constituent elements have been met asdefined. Lack of interest in criminal prosecution is notuncommonly the reason behind such shortcomings. Inaddition, the security and enforcement authorities lack the necessary personnel and financial resources in somecountries. Offenders exploit these circumstances by oper-ating in the territory of such states or by escaping to suchstates after the offence (hit-rob-run tactics).

29


Legal situation at a glance

Prosecution

Judicial punishment

On the high seas

1982 Convention, Art. 105, 107, 110

National law/SUA Convention

The SUA Convention obliges thetreaty states to take judicial actionin accordance with national law.

National waters,international transit

National law

National law/SUA Convention

The SUA Convention obliges thetreaty states to take judicial actionin accordance with national law.

National waters,national transit

National law

National law


30

Definition of piracy by the IMB

When the IMB began compiling statistics in 1991, it wasclear that the only definition of piracy then, Art.101 of the1982 Convention, did not reflect the types of attacks againstvessels, particularly the majority of attacks which tookplace in territorial waters. For the purpose of compiling thestatistics, the IMB formulated its own definition of piracyas given below. This loophole in defining attacks againstvessels was formally closed when the IMO in 2000, in itscircular MSC/Circ. 984 art. 2.2. (the Code of Practice),defined Armed Robbery against Ships, also given below.

Now the phrase Piracy and armed robbery against shipscovers the range of attacks which take place today and is inline with the IMB definition of piracy, against which statis-tics have been compiled since 1991.

The IMBs objectives in drawing up this definition arehighly pragmatic, for it is not primarily concerned with aformal legal definition, but quite rightly with ways andmeans of effectively registering and combating modernacts of piracy.

Civil-law definition of piracy in insurance law

According to specialist literature, there is no separatedefinition of piracy in insurance law. Instead, reference ismade to both the IMB definition and the definition in the1982 Convention or corresponding national regulations.

However, piracy has a much larger geographical scope interms of insurance law than in terms of penal law. It is suf-ficient for the act to be at or on the sea. There is no territor-ial or national limitation. Consequently, an attack in a portor an inland waterway can also qualify as an act of piracyaccording to insurance law.

The only criteria to be met are the use and/or threat of forcebefore or during the act. In addition to that, the piratesmotives must be of a private nature, as specified in the1982 Convention. From the insurers viewpoint, therefore,terrorist acts of violence do not qualify as piracy.

Port attack Insurer must pay

Ruling of the Singapore High Court in Bayswater CarriersPte Ltd vs. QBE Insurance (International) Pte. Ltd, 2005:

A tug was attacked and subsequently abducted in anIndonesian port. The insurer refused to indemnify theloss, claiming that, according to the letter of the law,piracy is only possible on the high seas and not in a port.The court found in favour of the policyholder: it is notessential for the attack to take place on the high seas inorder to qualify as piracy. Attacks in port are also coveredby piracy insurance.

Singapores Police Coast Guard hasrecently begun patrolling the coastin new hi-tech boats.

Piracy (IMB definition)

An act of boarding any vessel with the intent to committheft or any other crime and with the intent or capability touse force in the furtherance of that act.

Armed robbery (IMO* definition)

Any unlawful act of violence or detention or any act ofdepredation, threat thereof, other than an act of piracy,directed against a ship or against persons or property onboard such ships, within a states jurisdiction over suchoffences.

* IMO (International Maritime Organisation): Specialised UN agencyresponsible for safety and security at sea and the prevention of marinepollution from ships.

31


Conclusion and solutions

The various conventions are an attempt to find the goldenmean: they prescribe a universal administration of justicewithout at the same time obliging the individual states toadapt their own legislation. This was accepted by thestates, because they view piracy as a general threat andbecause pirates do not act on behalf of any state whichcould then be held liable for its actions.

The current debate is doubtlessly important, but we mustnot lose sight of the primary objective, namely the activefight against piracy. For both victims and insurers, it isirrelevant whether the attack occurred in territorial watersor on the high seas and whether it was motivated by pri-vate or terrorist reasons. In the event, both are primarilyinterested in effective means for restitution.

Littoral states must cooperate more closely, if piracy is tobe fought effectively. For instance, the attacked state couldresort to the Law of Nations and demand from its neigh-bours that they prosecute the crime jointly.

Unfortunately, it is still a sad fact that some states toleratepiracy and the sale of stolen vessels or are even directlyinvolved in such transactions. These states must be calledto account for their actions. Shipping companies transitingsuch waters could additionally seek diplomatic protectionfrom their home countries. Neither this right nor the rightto support from coastal states has been adequately exer-cised or called upon to date.

A successful battle against piracy on an international levelcan only be based on the multinational development of a uniform legal model. A draft has been prepared by theComit Maritime International:

Model International Law concerning Piracy and Acts ofMaritime Violence (2001)

The commitment to fight piracy on a multinational levelmeans that legal systems must be amended on thenational level. Unfortunately, only a handful of states haveamended their laws to date. For this reason, the ComitMaritime International (CMI) and relevant interest groupshave drafted a model anti-piracy law. Once perceived as a universally accepted model law, it is intended to pro-vide the individual states with a basis for adapting theirnational legislation. In addition to piracy, the proposalalso refers to a new type of crime: maritime violence,which includes terrorist attacks at sea. Its aim is to fill theloopholes left by the 1982 Convention and to allow allforms of maritime violence to be prosecuted and punishedby one or more states. We wholeheartedly support suchproposals, for it is on the national level that we see thegreatest need for action.

The Trilateral Coordinated Patrol was launchedby top military officials of Indonesia, Singapore,and Malaysia with the goal of patrolling theStraits of Malacca.

Lloyds of London, Underwriting RoomThe international insurance industry is respondingto the increasing risk of piracy with new coverageconcepts and is actively involved in the preventionand prosecution of pirate attacks.


34

Victims and claimants in acts of piracy are the crew, theshipping company and owners of the vessel, the partieswith an interest in the goods carried, and the insurers. Forthe shipping companies, shipowners, and parties with aninterest in the goods carried, the loss appears slight at firstglance for they are indemnified by the insurers. If suchincidents become more frequent, however, the insurancepremiums will inevitably increase.

New risk assessment for particularly high-risk regions

A number of insurance markets have just recentlyreassessed the aggravated risk situation in some problem-atical regions. At the prompting of the London market inresponse to recent events, a number of regions includingthe Malacca Straits were reclassified in summer 2005 as enhanced risk areas. This risk assessment makes it pos-sible for hull war insurers to exclude transits throughparticularly high-risk regions from the standard hull warcover and to provide cover for these particular transits onlyin return for higher premiums. In order to counter thisadditional burden, the strong lobby of affected shippingcompanies turned to the littoral states, demanding bettercontrol and an improvement in the risk situation. The strat-egy is bearing fruit in the form of more frequent patrolsand closer cooperation between neighbouring countries.

As a consequence, the Malacca Straits have shown animprovement with only three attacks in the first six monthsof 2006 compared with eight for the same period in 2005.In view of this development, some insurance markets, suchas Lloyds of London, announced in August 2006 that theywould reverse their previous decision and delete theMalacca Straits from the list of enhanced risk areas. Forshipowners, this means that they will no longer have topay enhanced risk premiums for transits through thesewaters.

Marginal chances of obtaining recourse

To return to the victims. As already mentioned, the losssuffered by the shipping company and the parties with aninterest in the goods carried is transferred to their insurers.To minimise that loss, the insurers will seek to recover thelost cargo and, where possible, bring the offenders tocourt. In most cases, however, these efforts will be nippedin the bud by the frequently unclear legal basis for pros-ecuting criminal acts and by the associated cost. Seekingcompensation from sentenced offenders by way of recourseis often a hopeless undertaking too. In such a situation, theinsurance sector stands little chance of minimising theincurred loss and therefore pays up.

Lines of business affected

The losses attributable to piracy primarily affect marinehull, marine cargo, and protection & indemnity (P&I)insurance. Losses may also be indemnified under loss-of-hire (LoH) insurance. Most recently, special kidnap andransom covers have also been offered to shipowners.

Although the coverage concepts are essentially the samein the various insurance markets, the definition of theinsured perils and the design of the terms and conditionsvary considerably, depending on the country and type ofpolicy concerned. For this reason, we will concentrate onthe English terms and conditions of marine insurancewhen describing the lines of business affected. The Englishmarine insurance market especially the Lloyds market plays a leading role worldwide: the majority of nationaland local marine insurance conditions are very stronglybased on English marine insurance law.

Insurance aspects

The growing number of pirate attacks leads to higher insurancepremiums especially for marine business in high-risk regions.For this reason, the insurance sector responds to different risksituations with adequately adapted or new covers and activelysupports loss prevention and legislative anti-piracy measures.

35

Munich Re, Piracy Threat at sea Insurance aspects

Marine hull insurance

Claims may arise from the total loss of a vessel due to theft or scuttling or damage incurred during an attack or in pursuit of the seized vessel.

Until 1937, piracy was one of the named insured perils inthe combined Lloyds hull and cargo policy (Lloyds SGPolicy). As a result of numerous indemnifiable events dur-ing the Spanish Civil War, however, it was excluded fromstandard policies and allocated to the special terms ofinsurance for war perils. Since 1983, piracy has once againbeen one of the regular insured perils under the standardhull cover (Institute Time Clauses Hulls 1/10/83 in combin-ation with the Marine Policy Form). It was hoped that thiswould make it unnecessary to differentiate between piracyand theft, as the losses attributable to both were coveredby a single policy.

In view of the large number of pirate attacks in crisis regionsand the associated debate over state-tolerated piracy, aswell as over the possible link between piracy and globalterrorist networks, a number of new clauses were pub-lished by the relevant committee of the London market on17 October 2005. According to these clauses, such perils aspiracy, robbery, and embezzlement by crew members can

be deleted from the list of insured perils in the hull word-ings. These perils are now listed once again under thespecial war and SRCC clauses, which also include the riskof terrorism. For insurers, this means that they can nowuse the same facultative risk assessment criteria for piracyas for the perils of war or terrorism. Instead of providinginnocent cover, insurers can now assess the individual riskon the basis of the insured vessels actual trading area. The complete range of action is thus at their disposal fromcharging an individual additional premium to restricting or totally excluding individual trading areas from the coverfor war perils. For the policyholder, this does not changethe fundamental insurability of piracy as a peril. However,in those insurance markets where risk carriers specialise inmarine hull business and war and SRCC risks covers, thehull and piracy risk may now have to be placed with twodifferent insurers.

Marine cargo insurance

Claims for damages are based on loss due to robbery ordamage of the insured goods, e.g. through combat duringan attack or through unprofessional or rough handlingduring illegal transhipment or storage.

In 1999, pirates hijack the Alondra Rainbow.Some time later, the vessel reappears underthe name of Mega Rama in the Indian Ocean,where it is captured by the Indian Navy andtowed to Mumbai.


36

Prior to the introduction of all risks cover in accordancewith Institute Cargo Clauses (A) of 1 January 1982, knownas ICC (A) for short, the situation was similar to that inmarine hull insurance. Marine cargo insurance was alsowritten on the basis of the Lloyds SG Policy, with the resultthat piracy was sometimes covered under regular marineperils and sometimes under war perils. ICC (A) brought areturn to the former ruling, according to which piracy wastreated as part of the regular marine cargo cover by expli-citly exempting it from the war perils exclusion pursuant toitem 6.2. Piracy and comparable robbery offences are notincluded in the (ICC [B] and ICC [C]) named perils covers.

Regarding the ICC (A), it remains to be seen whether theEnglish marine cargo clauses committee will follow theexample of the hull war clauses committee and transfer the piracy peril back to the war cover. However, the mech-anism for steering premium income directly by chargingadditional premium for the enhanced risk attributed to agiven transit route is not so readily available to insurers.Practically all major open policies are based on annualturnover. The war risks premium is either included in theoverall turnover rate or adjusted on the basis of a lump-sum declaration for individual geographical transportrelations. On that basis, it is no longer possible for themarine cargo insurer to identify single transits throughenhanced risk areas for which an increased war or piracyrisks premium might be charged.

Protection and Indemnity insurance

P&I insurance is primarily a liability cover for shipownersand operators. It thus serves to protect the assured fromunjustified third-party claims and indemnifies legitimateclaims. In general, the law of the seas and relevant conven-tions do not attribute any liability to the owner or operatorif any third-party loss or damage inflicted by or attributableto their vessel was caused by the wilful misconduct of out-side third parties, such as pirates. In some cases, however,owners or operators cannot obtain total exemption fromliability, for instance if the cause of the loss is not com-pletely clear or if they bear a share of the blame. Workerscompensation insurance is also included in the P&I coverand comes into play, for example, if a member of the crewis injured or killed in the pirates attack and the shippingcompany must bear the costs of treatment or pay a pen-sion for surviving dependents.

In principle, P&I insurance covers the costs for which ashipping company is legally liable. It also covers some ofthe expenses incurred in conjunction with regaining pos-session of the assailed vessel, insofar as these are notcovered by marine hull insurance. Even if it is difficult toobtain precise figures here, it can be said that any ransompaid by the owners or operators of the vessel is notincluded in the standard P&I cover. However, the shippingcompany can apply for indemnification of these expensesat the Clubs discretion, within the framework of the so-called Omnibus Rule. According to this rule, the directorsof the P&I Club decide whether indemnity is to be paid inan individual instance, such as when this would avert apossible claim under workers compensation insurance(e.g. if a member of the crew were injured or killed).

Loss-of-hire insurance (LoH)

A vessel cannot earn income as long as it remains underthe control of pirates or while it is being repaired after ithas been recovered. Claims for loss-of-hire can be madeon the basis of an indemnifiable marine hull loss orbecause piracy is explicitly included in the list of named perils under the LoH policy.

Cover is for a defined maximum number of days and the daily indemnity is fixed and agreed at inception. Alter-natively, the sum insured is subject to a proven loss.

Kidnap and ransom insurance

This cover indemnifies a ransom paid up to the amount ofthe sum insured. In the majority of cases, it is effected formajor industrialists or for the top management of leadingcorporations. Buying cover in case a vessel is hijacked orindividual crew members are kidnapped is a tightrope actbetween the need to cover potential financial losses and anincitement for pirates to engage in further and possiblyeven more extensive kidnapping.

At first glance, kidnap and ransom insurance entitlesshipowners or operators to claim the agreed policy indem-nity so that they are no longer dependent on the discre-tionary decision of their P&I directors on whether or not toapprove indemnification of a ransom under the OmnibusRule. If employed correctly, however, it can also becomeone of the measures in a comprehensive risk managementprogramme. The insurance cover should include access to a hotline in addition to individual risk counselling withspecific loss prevention measures tailored to the insuredvessels. If a loss occurs, a specially trained crisis manage-ment team advises the shipping company and possiblyeven takes over negotiations with the kidnappers.

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Financial burden for the insurance sector

No article on insurance without statistics yet piracy is anexception to the rule. The number of attacked vessels isknown from the IMBs statistics, insofar as the incidentswere reported. The reported number of crew membersinjured or killed is similarly known. But there are no reli-able figures documenting the economic consequences. No-one keeps account of these. Besides, only an estimated50% of all losses are actually reported. From the point ofview of hull insurance, the insured losses have fortunatelyremained manageable to date, apart from the occasionaltotal loss of a vessel. Most quick raids merely cause dam-age below the shipowners deductible threshold. In themajority of cases, robbery or damage to insured cargoesby pirates is statistically recorded in the same way as theclaims expenditure for all other robbery losses at sea andon land. Losses due to piracy are rarely recorded in separ-ate statistics. The same also applies with regard to loss-of-hire insurance. Unless piracy is insured as a separatenamed peril, the associated hull loss will be recorded asthe reason for indemnification regardless of the actualcause. For reasons of confidentiality, nothing is knownwith regard to the amount expended by kidnap and ran-som insurers or the P&I clubs at the discretion of theirdirectors.

The only possibility of obtaining meaningful data in futurewill be for insurers to record piracy losses separately andto publish their figures in the annual statistics of the Inter-national Union of Marine Insurers (IUMI).

Notwithstanding the historical claims experience, a worst-case scenario must naturally also be considered. Sincepirates have more than once left an almost unmannedvessel running at full speed after locking up the regularcrew on board, there is a real risk of a fully laden ship hittingan obstacle, running aground, or colliding with anothervessel. If a gas tanker were to explode or an oil tanker wereto run aground, the resultant loss could run into the bil-lions. The environmental damage caused by the two mostexpensive tanker accidents to date, namely the ExxonValdez in 1989 and the Prestige in 2002, totalled US$ 9.5bnand US$ 1.2bn respectively. Although the actual indemnitypaid was considerably less on account of limitations per-mitted under applicable liability conventions, these twoincidents nevertheless dealt a severe blow to the insuranceindustry, for the estimated worldwide premium income forP&I is currently only around US$ 2.2bn per year.

In addition to the purely financial aspects, however, themagnitude of these crimes on a human level should not bedisregarded. Pirate attacks on Vietnamese boat people inthe 1980s resulted in thousands of rape victims as well asseveral hundred people abducted and killed. The numberof people injured and murdered at sea and the associatedsuffering are cause enough for decisive action to be taken.

Royal Malaysian Customs boatGreater international cooperation, newtechnological developments, and integrated risk management help to minimise the risk of a pirate attack. The most important lever in the struggle against piracy is clear jurisdiction.


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Greater international cooperation

After the growing number of attacks on private yachts inthe Caribbean and innumerable acts of violence in the Gulfof Thailand and the South China Sea, the United Nationsturned its attention to the increasing violence at sea for thefirst time in the 1980s. In 1981, the UN General Assemblycalled upon the member states to step up their effortsagainst piracy and protect those seeking asylum. From1982 onwards, the Maritime Navigation Committee inUNCTAD devoted its attention to all aspects of maritimefraud and piracy. The Maritime Safety Committee (MSC)subsequently prompted the IMO to call upon memberstates to report pirate attacks and to publish regularreports on cases of piracy.

Military support in the fight against piracy as illustrated bythe case of Somalia

Foreign warships stationed in the region did not interveneas long as the attacks off the Somali coast were confined toterritorial waters. Since the pirates first attempt to assail a cruise liner, the Seabourn Spirit, some 100 nautical milesoff the coast and the pirates subsequent advance intointernational waters, however, members of the inter-national naval forces have taken an active part in thepursuit of pirates.

As the US Navys intervention in January 2006 (see box)clearly shows, the fight against piracy can only provesuccessful if that struggle is viewed as a joint task by thecommunity of states. Not all states take military actionagainst pirates. The German navy, for example, is prohib-ited from intervening in criminal acts by Germanys BasicConstitutional Law.

Wednesday, 15 February, MOMBASA, Kenya (AP) TenSomali pirates who hijacked an India-based vessel threwtheir most lethal weapons into the sea when they spotteda U.S. Navy ship, a witness told a Kenyan court Wednesday.

Akbar Ali Suleiman, master of the Safina Al Bisaarat, saidthe pirates hid other weapons in one of their boats thatthey used in the raid, but U.S. sailors who intervened toend the hijacking found them.

Suleimans ship was seized by pirates two days after leav-ing the Somali port of Kismayo en route to Dubai, UnitedArab Emirates.

They were also shooting (rocket-propelled grenades) atour vessel which was loaded with charcoal and there wasa risk of it exploding since the charcoal was flammable,he told the Mombasa Senior Principal Magistrate Beatrice

Jaden. I was also not able to send out any distress signalbecause although our vessel was in motion, the generatorhad been switched off and it had to be in operation if anyof us wanted to communicate, he said.

The suspected pirates were detained by the U.S. sailorswho boarded the vessel on January 22 in response to areport from the International Maritime Bureau in KualaLumpur two days earlier that pirates had fired on the MVDelta Ranger, a Bahamian-flagged bulk carrier that was200 nautical miles off the central eastern coast of Somalia.

Suleiman said he and his crew hid under their cargo ofcharcoal when the U.S. frigate began firing warning shots.Eventually the pirates stopped the ship, and U.S. forcesboarded the vessel. The U.S. Navy handed the suspectsover to Kenyan authorities on 29 January.

Pirates threw weapons into sea, witness says

Measures in the fight against piracy

Numerous laws, proposals and plans of action have beenlaunched in recent years, including international initiatives andlaws, as well as technical developments and facilities designedto prevent attacks by pirates.

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Munich Re, Piracy Threat at sea Measures in the fight against piracy

Support by non-governmental organisations

Various non-governmental organisations and associationshave also turned their attention to this subject in the mean-time, in addition to the state organisations. Those involvedinclude in particular the IMB, BIMCO, P&I insurers, theInternational Transport Workers Federation (ITF), shippingcompany associations, and the Comit Maritime Inter-national.

Security measures at the international level

A number of measures have been taken in recent years inthe multinational fight against piracy and terrorism. Thefollowing are merely a few examples:

Since 11 September 2001, ships with destination USAmust report to their destination port 96 hours in advance,with details of the cargo, crew, and passengers.

The Mediterranean has been protected by the NATOmission Active Endeavour since October 2001. NATOwarships additionally escort ships through the Straits ofGibraltar. Naval forces also operate off the Horn of Africa.

In July 2003, the UN International Labour Organization(ILO) resolved to introduce biometric ID cards for theroughly 1.2 million seamen employed in merchantshipping.

The ISPS Code was introduced on 1 July 2004.

On 28 April 2005, Japan, Laos, Singapore, and Cambodiaagreed to join forces in the fight against piracy andarmed attacks against vessels in Asia. With this agree-ment, the signatories acknowledged the importance ofsafety for vessels and the right to maritime navigation in conformity with the United Nations Convention on the Law of the Sea of 1982. Their agreement once againconfirms the need to cooperate in preventing piracy inaccordance with UNCLOS.

In Singapore, vessels carrying hazardous cargo receive a military escort as they enter and leave the port.

Soldiers from eight countries guard the Arabian Sea totrack down terrorists.

Japanese warships patrol Far Eastern shipping lanes andjoin with Singapore in naval exercises in the Straits ofMalacca.

Technical developments

The industry has introduced a number of more or lesssophisticated technical solutions in recent years to protectagainst piracy. The following security measures can berecommended:

Conversion of the vessels railing, use of electric fencingand lubricant foam to make it more difficult for pirates toboard the vessel

High-security containers to protect the cargo

Creation of security zones to protect the crew, such asdoors which cannot be opened from the outside

Highly sensitive radar systems which can detectapproaching pirates at close range

Floodlights to illuminate the vessel

Special night-vision equipment and heat cameras

Miscellaneous acoustic and visual alarm systems

Acoustic defence systems (LRAD)

Movement detectors and light barriers

Installation of water guns

Satellite-aided tracking systems enabling shippingcompanies to keep track of their vessels at all times

Air surveillance (Eye in the Sky)

Unmanned remote-controlled robot ships to patrol andmonitor threatened sea lanes and to pursue and fightpirate vessels

Remote-controlled robot vessel.

Munich Re, Piracy Threat at sea Measures in the fight against piracy

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The Shiploc system

In its security catalogue of December 2002, the IMO recom-mends that its member states use the satellite-basedShiploc alarm system. Transmitters concealed on the ves-sel emit signals at regular intervals. Satellites send the cal-culated position data back to the Shiploc data centre.Shipowners and the IMB Piracy Centre can retrieve thesedata online at any time and inform local security author-ities if a vessel changes its position unexpectedly.

The Shiploc system plays a decisive part in tracking ves-sels which have been seized and is now also used in a simi-lar form to track lost cargo. In this case, the transmittersare installed in the containers themselves.

In November 2005, the cruise liner Seabourn Spirit nar-rowly escaped hijacking by Somali pirates. It was the firsttime that pirates had attempted to seize a passenger linercarrying several hundred western holidaymakers. The factthat the attack failed is due entirely to the liners captain,Sven Erik Pederson. He reacted to the approaching vesselimmediately and headed out to the open sea at full steam,but the pirates gave chase and fired rocket-propelledgrenades at the liner. The pirates did not give up untilPederson made use of the LRAD. LRAD stands for LongRange Acoustic Device and is a non-lethal weapondeveloped for the US military. No bigger than a satellitereceiver, the device not only emits loudspeaker announce-ments but can also send immensely loud high-frequencyacoustic signals over a distance of several hundredmetres. The noise causes considerable pain to the ears,makes communication impossible, and consequentlycompels attackers to give up. LRAD manufacturer Ameri-can Technology compares the sound with that of a firealarm, the difference being that the latter is a warning ofdanger at a level of 80 to 90 decibels whereas the LRADfires at up to 150 decibels. The system has been installedon passenger and naval vessels since 2003.

The attack on the Seabourn Spirit prompted the Pentagonto rethink and step up the struggle against piracy. TheUSS Winston S. Churchill, a US guided missile destroyer,stopped a vessel seized by Somali pirates on 21 January2006. The vessel carrying small arms to Somalia had beenreported missing in the Indian Ocean by the InternationalMaritime Bureau (IMB).The pirates were arrested andbrought to Kenya by US armed forces where they nowface trial. This was the firs

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