Impact of President Obama's April 13, 2010 Executive Order on Somalia and Piracy on US and non-US Insurance Companies

1. INTRODUCTION

   On April 13, 2010, President Barack Obama issued an Executive Order "Blocking Property of Certain Persons Contributing to the Conflict in Somalia" (the "Executive Order")1 stating that:

   ...[T]he deterioration of the security situation and the persistence of violence in Somalia, and acts of piracy and armed robbery at sea off the coast of Somalia...constitute an unusual and extraordinary threat to the national security and foreign policy of the United States, and I hereby declare a national emergency to deal with that threat.

   The Executive Order goes on to specifically state that:

   I hereby determine that, among other threats to the peace, security, or stability of Somalia, acts of piracy or armed robbery at sea off the coast of Somalia threaten the peace, security, or stability of Somalia. Sec. 1(b).

   The president additionally issued a "Message to Congress" which summarizes and provides some background to the Executive Order. It clarifies that the Secretary of the Treasury, in consultation with the Secretary of State, has the authority to take action to carry out the purposes of the Executive Order.

   That same day, the Office of Foreign Assets Control ("OFAC") published the Executive Order and issued a Bulletin listing various individuals and entities that have been added to its list of Specially Designated Nationals ("SDNs"). This list comprises the Annex of the Executive Order and contains the names of individuals and a group that the U.S. considers to be particular threats. It has been reported that, among other reasons, the Executive Order was issued as a result of recent American intelligence linking the Somali insurgence group Al-Shabaab to the terrorist group Al Qaeda, and the concern that any payments made to this entity, or the individuals identified in connection with the Executive Order, would contribute to the growing threat of terrorist activity in Somalia and elsewhere.

   The Executive Order thus seeks to block the payment, transfer or dealings in any property or property interests (including the "provision of funds") to the specifically designated persons. It also prohibits any similar transactions made for the benefit of any person whose property is blocked pursuant to the Executive Order.

   This memorandum discusses the effect and impact of Executive Order and specifically addresses the impact, if any, it will have on an insurer's ability to pay ransom to pirates operating off the coast of Somalia.

2. TO WHOM THE ORDER APPLIES

   Section 1 (a) of the Order states:

   All property and interests in property that are in the United States, that hereafter come within the possession or control of any United States person, including any overseas branch, of the following persons are blocked and may not be transferred, paid, exported, withdrawn or otherwise dealt in.

   Section 1 identifies two distinct categories of blocked persons or entities:

   The individuals and entities listed in the Annex to the Executive Order (Sec.1(a)(i)); and Any person determined by the Secretary of the Treasury, in consultation with the Secretary of State, who has: [A] engaged in acts that directly or indirectly threaten the peace, security, or stability of...