New U.S. Somalia Sanctions Impact Global Shipping, Piracy Incidents

An Executive Order issued by the White House on April 13, 2010, blocks certain named individuals—identified by the U.S. government as contributors to instability in Somalia—from receiving any contributions or other property interests from the United States, or from U.S. persons. Of particular concern for shipping interests is the extent to which the Order prohibits ransom payments to rescue crewmen and recover vessels and cargo hijacked off the coast of Somalia, or otherwise impacts the international maritime community's responses to acts of piracy off the Somali coast.

The scope of the Order was addressed at a joint agency/industry piracy roundtable meeting held at U.S. Coast Guard Headquarters on April 16, 2010. Reed Smith's participation in that meeting and one-on-one consultations with other Administration officials have yielded further guidance for applying the Order to international shipping:

Application to Particular Piracy Events

Representatives from the U.S. Departments of State and Treasury emphasized that the Order is not "piracy wide," but rather, is a ban on transfers by U.S. persons to specific individuals named in an SDN list annexed to the Order.1 The list is primarily comprised of Somali political actors, of which two are self-described pirate leaders.

In practice, the question of how to determine whether a particular pirate operation is affiliated with an SDN is a difficult one. In other contexts, the U.S. government has issued and administered blocking orders under the assumption that, for screening purposes, parties to a transaction will typically have access to EFT-based information about the identity of the parties with whom they are dealing. That is clearly not the case in ransom transactions, so the Treasury Department is currently considering how best to advise the shipping industry regarding its due diligence and screening responsibilities. At a minimum, shipowners and other interested U.S. persons are urged to consult with U.S. authorities, starting with the Coast Guard and Treasury Department, to determine whether persons involved in a ransom transaction are on the SDN list or have some demonstrable connection with such a person.

Scope of the Order: Who are "U.S. Persons" to Whom it Applies?

The Order clearly applies to U.S. persons, including U.S. citizens, U.S. companies and their overseas branches, and other persons in the United States. However, the Order does not directly address the extent to which foreign...