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UK Counter-Terrorism and Security Bill: ransom payments, November 2014

24 November 2014

On Monday 24th November 2014, the Home Secretary, Theresa May, announced the Government’s new “Counter-Terrorism and Security Bill” (the Bill), which will be put before Parliament on Wednesday 26th November 2014. The Government hopes to fast-track the Bill through Parliament and enact it into law prior to the next general election (i.e. before May 2015).

The focus of the Bill is on “terrorism” and the laudable aims of preventing radicalisation and disrupting groups such as the Islamic State. It includes provisions banning British citizens identified as terror suspects from entering the UK and powers to identify suspects via the usage of electronic devices.

Of key relevance to the London insurance industry are other provisions which are aimed at preventing insurers from covering or reimbursing ransoms paid to terrorists by assureds. The Government argues these payments encourage kidnapping as a means of financing terrorist operations. The Bill is said to be a clarification of the existing law, and will make it an explicit offence for an insurer to reimburse an assured who has paid a “ransom”. Theresa May explains that the provisions are necessary in order to remove any “uncertainty” as to whether such a reimbursement is illegal and to prevent UK-based companies making “inadvertent” payments to terrorists.

To quote Ms May:

“Our position is clear – ransom payments to terrorists are illegal under UK and international law. Agreeing to meet the demands of barbaric groups like Isil [also known as Islamic State and IS] would only put many more lives at risk. These measures will ensure the UK remains at the forefront of global efforts to put an end to the practice.”

Theresa May refers to evidence from the United Nations of ransom payments to terrorists totalling £28 million in the last 12 months, although she does not repeat PM David Cameron’s previous comments where he implied such payments were being paid by NATO governments, rather than individuals or private industry.

The announcement of the provisions affecting insurers looks odd given that, in our experience, leading UK kidnap and ransom insurers have robust compliance protocols in place to ensure full compliance with English (and US) law and are well aware of their obligations under the existing regime, including the parameters of the Terrorism Act 2000.

It is also not clear that any payments of ransom to the Islamic State is driving further hostage taking, indeed the recent terrible footage from the Islamic State indicates that they have motives other than ransom, particularly when UK and US citizens are involved.

On the face of it, the announcement does suggest that the nature, effect and impact of kidnap and ransom insurance has been misunderstood by the authors of the draft Bill. Worryingly, the proposed provisions could put at risk the ability of families of hostage victims to obtain professional support to deal with a kidnapping. Also, any new proposals, particularly the proposed amendment to the definition of “terrorism”, could jeopardise the lawful payment of ransom where the Islamic State and other terrorists are not involved. Ransom payments in these circumstances, to paraphrase the English High Court in Masefield v Amlin, are seen by the court as perfectly legitimate and the only way to remove a victim from harm’s way.

Insurers will need to monitor closely the progress of the Bill and we will provide further updates. In the meantime, insurers should continue to implement their compliance protocols and seek legal advice where appropriate.

For more information, please contact James Gosling, Partner on +44 (0)20 7264 8382 or or Richard Neylon, Partner on +44 (0)20 7264 8100 or or Daniel Martin, Partner on +44 (0)20 7264 8189 or or Michael Ritter, Associate on +44 (0)20 7264 8000 or or your usual contact at HFW.