Further to our Briefing (www.hfw.com/Counter-Terrorism-and-Security-Bill-ransom-payments-November-2014) on Monday 24 November 2014, the draft UK Counter-Terrorism and Security Bill1 has now been published.

Below, we assess the key provision relating to insurance, namely Section 34 "Insurance Against Payments made in respect of Terrorist Demands", which introduces a new Section 17A into the Terrorism Act 2000. The remainder of the Bill deals with issues other than ransom payment.

The Definition of "Terrorism"

Reassuringly, despite earlier press comments, the definition of "terrorism" is unchanged. Several sections of the Bill make it clear that "terrorism" has the same meaning as in the Terrorism Act 2000. Guidance Note 240 (GN240), which deals with the new offence, refers expressly to Section 1(1) Terrorism Act 2000 defining terrorism as "use or threat of action designed to influence the Government or to intimidate the public or a section of the public and is done for the purpose of advancing a political, religious, racial or ideological cause", and makes clear that it is this definition which will apply to the new offence under Section 34(1) of the Bill/Section 17A of the Terrorism Act 2000.

Insurers, response consultants and their legal advisors are well versed in the application of this established test, having applied the same regularly over recent years, in the context of both land based, and marine kidnaps. Therefore, in our view, the new offence is not intended to have any application to reimbursements in respect of sums paid to secure the release of hostages kidnapped by criminals or pirates lacking the necessary "terrorist" motive. The right to secure the freedom of a hostage victim by the payment of a ransom is not expressly hindered by Section 17A and will remain a lawful option provided there is no terrorist involvement.

The Section 17A Offence

The new offence will make it illegal for an insurer to reimburse a ransom if:

  1. The insurer makes a payment under the contract, or purportedly under it.
  2. The payment is made in respect of any money or other property that has been, or is to be, handed over in response to a demand made wholly or partly for the purposes of terrorism
  3. The insurer or the person authorising the payment on the insurer’s behalf knows or has reasonable cause to suspect that the money or other property has been, or is to be, handed over in response to such a demand.

The offence has extraterritorial application (GN243) and so is liable to catch "arrangements made to conduct financial transactions outside of the UK". Therefore, if the reimbursement is to be made by an English entity, it will not be a defence that the arrangements/payment took place outside of the UK. The legislation does not have retrospective effect and so will not apply to any reimbursement made by an insurer "in respect of money or other property handed over before 27 November 2014" (34(4) of the Bill and GN246).

The phrase "partly for the purposes of terrorism" in Section 17A(b) is unhelpfully vague and introduces ambiguity. In our view, it would be preferable simply to mirror the existing language of Sections 15 to 18 of the Terrorism Act 2000 of "reasonable cause to suspect that it may be used for the purposes of terrorism", a test which insurers and their advisors are familiar with applying over the recent years.

Collateral Considerations

It is clear that the Bill is not intended to prevent insurers from writing policies covering the payment of ransom in general terms. It does however prevent the cover responding to a request for reimbursement of money "handed over in response to a (terrorist) demand". Protection for insurers against being compelled to pay out under an insurance contract in unlawful circumstances already exists under statute, but if the new offence becomes law, it would be sensible for insurers to review the express clauses in kidnap and ransom (K&R) policies to ensure they deal specifically with excluding cover where monies have been paid to terrorists.

The other area which is left open is whether it is simply the reimbursement of the ransom which is illegal under Section 17A, or also the reimbursement of associated expenses usually incurred as a result of a terrorist kidnapping, such as those of the response consultant engaged to assist the assured (whether or not any ransom is to be paid). We cannot and do not believe that the authors of the Bill intended to deny the assured essential professional support but the clumsy language of Section 17A(b) ought to be amended to put this beyond doubt.

Generally, the language of Section 17A is open to misinterpretation and, if it is to remain in the Bill, a good deal more thought should be put into how it is likely to be construed within the complex regulatory framework that already exists in this area. The Government's acknowledgement that they will meet again with the key industry representatives (GN34) is therefore welcomed.

Critical Comment

The Bill has the laudable aim of reducing funding to terrorist organisations such as the Islamic State (GN25 and GN237). The authors of the Bill offer the view that the reimbursement of terrorist ransoms creates an"environment which facilitates their payment" and the new offence in Section 17A is aimed at preventing such financing. It is difficult to accept this assessment of reimbursements at face value. In our experience, the existence of K&R polices has no substantive impact on any ransoms that the Islamic State may receive, and it is not private industry or private individuals that are usually involved in such matters, rather, as PM David Cameron has previously implied, NATO Governments. The underlying justification for the new Section 17A therefore seems misguided.

Our overriding concern is that the new offence in s.17A does not tackle the real problem of terrorist financing but, rather, inappropriately implicates insurers in the "environment" of terrorist financing. This unhelpfully (and no doubt inadvertently) puts at risk the legitimate, lawful and necessary business of securing the release of hostages where terrorism is not involved, which is fully recognised as being permissible under English law.

Finally, we note that the Home Secretary, Theresa May said she is satisfied that the provisions of the Bill"are compatible with the Convention rights". In our view, it remains to be seen as to whether the Terrorism Act 2000, in a kidnapping context, is compatible with the Human Rights Act 1998, specifically the right to life (Article 2) and the right to freedom from torture, or to inhumane or degrading treatment (Article 3).

Dealing with kidnapping incidents, whether or not terrorism is involved, is a sensitive and complex area. Professional advice should always be obtained on the issues raised above.