Thursday, May 26, 2005

Ransom is as Ransom Does

The BBC reports:

A Swiss court has begun hearing evidence in a landmark case between the Dutch government and the Swiss branch of aid agency Medecins Sans Frontieres. The Netherlands is suing MSF over ransom money it paid to release one of its workers held hostage for almost two years in Russia's Dagestan province. The case is being watched carefully because of its implications for the future handling of kidnapping cases.

The Dutch government claims that MSF took out a $1.25 million loan for the purpose which it now refuses to pay back, but another BBC story reports that "MSF denies ever agreeing to the ransom, which was negotiated by former officers of the Soviet KGB." However, a Dutch foreign ministry spokesman maintains that MSF orally agreed to the deal, which included an understanding that it would reimburse the taxpayer for the ransom money. "'Our position has always been that [MSF] is a serious organisation... that could be taken at its word,' a ministry spokeswoman said."

Kidnapping is a big business in some places of the world. It is a little known fact that a number of insurance companies offer kidnap and ransom insurance policies to companies and individuals which have to work in dangerous areas. Providers include Chubb, AIG, Cigna and Lloyd's underwriters.

In most countries except Mexico and Colombia unless you work for a large oil company, a $10 million policy for a Fortune 100 company will cost about $350,000 a year. Insurers like Seitlin also can write one shot, one month $1 million KRE policies for travelers and businesspeople for between $2500-$3000.

Statistics suggest that since the average victim will be ransomed companies will take out KRE cover, which normally includes the services of professional negotiators like Control Risks or Pinkerton, many of whom have were former law enforcement or intelligence agents. However, like any insurance, cover isn't free and the premiums vary in proportion to perceived risk. The high premiums and the threat of even higher premiums after a kidnapping event normally force companies and individuals working in dangerous areas to protect their staff to keep their insurance rates down. The situation is not unlike any other type of risk management. Any company that wants to pay low accident insurance premiums normally works at establishing safe work practices. 

Released without payment 15%
Rescued 7%
Killed 9%
Escaped 2%
Ransomed 67%

Medecins Sans Frontieres, by opting not to pay for KRE, had effectively chosen self-insurance. It saved on the premium, gambling that they would be either luck out or would be bailed out by donor, such as the Dutch taxpayer, in the event of misfortune. Unfortunately the Dutch taxpayer is refusing to pick up the tab and now MSF is claiming that it never agreed to the deal. However, the Dutch government will presumably argue that since MSF forked over the money, they implicitly agreed to the deal, unless it can be shown that MSF was hoodwinked in some way.

If MSF loses this case, and I hope they do, it will force them to manage the risk of their staff members. Paying ransom to kidnappers, especially terrorists, is a catastrophe not only for the victim, but for the societies which MSF claims to help. The ransom money is typically used by kidnappers to buy more weapons and paraphernalia that will in turn be used to harm still more people in the areas MSF wants to succor. Unless organizations like MSF can be made to bear a share of this cost, they will undervalue the risk they impose on themselves and others. If they had to pony up $300,000 a year to insure their staff in places like former Soviet Central Asia or the Middle East, MSF would think long and hard before making deployments without taking precautions. It would force them to use more indigenous staff, to employ "volunteers" trained in counter-surveillance, to take professional security advice and to avoid areas which are too dangerous for anyone to operate it. Unfortunately these steps would also diminish its fundraising appeal, a fact of which it is well aware. Medecins Sans Frontieres is fighting the Dutch suit for that very reason. As the BBC reports:

At the heart of the dispute lies the reluctance of both parties to appear willing to pay ransoms. Governments never admit to having done so. Meanwhile, MSF has relief projects in trouble spots all over the world. It fears donors will be less generous if they think their money is ending up in the hands of hostage-takers.

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