UK insurer arranged $5m ransom for MV Abdullah

A UK-based marine insurance company, known in the industry as a P&I club, arranged the $5 million ransom to free the hijacked ship MV Abdullah and its crew from pirates off the coast of Somalia.

The cash, all notes not older than 10 years, was dropped from a chartered plane in three waterproof bags into the sea near Somalia where the ship was anchored, a source in Bangladesh Merchant Marine Officers Association told The Business Standard yesterday.

Mizanul Islam, a spokesperson for the ship's owner company KSRM Group, told TBS, "We did not send any dollars abroad to pay the ransom. So there was no incident of money laundering from Bangladesh during the negotiation process related to MV Abdullah. Everything was done through maintaining local and international laws during the process."

P&I clubs 

P&I (protection and indemnity) clubs are insurance companies that provide coverage for ship owners and operators in case of accidents or liabilities. These clubs operate as mutual associations, meaning they are owned by their members. 

Twelve P&I clubs together cover almost 90% of the world's ocean-going tonnage, according to the website of International Group of P&I Clubs.  

Through the unique group structure, the member clubs, whilst individually competitive, share between them their large loss exposures, and also share their respective knowledge and expertise on matters relating to ship owners' liabilities and the insurance and reinsurance of such liabilities, reads the site. 

Each club is an independent, not-for-profit mutual insurance association, providing cover for its ship owner and charterer members against third-party liabilities arising out of the use and operation of ships. Its shipowner and charter members own each club, and its operations and activities are overseen by a board of directors, or committee, elected from the membership.  

During a hijacking, the P&I club negotiates with pirates and arranges ransom payments. 

In the case of MV Abdullah, the UK-based P&I club collected the cash, possibly from the UAE, and hired a plane from Kenya to deliver the ransom. The money was dropped near the ship, and the pirates verified the cash before releasing the vessel and crew on Sunday, according to the source at Merchant Marine Officers Association.

The amount and specific conditions of the ransom are confidential due to a non-disclosure agreement. This secrecy frustrates those involved in the negotiations, but they respect the agreement, the source said. 

The official, on condition of anonymity, acknowledged the illegality of ransom payments under international law but pointed out that it is done to save sailors' lives.

According to industry insiders, the day-to-day operations of the clubs are handled by professional managers, either in-house or external, who are appointed by and report to their club committee.

The clubs cover a wide range of liabilities, including loss of life and personal injury to crew, passengers and others on board, cargo loss and damage, pollution by oil and other hazardous substances, wreck removal, collision and damage to property.

The insurers also provide a wide range of services to their members, including claims handling, advice on legal issues and loss prevention. They regularly play a leading role in coordinating the response to, and management of, maritime casualties.

Earlier, on 12 March, Somali pirates hijacked MV Abdullah in the Indian Ocean while it was en route to the UAE. After contacting the shipping company on 20 March, negotiations lasted 24 days before the ship and crew were freed on 14 April.

This was not KSRM's first encounter with piracy. 

In 2010, its ship MV Jahan Moni was held for 100 days before a $4 million ransom secured its release. The company claims the experience helped free MV Abdullah much faster, within 33 days. ***