Terrorism and Extortion

Terror groups now use extortion to grab money from transnational companies. It’s a very slippery slope and enterprises and their chief security officers can – at least – anticipate problems and have a reactive plan.

A sinister threat to global business is worth highlighting.

In particular, an under-appreciated form of terrorism continues to have far-reaching implications for business, particularly transnational companies (TNCs). A tactic used by terror group is extortion, whereby a group obtains money through threats or actual violence against corporate personnel and other assets.

Increasingly companies are facing the reality and risks of doing business in an unstable world. Any company in energy, mining, agriculture or manufacturing will likely come up against the threat of terror and subsequent extortion payments.

To give an idea of just how big this problem is for TNCs, consider Nigeria. For several years, the eighth largest oil exporter has suffered bombings against oil rigs and compounds as well kidnappings and other extortive acts by the Nigerian terror group MEND. In September 2007, Mexico, another top oil exporter, experienced bomb blasts against state-owned Pemex oil and natural gas pipelines, perpetrated by the terror group EPR. Recent cases of terror extortion tactics include the ETA in Spain, Abu Sayef in the Philippines, Hizballah in the South America’s tri-border area and narco-terror groups in Colombia.

Terror group extortion, such as revolutionary payments or protection money, is an ongoing issue for TNCs. Giving in and paying the terrorists off may initially afford a TNC peace and quiet. Yet ultimately, employing such defensive measures, which are akin to bribery payments, can result in far-reaching negative operational, financial and legal consequences.

CHIQUITA AND COLOMBIAN TERROR GROUPS

Recently, Chiquita revealed to the U.S. Justice Department that it had been illegally paying extortion fees to known terrorist groups for several years. Chiquita stated that its management felt it had no choice but to ensure the safety of the company’s employees.

Chiquita voluntarily alerted Justice that it paid $1.7 million between 1997 and 2004 to AUC, a terror group responsible for some of the worst massacres in Colombia’s civil conflict and for a sizable percentage of the country’s cocaine exports. Additionally, Chiquita made payments to the terror groups ELN and FARC, as control of the company’s banana-growing area shifted.

Ultimately, Chiquita agreed to a $25 million criminal fine, the requirement to implement and maintain an effective compliance and ethics program, and five years probation. Also, Chiquita executives narrowly avoided U.S. criminal charges in this regard.

In the face of extortion, Chiquita had to decide between several unappealing options: Pay terrorists the extortion; refuse to pay them and possibly suffer attacks on employees and facilities; stop operations temporarily; or sell operations, most likely at a loss. While making payments may seem like the lesser of many evils, a TNC’s decision to make protection payments undermines its status at home and with host countries. Even worse, extortion payments encourage similar conduct by terrorists against business worldwide.

ADDITIONAL RAMIFICATIONS

Aside from the obvious disadvantage of dealing with terrorists, terror group extortion payment pressures can have negative operational effects such as declining production, often with poorer quality deliverables; higher costs of production due to heightened labor, security and transportation costs; lower efficiencies; underutilization of assets; production stoppages and threats to business continuity; adjustments to and pressures on supply chains; and corporate governance complexities.

There are also significant financial implications from giving in to terror extortion such as: higher costs for labor, security, capital, inputs and insurance; reduced profitability; loss of goodwill and declining stock price; financial penalties; and/or liabilities arising from host and home country litigation initiated by the government, private sector or even employees.

REDUCING THE TERROR RISK

There are steps that transnational companies and their chief security officers can undertake to reduce the risks of terror extortion.

Prior to following such a path, the TNC must analyze whether the benefits outweigh the risk of doing business in the host country. If the TNC decides to proceed, it can reduce risks by exploring whether land grants or subsidized loans are available from the host country or a development agency (e.g., the World Bank or a regional development bank). The TNC can also invest in political risk insurance covering war and civil disturbance/terrorism, expropriation, breach of contract and inconvertibility of currency offered by commercial, government (e.g., U.S. Government’s Overseas Private Investment Corporation) and non-governmental organization (e.g., the World Bank’s Multilateral Investment Guarantee Agency).

In cases of terror extortion, the kidnapping of TNC personnel is a very real threat. Kidnapping and ransom insurance, along with other insurance products (e.g., property and casualty, business interruption, life, disability and health insurance), should be seriously considered. It is also critical to apply disparate security products, services and methodologies -- ranging from risk and vulnerability assessments to business and risk intelligence data reports -- that can aid in lessening the likelihood, frequency and severity of terrorism, in general, and terror extortion, in particular.

Other preventative measures TNCs can pursue include developing alliances and gathering support from host country government, business, civic and labor entities, along with home country representatives (e.g., U.S. embassy) and non-governmental institutions (e.g., World Bank). Likewise, engendering support for bilateral economic and political relations between host and home countries (e.g., trade and investment agreements) will aid TNC efforts abroad.

This discussion demonstrates that while terror group extortion can have substantial pernicious operational, financial, and legal effects on TNCs, a variety of alternatives and instruments are available to lessen such threats. In doing so, TNCs can help enhance global trade, investment and business while contributing to the reduction of terrorism internationally by eliminating a considerable source of terror funding.

When an executive or worker is kidnapped and held for ransom in a foreign country, insurance can cover numerous benefits and services as well as access to an offshore response team.

SIDEBAR: Buy Insurance?

Many enterprises, and especially transnational companies, purchase kidnap and ransom insurance for their employees and certain contractors.

Such coverage may also provide access to a crisis response organization. These response teams offer advisory assistance to the VIP’s family or chief security officer of the business specific to independent investigations, negotiations, arrangement and delivery of funds and numerous other services.

Sometimes enterprises have security connections in other countries. At other times, companies purchase insurance when their executives, who don’t usually travel outside the United States, go on a trip to a country that has a history of risk.

Most kidnap and ransom insurance includes common benefits and services, with some of the menu for an optional fee: