‘Insuring’ a Rough Ride for Syrian Arms
Washington,
Jun 26, 2012 -
You didn’t see it. No shots were fired. No naval showdown. But last week there was an important drama on the high-seas. "Financial warfare" forced a Russian ship en route to Syria to turn back.
The Russian ship of shame was carrying about a dozen of Syria’s Russian-made attack helicopters. Dating back to Assad the father’s regime, they had been in Russia for refurbishment. Reportedly, other Russian weapons too were headed to Syria.
Hoping to stop the slaughter in Syria, the British government got creative. The MV Alaed had gotten as far as the North Sea near Scotland, when U.K. officials rang-up London-based Standard Club insurance to let them know that continuing to insure the Alaed would be a violation of EU sanctions on Syria. Standard Club pulled their policy, forcing the ship back to Russia, and has reportedly cancelled coverage for other ships owned by the Russian company involved in these shipments. "We’ve decided we don’t want that member in the Club anymore." I like their snobbiness.
This insurance play has been used to prevent shipments of Syrian oil from getting to market via Iran. And Iranian tankers are unable to offload their oil because of insurance complications.
This is what folks are starting to call "financial warfare." Last year, my subcommittee held a hearing with some of the original architects of "reputational" financial sanctions. This approach relies on heightening the risk awareness and sensitivity of private companies. Once involvement with a rogue is spotlighted, to preserve their reputation and protect their business, banks, insurers, and others will dump rogue state business.
As one witness before my Subcommittee explained, there is a "natural convergence" between responsible governments and financial institutions: "The legitimate international financial community will ultimately act based on its own business interests, which is aligned with the interests of governments desiring to isolate rogue financial actors." Of course, "legitimate" is the operative word.
Targeted financial weapons have had some great success. The challenge is that they can be short-lived, as bad actors look for an end-around. Indeed, word comes that the Alaed has re-flagged, suggesting it will try again. The world is watching.
