Maritime Security at a Crossroads

It is our pleasure to introduce today’s contributor, Thomas Bennett, LLB MSc (Oxon) Solicitor.

bennett_master (4) publicity pgiThomas Bennett LLB MSc (Oxon) Solicitor. Thomas Bennett qualified as a corporate lawyer in 1995. He practiced corporate finance law in a ‘magic circle’ law firm in The City of London and has a higher business degree from the Saïd Business School at the University of Oxford. He was a legal adviser and business consultant to Protection Vessels International Limited thereafter Protection Group International Limited from 2010 until 2013. In 2012 Tom was a visiting professor of maritime security at the World Maritime University in Malmo Sweden. Tom is the owner of VHenry&Co. and VHenry&Co. Limited. The former is a legal practice, the latter an advisory business each specialising in the needs of the security sector (maritime, land and information security).

Somalia remains a failed state. Poverty, the absence of enforced law and psychopathy masquerading as a just cause foments an environment where money for gain, or money to finance terror, means that piracy in The Indian Ocean has not gone away. What started in the Somalian North as a tax on shipping is a continuing threat to global trade.
Still; maritime piracy has abated. Nation states have acted, armed guards have helped. The threat has been contained. Has it? It is a brave shipping company who sends an unprotected crew through the high risk area of The Indian Ocean. And if the rationale for piracy remains, then piracy remains. Somalia, lawless as it is, will wait.
Western powers will not finance armed forces to patrol the Indian Ocean indefinitely. The maritime industry will price the risk according to the threat. The probability of piracy has diminished. The business of maritime security must adjust. As the perception of threat falls, so will the cost of protection. Competition will force prices down and many armed security companies will not survive. Some will merge. Consolidation is inevitable. Or so it seems.
Maritime security is still big business. We estimate that total transit revenue in The Indian Ocean is $400 million a year. The supply chain ranges from nation states to former servicemen, maritime agents to legitimate dealers in arms. All vested interests. All of who take their piece of the whole. Today, prices for transits on vanilla routes are so low that it is hard to discern how a profit is achieved. If there is no more profit to be had, then competitive tension is designed to push all but a few players in this market to mutually assured destruction.

Regulation? Not Really
Gifting weapons to non-state actors is not without precedent. This gift does, however, breach most political theory as to who should have the right to bear arms. Regulation is and was inevitable. Law only works when it is applied to all; and regulation – the benchmark against which the use of lethal weapons is measured, should have the force of law. It does not. ISO28007 has not worked. Some have it; some do not. There are many buyers who do not require it. There are many sellers who do not bother. BIMCO’s recent endorsement of ISO28007 may help. It may be too late. Buying patterns are entrenched. Too many stand outside Anglo-centric regulatory initiatives. It is easy to do so, legally, practically. As former Royal Marines increasingly price themselves out of the market for guards, a once Anglo-centric market along with its regulatory attire, becomes increasingly irrelevant. ISO28007 may remain the standard for some; edicts from the UK may be the benchmark for others, but, economics is forcing this marketplace to change. There is a very long tail of buyers who have little time for edict; and an equally long tail of sellers who go along.
Who does; who can, police this market? Flag states perhaps. Yet the paradox of policing a market that pays well usually results in piecemeal regulation at best. After all, piracy is a diminishing threat – no vessels have been taken within corporate memory. So why change? Qui bono?
What of littoral states – those adjacent to the High Risk Area? Again, there are economic imperatives at work. Nation states and their agents do well out of maritime security. There is no overwhelming rationale for change.
What of Sri Lanka, the UAE and Oman? Sri Lanka’s place in maritime security is channelled through Avant Garde Maritime Services (AGMS) under a public private partnership with RALL. AGMS is being critically evaluated by the new government. The suggestion is that the Srisena government will change the way it regulates the way in which weapons and men are distributed to passing vessels. In which case, AGMS may lose control. But Sri Lanka, will not. Pre-AGMS, weapons were held on land and disseminated by the Sri Lankan Navy. Fees were paid. The state took control then; it may do so again.
As to Oman, or The UAE, or indeed any of the littoral states adjacent to the outflow of The Red Sea, there seems to be little real appetite to manage the risks attached to having floating armouries within sight. Floating armouries are, of course, in international waters and the UN Convention on the Law of the Sea makes a fist of keeping these states away, however, one need only ask what Her Majesty’s government might do if there was a floating armoury bobbing about within sight of Plymouth.
Which brings us back to regulation and market forces. Consolidation in the maritime security sector is inevitable. Or is it? It should be. Any standard business textbook on strategy will tell you that a market with multiple competitors will shrink to but a few. In a shrinking market, consolidation pressures are more intense. Companies will merge in order to marshal forces. Bankruptcy will emerge where sale, merger or deep pockets are absent.

Consolidation; What Consolidation?
Consolidation has not happened. Why? Some have tried to diversify (PGI). Some have gone bump (GOAGT). Some have divested then gone bump (Drum Cussac). Some are grabbing market share (Ambrey). Others do what they do, well (Diapolous). The long tail? All are out there, with shrinking margins, taking risks, fighting to the death. And it is, perhaps, in this last phrase, that the clue to this market is apparent. We have seen at first hand, how former soldiers start companies in the space and trade their fighting spirit from the military to the commercial. The enemy bears a different name. And absent commercial experience (which most do not have) the strategic confusion amongst alpha males in charge of such companies leads to a community of egos who cannot see the benefits of cooperation in a disparate market. Who, after all, if two companies merge, is going to step down and be subservient to the other? Better to die trying than take orders from someone else.
This is dangerous. In a poorly policed market, where the trade is civilians offering protection through resort to lethal force, a race to the bottom will result in cut corners. From four, to three; from two to one guard on a vessel – a poorly trained guard at that, economics and ego will force lip service to safety and the very reason guards are on vessels in the first place. Lose (no profit). Lose (no safety).

A Solution; What Solution?
Is there a solution that offers ship owners respite from this worst of all worlds; and offers the maritime security community respite from itself? There is. The answer lies in economies of scale. It lies in better logistics. It lies in cooperation and sometimes, in merger or sale. The market has already found the answer. Unfortunately it is, in its present guise, illegal and politically untenable.
The model is this. Put a cheap guard on a salary; put him on vessel after vessel with a kit box and float him around the Indian Ocean for a couple of months, avoid land, make fleeting visits to floating armouries and you have a highly efficient business with very high gross margins. Once a guard’s salary and costs are paid, the additional revenue is all gravy.
There is value in this (idealised) model. Most maritime companies do not have the infrastructure or the client base to support it. Instead, margins are decimated as a result of flights, agents’ fees, weapons storage costs, floating armoury charges, transfers, daily accommodation costs and hotels. If the next transit is a week away, profit may be lost altogether trying to keep guards in theatre. Profit will be lost sending them home. Weapons could be in the wrong place. Kit may be travelling in the wrong direction. Clever logistics management may help. But, fundamentally, a maritime security business trading on increasingly paper thin margins has to find efficiencies to survive.
Unless, of course, it has that critical mass of men, equipment and transit volume. If it has, then clever logistics and financial modelling are key. Critical mass is an absolute. And if critical mass is not an option, common sense, clear strategic thinking and sound commercial management should force decent maritime security companies to find partners to buy or merge with. Get it right and profit will increase as logistics, financial modelling, economies of scale and buying power combine to force gross and net margins up. Get it wrong and bankruptcy or closure looms. Many maritime security companies understand decent logistics, efficiencies and the bottom line. But, they have not the client base to action it. Instead, it is actioned in a piecemeal way. It is actioned in an illegal manner. These efficiencies have led to the sharing of men and in particular, weapons. Sharing weapons is illegal, it is politically charged, it is extremely dangerous.

Weapons For Hire – The Beginning of the End
Although no one has an absolutely precise figure to hand, we believe that there are at least 40,000 licensed weapons floating about or stored, ready for use, in The Indian Ocean. They sit on floating armouries, adjacent land or are in theatre under use. These weapons are not tracked on a real time basis. Companies are only put to proof when asked. In other words, regulation requires the sector to know what weapons they have and where they got them from.
Under UK law, weapons cannot be leased, or licensed, or ‘lent’. Heavy sanctions wait for those companies that do. But, the congruence of economic necessity and piecemeal regulation (many maritime security companies have nothing to do with the UK) means that weapons are passed between companies and used on a mate’s basis. For some, if weapons are not shared, the efficiencies that the smaller companies need to survive through sharing, will be lost. It is beg, borrow, or go bust.
Weapons swapping, sharing, hiring and licensing – it all leads to the same thing. It is not politically sustainable for enough arms to service a third world army to be bobbing about the sea with little idea as to who has what. The United Nations has taken notice, the US State Department has taken notice, the EU has worked it out and The British Foreign Office has been briefed.
Unless the gift of allowing private citizens to bear arms is to be taken away (or managed) by nation states once again, sensible actors within the maritime security space need to consider how best to service their shareholders and maximise profit in a highly responsible manner – merge, consolidate, sell. Choose economies of scale, clever logistics, astute modelling and commercial cooperation. There really is no alternative.
Weapons cannot and should not be traded at armouries or elsewhere. It is the beginning of the end. Equally, ship owners and charterers need to utilise their power and refuse to partake in this race to the bottom. It is, after all, the preservation of the safety of their men that is the end-game. And those that advise the maritime sector – its trade associations and the professional services who have done so well over the last five years, have to stand up for corporate social responsibility. We live in dangerous times. Somalia remains a failed state. Terrorism is prevalent in theatre. Meaningful regulation is piecemeal. Profit is being decimated. Corners are being cut. Weapons may start to go missing. There is a choice, a viable commercial solution for maritime security companies facing home truths. They must take it before it is too late.

EU-Mauritius Transfer Agreement at Risk?

It is our pleasure to welcome a post by Marta Bo, Visiting Researcher at the University of Amsterdam Center for International Law.  Marta’s post discusses a recent challenge to the validity of the EU-Mauritius transfer agreement, brought by the European Parliament to the European Court of Justice.  Welcome, Marta! 

In Case no. C-658-11 the European Parliament (EP) is requesting the Court of Justice of the European Union to annul Council Decision 2011/640/CFSP of 12 July 2011 on the agreement between the European Union and the Republic of Mauritius on the conditions of transfer of suspected pirates seized from the European Union Naval Force (EU NAVFOR) to the Republic of Mauritius.

In its first plea, the EP contests the legal basis of the EU-Mauritius transfer agreement which was adopted within the framework of the common foreign and security policy (CFSP). The adoption of Article 37 TEU as a legal basis entailed, from a procedural point of view, the application of Article 218 (5) and (6) TFEU which dispense the Council from seeking the consent of or consulting the EP when concluding agreements which relate solely to the CFSP.  According to the EP the contested decision is invalid because it does not exclusively relate to CFSP, but is also linked to other fields, such as judicial cooperation in criminal matters and police cooperation, to which the ordinary legislative procedure applies. In its second plea, the EP claims that the Council has fallen short of complying with the obligation to immediately and fully inform it at all stages of the procedure (Article 218 (10) TFEU).

The EU-Mauritius transfer agreement is only one among several agreements (see here and here) on the transfer of suspected pirates that the EU has concluded with third States on the basis of EU Council Joint Action 2008/851/CFSP of 10 November 2008

EU Council Joint Action 2008/851/CFSP was explicitly adopted to put into effect UNSC Resolutions 1814 (2008), 1816 (2008) e 1838 (2008) calling, inter alia, for international cooperation to combat the threat to international peace and security constituted by the situation in Somalia. To this end, the Joint Action established EU NAVFOR – operation Atalanta, the first European Security and Defence Policy (ESDP) naval military operation. Its mandate (extended until December 2014) embraces: a) the protection of both World Food Programme vessels delivering food aid to the Somali population and, more generally, of vulnerable vessels cruising the so-called Area of Operation; b) the deterrence, prevention and repression of acts of piracy and armed robbery off the Somali coast through the use of necessary measures, including the use of force; c) the arrest, detention and transfer of pirates in view of prosecution being brought under Article 12 .

Article 12 of the ‘Atalanta’ Joint Action specifically deals with adjudicative jurisdiction and is the legal basis for agreements between the EU and third States on the transfer of suspected pirates captured by EU NAVFOR, such as the one concluded with Mauritius. It indeed provides that in case of inability or unwillingness of the flag Member State or the third State participating in the operation, of the vessel which took them captive, suspected pirates shall be transferred to a Member State or any third State which wishes to exercise its jurisdiction; on the other hand, transfers to any third State are prohibited when the conditions agreed for the transfer are inconsistent with international human rights law.

It is against this background that Advocate General Bot in his Opinion delivered on 30 January 2014 assessed the content and objectives of the EU-Mauritius transfer agreement.

In proposing the dismissal of the first EP’s plea AG Bot asserted that transfer agreements are not only closely linked to the ‘Atalanta’ Joint Action, which comes under the CFSP, but they are essential to its implementation and effectiveness (para 71 of the Opinion). The Joint Action is a measure that should be situated in the context of the fight against Somali piracy in order to preserve international peace and security having due regards to human rights (paras. 83 and 114 of the Opinion). The close link between transfer agreements and the ‘Atalanta’ Joint Action results in the formers squarely falling within the aims of the EU’s external action and, in particular, within Article 21(2)(a)-(c) and (h) TEU, which set out objectives traditionally assigned to the CFSP. In addition, although transfer agreements contain measures similar to judicial cooperation in criminal matters and police cooperation, such traditional instruments of the Area of Freedom, Security and Justice could be mobilized in favor of  objectives of the CFSP and be absorbed therein (para. 118 of the Opinion). In AG Bot’s view the transfer agreement relates exclusively to the CFSP within the meaning of Article 218(6) TFEU and therefore the contested decision was rightly based solely within the framework of the CFSD.

Although the Court of Justice does not have jurisdiction in matters related to the CFSP (Article 24(1) TEU), the AG claimed that the CFSP cannot completely escape the scrutiny of the EU judicature, because it must be able to assess the validity of the procedure adopted to conclude a treaty. AG Bot suggested that the second plea should also be dismissed in light of the fact that the obligation of the Council to inform the Parliament at all stages of the procedure is less stringent in CFSP procedures (where consent from or consultation of the Parliament is not required). Surprisingly, he argued that the Council complied with its obligation by informing the Parliament three months after the agreement was concluded.

It now remains to be seen whether the Court of Justice will follow AG Bot’s arguments. In case it won’t, what consequences will a ruling of annulment have for the EU transfer agreement with Mauritius? Will the annulment have any impact on the piracy trials ongoing before Mauritian courts?

Under Article 264 TFEU the institution whose act has been declared void is required to take the necessary measures to comply with the judgment of the Court. In brief, the Council will have to remedy the grounds on which the annulment was pronounced, which means that it will have to adopt the proper legal basis and procedure.

Since there are important reasons of legal certainty, especially with regards to ongoing piracy trials before Mauritian Courts, the Court of Justice may also want to exercise its discretion either to decide which of the effects of the annulled decision shall be considered as definitive or to maintain its effects until a new decision is founded on an appropriate legal basis (Article 264 TFEU). This would ensure that previous transfers of pirates to Mauritian courts are unaffected by the Court’s ruling.

Moreover, the adoption of the proper legal basis and procedure by the Council will also ensure that the EU avoids being in breach of its commitments under the agreement. Although the annulment of the EU internal act concluding the agreement cannot per se have any consequences with respect to Mauritius, it could impair EU capacity to comply with the obligations arising from the agreement, as a result of which the EU could incur international responsibility.

Indeed, the EU remains responsible under international law for the performance of the treaty and could not invoke its internal law as justification for its failure to perform the agreement (Article 27 VCLTIOs ). In addition, it could not invoke the fact that its consent to be bound by the agreement was invalid since it was expressed in violation of its internal rules regarding competence to conclude treaties, in order to avoid international responsibility (Article 46 VCLTIOs).

Although the VCLTIOs has not yet entered into force, the corresponding rules regarding Internal law and observance of treaties and Provisions of internal law regarding competence to conclude treaties contained in its sister Convention (Articles 27 and 46 VCLT) may be accepted as representing customary law, which is binding for the EU.  

Therefore, in light of the importance of the security of legal relations and the irrelevance of internal questions regarding the procedure used for the conclusion of a treaty, the responsibility of the EU for the performance of the transfer agreement cannot be affected by the annulment of the Council decision.