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Countering the threat of kidnapping.

For Exxon International President Sidneyj. Reso, the last days of life must have been agonizing. Abducted by a husband-wife kidnapping team, Mr. Reso lay in a tiny storage warehouse, tied, gagged and with a bullet wound to his arm. He died after four days of captivity. Two months later, the Federal Bureau of Investigation (FBI) caught the kidnapers, who had demanded a ransom of $18.5 million. The wife plea-bargained for lesser charges, cooperated with authorities and led them to southern New Jersey, where Mr. Reso was buried in a makeshift grave. The husband, a disgruntled former Exxon employee, was charged and later convicted of kidnapping and murder.

Although the tragic story of Mr. Reso's kidnapping and death shocked the nation, the case brought home the fact that executives are vulnerable to kidnapping and abduction not only in high-risk countries in the Middle East, but also right at home in the United States. In fact, no matter where they take place, corporate kidnappings occur much more frequently than most people realize. Control Risks Group, a McLean, Virginia-based security consulting firm, reports that between 1990 and 1992, there were 2,625 kidnappings worldwide, up sharply from the 1,171 that occurred between 1987 and 1990. Besides corporations, hospitals also face a growing threat from infant abductions. The Hospital Council for Southern California reports that infant abductions take place in about four out of every 200,000 births.

Whether the motivations of the kidnappers are due to ideological, economic or personal reasons, kidnappings have similar effects on the victim and his or her family and company. For the victim, the experience is harrowing. Often confined in deplorable conditions, the detainee may be exposed to health hazards, or subject to threats or beatings that can lead to injury and even death. Throughout the detainment, the victim's family is crippled by fear and uncertainty about the welfare of their loved one, who the kidnappers are, why they abducted their loved one and if the matter can, or will, be safely resolved. Finally, for the kidnap victim's employer, the abduction will result in the loss of the victim's contributions to the company, the psychological effect the event has on other employees, the financial costs of the kidnapper's demands and the public relations impact on the firm's reputation.

Because kidnapping poses a threat to executives, risk managers must develop a response to this crisis. Although companies can implement certain security measures - and others may be able to fund the abductor's ransom demands - few firms have the resources and expertise required to deal with all phases of a kidnapping event. For that reason, risk managers should investigate the use of a kidnap insurance policy for both the financial coverage it offers and the consultant expertise that it provides.

What's the Risk?

Risk managers who use a risk assessment to determine if their firm is vulnerable to kidnappings may find that the risk is small. Nevertheless, it is important to realize that even a small threat may still pose a danger to their firm. The situation is further compounded by the fact that changes in recent world events indicate that corporate kidnappings in overseas locales may become more prevalent in the future.

The reason for this was revealed to the authors in a recent meeting with an experienced anti-terrorist agent. The agent remarked that many of the countries that subsidized terrorist activities in the past, such as the former Soviet Union and Cuba, have either dissolved or are financially strapped. As a result, these governments have cut off or reduced funding for international terrorist groups. Since many of these terrorist groups conduct their activities solely as a way to earn a living, the agent reported that they are now searching for alternate sources of funding - which means many of the groups are turning to corporate kidnapping. And because they are perceived to be vast repositories of wealth, American companies are considered to be ideal targets. This search for potential kidnapping victims associated with U.S. companies is known as "logo hunting." However, employees of U.S. corporations are not the only targets; anyone who works for an overseas organization associated with the United States may also be at high risk.

Kidnapping is also a serious problem in the United States. Studies show that in the United States, ransom demands average approximately $1 million, in comparison to $10 million or more in other parts of the world. In the United States, kidnap cases are typically short-term events that last for hours or only a few days, whereas kidnapping events can last for weeks or months in other countries. For example, the average time of captivity in Europe is over 65 days, and over 200 days in Latin America. However, U.S. kidnappings are more likely to turn violent. This is because most U.S. kidnappers are petty criminals out to make a huge sum of money from one crime. With the FBI on their trail, many of these inept kidnappers panic - and in many cases, harm their hostage. In other regions of the world, however, kidnappers tend to be trained terrorists who realize that if harm comes to their hostage, their bargaining power is gone. As a result, they often treat hostages well.

Ironically, the sophisticated electronic security systems that some companies use can also lead to an increased risk of kidnapping. For example, the London Financial Times recently reported that perpetrators of industrial espionage and corporate theft are finding it safer and more expedient to accomplish their crimes by kidnapping the company's upper or middle manager who is acquainted with the firm's security system, or a member of the manager's family. The kidnappers then force the employee to help them bypass the security system so they can commit their crimes without fear of detection.

Reducing the Risks

Many companies develop a crisis management response in order to deal with threatening events and situations. In general, crisis management involves creating a plan or strategy for resolving emergency situations that confront an organization. Although risk managers can use a crisis management plan for dealing with kidnappings, companies will be limited in regard to the types of protection strategies they can implement. In fact, these security measures will generally be limited to hiring security guards and installing electronic surveillance equipment. Although such measures may provide some protection, safeguarding a company against kidnappings - and solving an abduction once one has occurred - requires the assistance of specially trained experts. Because of these limitations, risk managers may wish to look into the use of kidnap insurance.

Modern kidnap insurance began shortly after Charles and Anne Morrow Lindbergh's baby was kidnapped by Bruno Hauptmann in 1932. The insurance was designed and developed at Lloyd's of London. Today, in addition to Lloyd's, there are several other sources for this coverage, all of which offer similar provisions.

However, a kidnap policy is not simply a funding mechanism for paying off a ransom demand, but also includes the services of security consultants and other specialists. Typically, these consultant firms are on permanent retainer by the insurance company, and are accessible only to the insurer's clients. Due to their expertise in dealing with kidnapping cases, these consultant organizations are the most essential component of the kidnap insurance policy. The consultant companies generally include kidnapping experts, and professionals with extensive knowledge of the relevant legal issues, family counselling and the country where the kidnap took place. And since kidnapping specialists know and understand the dynamics of kidnapping and are familiar with local laws and customs, they will be able to act swiftly to mobilize international resources for solving the case.

The security consultants can assist the company in a number of ways. First, a kidnapping consultant can help the client company develop crisis management teams that will be authorized to make decisions during the case. Generally, these teams will consist of individuals from the client company's corporate level, and hill be implemented at the company's headquarters as well as in each foreign subsidiary. Control Risks Group reports that it deploys experts to both the client company's corporate headquarters and each local facility to oversee and help create the team.

Consulting organizations will also be able to continually monitor the sociopolitical conditions of the local country to determine if the client company is vulnerable to kidnapping. The consultants can also provide safety training seminars for executives, and conduct security surveys of the client firm's facilities.

In the event of an actual kidnapping, the security consultants will have the expertise needed to negotiate for the hostage's release. Control Risks Group reports that during the negotiating process, it can help the company maintain steady communications with the kidnappers, advise their client on the financial and other concessions that should be offered in response to the kidnappers' demands and, when a ransom settlement is reached, suggest methods for delivering the ransom monies.

The security consultants must be able to maintain close contact with their clients in even the most adverse circumstances. For example, during the Persian Gulf crisis, one security firm was able to locate and communicate with its clients who were in hiding and prepare them for a successful escape from Iraq. The firm then conducted debriefing and counseling programs, and incorporated emergency security measures for employees of subsidiary companies located in neighboring countries who were then placed on alert. In this case, the scope and breadth of the security firm's resources allowed them to safely remove their client company from danger, whereas several other security companies were unable to access their clients in this region.

With respect to counseling and guidance for the kidnap victim's family, security specialists will be a great asset to the case. Throughout the investigation, the specialists will be able to inform the victim's family about particulars related to the kidnap investigation while providing them with counseling and support. Law enforcement agencies, on the other hand, will be of little help to the family in this regard. This is because these agencies usually keep information uncovered during an investigation confidential until they have built a case against their prime suspects. As a result, they will be unable to provide much information to the victim's family.

During the crisis, the security consultants can also assist the client company in dealing with the media. These measures will include making recommendations on the content and timing of press releases, and offering advice on how the local media can be used as a means for communicating with either the kidnappers or the hostage.

Besides providing access to the security experts, most kidnap policies include, or make available, a wide variety of reimbursed items. These include funding for ransom payments, and money for informants and rewards. Also included are the fees for the security specialists, and funding for family counseling, legal liaison assistance, extortion money, disability benefits, accident-only life insurance, and cash benefits to the victim's family.

Many policies cover personal security training and the services of professional negotiators. Some kidnap policies also provide additional reimbursement cash for informant's fees, rewards, medical and psychological treatment for the victim and his or her family, and transportation in post-event trauma.

The terms of most kidnap policies require that once the application begins, disclosed existence of this coverage by the insured may be grounds for rescission. Therefore, confidentiality about the existence of the insurance policy is an important element in successful underwriting. One last item of importance in the selection of this type of coverage is the response time and the flexibility in the final claims settlement. If the service is acceptable, but the corporation or the victim's family is left with a giant bill, then the insurance benefit failed to serve its purpose.

Infant Abduction

While corporate risk managers must implement policies for protecting executives and other employees from kidnapping attempts, hospital risk managers must safeguard their institutions against infant abductions. Unlike business-related kidnappings, infant abductions are usually not for financial gain. infant abduction policies are purchased by hospitals and contain additional provisions not included in traditional kidnap policies. These provisions include funding for detective investigations, which can be conducted on a national basis. The second provision provides funding for a public relations campaign to limit information leakage, or to at least minimize the likelihood that erroneous information about the case will reach the public. This public relations assistance is vital because the damage to the hospital's reputation from negative publicity can be insurmountable.

Infant abduction policies also provide funding for income replacement for the family during the kidnapping, which is provided as a form of disability benefit. After the traumatic event is over and the child has been reunited with the parent or parents, some kidnap policies also fund a post-incident vacation. This provision was created in recognition of the fact that the family has been on an emotional roller coaster and needs to spend time together to "reconnect." This vacation is often taken in a location far removed from the media and in an atmosphere that will best promote much-needed psychological healing for all parties.

Because of the devastating psychological and financial effects associated with both corporate and infant abductions, risk managers should develop an effective response to kidnapping. Risk managers will find that although there are many insurable events or occurrences that can be dealt with equitably on a self-funded basis, kidnap perils require too great an amount of resources, time and expertise to be adequately handled without the use of kidnap insurance.

As the following case studies from Control Risks Group attest, kidnappings and kidnapping attempts are committed for a wide variety of reasons and can occur anywhere in the world.

The United States

John Grundhofer, chairman of First Bank System Inc. in Minneapolis, Minnesota, was kidnapped in his company's parking lot. The kidnapper drove him to Wisconsin, then bound him and left him in a sleeping bag. He managed to escape two hours later. The ransom demand was reported to be $3 million.

Charles Geschke, a computer executive with Adobe Systems in California, was abducted at gunpoint in the company parking lot on May 26, 1992. A ransom of $650,000 was paid. Five days later, police arrested one of the two suspects, who in turn told them where to find Mr. Geschke. The second suspect was arrested while fleeing the scene of Mr. Geschke's detainment. Two days later, the ransom money was recovered.

In Berkeley, California, a newborn baby was taken from the hospital by a woman posing as a social worker. The infant, who was known as Baby Kerri, was later found. Authorities arrested the kidnapper - a woman who simply wanted to have her own baby.

Alan Butts, a bank manager living in the San Fernando Valley, was confronted by a kidnapper while on his way to work. The kidnapper forced his way into the victim's home, where he foisted ominous-looking packages upon Mr. Butts, his wife and children. He then told Mr. Butts to go to the bank and bring back a briefcase full of cash - or he and his family would be blown up by the bombs that he claimed were stored inside the boxes. The kidnapper subsequently panicked and fled the house. The incident ended eight hours later, and the family escaped serious personal injury.

The Philippings

Michael Barnes, vice president and general manager of Philippine Geothermal Inc., a subsidiary of Unocal, was kidnapped outside his office in Manila's financial district on January 17, 1992. He was held for over 60 days before being rescued in a bloody shoot-out with Manila commandos. The kidnappers had demanded a $20 million ransom, but no money was paid. This same group had kidnapped a Chinese-Filipino businessman the preceding November. He mysteriously escaped shortly thereafter. There is no public information as to what, if any, ransom was paid in this case.


An American subcontractor working for a large U.S. company was abducted by 30 armed guerrillas while driving to work. He was held for 61 days while negotiations took place between his captors and the U.S. company. The kidnappers demanded military equipment for their separatist political organization and social assistance, which included medicine, food and clothing. The kidnappers later released the man after the company fulfilled some of their demands.


A non-U.S. expatriate working for a U.S. company was kidnapped by guerrillas in a rural section of the country. Finally, after 314 days of captivity and 21 meetings between the kidnappers and the intermediaries, the man was released after a ransom amount was paid. The original ransom demand was alleged to be for several million dollars.


During the Persian Gulf crisis, the world witnessed a large-scale detention in which no ransom was asked. Prior to the Gulf War, Saddam Hussein kept several thousand foreigners as his "guests." Saddam never asked for a ransom - he simply did not allow the detainees to leave Iraq. Saddam orchestrated the detainment in response to the United States' and its allies' attempts to force him to withdraw Iraqi troops from Kuwait. Although Saddam eventually freed the detainees, the event demonstrated that as with a kidnapping, long-term detention can be very traumatic for the victim and the victim's family and company. However, with detentions, there is no chance to offer a payment for release of the detainees.

United Kingdom

Kidnappings are not restricted to human beings. In 1983, the British Derby champion race horse Shergar was abducted. The kidnappers demanded a ransom of 2 million [pounds]. The horse was never found. The lost stud value due to the horse's disappearance was estimated to be over 30 million [pounds].

W. Harold Petersen is president and director of corporate affairs, and Thomas R. Peterson is director of international health and special risks, for Petersen International Insurance Brokers in Valencia, CA.
COPYRIGHT 1993 Risk Management Society Publishing, Inc.
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Title Annotation:includes related article with case studies
Author:Petersen, W. Harold; Petersen, Thomas R.
Publication:Risk Management
Date:May 1, 1993
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