K&R: An Old Industry For a New Age

It's a multimillion dollar industry that unites men in three-piece-suits with kids carrying Kalashnikovs — often with the kids giving orders to the suits.

It has no industry leader, though some countries host more deals than others.

Some of the world's wealthiest companies, like AIG, Chubb, and Lloyds of London, take part — but news of this business rarely shows up in the Wall Street Journal.

And Hollywood has only taken a look at it a handful of times — most recently, in the movie Proof of Life.

Insiders call it K&R, which stands for "kidnap and ransom."

Dealing in the Shadows

Specific information on K&R is rare — and with good reason.

Corporations or families who have had a loved one or employee kidnapped often won't go to police because they are "incompetent, corrupt, or in some countries, confederates of kidnappers," says Brian Jenkins, a Green Beret veteran of the Vietnam War and past chairman of Political Science at the Rand Corporation.

In other countries, going to police may mean kidnappers will never get their money — and the hostage will never be released alive. Italy, for example, passed a law in 1991 intended to reduce the number of ransom kidnappings — by freezing the assets of a kidnap victim's family to prevent payment of a ransom.

Even after the ransom is paid, the impulse to stay quiet remains. "You don't want to give kidnappers a number to aim for," says Jenkins.

Yet, executives doing business overseas feel they face an increased risk of kidnapping nowadays, and many of them are purchasing insurance against it.

"One of the few statistics that we see is about 60 percent of corporate America — large companies, that is — have purchased this type of coverage," says Terry D'Italia, a press officer for Chubb Executive Risk in Simsbury, Conn.

Such executive risk insurance not only pays for ransom, but it also provides advice on how to stop kidnappers before they even get a hostage. More important, it pays for advisers when a ransom needs to be paid.

New Overhead for Overseas Business

The advisers are usually employees of organizations with innocuous names like Control Risks Group.

But they are the best people in the world for what they do, drawn from the ranks of the world's elite law enforcement and military agencies.

And they are very expensive. One can cost several thousands of dollars a day, and sometimes one is not enough.

These advisers typically have had experience in kidnappings, have served in the country at issue, know the language, and have good contacts with government officials.

In many cases, they will also know the local kidnapping gangs, and can form a list of suspects, and have a sense of their negotiating tactics and techniques. They'll also know the going rates for ransoms — and whether a deal is reasonable or not.

But they are not Rambo-types. "The gun-toting, cigar-chomping, scar-faced individual is an image built over the years from Hollywood," says Michael Grunberg, commercial adviser to Sandline, a private military company with headquarters in London that has been retained for K&R situations.

In fact, he describes one his operatives, a former member of the Special Air Service — the British special forces: "He's very diminutive, small, very small, quiet mannered — this is what you need, someone's who cool and will think things through before taking action, someone who is prepared for acting as a member of a team."

In worst-case scenarios, these advisers can also resort to a rescue operation — but that is very rare.

There are innumerable risks to a rescue operation, and they have to be planned out meticulously, Grunberg says. "There are more lives at risk than just individual captives."

Sometimes kidnappers live among local villagers, "so when you mount one of these operations you put at risk innocent lives," he says.

Grunberg says that in one of the few rescue operations he's aware of — Operation Barras, where British forces earlier last year freed fellow troops in Sierra Leone — the liberators had the area under surveillance for weeks before taking action.

The troops reportedly even built a replica of the area to practice their assault.

The Future of the Business

With the increasingly global economy, and with more business people traveling farther and farther abroad, people like Grunberg, Jenkins and D'Italia might expect this business to grow.

But the professionals are more circumspect on the future. "We're not talking about something that's a new crime," Jenkins says.

Rather, Jenkins traces the boom in ransom kidnappings in certain areas to "a breakdown in law enforcement — which may be a consequence of an ongoing guerilla war or simply, underpaid, poorly equipped and in some cases, corrupt police."

For example, Latin America accounts for as much as 80 percent of kidnappings for ransom. But no more than 5 percent of kidnap cases there are ever resolved — making it a crime with high payoff and little risk.

"If you look back through history there are periods and places where kidnapping became endemic," Jenkins says.

Julius Caesar and Cervantes were both kidnapped for ransom, he says, and at the beginning of the 19th century, pirates in North Africa had more kidnap-for-ransom hostages than in the world today.

Even today, the K&R business "has its ups and downs," says D'Italia.

The global economy may help increase ransom kidnappings but doesn't drive it, says Jenkins.

"This is a crime, and a very primitive crime with considerable history. It's not like cybercrime, money laundering or airline hijacking," he says.