The Horn of Plenty: How piracy became a $413m business

World Bank report reveals how profits are used to fund terrorism and destabilise Somalia

Tales of piracy off the Horn of Africa have gripped the world’s imagination, leading to Hollywood adaptations such as Captain Phillips, based on the true story of the 2009 hijacking of the US-flagged MV Maersk Alabama by Somali pirates.

The film, starring Tom Hanks as Captain Richard Phillips, took £3m in its first weekend at the UK box office – a remarkably good turnout.

The finances behind real-life piracy have always been far murkier. But today, a report authored by the World Bank, the UN and Interpol has shed new light on the chain of money transfers, from ransom to pocket.

Having interviewed pirates (both current and former), their financial backers, middlemen and government officials, the study offers a comprehensive look inside the fairly sophisticated financial world of piracy, and estimates that pirates operating off the Horn of Africa extracted up to $413m in ransom payments from shipping companies between 2005 and 2012. Pirates see as much as $75,000 each for their roles in hijacking, with bonuses of up to $10,000 for those who show initiative by being first to board the ships, or bring their own weapons.

“They knew exactly what they wanted,” said Gary Skjoldmose-Porter, the security manager for the Danish Clipper Group, which owned a vessel that was hijacked off Somalia in 2008. He likens the negotiations over securing the 13-strong crew’s release to haggling in a bazaar.

“We negotiated for 71 days and ended up paying a ransom of $1.7m,” he says.

The pirates, negotiating in English, specified the denominations of the currency and even how they were to be wrapped. Mr Porter organised for the bundles of cash to be dropped from the air onto the vessel. “They were smart, organised and ruthless,” he says.

Much of the pirates’ ill-gotten gains travel through or end up in Somalia according to the report, entitled “Pirate Trails: Tracking the illicit financial flows from pirate activities off the Horn of Africa”. Local people helping the pirates also stand to gain from the operations – cooks, lawyers, banknote checkers and pimps are all in high demand.

Some 59 key financiers and investors have become wealthier as ransoms have grown tenfold over the seven years, from $500,000 per hijacked vessel in 2005, to $5m at the peak of the activity in 2011. Of the 170 vessels hijacked between 2005 and 2012, most were released after a ransom was paid, though a small number remain in pirate hands.

“It is immensely profitable,” says Stuart Makanda Yikona of the World Bank. “Ransoms are invariably paid in untraceable cash bundles and these are smuggled out of the country, through Somalia’s porous borders.”

Some pirates used their substantial pay-offs to diversify their business interests into human trafficking, drugs and the arms trade. Some has been used to take over transportation networks and even Somali hotels and restaurants. The piracy groups also help to fund the terror group al-Shabaab, which claimed responsibility for the Nairobi shopping centre siege last month.

Pirate operatives, who are drawn largely from the local fishing industry and armed with rocket-propelled grenades, AK-47s, and tracking devices, do the dangerous work of boarding ships and threatening the crew members on board. The operatives usually receive a day-rate and expenses, which usually amount to between $35,000 and $75,000 per job. Though that is not to say they always emerge from the operations with a lucrative bounty. Deductions are made for their food and for the herbal stimulant khat, which was recently criminalised in the UK. They can also receive fines for bad behaviour – such as $5,000 for mistreating crew members, which would also warrant dismissal from the operation.

Though the number of hijackings has dropped significantly since 2011, when bigger ships began bolstering their armed security against the attacks, the report says the pirates have become better organised, while police, army and customs in countries such as Somalia have lacked resources to monitor the borders, seize their funds and close them down completely.

“Somalia is a fragile state, and it finds the task of curtailing these pirates and their sources of funds a great challenge,” says Mr Yikona.

The Somali government and Western intelligence services are now targeting the pirate kingpins where it hurts – their ego and their funds. Last month Somali pirate Mohammed Abdi Hassan, also known as Afweyneh or ‘Big Mouth’, was arrested in Brussels having been enticed to Europe with the promise of a part in a film.

Though the ego tactic worked for ‘Big Mouth’, most other analysts think the financial route is the one that will hit the pirates hardest.

“You need to go after the pocket”, says Mr Yikona, who advocates an international police force to target the ransom money extorted by the pirates. “If you follow the money, it will lead you to the beneficiaries. We can identify them and they know that we are coming after [them]. That raises the cost of hiding their money.”

Pirates’ progress: A growing business

Before 2008 Somali piracy was largely a family affair. Family members shared the cost of the operation, with some supplying materials such as ladders and weapons. The total outlay for such an operation could have been as little as $300. Even if smaller vessels were targeted, the potential returns were considerable.

But then more substantial criminals spotted the opportunities and developed what the World Bank report calls a “shareholder” model. This involved participants making investments and receiving a proportionate payback. The report says a committee of financiers was formed to collect “enough money to sponsor a pirate expedition”. An expedition involving cartels and two skiffs cost an average of $30,000.

Several financiers might be involved, each contributing $5,000 to $10,000. The money collected would be given to the pirate leader, who would be in charge of organising the expedition; recruiting members; and obtaining the required weapons, fuel, khat (a mild stimulant drug commonly used in Somalia), food and water. The group would always include at least one team member who could speak some English and read a ship’s manifest – typically the pirate leader.

In 2010, ship owners sought to deal with the piracy menace by arming ships. The pirates responded by building international networks and increasing their investment in arms and vessels. “They have become increasingly organised,” the report says.

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