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.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Property Inspection Inventory Clerk

£10000 - £16000 per annum: Recruitment Genius: Our client is a fast growing in...

Recruitment Genius: PSV/PCV & HGV Mechanics

£29000 - £40000 per annum: Recruitment Genius: PSV/PCV Mechanics & HGV mechani...

Recruitment Genius: Reprographics Operator

£12500 - £13000 per annum: Recruitment Genius: The largest independent Reprogr...

Recruitment Genius: Web Design Apprentice

£6240 per annum: Recruitment Genius: This company is a well established websit...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee