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Piracy Syndicates Selling Shares to Finance Attacks, U.S. Navy Chief Says

Piracy syndicates are selling shares in planned attacks, fueled by a surge of ransom payments that help attract investors, the U.S. Chief of Naval Operations Admiral Gary Roughead said.

Piracy syndicates in villages, mainly in largely ungoverned Somalia, solicit investors who buy shares in the attack missions and gain a corresponding share of ransoms paid by the shipping industry, he said.

“The ransoms fuel the business; the business invests in more capability -- either in a bigger boat, more weapons, better electronic-detection means to determine where the ships are,” Roughead said yesterday during an interview in Bloomberg’s Washington Bureau. “So it’s a business.”

The average ransom payment rose 36-fold over five years to $5.4 million last year, compared with $150,000 in 2005, according to the Louisville, Colorado-based One Earth Future Foundation. The payments are fueling increased raids, adding at least $2.4 billion to transport costs because vessels are being diverted onto longer routes to avoid attacks off east Africa, the nonprofit group said earlier this year.

A group of 60 nations is working to combat the threat, which is made worse by complex national and international laws and norms that restrict effective prosecution.

The London-based International Maritime Bureau recorded 142 attacks worldwide in the first quarter of this year, the most for the period since monitoring began in 1991. Pirates took 344 sailors hostage and killed seven during the period.

Worse in 2011

Trends indicate that 2011 will be worse, U.S. Assistant Secretary of State for Political-Military Affairs Andrew Shapiro told an audience in Washington on March 30.

The North Atlantic Treaty Organization said that on April 20 it fired in self-defense on a group of suspected pirates near the Somali coast. The Danish warship HDMS Esbern Snare came under attack while investigating a hijacked vessel headed toward a known pirate town, NATO said in a statement yesterday.

“The government is not providing the industry with any other alternative” to ransoms, said Graham Westgarth, president of Teekay Marine Services, a unit of Hamilton, Bermuda-based Teekay Corp. (TK), the world’s biggest oil-tanker owner. “This is a political issue that has to be solved by the government.” About 600 mariners are being held hostage, some for as long as six months, he said.

Result of Ransoms

“The increase in attacks over the last year is a direct result of the enormous amounts of ransom now being paid to pirates,” Shapiro said at a forum organized by the London-based International Institute for Strategic Studies.

Pirates are extending the business model to how they pay their crew members based on skills or other assets, such as weapons, that they can bring to the mission, Roughead said.

While shipping companies are increasingly adopting proven practices to reduce the risk of a pirate attack, they also may benefit from paying ransoms by avoiding higher insurance rates, the admiral said.

Ransoms paid totaled $238 million in 2010 and total losses were as much as $12 billion when costs such as insurance premiums, re-routing of ships and security were taken into account, according to One Earth Future, which runs a project to work with industry and affected countries to curb piracy.

“I think the shipping companies are aware of the fact the ransoms are not helpful,” Roughead said. “My sense is that it is a business decision on their parts.”

Crew Welfare

Shippers have to consider the welfare of their crews in confronting the challenges of piracy, said Joseph J. Angelo, the Arlington, Virginia-based managing director of Intertanko, a trade group for tanker owners. Westgarth is chairman of the group.

“If our membership don’t demonstrate a strong concern for the safety of the seafarer, why would any seafarer sail with our member?” Angelo said in a telephone interview yesterday. “There needs to be an increase in the will of governments to eradicate piracy.”

Pirates have changed their tactics to adapt to defensive measures taken by navies participating in the international anti-piracy coalition. They ranged as far south as Madagascar last year, and to within about 100 miles north of the Maldives in the east, reports from the International Maritime Bureau show.

The Contact Group on Piracy off the Coast of Somalia has expanded to 60 countries this year from 28 countries when it was established in January 2009. A multinational task force conducts naval patrols in the Gulf of Aden and off the coast of Somalia, seeking to cover an area of more than 1 million square miles, Shapiro said in his March 30 speech.

Aggressive Targeting

Further steps being considered include determining better ways to prosecute pirates, expanding military approaches and “aggressively targeting those who organize, lead and profit from piracy operations,” Shapiro said.

“Over the years, 80 percent of the pirates have been captured at some point, and 90 percent of that 80 percent have been released,” said Westgarth, the industry executive.

The escalation in piracy has prompted the U.S. to back off its traditional reluctance to support an international forum for prosecuting such crimes after seeing that national courts in the region aren’t sufficiently dealing with the problem, he said.

“The United States is now willing to consider pursuing some creative and innovative ways to go beyond ordinary national prosecutions,” Shapiro said.

The industry also can do more, Shapiro said. About 20 percent of vessels off the Horn of Africa aren’t using proven “best practices” to increase security, such as proceeding at full speed through high-risk areas or placing more lookouts on watch, he said. They account for “the overwhelming number of successfully pirated ships,” he said.

To contact the reporter on this story: Viola Gienger in Washington at vgienger@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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