Inside Somali Piracy Inc.

Somali pirate Hassan stands near a Taiwanese fishing vessel that washed up on shore in Hobyo, Somalia Photograph by Farah Abdi Warsameh/AP Photo

The ragtag Somali pirates who seize the MV Maersk Alabama in the film Captain Phillips don’t look much like businesspeople. But such hijackings are carried out by highly structured and profitable enterprises, according to a new study (pdf) that estimates Somali pirates reaped as much as $413 million in ransom payments from 154 hijackings from 2005 to 2012.

“The pirate business is like any other venture,” says Stuart Yikona, a World Bank specialist who worked on the report along with researchers from Interpol and the United Nations Office on Drugs & Crime. By interviewing captured pirates and others with direct knowledge of hijackings, the researchers found that most pirate operations shared a common business model, including investors, a reporting hierarchy, and detailed recordkeeping.

Most are run by financiers based in Somalia, Yikona says. They put up seed money for raids, either from their own funds or from shareholders they enlist. Some organizations even have a chairman and a board of directors who keep minutes of their meetings, he says.

The financiers invest in boats and supplies and recruit temporary “foot soldiers,” usually Somali fishermen, to carry out raids supervised by managers who carry out ransom negotiations. Once a hijacking takes place, “A complete economy comes to life to support the captured ship,” the study says. The vessel is guarded by a private militia, while cooks cater to the crew and pirates. “Many other services, including alcohol and prostitution, are provided,” the study says. “Each service provided is recorded and receipts are kept.”

The foot soldiers generally receive $30,000 to $75,000 per raid, no more than 2.5 percent of the total payoff, the study says. If they receive cash or services in advance of the payoff, they are charged 100 percent interest—for example, the company might advance them $10 worth of cellphone airtime, then deduct $20 from their final pay. In the end, financiers reap as much as 75 percent of the total ransom.

Who are the financiers, and what do they do with the money? “Contrary to conventional wisdom, most of the money remains in Somalia,” Yikona says. Many financiers are warlords who use the money to pay their private militias, buy political protection, and reinvest in new pirate operations. Some also invest in legitimate businesses, such as real estate and hotels. “Like all astute businessmen, some pirate financiers also diversify their business”—for example, by providing accounting and money-lending services.

Often, ransom money is held in offshore accounts, with elaborate money-laundering schemes used to move it back and forth from Somalia. For example, Belgian authorities investigating an April 2012 hijacking discovered that the ransom proceeds had been transferred to Djibouti and then onward to bank accounts in Dubai, the report says.

The study covered only hijackings off the coast of Somalia and the Horn of Africa. But, Yikona says, the findings have “a broader application and can be used to address the growth of piracy off the West African coast.”

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