Tag Archives: economics of piracy

Alive and Well: Piracy

image from https://www.icc-ccs.org/index.php/1234-second-quarter-report-reveals-87-incidents-of-maritime-piracy-in-first-half-of-year

Continuing decline in the number of reported incidents of maritime piracy and armed robbery against ships has been revealed in the second quarter piracy report of the International Chamber of Commerce (ICC) International Maritime Bureau (IMB), published today. According to the report, the first half of 2017 saw a total of 87 incidents reported to the IMB Piracy Reporting Centre compared with 97 for the same period in 2016…

[I]n the first six-months of 2017, 63 vessels were boarded, 12 fired upon, four were hijacked and attacks were attempted on another eight vessels. A total of 63 crew have been taken hostage so far, this year while 41 have been kidnapped from their vessels, three injured and two killed.

The encouraging downward trend has been marred however by the hijacking of a small Thai product tanker en route from Singapore to Songkhla, Thailand. The hijacking, at the end of June 2017, was conducted by six heavily armed pirates who transferred 1,500 MT of gas oil to another vessel. The incident followed a similar pattern to a series of product tanker hijackings in the region which occurred approximately every two weeks between April 2014 and August 2015….

Cooperation between Indonesia, Malaysia and Philippines has been recognised as the fundamental reason for the overall decline in the number of reported incidents in and around the Philippines…

Somali pirates still retain the skills and capacity to attack merchant ships far from coastal waters. Pirates in Nigeria continue to dominate when it comes to reports of kidnappings

Excerpts from Second quarter report reveals 87 incidents of maritime piracy in first half of year,  ICC Commercial Crime Services, Press Release, July 4, 2017.

How to Destroy the Pirates: free trade

Gulf of Aden map. Image from wikipedia

Ships navigating the lawless seas of the Gulf of Aden must keep a constant lookout for Somali pirates. The roots of Somalia’s maritime banditry lie in its desperately poor coastal villages, where the choice between fishing and piracy is an easy one for many.

Anja Shortland and Federico Varese mapped the locations of hijacked ships between 2005 and 2012. They found that hijacked vessels were always anchored far away from regional trading routes, and that big ports were not prone to piracy. There is a reason for that. Somali clans control local trade by issuing licences and charging informal taxes. The researchers reckon that communities which can tax imports and exports refuse to protect pirates because trade is a safer and more lucrative source of revenue than pirate earnings. Only clans that have no other income offer the pirates protection, in return for a share of their loot…..A… solution [to piracy] would be to build new roads and ports, which would allow remote areas to start trading. With alternative sources of income, fewer communities would be willing to harbour pirates….

A former president of Puntland repeatedly requested a road be built to Eyl, a rough-and-ready coastal town, as a quid pro quo for giving up piracy. His request was turned down, and piracy continued. Time for donors to rethink where they spend their pieces of eight.

Crime in Somalia: Pirates v economist, Economist, July 12, 2014, at 42

The Economics of Piracy: who benefits

man dividing qat (khat) in bunches.  Image from wikipedia

[T]he pirate economy is poorly understood. A report released on November 4, 2013 by the World Bank, the UN and Interpol sheds new light.  The authors interviewed current and former pirates, their financial backers, government officials, middlemen and others. They estimate that between $339m and $413m was paid in ransoms off the Somali coast between 2005 and 2012. The average haul was $2.7m. Ordinary pirates usually get $30,000-75,000 each, with a bonus of up to $10,000 for the first man to board a ship and for those bringing their own weapon or ladder.

Qat, a narcotic plant that is chewed by many, is often provided to pirates on credit during an operation. Their consumption is recorded and, when the ransom is paid, each pirate gets his share, minus what he consumed.  Other deductions include food and fines for bad behaviour, such as mistreating the crew, which often carries a $5,000 fine and dismissal…Some pirates find it difficult to retire because they end up in debt at the end of a hijack. Part of the ransom money flows to local communities that provide services to pirates.  Payments go to cooks, pimps and lawyers, who are increasingly sought after, as well as banknote-checkers with machines that can detect fakes. Money is also paid to militias that control ports. Under one agreement in Haradheere, a port north of Mogadishu, Somalia’s capital, pirates paid a “development tax” of 20% to the Shabab, an Islamist rebel group tied to al-Qaeda.

During operations, pirates spend with abandon. Interest rates on loaned goods and services are high: $10 of mobile-phone airtime is charged generally at around $20. The men on the anchored ships also pay up to three times the market price for qat, driving up prices on the coast. “With piracy everything became more and more expensive,” complains a fisherman-turned-pirate. Some locals (including former pirates) offer services to potential and actual victims of piracy, for instance as consultants, negotiators or proof-of-life interviewers. Some of these “companies” openly advertise their services, sometimes contacting victims directly.

Financing pirate expeditions can be quite cheap by comparison. The most basic ones cost a few hundred dollars, which may be covered by those taking part. Bigger expeditions, involving several vessels, may cost $30,000 and require professional financing, This comes from former police and military officers or civil servants, qat dealers, fishermen and former pirates. They take anywhere between 30% and 75% of the ransom.  A typical operation has three to five investors. Some provide loans or investment advice to other financiers. Some financiers, especially those in the Somali diaspora who have little cash inside Somalia but large deposits abroad, employ what the report describes as “trade-based money-laundering” to send funds to Somalia. This involves finding legitimate Somali importers willing to use a financier’s foreign money to pay for their shipments and reimburse him at home in cash once the goods are sold.

The same technique is sometimes used to transfer ransom money out of Somalia. Cash is also smuggled across the region’s porous borders or transferred through intermediaries. One pirate took $12,000 in $50 and $100 bills to an office that transmits money and wired it abroad, bought a car and shipped it back to Somalia. The Somali financial sector is surprisingly dynamic and growing more quickly than state institutions. Various internet-payment services have popped up, even in the roughest parts of the country.

The report identifies Djibouti, Kenya and the United Arab Emirates (UAE) as the main transit points and final destinations for much of the loot. The financial institutions in Dubai, part of the UAE, are a particular worry. Investigators concluded that the ransom from the hijacking of the MV Pompei in 2012 was moved to Djibouti, then wired to banks in Dubai.  A third of pirate financiers invest profits in setting up militias or gaining political influence. Some also finance religious extremists.

Excerpts from Somali piracy: More sophisticated than you thought, Economist, Nov. 2, 2013, at 53