By Rudolph Atallah, CEO, White Mountain Research

Introduction

The spate of recent pirate hijackings and murders off the East African coast should leave little doubt among policy makers and security officials within the international community that the scourge of piracy must be tackled head-on. While armed escorts and the presence of allied naval forces in the region contribute a modicum of security to shipping and private transit, these measures can best be described as too little and often too late.

The argument of some of the most knowledgeable East African specialists is that perhaps the most fundamental step towards staunching the development of pirate networks is to attack their financial system. Indeed, there may be no more effective method of disincintivization available, as recent attacks suggest that the threat of military force is often insufficient. However, in order to attack the financial structure of piracy, it must be better understood, along with its place in Somali society.

The following paper provides a brief overview of the system of pirate finance and its social impact. It also offers a few recommendations to begin to tackle this problem. Brief and incomplete, it is nevertheless hoped that the material presented here—gathered largely from my own contacts in the region unless otherwise specified—provides a starting point for a more robust discourse on the issue of pirate finance while simultaneously pinpointing areas requiring more focused research.

Background

Most of Somalia's modern-day pirates are fishermen who have traded nets for guns. They learned that ransom is more profitable than robbery, and rather than squandering their loot, they reinvest in equipment and training to perpetuate their lucrative trade.2 Today, few ships are safe within several hundred miles of the Somali coast, as recent events have quite tragically demonstrated.

Since 2005, we have seen an exponential increase in ransom payments made to Somali pirates from ship owners who spare no expense to repossess their pirated vessels. Today, the average ransom payment is around $4M USD—a dramatic increase from the first $50,000 USD payments made in 2005 by a fishing company to pirates from the Haradheere area. The resulting lucre has severely impacted the coastal villages in Puntland and central Somalia after a decade-and-a-half struggle for mere subsistence following the ousting of Siad Barre in 1991.

Somali piracy is, unfortunately, a booming business today. It has brought wealth to a country with no functioning government, a relatively vibrant economy to formerly destitute villages, and in some cases, considerable wealth to the financiers who commission it. However, its impact has been negative not only for regional security and commerce, but also for Somali society. Understanding and combatting piracy effectively requires achieving a firm grasp of this complex dynamic.

A complex system: piracy finance and profiteering

Piracy has developed into a complex and lucrative economy of its own; its second- and third-order impacts extend deep into Somali village structure and life. Piracy does not simply enrich individuals or pirate groups; it brings wealth to entire villages. Coastal villages make money by providing food to pirates and hostages who wait for negotiations to end favorably. Local negotiators make money by bringing the ship owners to pay the ransom money via a cash drop at sea or on land. Further, pirate financiers—in many cases, pirates themselves— invest in pirate crews who venture out to capture vessels on the high seas. The wives of these pirates receive compensation money before their husbands go out on a mission. Pirates are also provided with the necessary tools of the trade, such as satellite phones, global positioning systems and weapons. Pirate financiers will spend as much as $30,000 USD on a pirate group that ‘hunt’ in the Indian Ocean and upwards of $10,000 USD on pirates operating in the Gulf of Aden. And to protect themselves and their operations, pirates pay local militias (guns for hire) as much as $10,000 USD per month to protect them from sub-clan rivals or external threats.

Ransom payments are also quite naturally a significant source of wealth. For instance, the coastal villages around Haradheere receive around 5% of a total ransom payment for allowing pirated ships to anchor there. All ransoms are paid in cash and distributed between pirates, financiers, negotiators and local village elders.

According to ongoing private sector research, the average ‘take’ of pirates following the payment of a ransom is broken down as follows:

• Financiers receive 50%

• The pirates, pirate commander, mother-ship crew and attack squads split 30%

• Village elders receive 10%

• The security squad (guns for hire to protect hostages and vessels) receives 10%

Interestingly, while the individuals that risk their lives on a piracy operation split 30% of the ransom money, the bankroller(s) end up with 50% of the take. In fact, a pirate financier may make more than 50% by paying an accountant to massage the numbers in his favor. However, most pirate ‘soldiers’ are illiterate and happy to receive large amounts of cash without knowing the true value of their services.

To date, there is no accessible research that identifies key pirate financiers and their associated business investments. This represents a gaping hole in our counter-piracy approach, given that that some pirate financiers have invested in now thriving global businesses. A perfect example is pirate financier Abdulqadir Nur Enow, an investor in OSOB Airlines (www.ossobairlines.com), the headquarters of which is in Dubai.

In sum, the system of piracy finance is wide and complex, both in terms of scope and impact. Once the international community better understands and identifies the ‘vertebrae’ in this, the proverbial backbone of Somali piracy, the chances of combatting it more effectively will drastically improve. Moreover, we will be better equipped to assist Somalis with replacing this illegitimate economic system with a more viable alternative.

Social ramifications of piracy

Despite the sudden and significant material success brought about by the economy of piracy, its negative impact on village life in coastal Somalia has been nearly as dramatic. Clan traditions are being eroded by this system’s newfound prosperity and demand for labor, and the impact on local fishing villages has been significant. In discussions with Somali elders, it was observed that many villages are losing hundreds of young men who go out to sea and never return. Indeed, the loss of these young men, who represent the backbone of its work force, will over time dramatically impact these areas.

Further, given the sudden influx of money, alcohol, drug abuse, prostitution and increased violence have emerged on the local scene. Young men are increasingly indulging in these social taboos given their new purchasing power while disregarding local traditions or guidance from elders. In sum, the very fiber of Somali clan culture is slowly being corroded by an extremely corrupt system built on robbery and violence. Traditional clan dynamics are being challenged directly by an alternative form of perceived legitimacy (piracy), and the sum total of this predicament is contributing to the country’s deeper slide into chaos and disaster.

Solutions

Doing away completely with the scourge of piracy off the East African coast is an extremely difficult proposition. However, there are a number of ways that the problem can be combatted more effectively than it has been. Several of these inherently multinational and interdisciplinary approaches to counter-piracy are outlined below.

First, it must be categorically stated that piracy cannot be stopped at sea. Efforts to stop piracy in a maritime environment are akin to putting a plaster on a cancer. Developing a comprehensive land-based solution is essential.

Second, the primary method to combat Somali piracy is to attack its economic system. Pressuring and disrupting the flow of finance to the pirates is essential. This means that the international community must put a premium on identifying the key (Somali and non- Somali) players that finance piracy and conduct deep research to isolate and expose their investment patterns. Governments are currently so focused on deciphering ways to deal with hawalah systems that the individuals who use ransom cash to grow businesses are left to prosper. With the proper research, these businesses can be identified before action is taken to stop their expansion. This, in turn, will pressure pirate financiers by virtue of removing their financial security blankets. This type of research is ideal for organizations such as INTERPOL, US Department of Treasury or the FBI to undertake.

Third, identifying the areas where pirates buy their kit is important. In order for pirates to be effective, they must purchase equipment and weapons to conduct their attacks. Global positioning devices, satellite phones, mobiles and weapons should therefore be seen not only as essential items for piracy, but from the perspective of international security agencies, vulnerabilities.

Fourth, there must be a plan developed and delivered—crafted to fit the social landscape in Somalia and supported within a clan framework—that offers sufficient incentives to replace piracy with something else. In other words, once the piracy money stops flowing, it must be replaced with a carefully tailored social and economic alternative of great perceived worth.

Finally, there must also be sufficient disincentives, backed by accepted and strengthened social (and political) authorities, to compel individuals to give up the business of piracy. The very attitudes, values and beliefs of piracy’s ‘culture’ must be attacked from within by authoritative Somali voices. It therefore critical to incorporate into any counter-piracy initiative a mechanism to demonstrate to Somali clan elders and leaders that pirate money is destroying the very fiber of cultural life and threatening to change clans, villages and country forever. Only an admixture of carrots and sticks will work.

1. Rudolph Atallah is Chief Executive Officer of White Mountain Research LLC. Mr. Atallah served as the Africa Counterterrorism Director and Morocco/Tunisia Country Director in the Office of the Secretary of Defense prior to his 2009 retirement from the US Air Force. He has extensive public and private sector experience combating piracy and terrorism in East Africa.

2. See Wired for an excellent overview of this phenomenon: http://www.wired.com/politics/security/ magazine/17-07/ff_somali_pirates