Following the Somali Pirates’ Money Trail

By: James Bridger.

Somali pirates took in approximately $240 million in ransom payments last year, an enormous sum, particularly for a country where the average yearly income is roughly $600. While the NATO Council’s previous article addressed the myriad risks posed by the expansion of Somali piracy, the question of how this money is spent remains an important issue. For those committed to achieving stability in the Horn of Africa, the greatest worry is that pirate funds might be finding their way into the hands of violent Islamisist insurgents. Equating piracy with terrorism is an over simplification, but a clear understanding of the manner in which the pirate’s money is raised and spent highlights the destabilizing effect that piracy has on regional security.

Though the motivation to engage in piracy is largely related to poverty, like any other business venture, it requires a substantial investment to get started. Profits are not made until a ransom is paid, but preliminary costs include boats, weapons, equipment and bribes for officials. Once a vessel has been taken hostage, the crew then needs to be kept fed for an extended period of time. These expenses often total hundreds of thousands of dollars, thus making outside investment a necessity.

Local Somali businessmen and entrepreneurs are keen to invest in pirate operations due to the large returns their investment brings. Often multiple financiers will invest in an upcoming pirate venture, the structure resembling a share holding company or stock exchange. Members of the global Somali diaspora also provide funds and equipment as well as negotiating and translating services. The Toronto Star reports that investment in pirate operations and subsequent cuts of ransom money is  “an open secret” within Canada’s 200,000 strong Somali community. Ransom exchanges in third-party states such as Dubai indicate that business interests outside Somalia (in collusion with Somali political figures) are financing and ultimately benefiting from the hijackings.

To cut off the pirates’ financial resources, U.S Secretary of State Hillary Clinton made “freezing pirates’ assets” one of the cornerstones of American counter-piracy policy. However, doing so has been difficult as Somalis, lacking any national banking system, transfer money through an informal system known as “hawala,” which operates on clan honour and trust, not traceable electronic records.

A UN report based on information gathered from the pirate-infested village of Eyl revealed a rough breakdown of the ransom spoils:

  • Pirates involved in the hijacking – 30%
  • On-land militias –10 %
  • Local elders and officials – 10%
  • Financiers – 20%
  • Sponsors – 30%

These figures are worrying, because they indicate how diffuse the pirate economy has become. Historically, piracy has thrived when the apparent economic benefits makes the crime tolerable to the local community. It is noted that pirates involved in a successful hijacking can expect to receive approximately $10,000 for their role; double-shares have been reported for the first pirate to board a ship. While these huge sums of money tempt many young men to engage in the crime, several interviewed pirates report that their shares are much smaller than the figures commonly quoted because they are charged for “expenses” incurred during the ransom negotiation process. The “trickle down effect” that pirate profits have on the local economy is a contested subject. The pirate industry has reportedly brought many new jobs to the impoverished communities—kiosks sell cigarettes, food and drinks to the pirates, catering companies have even been established to provide meals to hostages. However, it has also been noted that the influx of cash has been responsible for massive inflation in the pirate towns. The pirate market has driven up the price of basic goods and wealthy corsairs have reportedly bought up the best real estate.

Though much of the income generated by pirate gangs is divided amongst themselves and investors, protection payments also have to be made to local warlords. These large regular injections of cash undoubtedly help finance conflicts within the country. It has been reported that pirates based out of Xarardheere in central Somalia have also begun branching out into arms trafficking. With Somalia being placed under an arms embargo since the beginning of the civil war in 1992, many of the weapons that drive the conflict are acquired across the Strait of Bab el-Mandeb in Yemen. As they already posses the maritime capacities to do so, transporting weapons from Yemen (another conflict ridden and notoriously corrupt country) to Somalia represents a logical alternate source of revenue for pirate gangs. When guns reach the markets of Mogadishu and other cites, they sell for some of the cheapest prices in Africa—AK 47s often going for $50 or less depending on how heavy the fighting is at the time. Injecting both hard currency and weapons into one of the world’s most volatile states is bound to have destabilizing effects. Better armed and better funded warlords and militias can have nothing but a negative impact on the fragile reconciliation process currently attempted in Somalia. Indeed it is a vicious cycle that piracy perpetuates the very conditions that allow it flourish— namely violence, corruption and instability.

An even larger threat that may emerge from the piracy situation is the possibility of collusion with Islamic insurgents. Within Somalia, the greatest danger comes from the insurgent group known as al-Shabaab. Unlike other factions fighting in Somalia, the Shabaab—having pledged loyalty to al-Qaeda’s ideology—has had a more internationalist outlook in their choice of targets. Seeking to expel foreigners from the country, they have attacked African Union troops as well as Christian missionaries and Western aid workers. The group recently launched attacks across the Kenyan border and also claimed responsibility for the World Cup bombings in Uganda that left 74 dead.

Determining the nature of the relationship between Somalia’s pirate gangs and insurgent groups is a difficult endeavor, especially given the fact that the country is something of an information ‘black hole’ for Western analysts. Certain reports indicate that there is  a cooperative relationship between pirates and Islamists, while others portray a more antagonistic relationship between the two factions. On paper at least, pirates and Islamists have little in common: the former cares only for profits and has little time for religious ideology, while the latter consider piracy to be a haram (forbidden) and punishable offense under Islamic law.

Though their motives differ, there are precedents for terrorist groups cooperating with or co-opting criminal organizations—including pirates—to serve their own ends. Maritime security expert Martin Murphy notes that these types of relationships begin with simple acts of cooperation that are beneficial to both parties. Drug smuggling, for example, is an area where the interests of terrorist groups and criminal organizations have often converged. Examples include the FARC in Columbia, the United Wa State Army in Burma and the Taliban and al-Qaeda in Afghanistan.

Somalia’s major pirate gangs and insurgent groups originally maintained separate “spheres of influence,” however this has changed as the country’s civil war has forced them into closer contact. Canada’s Integrated Threat Assessment Centre reports that al-Shabaab are engaged in “relationship of convenience” with certain pirate gangs, providing “weapons combat training and local protection” in exchange for a share of ransom spoils. There are also indications that the Islamist group—through cooperation with central Somalia’s pirates—has been developing a primitive maritime capacity in order to bring both weapons and foreign jihadists into the country.

In May 2010, radical insurgents overran local forces and seized the pirate hub of Xarardheere in central Somalia. The group—Hizbul Islam—had originally vowed to shut down piracy in the town, but reportedly reached an agreement with the pirates under which their crime would be allowed to continue in exchange for a share of the profits. It is clear that the wealthier pirate gangs have become significant actors in Somalia’s civil war. Many have used their ransom profits to build their own small armies. The New York Times reports that one such group in central Somalia now has an infantry division of several hundred men, 80 heavy machine guns, and a small fleet of trucks mounted with antiaircraft guns. It is reported that Islamisist groups and the local warlords who fight them have both attempted to court the pirate gangs as potential allies.

Aside from the prospect of collusion, there is the additional threat that insurgent groups may attempt to copy the pirates’ tactics. The apparent ease with which Somali pirates have captured hundreds of hostages may encourage terrorist groups in the region to do the same. A precedent was already set in 1985, when four heavily armed members of the Palestinian Liberation Front seized control of the cruise ship Achille Lauro. After murdering a wheelchair-bound American, the hijackers were able to abandon the ship in Port Said, Egypt and negotiate for safe passage and a commercial flight to Tunisia. Similarly, The MNLF, an Islamist insurgency in the Philippines, hijacked several ships, both to raise awareness of their cause and to secure ransom payments to fund their activates. The sensationalist nature of hostage taking and the international community’s apparent willingness to meet demands makes it an appealing tactic to groups like al-Shabaab.

While one must be cautious about equating piracy with terrorism, the upside is that international efforts to establish maritime security in the Gulf of Aden will serve to protect against both. As Somalia’s onshore and maritime security environments become increasingly intertwined, international stabilization efforts will need to be better coordinated in order to meet the twin challenges. Intelligence sharing and cooperative operations between naval coalition forces—such as the EU and NATO—and their land-based allies—such as African Union forces and local authorities in Somaliland and Puntland—will be crucial in the fight to bring peace and stability to both land and sea alike.

 

Disclaimer: Any views or opinions expressed in this article are solely those of the author and do not necessarily represent those of the NATO Council of Canada.

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