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Piracy is a sophisticated business

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The pirate economy remains poorly understood. A report, to be released on Nov. 4 by the World Bank, the United Nations and Interpol, sheds new light.

FARAH ABDI WARSAMEH / THE ASSOCIATED PRESS Enlarge Image

The pirate economy remains poorly understood. A report, to be released on Nov. 4 by the World Bank, the United Nations and Interpol, sheds new light.

Piracy remains a concern for ships passing the Horn of Africa, even though the number of incidents has plummeted since 2011, when armed protection was beefed up on board many large vessels. The topic grips the public imagination. Witness the success of the current ‘’Captain Phillips,’’ a based-on-fact film in which a container ship and its captain (Tom Hanks) are hijacked by Somalis.

The pirate economy remains poorly understood, however. A report, to be released on Nov. 4 by the World Bank, the United Nations and Interpol, sheds new light.

The authors interviewed current and former pirates, their financial backers, government officials, middlemen and others. They estimate that between $339 million and $413 million was paid in ransoms to Somali pirates between 2005 and 2012. The average haul was $2.7 million. Ordinary pirates usually get $30,000 to 75,000 each, with a bonus of as much as $10,000 for the first man to board a ship and for those bringing their own weapons or ladders.

Qat, a narcotic plant that is chewed by many, often is 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 behavior, such as mistreating the crew of a captured ship, which often carries a $5,000 fine and dismissal. This is in keeping with centuries-old pirate codes: The 18th-century pirate John Phillips – no relation to Hanks’ movie character – was said to have decreed that anyone who ‘’meddled’’ with a woman without her consent ‘’shall suffer present death.’’ 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 the Somali capital Mogadishu, pirates paid a ‘’development tax’’ of 20 percent to al-Shabab, the Islamist rebel group tied to al-Qaida.

During operations pirates spend with abandon. Interest rates on loaned goods and services are high: $10 of mobile-telephone airtime is charged generally at around $20. The men on the anchored ships also pay as much as three times the market price for qat, driving up prices on the coast.

‘’With piracy everything became more and more expensive,’’ a fisherman-turned-pirate complains.

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, who take anywhere between 30 percent and 75 percent 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 also is 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 as the main transit points and final destinations for much of the loot. The financial institutions in Dubai, part of the U.A.E., are a particular worry. Investigators concluded that the ransom from the hijacking of the M.V. Pompei in 2012 was moved to Djibouti, then wired to banks in Dubai.

A third of pirate financiers invest their profits in setting up militias or gaining political influence. Some also finance religious extremists. Ciise Yulux, one of the most active pirate leaders, is reckoned to command as many as 70 men. He provided money and equipment to fighters linked to al-Shabab and al-Qaida in 2012. Much of the rest flows into property and the qat trade.

Qat-chewing is big, generally legal business in much of the region, and the role of Somalis in distributing it is growing. The lack of transparency or monitoring of the qat trade in Kenya, the main supplier to Somalia, makes it susceptible to crime.

Each day nine tons of the green leaf is flown from Kenya to Mogadishu, airport officials say. In some cases pirate financiers have taken over entire qat cooperatives, investing in the trade partly to feed the pirates’ habits. That is especially lucrative because of their willingness to pay a premium price for the leaf.

The writers of the study suggest ways to disrupt the money flows from piracy, such as better monitoring of cash transmitters and qat producers. It may be harder to stop laundering the money, though, than to curb the piracy itself.

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