The UNSC-mandated Monitoring Group on Somalia presented its report to the Security Council Tuesday. The part of the report detailing corruption in the distribution of humanitarian aid is getting all the press, but for my money the most interesting part of the report is the discussion of piracy, which has morphed into a multi-million dollar business replete with investors and an informal business model. It’s all outlined on p. 99 of the report, but I’ve reproduced it below the fold for inquiring minds.
A basic piracy operation requires a minimum eight to twelve militia prepared to stay at sea for extended periods of time, in the hopes of hijacking a passing vessel. Each team requires a minimum of two attack skiffs, weapons, equipment, provisions, fuel and preferably a supply boat. The costs of the operation are usually borne by investors, some of whom may also be pirates.
To be eligible for employment as a pirate, a volunteer should already possess a firearm for use in the operation. For this ‘contribution’, he receives a ‘class A’ share of any profit. Pirates who provide a skiff or a heavier firearm, like an RPG or a general purpose machine gun, may be entitled to an additional A-share. The first pirate to board a vessel may also be entitled to an extra A-share.
At least 12 other volunteers are recruited as militiamen to provide protection on land of a ship is hijacked, In addition, each member of the pirate team may bring a partner or relative to be part of this land-based force. Militiamen must possess their own weapon, and receive a ‘class B’ share — usually a fixed amount equivalent to approximately US$15,000.
If a ship is successfully hijacked and brought to anchor, the pirates and the militiamen require food, drink, qaad, fresh clothes, cell phones, air time, etc. The captured crew must also be cared for. In most cases, these services are provided by one or more suppliers, who advance the costs in anticipation of reimbursement, with a significant margin of profit, when ransom is eventually paid.
When ransom is received, fixed costs are the first to be paid out. These are typically:
• Reimbursement of supplier(s)
• Financier(s) and/or investor(s): 30% of the ransom
• Local elders: 5 to 10 %of the ransom (anchoring rights)
• Class B shares (approx. $15,000 each): militiamen, interpreters etc.
The remaining sum — the profit — is divided between class-A shareholders.
But as Donna Nimcic of the California Maritime Academy pointed out in her ISA paper a few weeks back, this may turn out to be a case of diminishing returns for pirates, as successful ransom attempts decline and ransoms are split increasingly between more and more investors on land. I couldn’t find an online copy of that paper to post, but here’s another by the same author in a related topic – the link between piracy and humanitarianism. Good stuff.