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How to Run a Maritime Militia

[ 14 ] March 18, 2010 |

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.

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Comments (14)

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  1. DocAmazing says:

    Takes all the romance out of that “yo-ho, yo-ho, a pirate’s life for me”.

  2. cpinva says:

    pirateering has always been a business venture, nothing new about that. that’s kind of the whole point.

  3. C.S. says:

    What would really be interesting is a discussion of the dispute resolution process. What happens when an investor gets stiffed?

    Yeah, yeah, I know . . . not “interesting” intersting. But still.

  4. mch says:

    A second to cpinva. From the Illyrian pirates to the pirates of the Caribbean and back to the shores of Tripoli (and that’s just in the Mediterranean and “New” World imaginary), piracy has always been just another form of marginal economic enterprise that can become less than merely marginal. (Hey, I forgot Wales — or was it Cornwall? Great post-WW II movie British movies about pirating there, involving whiskey, and the pirating remains at the small and dear stage). On land, pirates are called bandits — who can also grow to constitute more than mere marginal characters (think Mexico, for instance). (And the drug gangs of northern Mexico could be, maybe should be, analyzed in terms of piracy models.)

  5. The Dark Avenger says:

    The Invisible Hook

    Economist Leeson leads readers though a surprisingly entertaining crash course in economics in this study of high seas piracy at the turn of the 18th century. Far from being the bloodthirsty fiends portrayed in popular culture, pirates created a harmonious social order; through the application of rational choice theory, the author explains how a common pursuit of individual self-interest led pirates to create self-regulating, democratic societies aboard their ships, complete with checks and balances, more than half a century before the American and French revolutions brought such models to state-level governance. Understanding the profit motive that guided pirates’ actions reveals why pirates so cruelly tortured the crews of ships that resisted boarding, yet treated those who surrendered readily with the utmost respect. Both practices worked to minimize costs to the pirate crew by discouraging resistance that could lead to loss of life and limb for pirates and damage to either the pirates’ ship or the cargo aboard. Illustrated with salty tales of pirates both famous and infamous, the book rarely bogs down even when explaining intricate economic concepts, making it a great introduction to both pirate history and economic theory

    Peter Leeson claims, ‘A pirate ship more closely resembled a Fortune 500 company than the society of savage schoolchildren depicted in William Golding’s Lord of the Flies.’ And by the end of the book, he had me convinced of it.

    MALONE. Well, I don’t say I mightn’t. I think I could do better with it than the Spanish government. But that’s not what I came about. To tell you the truth, about a month ago I overheard a deal between two men over a bundle of shares. They differed about the price: they were young and greedy, and didn’t know that if the shares were worth what was bid for them they must be worth what was asked, the margin being too small to be of any account, you see. To amuse meself, I cut in and bought the
    shares. Well, to this day I haven’t found out what the business is. The
    office is in this town; and the name is Mendoza, Limited. Now whether Mendoza’s a mine, or a steamboat line, or a bank, or a patent article–

    TANNER. He’s a man. I know him: his principles are thoroughly commercial. Let us take you round the town in our motor, Mr Malone, and call on him on the way.

    Man and Superman

  6. [...] fascinating post from the Lawyers, Guns and Money blog. Thanks to Andy from the Maritime Texas blog for passing it along.  The bottom line seems [...]

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  8. Tivisiana says:

    First, a sitting of the Board. Then, a walking of the plank.

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