Follow the Khat: Tracking Piracy’s Financial Flows

It is high season for reports and studies relating to piracy. The latest World Bank report, Pirate Trails, which follows the recent IMB annual report on the number of piracy incidents as well as the UNSG situation report on piracy in Somalia, is dedicated to the largely unchartered topic of the illicit financial flows of Somali piracy. So far, apart for the disappointing report of the UK sponsored International Piracy Ransom Task Force, little public attention has been paid to tracking and disrupting the financial flows generated by piracy through the payment of ransoms for ships, crew and their cargos. Pirates, defined in the report as hostis humani generi (but wrongly attributing this definition to Cicero) have been capable of modernizing their actives and developing specific business models that adapt to the situation in which they operate. In Somalia, alongside pirates who attack and board ships crossing the Gulf of Aden, a sophisticated network of investors, local and foreign financiers and shareholders, but also negotiators, interpreters, guards, cooks and drivers, flourished and profited from piracy.

The report estimates that US$339 million to US$413 million was claimed in ransoms between April 2005 and December 2012 for pirate acts off the Horn of Africa. With low level pirates typically netting a pre-agreed fee between US$30,000 and US$75,000 (about 0.01–0.025 percent of an average ransom payment), the pirate financiers who invested in the piracy operations receive the bulk of the ransom, estimated at 30–75 percent of the total ransom.

Ransom payments can be invested locally, generally by low level pirates but increasingly also by financers, or moved by financial transfer, particularly to Djibouti, Kenya, and the United Arab Emirates. Most of the money is moved by cross-border cash smuggling, made easy by the porosity of the borders in the region and trade-based money laundering. Money transfer services are also exploited to move money outside Somalia.

Depending on the profit made, ransom money may be used to fuel other illicit activities in the region. Some pirate financiers are engaging in human trafficking, including migrant smuggling, and investing in militias and military capacities in Somalia. To launder their proceeds, pirate financiers can also buy into legitimate business interests, particularly the real estate market. Allegations that ransoms payments fueled the real estate prices in the region are not new, although any definitive evidence has yet to be shown. Other legitimate businesses in trade (for example, trade in petroleum), transportation, and the services industry (for example, restaurants, hotels, shops), also offer viable opportunities for the pirates to invest the proceeds from piracy, depending on the profit originally made.

Khat (also commonly referenced to as qat, qaad, gat, jaad, tchat, and miraa) is a small leafy plant. Among communities in the Horn of Africa and the Arabian Peninsula, the chewing of khat is a social custom dating back many thousands of years.

Khat (also commonly referenced to as qat, qaad, gat, jaad, tchat, and miraa) is a small leafy plant. Among communities in the Horn of Africa and the Arabian Peninsula, the chewing of khat is a social custom dating back many thousands of years.

Interestingly, the report sheds light of the role played by the trade of Khat, a mild stimulant popular in Somalia and very popular among pirates, in the financial flows generated by piracy. Khat is provided on credit to low level pirates throughout highjack operations. Its use is recorded. When ransoms are finally paid, the debt accumulated by the pirates during the captivity period is paid back by subtracting it from their share of the profit. In light of the potential profit to be generated, pirates are ready to pay their khat’s provisions at a price well above the market price. There is more. Given the lucrative nature of the trade, which predominantly cash-based, the traditional culture of khat chewing in Somalia, and Somalis’ control over the distribution network, pirates are also investing their profit and increasingly buying into this multi-million dollar business. Khat trade with northern Kenya, in particular, is largely unregulated and is becoming fertile ground for the pirates’ business interests in this sector. An estimate of nine tons of khat is flown daily from Kenya to Mogadishu. The report recommends the regulation of the khat trade as one of the means to disrupt piracy financial flows in the region. Considering the pirates involvement in the  growth, distribution and consumption of khat, however, the khat trade may already be an effective indicator of the pirates financial and laundering activities. Monitoring this business can therefore add to the efforts to track the pirates network upwards to their financiers within and outside Somalia.

International Anti-Piracy Efforts in Somalia Must Continue: UNSG

The latest UN Secretary General situation report on piracy in Somalia is now before the UN Security Council. The report provides an overview and an update on the most relevant anti-piracy initiatives in Somalia and the Gulf of Aden.

During 2013, piracy has continued to be a major issue on the agenda of the UN and EU, NATO, several regional and other interested states as well as a number of specialized agencies, such as the UNODC, DPA, IMO, INTERPOL and FAO among others. Specific and ad hoc mechanisms and organizations, such as the Kampala Process, the Contact Group, the Djibouti Code of Conduct, the Trust Fund, the Hostage Support Program and a number of international conferences have proven instrumental in the fight against piracy.

It has been widely reported how incidents of piracy in the region are now at a seven years low. It is also no mystery how these positive developments are due to a multitude of factors, including the effectiveness of the international maritime patrol missions, the best management practices and the use of private armed guards in deterring piracy attacks, as well as the implementation of the “prosecution chain”, by which suspected pirates are apprehended, tried in courts of regional states and eventually transferred in Somaliland and Puntland to serve any imposed sentence.

“A number of measures have led to a decline in attacks: improved international and regional cooperation on counter-piracy efforts, including better intelligence- and information-sharing; targeted actions by the international naval presence to discourage and disrupt Somali pirates; increased application of IMO guidance and of the Best Management Practices for Protection against Somalia-based Piracy, developed by the shipping industry; and prosecution of suspected pirates and imprisonment of those convicted. The adoption of self-protection and situational awareness measures by commercial ships, including the deployment of privately contracted armed security personnel on board vessels and vessel protection detachments, are also believed to have contributed to the decrease in piracy attacks.”

The Security Council is expected to agree with the Secretary General’s recommendation that the international anti-piracy efforts underway in Somalia continue for at least another year. The obvious question is how long the international community will be willing and capable to continue financing its costly patrol missions, particularly given the waning threat (or risk of attacks). The question also arises on the cost-efficiency of private armed guards on board ships travelling in the region. The repression of piracy in the Gulf of Aden does not, however, solely depend upon these initiatives. The fight against piracy which started as an armed response, has progressively expanded into an integrated system that encompasses respect and promotion of human rights and the rule of law, governance, economic development, capacity building, treatment of juvenile pirates, alternative employment opportunities and legislative reform. In addition, environmental protection and exploitation of natural resources in the region are also being monitored. Even if the piracy drought continued in 2014, these initiatives are likely to be further stepped up and take center stage towards long-term solutions for Somalia’s future. Although we have been careful not to conflate terrorism with piracy, the impetus to continue these programmes also arises from the continued threat of terrorism originating in and/or targeting Somalia.

Piracy Best Practices Adapt to West Africa’s Setting

The surge of piracy in West Africa prompted some of the main stakeholders in the maritime industry to develop interim guidelines for the protection against piracy in the region. The guidelines, endorsed by the IMO, aim to bridge the gap between the prevailing situation in West Africa and the advice currently available in the fight against piracy. They complement one another and are to be read in conjunction with the Best Management Practices (BMP4) originally adopted to address piracy in the Gulf of Aden.

Worthy of note is that the Guidelines identify the area off the coast of Nigeria, Togo and Benin as at major risk, although pirates are rather flexible in their operation and attacks have also occurred elsewhere. Significant is the absence in the region of regular patrolling missions by international navies, a designated group transit area or a specific information and coordination centre akin to the UKMTO or MSCHOA in the Gulf of Aden. In the event of a pirate attack, the main point of reference is currently the Regional Maritime Rescue Coordination Centre, run by the Nigerian Maritime Administration and Safety Agency in Lagos.

With regards to the pirates’ modus operandi, their activity is normally confined to armed robbery of valuables from the ship’s safe, IT equipment and personal effects while the ship is approaching or anchored off ports; and cargo theft, mainly directed at oil and chemical tankers and involving the ship’s hijack for several days until the cargo is transferred by well-organized and coordinated cartels. Pirates appear to possess intelligence-gathering and maritime skills. While kidnapping occurred on some occasions, generally in connection with cargo theft or in areas characterized by political instability, ransom does not appear to be among the pirates’ primary objectives. Although this is a significant difference with Somali pirates, the fact that a ship’s crew is not seen as a value might in turn heighten safety risks, which is consistent with the fact that West African pirates have shown a greater level of violence during attacks. Engaging in a fight with the pirates is therefore strongly discouraged.

Finally, while it is possible to obtain authorization to employ protective services such as military or  police as armed escorts, the use of private armed guards is problematic, given the diversity of the legal, security and administrative frameworks and particularly considering that attacks are likely to take place within the territorial waters of States in the region, which often do not allow the operation of private security companies.

Regional States Play Key Role in Fight against Piracy in West Africa

It has been some time since we first and last spoke about the escalation of maritime piracy and armed robbery at sea in West Africa. The United Nations Security Council recently issued a statement dedicated to the emerging threat of piracy in West Africa, calling for States in the region to play a key role in countering piracy and addressing its underlying causes:

“The Security Council stresses the importance of adopting a comprehensive approach led by the countries of the region to counter the threat of piracy and armed robbery at sea in the Gulf of Guinea, as well as related criminal activities, and to address their underlying causes. The Security Council recognizes the efforts of the countries in the region in adopting relevant measures in accordance with international law to counter piracy and armed robbery at sea and to address transnational organized crime, such as drug trafficking, as well as other measures to enhance maritime safety and security.”

With the technical support of specialized UN and regional agencies, West Africa’s heads of State have already taken steps to counter piracy, including the holding of a regional meeting in Yaoundé, Cameroon, which culminated with the adoption of the Code of Conduct concerning the Prevention and Repression of Piracy, Armed Robbery against Ships, and Illegal Maritime Activities in West and Central Africa and the establishment of a coordination centre for the implementation of a regional strategy for maritime safety and security. The centre should contribute to the implementation of multi-national and trans-regional mechanisms covering the whole region of the Gulf of Guinea.

Piracy in West Africa has emerged as an additional threat to safety and trade in the region, with the number of reported attacks now surpassing those off the coast of Somalia and in the Gulf of Aden. While piracy in Somalia was borne out of the collapse of State institutions and their failure to counter insecurity and enforce the rule of law, West Africa is characterized by more stable governments with enforcement powers on their territory through naval and military assets. West African States are therefore in a position, and have a duty, to play a more direct role in the fight against piracy in the region. Piracy in West Africa, however, shows links with organized transnational criminality, such as drugs, natural resources and people smuggling and thrives through corruption at both the local and central administration level, which, in turn, creates discontent and lack of trust amongst the population. Independence movements have also degenerated into committing acts of terrorism. For some time, these phenomena have plagued the region and provided the conditions for the resurgence of piracy. Among the main challenges in combating piracy in the Gulf of Guinea is therefore the development of a coordinated approach driven at the regional level, bringing together costal States as well as regional organizations and encompassing the sharing of resources, intelligence and information within the framework of a common plan of action. While fundamental distinctions remain in the pirates’ modus operandi between West and East Africa, this approach can build upon some of the lessons learned in the so far successful strategy to combat piracy in the Gulf of Aden, including the modernization and harmonization of national criminal codes, upgrading of detention facilities and other infrastructures and other training or capacity building initiatives.

Upcoming Event: At Third Dubai Counter-Piracy Conference, Focus is on Rebuilding Somalia

The United Arab Emirates will host its third International Counter-Piracy Conference on 11-12 September 2013. The UAE has since long engaged in counter-piracy initiatives in the Gulf of Aden and the larger area of the Indian Ocean. The event, which will be held in Dubai, UAE is entitled “Countering Maritime Piracy: Continued Efforts for Regional Capacity Building” and follows prior conferences convened in April 2011 and June 2012. We have covered last year’s event here and here.

While the previous Conferences brought together stakeholders from both the public and private sectors to devise a framework strategy to combat piracy, at that time at its peak in the Gulf of Aden, this year’s conference will build upon the current successes against piracy and focus on developing the capacities of Somali institutions to strengthen security and long-term economic growth.

The key themes of the Conference will be:

  • Continuing to build awareness about the humanitarian and economic cost of piracy, including extending support to seafarers who are suffering from maritime piracy on the frontline;
  • Injecting a new momentum in the common search for an effective and enduring solution to piracy through collaboration across political, military, financial and legal arenas;
  • Encouraging a comprehensive, inclusive approach that can deliver a long term, sustainable solution to counter piracy, including land-based solutions;
  • Highlighting the significance of enhancing industry-government cooperation in addressing the issue through joint strategies emphasising sustainable long term solutions.

The official website of the Conference can be found here. A draft agenda as well as some of the main presentations and position papers are already available, giving a preview of the forthcoming debate.