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.

Somali Piracy Conference

Piracy Conference Brochure TitlePiracy Conference devoted to the discussion of maritime piracy issues will take place at the Case Western Reserve University School of Law this Friday, September 6th.  The conference will unite prominent piracy scholars, NGO activists, international organization members and government officials, to discuss topics such as the treatment of juvenile pirates, the necessity to prosecute piracy organizers and financiers, new trends in the global combat against piracy, as well as operations and law enforcement issues related to the apprehension of suspected pirates.  The keynote address will be delivered by Senator Romeo Dallaire of Canada, founder of the prominent Child Soldier Initiative at Dalhousie University.  The conference is open to the public and will also be available via webcast.

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.

Piracy – Not just Kiobel’s Analogy

Justice Kennedy – the deciding vote in Kiobel

Cross-posted at opiniojuris.org

The majority opinion in Kiobel precludes Alien Tort Statute claims for foreign conduct against foreign victims, leaving a small door for potential future claims that involve extraterritorial conduct so long as they touch and concern US territorial interests. But, when does a claim “touch and concern” the territory of the United States? Roger Alford notes that piracy may present an incident of “cross-border” conduct that could clarify this issue. Indeed, two piracy cases will imminently arrive at SCOTUS’ courthouse steps.

The piracy statute 18 USC 1651 shares much in common with the Alien Tort Statute: both were passed in the same time frame and both have reference to “the law of nations.” The presumption against extraterritoriality applies to 18 USC 1651. However, the plain language of the piracy statute and its historical context clearly rebut the presumption for all conduct that occurs on the high seas. Further, neither the victim nor the defendant need be American (U.S. v. Klintock). That said, there remains an important subset of piracy cases that involve conduct both on the high seas and within the territory of another sovereign: acts of aiding and abetting piracy through financing or negotiating ransoms for acts of piracy; or recruiting of child pirates.

In US v. Shibin (4th Circuit) and US v. Ali (DC Circuit), currently on appeal, the underlying criminal conduct of hijacking vessels occurred on the high seas. But, the negotiators in these cases only boarded the vessels upon entry into Somali territorial waters. Hence the mixed loci delecti on the high seas and within the territory of another state. Does this type of mixed conduct touch and concern the territory of the United States?

First, the plain language of the piracy statute would not rebut the presumption against extraterritoriality for conduct occurring within the territory of another state (the statute merely applies to conduct on the “high seas”). However, the historical context of the piracy statute indicates that it was intended to prevent impunity for acts of piracy wherever committed. That is why the modern definition of piracy applies to conduct outside the jurisdiction of any state, as well as to the high seas.

Here is where a case-by-case analysis, suggested in Part IV of the Kiobel majority, could be determinative. In Shibin, the defendant is accused of negotiating the ransom of two vessels. The first vessel has a strong nexus to US interests; the victims were American nationals and the targeted vessel was flagged in the US. Although a vessel’s flag does not designate its surface as territory of the sovereign, it is treated in much the same fashion (Lauritzen v. Larsen) which is to say that there are strong domestic interests in exercising jurisdiction over acts of piracy on one’s flagged vessels. But the second course of conduct charged in Shibin involves a vessel with no links to the US apart from a general interest in suppressing acts of piracy. The same is true in Ali. As the district court described the case: “Defendant Ali Mohamed Ali, a Somali citizen, is accused of helping Somali pirates hijack a Bahamian ship, hold its Russian, Georgian, and Estonian crew hostage, and compel the ship’s Danish owners to pay a ransom for its release.” These latter facts would not prevent the exercise of jurisdiction if the alleged criminal conduct occurred on the high seas. The question is whether aiding and abetting conduct occurring within the territory of another state must touch and concern US interests. If answered in the affirmative, it would curtail the US’s ability to suppress and prosecute acts of piracy, which is contrary to the historical purpose and intent of 18 USC 1651. It would also be inefficient as those who initiate an act of piracy on the high seas and continue acts of piracy in foreign territorial waters could only be prosecuted for the former conduct.

One significant factor Kiobel instructs to consider is the imperative to avoid enmeshing US courts in foreign affairs. In this regard, the specific facts of the Somali cases militate in favour of exercising jurisdiction. For the then Transitional Federal Government (TFG) of Somalia did not have effective control over the territorial waters where these acts of piracy occurred. The UN Security Council authorized States and regional organizations “to undertake all necessary measures that are appropriate in Somalia, for the purpose of suppressing acts of piracy and armed robbery at sea,” including in its territorial sea. The UNSC took great pains to note the TFG retained full sovereignty, that these exceptional measures did not create customary international law, and that they were authorized because the TFG had requested this assistance. It has been argued that the UNSC Resolutions authorized enforcement and stopped short of authorizing the prosecution of acts of piracy or armed robbery in Somalia’s territorial waters. Notwithstanding these provisos, the interest in preventing “unintended clashes between our laws and those of other nations which could result in international discord” (Morrison) that lies at the heart of the presumption against extraterritoriality, is greatly diminished in these piracy cases.

Justice Kennedy notes in his concurrence in Kiobel that in disputes not involving solely extraterritorial conduct, “the proper implementation of the presumption against extraterritorial application may require some further elaboration and explanation.” Although the majority appears to exceptionalize piracy (“pirates may well be a category unto themselves”), such a reading is inconsistent with Sosa v. Alvarez-Machain which explicitly asked “who are today’s pirates?” The terms “pirate” or “piracy” appear in the various opinions in Kiobel 50 times. Perhaps it is time to address piracy directly, and not merely by analogy. Such could elucidate the “touch and concern” requirement applicable in ATS cases.