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.

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.

The Report of the International Piracy Ransoms Task Force is Available

The International Piracy  Ransoms Task Force, established at the London Conference on Somalia, issued its final Report on December 2012. The objective of the Task Force, composed of representatives of 14 States, was “to develop a greater understanding of the payment of ransoms in cases of piracy, in order to put forward policy recommendations to the international community as to how to avoid, reduce or prevent the payment of ransoms. The ultimate goal of this effort is to reach a point where pirates are no longer able to profit from ransom payments and thus abandon the practice of kidnapping for ransom.”

The conclusions and recommendations of the Task Force, included in the Report, build upon the following main options to reduce and avoid the risk of ransom payments to pirates:

  • strengthen the co-ordination between Flag States, the private sector and military responders to prepare for potential hostage situations, in order to shorten the decision-making process during the narrow window of opportunity for intervention after a piracy incident;
  • develop a new strategic partnership between Flag States, the private sector and law enforcement agencies that brings together those tackling piracy and those subjected to it in a united effort to break the piracy business model. In particular, this partnership should develop a more co-ordinated approach to information-sharing which would greatly enhance the quality and quantity of information exchange both to reduce ransom payments and to provide evidence to pursue and prosecute all involved in piracy, from those directly attacking ships to the kingpins who direct this organised crime;
  • encourage the implementation of anti-piracy measures, including still greater compliance with industry Best Management Practice, under the leadership of flag states and supported by the private sector, including insurance companies, in whose interests it is to mitigate risks.

Among the main practical recommendations put forward in the Report are the consolidation of various regional information-sharing frameworks to achieve a “one stop shop” mechanism for the diffusion of relevant information in the immediate post-hijack phase; the conduct of ransom negotiations with the knowledge of relevant national and international authorities in order to foster mutual assistance between these and the private sector; and the development of a mechanism maximising the evidence-gathering process immediately after the release of the vessel or its crew for subsequent prosecutions.

In line with the Task Force’s objective, the 15 page-long Report focuses mainly on the establishment of broad policies to improve communication and coordination to prevent hostage and ransom situations in the future. Several of these policies have been already under discussion for long time and by a number of institutions involved in the fight against piracy. Hopefully, the issuing of the Report will provide for a swift implementation of these policies. Regrettably, the Report does not contain an analysis and more practical recommendations directly relevant to actual hostage-taking, vessels’ hijacks and, more particularly, ransom situations. Given the wealth of knowledge and the technical resources available to the Task Force and its member states, as well as other participants from the private sector, it would have been preferable to expand on the Task Force’s mandate to immediately initiate an information sharing and lesson-learned process relevant to these aspects of piracy ransoms.

Ahead of Security Council Debate, Secretary General Outlines Anti-Piracy Progress

As anticipated by Roger, on 19 November 2012 the UN Security Council is scheduled to hold an open debate on piracy as a threat to international peace and security. The meeting is called under the auspices of India’s current presidency. Earlier this month, the Council already approved the extension of the UN-AU joint military mission in Somalia (AMISOM) until March 2013, in another effort to provide continuity in security and governance to the current state authorities. Yet, the Council failed to reach an agreement on the funding of a maritime component for AMISOM. The Council also received the latest 3-montlhy report of the Sanctions Committee for Somalia. The briefing included an update on requests received by the Committee for exemptions to the on-going arms embargo on Somalia. It appears that calls by the African Union for a partial lifting of the arms embargo to strengthen Somalia’s poorly equipped military were so far unsuccessful.

Nigerian Troops Attached to AMISOM on Patrol in Mogadishu – Press TV

The upcoming debate will review the most recent UN Secretary General efforts to combat piracy in the Gulf of Aden region, contained in his latest report on this matter. The report covers the most important activities relevant to the fight against piracy launched by or in cooperation with the UN following the Council’s Resolution 2020 last year. These include the progress in prosecution, detention and transfer of convicted pirates, the activity of the main UN bodies and of the Contact Group on Piracy Off the Coast of Somalia, naval patrolling and anti-piracy capacity building in the region as well as a number of international conferences. Throughout the year, we have covered these issues here, here and here.

Interestingly, the report takes quite a direct stance on the impact of illegal fishing and illegal dumping toward piracy:

64.  Some observers continue to argue that illegal dumping of toxic waste and illegal fishing off the coast of Somalia is one of the factors responsible for forcing Somali youths to resort to piracy and attack foreign vessels because such activities deprive them from engaging in gainful employment opportunities. However, the United Nations has received little evidence to date to justify such claims. Most pirate attacks have been carried out against large merchant vessels several hundred nautical miles off the coast of Somalia.

65.  As for the dumping of toxic waste on land and at sea, while this may have occurred a few years ago in the waters off the coast of Somalia, there is no evidence of such activities currently. Concerns about the protection of the marine environment and resources should not be allowed to mask the true nature of piracy off the coast of Somalia, which is a transnational criminal enterprise driven primarily by the opportunity for financial gain.

The possibility for a specialized judicial structure solely devoted to investigate and prosecute piracy cases is also still gaining some momentum. The report refers to the initiative by Qatar for the establishment of a “special court for piracy” in the Gulf State (para. 42). As a first step, a delegation from UNODC and the Contact Group on Piracy off the Coast of Somalia visited Qatar last September for detailed discussions with the Qatari authorities. Additional initiatives pertain to a possible direct involvement of the UN in anti-piracy policing activities. The Asian Shipowners’ Forum called for the establishment of a multinational anti-piracy military task force under the auspices of the UN that could be deployed, a sort of UN Peacekeeping Vessel Protection Detachment on board of merchant ships (para. 43). These developments are not ripe for further exploration in the Secretary General report, but they raise fascinating preliminary legal issues. For instance, on the jurisdiction of special criminal fora, rule of law enforcement and the immunity of peacekeepers in connection with the prevention and punishment of universal jurisdiction crimes, that are worth considering for discussion in the near future.

Unused Pirate Skiffs in the Somali Town of Hobyo – AP

The most updated figures show a significant drop of both attempted and successful piracy attacks in the Gulf of Aden and the larger Indian Ocean area, speaking volume of the regional, international, government-lead as well as the private industry’s efforts in combating piracy. With the end of the monsoon season and the possible risk of disengagement by the international community as Somalia continues its current path of democratization, the jury is still out on how effective these efforts have been and what, if any, the pirates’ next move will be. These concerns are addressed in the report, which also recalls the need to add focus on land-based solutions to piracy:

74.  The recent gains made by the international community in its collective fight against piracy off the coast of Somalia are encouraging. However, although there are signs of progress, they can be easily reversed. Until the root causes of piracy, namely, instability, lawlessness and a lack of effective governance in Somalia, are addressed, counter-piracy efforts must not be minimized. In particular, ongoing efforts to build the rule of law and livelihood opportunities ashore should be intensified.

75.  A significant gap still exists in land-based programmes in Somalia to address piracy. This is primarily owing to the lack of security on the ground and lack of sufficient funding to support capacity-building and alternative livelihoods. An ever greater emphasis must now be placed on providing focused assistance to States in the region and to authorities in Somalia to build their capacity to deal with the institutional and operational challenges to governance, the rule of law, maritime law enforcement and security, and economic growth. In addition, counter-piracy actions should run alongside a concerted effort to rebuild the civil structures and institutions of Somalia in close cooperation with the Somali authorities and civil society.

76.  The successful end of the political transition in Somalia should act as a catalyst to address the root causes of piracy. I encourage the new Government to develop a comprehensive national counter-piracy strategy, working closely with the regional administrations and neighbouring States. This should include efforts to facilitate the development of skills necessary to earn sustainable incomes in such sectors as agriculture, livestock, fisheries and industry. I also call upon the Somali authorities to adopt appropriate counter-piracy legislation without further delay to ensure the effective prosecution of individuals suspected of piracy and to facilitate the transfer of prosecuted individuals elsewhere to Somalia. The new Government should proclaim an exclusive economic zone off the Somali coast in accordance with the 1982 United Nations Convention on the Law of the Sea.

77.  Although pirates’ proceeds decreased significantly in 2012 owing to a lower number of executed attacks, militias and parallel illicit activities sponsored by pirate money will continue to pose a threat to the stability and security of Somalia. It is imperative that pressure on Somali pirates and their business model be maintained.

The current lull in piracy activity in Somalia is, however, matched by a growing rise of violent robbery-style pirate attacks in West Africa’s Gulf of Guinea, often connected with other illicit activities of a transmaritime and transnational nature. The Security Council already held an open debate on piracy in West Africa in October 2011. For the first time, the upcoming debate within the Security Council will provide the opportunity for a joint and integrated discussion on piracy in both East and West Africa. Hopefully, it will also be capable to provide for an opportunity to confront these differing realities, identify their root causes and peculiarities and, most importantly, share the relevant lessons learned on the ground so far. We will closely follow the debate and report on its achievements, or failures, as soon as possible.

Somalia Monitoring Group Report Now Available

The latest Report of the UN Monitoring Group on Somalia is now publicly available. The Monitoring Group is tasked to focus on the ongoing violations of the embargo imposed on Somalia since 1992 by the Security Council. The Group prepares reports of its activities, which are then submitted to the UN Security Council and its subsidiary Sanctions Committee on Somalia. The Sanctions Committee concerning Somalia was intially established to oversee the arms embargo and its violations. The mandate  of the Committee was then amended and modified by subsequent Security Council resolutions relevant to Somalia. In parallel, the Committee also oversees a sanction regime imposed on Eritrea. For further information, see here.

The Report, of over 300 pages in length, can be downloaded here. A previous unofficial dissemination of the Report generated a debate on the ongoing situation in Somalia, particularly concerning allegations of widespread corruption and collusion of government officials. Several aspects of the Report are also dedicated to the issue of piracy off the coast of Somalia. (See paras 38-50 and Annex 4). Interestingly, the Monitoring Group has found no evidence that would suggest a structural or organizational link between Al-Shabaab as an organization and Somali pirate networks.

“Somali-based piracy threatens not only the peace, the security and the stability of Somalia, but regional and international security as well. Although pirates have been more active than ever in 2011, the adoption of best management practices by the shipping industry, more effective international counter-piracy naval operations and the increasing use of private maritime security companies have substantially lowered the number of vessels successfully hijacked. As a result, pirates have to adapt and diversify, engaging in kidnap for ransom on land, and marketing their services as “counter-piracy” experts and “consultants” in ransom negotiations. This evolution of the piracy business model is being driven largely by members of the Somali diaspora, whose foreign language skills, passports and bank accounts are all valuable assets. But the Monitoring Group has also been able to confirm the collusion of senior Transitional Federal Government officials in shielding a notorious pirate kingpin from prosecution, providing him with a diplomatic passport and describing him as a “counter-piracy” envoy.”

According to the Monitoring Group, the situation appears particularly concerning in the autonomous Puntland region (see Annex 4.1). In particular, the Report discussed the much rumored Puntland Maritime Police Force, in connection with the use of private security companies operating on the ground in the region (See Annex 5.3).

The Report is also critical of the role of the international community, calling for a more robust commitment to investigate Somali piracy from a law enforcement perspective and to prosecute identifying key individuals who organize, finance or benefit from it, also singlying out a somewhat ambivalent role played by the UK in twarthing piracy.

“The UK Government’s ambivalent posture with respect to Somali piracy is illustrative of a more general international reluctance to tackle Somali piracy as a form of international organized crime, rather than as a sui generis product of Somali statelessness requiring custom-made military and custodial responses. Unless and until this attitude changes, international counter piracy efforts will continue to treat the symptoms of Somali piracy rather than the cause.”

Finally, the Report also discusses the role of private maritime security companies (See paras 72-74 and Annex 5.4) and the risk of some of these representing a potential new channel for the flow of arms into Somalia. In this regard, the Report expresses concern for the increasing use of “floating armouries” to store arms and ammunitions at sea.

“The Monitoring Group recommends that:

(a) The Committee should proceed without further delay to designate known pirates and their associates identified by the Monitoring Group or Member States for targeted measures;

(b) The Security Council should consider the possibility of establishing a specialized investigative group of experts with a mandate to collect information, gather evidence and record testimonies relating to acts of Somali piracy, including and especially the identification of pirate leaders, financiers, negotiators, facilitators, support networks and beneficiaries;

(c) The Security Council should consider making explicit reference, in its next resolutions on Somalia and piracy, to the Monitoring Group’s responsibility of investigating and identifying key individuals responsible for acts of piracy off the coast of Somalia, as well as the movement and investment of piracy proceeds, and call upon Governments, international organizations and national law enforcement agencies to exchange evidence and information with a view to the arrest and the prosecution of senior pirate leaders and their associates, or to their designation for targeted measures;

(d) The Security Council should consider options for the establishment of an international regulatory authority that regulates, monitors and inspects the activities of private maritime security companies operating floating armouries and providing armed protection to vessels in international waters.”