The Economic Cost of Piracy – Oceans Beyond Piracy Report 2011

The economic cost of piracy has joined the already substantial political and security concerns of such operations, as an issue requiring further research and consideration by the relevant stakeholders. In this vein, the Colorado-based One Earth Future Foundation, which studies the effects of piracy through the Oceans Beyond Piracy project, has released its 2011 working paper on The Economic Cost of Somali Piracy. In order to ensure reliability, the report builds on dialogue and feedback from Oceans Beyond Piracy’s 2010 assessment of the cost of piracy with data obtained through collaboration with maritime stakeholders from industry, government and civil society, in addition to commentators and experts in the field. As the second report of its kind, the paper aspires to flag pertinent concerns for the Oceans Beyond Piracy Working Group, which will release recommendations for a more coordinated, and comprehensive strategy against piracy in July 2012.

In highlighting its concerns about the economic cost of Somali piracy to relevant stakeholders and the wider community, the report estimates the 2011 economic cost of piracy to be $6.6 – $6.9 billion US dollars. The majority of which is spent in mitigation of piracy attacks rather than in ransoms, as is most commonly believed and also portrayed by the media. The report only calculates direct costs, as indirect figures were too difficult for the research to quantify and in doing so assesses nine different cost factors specifically focused on the economic impact of Somali piracy. Namely: increased speeds, military costs, security guards and equipment, re-routing, insurance, labour, ransoms, prosecutions and imprisonment and counter-piracy organisations. The report subsequently found that 80% of all costs relating to countering piracy attacks are covered by the shipping industry, while governments finance the remaining 20% of the expenditures. The approximately $7 billion figure for 2011, is down from the $7 – $12 billion that was estimated in the 2010 report. While the 2010 estimate was higher, the 2011 report is said to be based on more authoritative and exact information according to the author of the report Anna Bowden who explained that in reality the figures of 2010 and 2011 are likely to be similar.

Key piracy developments: overview

The report outlines what it believes to be the key piracy developments affecting the cost of piracy in 2011, where there was an increase in attacks by Somali pirates, particularly in the first quarter. There was a record of 237 piracy attacks, rising from the 212 in 2010. However the proportion of successful attacks fell, with only 28 of the vessels actually captured, in comparison to the 44 in 2010. This is most likely due to the use of private armed guards on vessels and naval operations that have become more familiar dealing with piracy issues. The report recognised that 99% of the $7 billion was spent on yearly recurring costs associated with the protection of vessels including $2.7 billion in fuel costs, $1.3 billion for military operations and $1.1 billion for security equipment and armed guards.

In other observations, shipping behaviour altered whereby shippers increased payments necessary to harden vessels, hire private security and increase speed in high risk areas. Further, the geographic expansion of pirate activities increased eastwards towards India, and northeast towards the Gulf of Oman and Strait of Hormuz. New trends in piracy mitigation included the rerouting of ships so that they transited close to the western Indian coastline rather than the Cape of Good Hope. As will be discussed below, only $16.4 million was spent on prosecutions and $160 million was collected by pirates in the form of ransoms, which is only 2% of the overall economic expenditure. These figures represent a disproportionately small contribution to the economic cost of piracy compared to the $7 billion spent in order to stop the attacks.

Further key developments surrounded ransoms, which increased from $4 – $5 million, as did the duration that ships were held hostage during negotiations. Meanwhile, the human cost in the loss of lives cannot be adequately quantified, but notably increased from eight in 2009 to 24 in 2011, despite the significant economic effort to avoid the attacks. 2011 evidenced an increase in seafarer deaths, in addition to specific incidents highlighted in the media where groups of pirates were accused of kidnapping tourists and humanitarian workers on land in Somalia and Kenya. This resulted in a more aggressive response from military forces conducting counter-piracy missions in the region while pirates changed their primary operations from large vessels to smaller fishing boats.

Piracy and prosecutions

An issue of particular interest is the comparatively low cost of prosecutions, imprisonment and local legal capacity building, which at $16.4 million is a relatively small proportion of the $7 billion overall economic cost of piracy. This figure is an estimate of the cost of trials and imprisonment in the four selected regions of Africa, Europe, North America and Asia. The report highlights that in attempting to find a legal resolution to the issue of piracy, in October 2011, the United Nations Security Council called on UN member states to criminalise piracy, asking member states to report to the Secretary General on the measures they have taken to criminalise piracy.

Certain countries such as the United States and Oman have sentenced pirates to life imprisonment, with South Korea sentencing one pirate to death for murder. In estimating the cost of prosecutions in 2011, the report calculated the average cost of pirate trials that were conducted, in addition to the cost of imprisonment for suspected Somali pirates during the year, accordance with economic development and prosecutorial costs. The cost of trials and imprisonment in Kenya and the Seychelles were not included, due to the fact that the relevant costs for these prosecutions are covered by funding from the UNODC Counter Piracy Programme and other international funding mechanisms.

According to a report released in 2011 by Jack Lang, the United Nations Secretary General’s Special Adviser on Legal Issues Relating to Piracy off the Coast of Somalia, more than 90 per cent of captured pirates will be released without prosecution. The report notes that over the previous few years 1,089 pirate suspects had been arrested for piracy and those individuals have either been tried or are awaiting trial in 20 countries, a figure which has risen from 10 countries in 2010. Lang therefore proposed a specialised extraterritorial Somali court system with its seat in Arusha, Tanzania based on an estimated cost of $2.73 and $2.33 for each following year.

In consideration of this, and as already discussed in this blog, criticisms as to the resources needed for a fully internationalised piracy tribunal, that may cost up to an estimated $100 million, are short sighted against the report’s figure of $7 billion for the overall cost of piracy. In an earlier post by Matteo Crippa, we indicated that the most relevant issue in evaluating the effectiveness of international prosecution was its real deterrent effect. In comparison to an overall figure of $7 billion, $100 million for an international tribunal, however costly in isolation is comparatively low. These disparate figures might also justify a substantial increase in funding for the current localised prosecutorial initiatives, which are similarly capable of meeting effective deterred goals. Whatever solution is chosen, it is clear that prosecutions have not been prioritised as a budgetary matter.

Conclusions

The 2010 Oceans Beyond Piracy report was widely referred to in piracy commentary. The updated and more accurate 2011 version has already been critiqued by various sources. When considering that protecting vessels through high insurance premiums, onboard guards and re-routing costs $7 billion in comparison to the $160 million Somali pirates receive in ransoms or the comparatively small $16.4 million spent on prosecutions and imprisonment, there is an obvious disconnect and disproportionality in dealing with this issue. There is an ever present argument that insurance companies, as well as Private Maritime Security Contractors (PMSCs), earn more from piracy than the pirates themselves, which is well supported by this report, which showed evidence that 99% of piracy costs are recurring. This means that they will be repeated every year and will only fluctuate if piracy itself reduces to the extent that it warrants a change in political and economic approaches to the problem.

The report therefore suggests that stakeholders need to reassess the long-term sustainability of the costs outlined. The fear and preventative economic investment in piracy however looks set to increase with incidents such as Somali pirates launching their first attack in territorial waters when they raised a vessel near the Gulf State of Oman. One particularly disturbing piracy trend is that pirates have begun to focus their attention on people rather than ships. There have been incidents where pirates release the ships, but keep the crew for ransom purposes. This has extended to pirates kidnapping hostages on land such as humanitarian aid workers and tourists in Kenya and Somalia.

While not quantifiable in economic terms, the human cost of piracy is higher than any economic figure given. Twenty four people were killed by pirates in 2011, but hostages were held for longer in order to negotiate higher ransoms, which the report states took an average of 178 days (or six months). Also forgotten are the deaths of the pirates themselves. Due to the economic disconnect between pirate ransoms and the overall economic cost of pirate deterrence, it is clear that a purely mitigating or preventative policy does not offer a solution to control or alleviate piracy. Neither the military nor shipping industry have been successful in stemming the problems and the more money that is invested does not seem to reduce the cost to human life. One option is to stabilise the situation on the ground in Somalia in political and economic terms. As the report notes, very little is spent on the root causes of piracy, suggesting a redirection of investments from short-term symptoms to long-term solutions.

 

Upcoming event: Panel on Establishment of a Special Anti-Piracy Tribunal: Prospects and Reality

As part of the ABA Section of International Law, 2012 Spring Meeting in New York, 17-21 April 2012, there are two panel discussions that may interest readers. The first will discuss the legal issues surrounding the prosecution of piracy. For further background on the Kenyan High Court decision see here. The second panel will take a look back at one of the precursors to modern international criminal law, the Nuremberg trials.
Establishment of a Special Anti-Piracy Tribunal: Prospects and Reality
Tuesday, 17 April 2012, 4:00 pm – 5:30 pm

Two hundred years ago, piracy was recognized as the first “international” crime. Recently, piracy has re-emerged as a major problem for international commerce. In the last two years, Somali pirate attacks off the Kenyan and Somali coasts have caused over $25 billion in losses. Although the UN Security Council authorized the international community to capture Somali pirates and turn them over to Kenya for prosecution, Kenyan courts have struggled with the novel legal issues presented before them. A Kenyan High Court Judge recently ruled the Kenyan Piracy Court cannot obtain jurisdiction over captured pirates because Kenyan law lacks the requisite statute granting such jurisdiction. Prosecuting pirates involves knowledge of international treaties, criminal law, maritime law, and unusual evidentiary gathering rules, which is challenging and even dangerous. This panel will provide a basic understanding of these complex legal issues and how the many parties involved are trying to resolve this continuing international dilemma.

Moderator: Anthony Colleluori, Anthony Colleluori & Associates, PLLC, Melville, New York

Speakers: Sandra Hodgkinson, National Defense University, Alexandria, Virginia

Rosemelle Mutoka, Kenya Piracy Court  Chief Judge, Kenya

Michael Scharf , Case Western Reserve University, Cleveland, Ohio

The Evolution of International Criminal Law: Problems and Perspectives

19 April 2012,  4:30 pm – 6:00 pm

A conversation with Ben Ferencz, the sole surviving American who served as a prosecutor at the Nuremburg trials of Nazi war criminals. Ferencz was Chief Prosecutor for the United States in The Einsatzgruppen Case, which the Associated Press called “the biggest murder trial in history.” Twenty-two defendants were charged with – and convicted of – murdering over a million people. In addition to his wartime and Nuremburg experiences, Ferencz will discuss Nuremburg’s implications for the rule of law and the international criminal court.

Program Chairs & Moderators: Michael H. Byowitz, Wachtell, Lipton, Rose & Katz, New York, New York

Don Ferencz, The Planethood Foundation, New York, New York

Speaker: Ben Ferencz , New Rochelle, New York

UK House of Commons Issues Piracy Report, Eyes Private Security Guards on Board, Local Prosecutions in East Africa (Part II)

This is the second part of an earlier post discussing the UK Foreign Affairs Committee Report on piracy off the coast of Somalia.

Regional and Local Prosecutions of Pirates (paras 74-110)

The trial and prosecution of pirates is also an extremely relevant, and pressing, topic. As noted in the Report, the peculiar features of modern day piracy, particularly in the Gulf of Aden and the lack of cohesive governance in Somalia, create several practical difficulties, including the apprehension, detention on board and transfer of suspected pirates. One of the primary purposes of policing activities through naval operations is, indeed, its deterrent effect on pirate attacks rather than the arrest and prosecution of the perpetrators.

The collection of sufficient evidence to secure successful prosecutions is particularly problematic, as we noted in a recent post. It should be remarked how any evidentiary assessment on whether to bring alleged perpetrators to justice should, ordinarily, be best placed in the hands of judicial authorities as neutral fact-finders rather than subject to the prelimary evaluation by the naval authorities upon the capture of suspected pirates. Moreover, the Report correctly points out how such assessment could benefit from modern technological means already available to the naval authorities, namely video, radar and satellite recording. In addition, remote testimony via video or audio link is recommended, particularly when victims are located in third countries or, more likely, have already set sail.

Modern international law asserts the possibility to exercise universal jurisdiction over piracy prosecutions. However, as one expert who gave evidence before the Committee put it, the obstacle to prosecution is not identifying the appropriate jurisdiction, but rather the inability, and unwillingness, to prosecute. In addition, the surge of modern piracy and armed robbery at sea has exposed the current inadequacy of national laws, including in the UK, against piracy. For those operating within the field of international criminal prosecutions, the phenomenon is not new. Several states suddenly found themselves incapable to put Genocide suspects on trial before municipal courts due to the inadequacy of their national laws in enacting the provisions of the Genocide Convention.

We have also discussed whether the response to modern piracy should contemplate a revision of the existing international counter-piracy legislation and mechanisms, in particular because it appears that current treaties have difficulty in addressing the difference between political and purely-financial motivations of pirates attacks, or whether attempted attacks are also punishable. Interestingly, as noted in the Report, the IMO has taken the view that “the development of a new multilateral instrument might be premature, or unnecessary, in light of the existing international legal framework on piracy, which was generally considered to be adequate”. Some concerns remain, however, particularly on the practical implementation and effectiveness of these mechanisms.

The main recommendation contained in the Report with regard to options for the investigation and prosecution of pirates is therefore the rejection of the establishment of a specialized Somali tribunal, initially recommended by the UN Special Adviser to the Secretary General Jack Lang as one possible alternative. This option would have established a court outside of Somalia in a neighboring state (most likely Tanzania) with funding and administration from the international community, but would employ Somali judges applying Somali law. There appear to be a number of compelling legal complications against such court, including its legality vis a vis the Somali Constitution. The UK Report rejected this proposal stating:

 “the Government was right to oppose the establishment of an extra-territorial Somali court as proposed in the Jack Lang report to try Somali pirates in a third country. We recommend that the Government set out in its response to this report its views on the more recent proposals for specialised anti-piracy courts established within regional states under ordinary national law.”(para. 92)

Among the main arguments in support of this conclusion are also the possible high costs of an extra-territorial institution, with a tentative figure of $100 million a year. This is not convincing, particularly considering the lack of clarity at the basis of this figure as well as the present estimates of the global costs of piracy, which already identified high costs from the current prosecutions as well as a cost of ransoms alone capping over $130 million per year. In addition, this figure would remain a fraction of the overall economic costs of piracy. It must be acknowledged, however, that an extra-territorial court, financially supported by international organizations, might not be able to promptly contribute as an anti-piracy deterrent and develop effective outreach capabilities within the turned-pirate population in and around the Gulf of Aden.

The rejection of the UN-funded option reflects a gaining trend to favor specialized piracy prosecutions within the area where the alleged attacks took place, counting on a much stronger deterred effect than trials taking place thousands of miles away. Local prosecution projects have already taken shape in Kenya, Mauritius and Seychelles, among other countries in the region. In addition, a small number of historic trials were also held in the US, Germany and the Netherlands, mainly because the alleged pirates were captured by the naval forces of these countries, or due to a nexus between the piracy acts and these latter.

However, while piracy prosecutions in the UK are still contemplated, albeit in limited circumstances, in the Report, the support expressed therein for local or regional anti-piracy courts also present several difficulties which should be carefully weighed. Requesting the help of regional states to prosecute pirates in their courts does not obviate the need to provide support to the various local authorities in the form of financing, training, monitoring and oversight extending not only to the mere prosecutions and trials of suspected pirates, but also to transfer, investigation, security, procurement and infrastructures as well as pre-trial and post sentence detention. Indeed, the fate of a recently arrested group of alleged Somali pirates by the UK Royal Navy after both Kenya and the Seychelles have refused to detain them because “their court systems are swamped”  is a rather timely reminder of some of these difficulties. As the Kenyan government stated last year when it refused to continue piracy prosecutions, ““We discharged our international obligation. Others shied away from doing so. And we cannot bear the burden of the international responsibility.”

Secretary General Issues Report of Piracy Court Possibilities

After several months of consultations with the relevant parties in Somalia and regional states that could assist with piracy prosecutions, the Secretary General has issued a report . My very brief synopsis: Somaliland, Puntland and the TFG in Mogadishu want any and all piracy courts to be based in Somalia, but disagree as to precisely where. Regional and national legislation will need to be enacted that is in accordance with the Somali Constitution. The UN may still provide international assistance in the form of judges, prosecutors and defence, and there is a preference to send members of the Somali diaspora to fill these posts. Although the report was requested in order to bring these courts into existence, the SG could not estimate with any precision the potential cost of these courts or the length of time it might take to lay the legal and logistical groundwork. In order to create a special Somali court, there will need to be agreement between the various factions and regions in Somalia as to legal basis and potentially the seat of the court. On the one hand, there is not a sterling track record for reaching consensus between these parties. On the other hand, the financial and security incentives that could arise from creating these courts may be a golden opportunity to initiate successful negotiations. See the full report here.

UN Delays Action While National Prosecutions Continue

The UN Security Council adopted a Security Council Resolution relevant to Jack Lang’s report.  As to efforts to prosecute pirates it included the following language:

[The UNSC] Decides to urgently consider the establishment of specialized Somali courts to try suspected pirates both in Somalia and in the region, including an extraterritorial Somali specialized anti-piracy court, as referred to in the recommendations contained in the report of the Special Adviser to the Secretary-General on Legal Issues Related to Piracy off the Coast of Somalia Mr. Jack Lang (Annex to document S/2011/30), consistent with applicable human rights law, and requests the Secretary-General to report within two months on the modalities of such prosecution mechanisms, including on the participation of international personnel and on other international support and assistance, taking into account the work of the CGPCS and in consultation with concerned regional States and expresses its intention to take further decisions on this matter (emphasis added)

Billed as adopting the recommendations set out in Jack Lang’s report, the resolution calls for another report within two months on the modalities on setting up an anti-piracy court outside of Somalia. The resolution also attempts to address some of the underlying causes of piracy by “[requesting] the Secretary-General to report within six months on the protection of Somali natural resources and waters, and on alleged illegal fishing and illegal dumping, including of toxic substances, off the coast of Somalia” since “allegations of illegal fishing and dumping of toxic waste in Somali waters have been used by pirates in an attempt to justify their criminal activities.” So…the wait for a comprehensive solution continues.

In the meantime, national prosecutions fill the void.  In what appears to be the first case of its kind, the U.S. has arrested a Somali on Somali soil, alleging he was involved in negotiating a ransom of hostages. This is an attempt to prosecute not only pirates who execute attacks, but also those who finance, plan, organize, or unlawfully profit from pirate attacks. This prosecution will provide some interesting legal precedent as to the definition of piracy. Did this man finance, plan or organize the attacks? or was he just another middleman conversant in technology and English? In any event, it will be interesting to see if the FBI attempts to leverage this prosecution into higher levels of the criminal organization.