We missed this earlier in the month, but it’s definitely worth ‘flagging up’ to readers as it was being pinged around Citi emails on Wednesday.
UN Dispatch, a site dedicated to providing commentary and coverage on the UN and UN-related issues, found the following account of the pirate business model tucked away in annex of the UN’s latest report on Somalia.
It goes something like this (page 99, for those interested):
Piracy business model
The typical piracy ‘business model’ has evolved since the Monitoring Group’s December 2008 report (S/2008/769). The success and expansion of pirate militias has necessitated new organizational arrangements and practices.
Although leadership of pirate networks remains anchored in Puntland and central Somalia, participation in maritime militias and investment in pirate operations is open to a broad cross-section of Somali society. The refined business model guarantees every participant in the operation, if successful, a well-defined percentage or share of the ransom money.
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 if 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.
We look forward to the UN’s account of other equally questionable business models too.
Oh, and we’d note that the model seems to be going swimmingly. As Hellenic Shipping News reported on Wednesday, eight ships from Dubai have been hijacked off the Somali coast since Friday. (H/T Vincent Fernando).
Related links:
Somali pirates set up co-op, make hijacking a ‘community activity’ – FT Alphaville
Yar! Interdealer piracy – FT Alphaville
So a Sicilian mafioso walks into HSBC… – FT Alphaville