Feral Jundi

     “The Piracy Business Model” describes a system that guarantees every participating pirate a defined share of the ransom money. It is sophisticated enough that it includes “A” shares and “B” shares similar to preferred and common shares in legitimate publicly traded companies around the globe. Just like with preferred stock, there is a premium for entering the game. Piracy “A” shares are earned by bringing weapons and being the first pirate to board a ship during attack. The lower-level militiamen that fill the roster each earn a “B” share. Once a ship is hijacked and brought to port, it’s time to balance the books by paying suppliers, investors, local elders for anchoring rights, and “B” shareholders. The remaining funds are split among the “A” shares and distributed accordingly to the “A” shareholders. 

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   I have to tell you that I find this evolution of piracy or ‘privateering’ in Somalia to be fascinating. What is interesting to watch is that the Somalis are applying modern day business practices and finance to the concept.  If you would like to study a similar model, just check out early America with our privateers during the Revolutionary War and War of 1812.

   So let’s go over a couple of the points in these two articles I posted, that caught my eye.  The first is Fourth Generation Somali Piracy.  The idea being, is that pirates would hijack ships, use key valuable personnel as human shields, and then convert that boat into a operations platform or ‘mother ship’.  Makes sense, and I could see them doing that.

   The idea being is that sailing that hijacked ship all the way back to their failed state’s harbor is time consuming and inefficient.  You could stay out at sea, live more comfortably on a newer hijacked vessel, and continue to expand your piracy operations in places where navies are not operating at. I will keep my eyes open for any proof of this happening.

   These pirates are smart, and they will find a way to get to waters in which the EU, NATO and the US is unable to reach.  They will also go after weak and unsuspecting vessels, which means going to places where piracy really isn’t a big thing of that region.

     Armed security details on boats will really be the only counter to this, because today’s navies are just not able to cover the kind of territory we are talking about.  Plus the cost for today’s naval activities is astronomical.  Billions of dollars are being spent every year to go after pirates in small boats armed with AK’s. The pirates are the small and many–western navies are the few and large. ( a reference to the ‘new rules of war‘)

     The other article is just a touch up on the politics of piracy.  Now that these guys are making the fat cash, they are able to sling dollars to politicians so that they can protect their business.  Pretty standard for organized crime or any venture that wants to expand their horizons and add stability to their operation.  And with the stock market approach, politicians and jihadists can all invest in these pirate ventures.  The quote up top indicates that their little stock market concept is evolving and dare I say, the pirates are applying Kaizen to their set up? lol

   Now to finish up on my solution to this thing.  We are now in a prime opportunity to once again apply the concepts of yesteryear to today’s piracy.  We should be encouraging the shipping industry to outfit their boats with competent security teams, complete with sufficient firepower to deal with all potential threats.  We should also have a legal system in place that can effectively deal with and integrate with this private security apparatus. And with the advent of pirates being captured, having an effective international courts system that these thugs worry about and fear, would be highly advantageous. And of course, the world’s navies should continue to hunt and destroy/capture these folks, and work with the security teams of boats, in order to effectively deal with this scourge.

    I would mention using the Letter of Marque as another tool to combat piracy, but I doubt today’s modern navies would appreciate that kind of thing.  Maybe when countries are financially drained from their anti-piracy ventures, will they consider such tools. Until then, anti-piracy will give these large lumbering navies something to do.  They have to justify their budgets and existence somehow, right? lol But my point with the LoM, is that creating a free market kill/capture mechanism to go after these guys, is one of the only ways to really keep up with this ever evolving piracy business model, and especially in the commons of the open sea. –Matt

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Somali Piracy Tactics Evolve; Threats Could Expand Globally

April 2010

By Michael G. Frodl

Underwriters and shippers are as concerned about what the United States and other powers won’t do against Somali pirates, as they are about what the pirates will do against ships they insure, own and operate.

While the Gulf of Aden is a relatively safe passage for the deployment of warships through a narrow corridor in a vast gulf, some Somali pirates have retaken the initiative in the waters of the Indian Ocean off East Africa.

Continuing to treat Somali pirates as a homogenous, if not a monolithic threat, is not working.

The current approach is showing diminishing returns on investments in anti-piracy. The deployment of modern warships costs easily more than a billion dollars a year, if not more, to sustain. Risks to shipping and the costs of underwriting continue to rise in the ocean where 60 percent of global commerce transits.

Meanwhile, the return on investment in piracy, which basically involves arming and supplying a handful of men and sending them out on a mother ship and two skiffs, only continues to rise.

Staying on the present course guarantees that the next generation long-range Somali piracy business model will entrench itself. It is funded not just by record-breaking ransoms and local investors’ money, but also by the flow of capital from foreign criminal gangs. Pirates now threaten sea lanes all the way to India and soon will threaten sea lanes all the way to the Strait of Malacca. This is a model capable of being exported worldwide.

After the deployment of warships in the Gulf of Aden in late 2008, the underwriting and shipping communities were comforted. By the summer of 2009, it had become obvious that the navies of the world were thwarting northern Somalia’s pirates. But by October, that same response inadvertently incited the more professional pirates of the eastern Somali shoreline, some led by former Somali naval officers, to pivot back into the waters of East Africa and expand long-range operations even into the high seas of the western Indian Ocean.

Those pirates are now extending operations to waters rich in prizes such as the Gulf of Aden.

Underwriters and shippers are therefore apprehensive again, given the new and expanding lead that pirates of southern and central Somalia gained over the world’s navies by late 2009.

Deployment of unmanned aircraft by the United States to the Seychelles to patrol local waters and the sending of a small contingent of French marines and Spanish private guards to protect tuna fishing boats off the islands was too little, too late. Somali pirates are operating mother ships and making attacks with impunity a thousand miles from Somali shores.

The latest targets include not just tuna fishing fleets, but long-range high seas traffic.

The Somali pirate gangs operating from southern and eastern ports such as Kismayo, Harardheere and Hobyo are preparing for more activity. Somalis have become adept at forward support: a technique first used in Gulf of Aden raiding, in which pirates relied on makeshift bases in Southern Yemen to resupply and refit, thanks to locals whose cooperation was likely bought with a promised share of the ransom. Evidence of forward support was discovered in the Seychelles early in 2009.

Other credible intelligence indicates that at least one Somali gang has two mother ships lurking off the Maldives with orders not to come home until they hijack a large crude carrier or something similarly big by early 2010. It’s obvious that these mother ships are relying more on local support than on a long “logistical tail” from their homeport.

The ability to operate free from significant homeport support and instead rely primarily on forward support represents the “third generation” of Somali piracy. The first generation consists of largely opportunistic pirating within 50 miles of Somali shores, especially in the Gulf of Aden, which has occurred for centuries. The second generation consists of more premeditated and longer distance raiding into the Somali Basin and around the Seychelles and involves mother ships that juggle dependence on bulky stores on board, with continued logistical support from home ports. The third generation Somali pirates will venture beyond the limits of even traditional Somali fishermen and threaten new sea lanes, including the vital East Asian energy lanes just off India’s western shores.

Underwriters and shippers are justifiably worried about the world’s navies playing catch-up in the central western Indian Ocean. The members of the world’s leading seafarer union have already called for a boycott of the entire Indian Ocean.

It is doubtful that deployment of long-range aerial surveillance in the central western Indian Ocean will make much of a difference if insufficient surface naval assets can engage the pirates and thereby deter and disrupt their operations.

The East Asian sea lanes are as rich in energy and other resources as the lanes that pass through the Gulf of Aden and Suez Canal. It is not a matter of if, but when, the third generation of Somali piracy begins to inflict serious losses on those lanes off India’s shores.

The worst-case scenario could be set in motion by the European Union and NATO by diluting anti-piracy resources in the Gulf of Aden.

As a result of the Somali pirate threat expanding unabated while the temperature rises between India and China, shipping and underwriting could become While many strategic thinkers write about geopolitics, few write about what can only be called “mare-politics”, or the principles of geopolitics applied to the oceans — despite the fact that the Indian Ocean boasts as many energy resources as Central Asia.

Combining the dearth of ocean-based strategic thinking with the dependence of the global economy on high seas transport creates a dangerous blind spot that denies world leaders the advice and guidance they need. It also lulls them into thinking that the influence nations have on land extends equally to the oceans. That is a dangerous miscalculation. One direct lesson from such strategic thinking is that on the high seas of the Indian Ocean, as any other sea, the brunt of the solution will have to be carried by private ships transiting by themselves, not by governments or by their navies.

All nations also need to work more closely with shippers and insurers to counter pirates, if only because governments and navies can’t and won’t move as fast or effectively as the private players already in place. The major lanes that run on the high seas between India and Africa are in a space where no navy or navies can ever provide real protection.

Private sector players should adopt a combination of measures, including better development and use of public and private intelligence, implementation of “best management practices” to deter and defend against pirate attacks, and improved underwriting solutions to help absorb the costs of attacks.

These three approaches, when smartly integrated, can afford ships the most cost-effective risk management, and in a time period shorter than what any government or navy can make available realistically.

If Somali pirates are allowed to demonstrate new prowess, not only will they earn even more international criminal support, but they also will become the envy of pirates in other parts of the world. This is not idle speculation: a long-range attack against an oil tanker off Benin by Nigerian pirates was attributed to envy-inspired copying.

The biggest impediment to Somali-style piracy going global is having a failed state where pirates can park a stolen crude carrier within sight of shore without fear of being bothered by the local authorities.

Fourth generation Somali pirates may simply kidnap premium, high-value hostages such as the ship’s captain and chief officers, and while negotiating their lucrative release, use them as human shields on mother ships that constantly move all over the Indian Ocean with impunity.

Rather than repatriate hijacked ships all the way back to distant Somalia, or abandon them and their cargo on the high seas at a loss, the Somali long-range raiders may spin valuable ship and cargo off to local insurgent groups or pirate gangs as payment so they are allowed to continue hunting unmolested in their waters.

About the only real threat to Somali pirate expansion these days is from other pirates.

Most pirates of the eastern Indian Ocean and East Asia don’t have much use for crews anyway and may settle for such a division of spoils: some have networks ready not just to liquidate cargo but also ships, which are given new names, paint jobs and papers almost overnight. Those eastern pirates who don’t agree to this arrangement will probably settle for a share of the ransoms Somalis collect.

Fourth generation piracy is sure to appear sooner than later if we keep leaving the initiative to the best Somali gangs. Current counter-piracy approaches make it ironically even easier for them to reap most of the rewards, as their less capable competitors are eliminated, leaving the ocean and its richest prizes for them.

The Somali piracy business model could soon go “viral” and export itself to not just to the rest of the Indian Ocean, but the rest of the world. And there will be nothing to stop it.

Michael G. Frodl is a tax attorney and emerging risks advisor. He is co-founder of the Washington, D.C.-based Forum for Environmental Law, Science, Engineering and Finance (FELSEF). He consults for clients on energy matters.

Story here.

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By Cdr. Herb Carmen, U.S. NavyBest Defense piracy columnist

The Chief of Naval Operations’ Foreword in the “U.S. Navy’s Vision for Confronting Irregular Challenges” states, “Our Navy has a history of confronting irregular challenges at sea, in the littorals, and on shore.” After reading the latest U.N. report on Somalia, it sounds like the security situation in Somalia is a prime example of the irregular challenges navies face.

On March 10th, the United Nations Security Council Committee pursuant to resolutions 751 (1992) and 1907 (2009) concerning Somalia and Eritrea released a report from the Monitoring Group on Somalia. The Monitoring Group, headed by Matt Bryden, describes a stagnant conflict of hybrid warfare and a weak Transitional Federal Government that continues to struggle with a complex security situation. This persistent low intensity conflict creates the space to enable illegal arms trade and a corrupt war economy.

The report states that pirate leaders have contributed to political campaigns of Somali candidates for office and that senior officials have secured the release of pirates detained in counter-piracy operations. It also reports, in great detail, widespread immigration fraud where ministers, diplomats, members of parliament and “brokers” have sold visas for $10,000 to $15,000 each — splitting the profits among them — and that such fraud has enabled pirate militias and members of Al Shabaab and Hizbul Islam to gain entry into western nations.

The report downplays the role of illegal fishing as a driver in the industry of piracy in the region, noting that in 2009 only 6.5% of attacks were against fishing vessels. While fishing vessels would present an easier target for pirates than larger merchant vessels with higher freeboard, fishing vessels do not generate the same high ransoms that have been realized through hijacking merchant vessels. This supports a point that I brought up in an earlier post.

Several key pirate leaders are mentioned in the U.N.’s report. Somalia’s “Father of Piracy,” Mohamed Hassan Abdi “Afweyne” and his son Abdiqaadir have been involved in hijacking at least seven vessels in 2009. Afweyne reportedly visited Libya last September to gain support for piracy and was on Moammar Khadafy’s guest list as Khadafy celebrated 40 years in power. Afweyne’s business dealings are said to be spread around several Indian Ocean rim nations and this network may could a significant role in hostage negotiations. Abshir Abdillahi “Boyah,” from Puntland, claims to lead some 500 pirates and is said to have received multimillion dollar ransom payments. Boyah also claims that Puntland leaders are complicit and receive 30% of the ransoms. Mohamed Abdi Garaad is another well known pirate, reported leading some 800 pirates, and his responsible for the attack on the U.S.-flagged Maersk Alabama in April 2009.

One of the most interesting pages of the report is found way back in Annex III. “The Piracy Business Model” describes a system that guarantees every participating pirate a defined share of the ransom money. It is sophisticated enough that it includes “A” shares and “B” shares similar to preferred and common shares in legitimate publicly traded companies around the globe. Just like with preferred stock, there is a premium for entering the game. Piracy “A” shares are earned by bringing weapons and being the first pirate to board a ship during attack. The lower-level militiamen that fill the roster each earn a “B” share. Once a ship is hijacked and brought to port, it’s time to balance the books by paying suppliers, investors, local elders for anchoring rights, and “B” shareholders. The remaining funds are split among the “A” shares and distributed accordingly to the “A” shareholders.

When it comes to Somali piracy, we’re not dealing with a few thugs bobbing around the Indian ocean in a John Boat. This is a hybrid, population-centric fight against a network.

Story here