Pirate Trails: a new report tracks dirty money from ransoms

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Between US$339 m and US$413m was taken in ransom from the hijacking of ships off the coast of Somalia and the Horn of Africa between 2005 and 2012, according to a report released on November 1st.


The study – carried out by the World Bank, the United Nations Office on Drugs and Crime (UNODC) and INTERPOL – reveals that much of the ransom money was used to fuel a wide range of criminal activities on a global scale.

“Pirate Trails” – using data and evidence from interviews with former pirates, government officials, bankers and others involved in countering piracy – investigates the flow of ransom money paid out to Somali pirates operating in the Indian Ocean. The study examines the reach of the pirates into the stimulant khat trade, human trafficking and other illegal activities that hinder development.

Tracing a pattern that it calls “the pirate money model,” the study analyses the investments made by a sample of 59 pirate “financiers” to reveal the range of sectors – including both legitimate businesses and criminal ventures – that were funded by the ransom money. Emphasising the prominent position of pirate financiers, the report estimates that between 30 and 75% of the ransom money ends up with these financiers. The pirate “footsoldiers” aboard the ships receive just a fraction of the proceeds, amounting to less than 0.1% of the total.

Stuart Yikona, a World Bank Senior Financial Sector Specialist and the report’s co-author, says that its findings highlight the dangers posed not only by the hijackings themselves but also from the proceeds of the criminal acts: “Unchallenged piracy is not only a menace to stability and security, but it also has the power to corrupt the regional and international economy.”

Piracy costs the global economy about US$18 bn a year in increased trade costs. Because the outbreak of piracy has reduced maritime activity around the Horn of Africa, East African countries since 2006 have suffered a significant decline in tourist arrivals and fishing yields. International remittances – a lifeline for the poor – have been affected by the decision of some banks to cease their operations with money remitters working with Somalia, which some financial institutions associate with risks involving the funding of terrorist activities.

“Pirate Trails” assesses how the ransom proceeds are moved, invested and used. The report calls for coordinated international action to address the issue, and it sets out how the flow of illicit money from the Indian Ocean can be disrupted.

Among the report’s findings, “Pirate Trails” shows that ransom money was:

* Invested in criminal activities, such as arms trafficking, funding militias, migrant smuggling and human trafficking, and was used to further finance piracy activities.

* Laundered through the khat trade, particularly in Kenya, where it is not monitored and therefore is the most vulnerable to illicit international flows of money.

A coordinated effort by international financial authorities is needed to address the threat, says Yikona: “The international community has mobilised a naval force to deal with the pirates. A similarly managed multinational effort is needed to disrupt and halt the flow of illicit money that circulates in the wake of their activities.”

“Pirate Trails” calls for a range of practical measures, including strengthening the capacity of countries in the Horn of Africa to deal with illegal cross-border cash smuggling; risk-based oversight of Money Value Transfer Service Providers; and the development of mechanisms to monitor international financial flows into the khat trade.

“Pirate Trails” focuses on Djibouti, Ethiopia, Kenya, Seychelles, and Somalia. Its authors also carried out research in London, Copenhagen and Washington.

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