Somalia’s Innovating Pirates

Originally Published by the World Peace Foundation Reinventing Peace Blog

By Matt Herbert and David Knoll

The MT Smyrni, a Liberian flagged Tanker, was sailing 250 nautical miles off the Omani coast when pirates were sighted. The pirates closed fast, attacking with automatic weapons. The crew was able to drive the pirates off once, but a second attack overwhelmed the Smyrni. Within moments the vessel had been commandeered, the 26 crewmembers kidnapped, and a new course set towards the Somali coast. The ship’s owners were contacted, ransom negotiation initiated, and its crew held hostage to hedge against attempts to forcefully free the vessel. Ten months later the pirates received $9.5 million dollars, and the owners of the Smyrni received their ship back.

The attack on the MT Smyrni is hardly unique. Over the last eight years, Somali pirates have emerged as perhaps the most successful maritime brigands of the modern age. Between 2005 and 2011, they hijacked 218 vessels and held 3,741 sailors hostage. Their operations peaked between 2010 and 2012, when roughly 3,000 Somali pirates extorted $429.37 million for the global shipping community.

Somali pirates operate well out into the Indian Ocean, extending from the Bab El Mandab Strait to the Maldives. In at least one case, Somali pirates were encountered off the south Indian coast. In an era of increasingly globalized and professionalized crime, Somalia’s pirates have demonstrated that opportunities for lucrative illicit gain still exist on the high seas, albeit without eye patches and peg legs.

Their attention grabbing, large-scale attacks served to remind the world that piracy is not dead, but has simply changed forms. Apart from the direct costs of the ransoms, shippers faced increased insurance premiums on vessels sailing past Somalia. In some cases, shipping companies chose to reroute vessels away from the western Indian Ocean all together, at considerable expense and time. Some estimates peg the annual impact of Somali piracy on the global economy at $18 billion.

The high cost of Somali piracy begs the question: how have they been able to achieve such success? Analyses of Somali piracy have focused on the structural dynamics in Somalia. The most frequently cited enabling factor is weak state authority. Minimal state presence allows pirates to organize and operate with little fear of arrest or interdiction. State weakness also impedes the growth of legitimate industries, incentivizing young men to turn to piracy.

Other analyses have focused on the availability of ships off the coast of Somalia. International shipping relies heavily on the Suez Canal and Bab El Mandab Strait as a shortcut from the Mediterranean to South and East Asia. Add in the tankers moving oil from the Persian Gulf to South and East Asia, and the waters of the Western Indian Ocean are packed with all manner of high value vessels. Despite the threats posed by Somali pirates, it is economically prohibitive for most shipping companies to reroute their cargo, ensuring that prey remains aplenty for pirates.

These structural factors are important in explaining the emergence of Somali piracy, but they are ineffective in explaining its economic success. Somali pirate attacks regularly yield million dollar payoffs. By comparison, pirates in other areas of the globe are often lucky if they can get ten thousand dollars. The main driver of this differential is the innovative nature of Somali pirate operations.

Traditionally, pirates hijacked vessels to steal money, cargo, the ship, or kidnap individuals onboard. These methods all involve a risk-reward tradeoff. Stealing shipboard items such as money or small amounts of cargo is low risk, but not lucrative. Alternatively, trying to steal an entire ship and reregister it is lucrative, but unlikely to be successful and could involve state violence. A large proportion of pirate attacks are basically opportunistic crimes – one or two pirates slipping on board an anchored vessel, stealing money or goods from the ship, and rapidly fleeing. The pirates perpetrating such attacks are generally unorganized and unskilled.

Somali pirates, by contrast, are highly organized groups of men who hold specialized skills. The Somali model is encapsulated in the MT Smyrni episode. Pirates use motherships — often hijacked fishing vessels — and small skiffs to stalk vessels steaming through the Indian Ocean. Once spotted, the pirates use speed and violence to swarm the target and take it over. It is then steered back to the Somali coast, where the vessel’s owner is contacted and a ransom demanded.

The detention of the vessel’s crew creates a hostage situation, deterring attempts by military forces to regain control. Instead major shipping companies pay the ransom quickly to ensure the safety of the crew and to get the ship back into revenue generating status. Once the ransom has been paid, the vessel and its crew is released, and the pirates return to the sea try again.

While the Somali model of piracy involves aspects of traditional operational models of piracy, including vessel hijacking and crew kidnapping, it differs in how it leverages value from its victims. Instead of having to engage in the messy task of selling a vessel, or the non-lucrative seizure of the currency aboard, the Somali pirates have realized that simply extorting international shipping companies can garner large profits. The companies in turn are incentivized to negotiate by the high value of the ships seized, the physical threat to the crew, and the significant cost of their vessel being idled. The cost of an idle vessel can be particularly acute, with some estimates putting the daily cost at $17,500 for a bulk carrier.

The hijack-ransom is shocking in its simplicity and impressive in its profitability. What makes this method effective is not simply the enabling conditions, but the innovative operational methods that have been introduced. The recent success of the international community to slow Somali piracy might convince some that the threat has been removed, however the factors that produced hijack-ransom piracy are in place in other regions indicating that Somali-style piracy could be poised to spread. A forthcoming post will address how hijack-ransom piracy might proliferate.

Amphetamines, Anarchy, and Assad

Originally Published by the Global Initiative Against Transnational Organized Crime, Available Here.

As Syria’s bloody civil war boils on, the nation has become fertile ground for the growth of criminal activity.  As we described in the August AOC brief, Syria has become a regional hub for weapons smuggling, the illicit trade in antiquities, and now drug trafficking.  Recent reports have begun to emerge from Syria that amphetamine laboratories are being discovered in cities such as Homs, while drug traffickers in Lebanon have highlighted the ease with which they are able to smuggle drugs through the country. The chaos, poverty, and greed of war-torn Syria heightens the likelihood that such activities will grow in scope, financially benefitting criminals and combatants while drowning the region in narcotics and exacerbating the fragility of both Syria and its neighbours.

While several types of drugs are smuggled through Syria, the one currently raising concern is captagon. Captagon was the brand name of an amphetamine type stimulant, sold commercially until it was banned in 1986. Apart from the name, the current incarnation of the drug shares few chemical similarities with the original. Modern, illicitly produced captagon is usually composed of amphetamines cut with a mix of adulterants. The drug’s popularity has grown rapidly in the last decade, primarily in Saudi Arabia and other Gulf countries where it is taken as an energy booster and aphrodisiac. The value of the captagon market is massive, and increasing. Individual doses sell for $20 in Saudi Arabia; with some estimates pegging the number of captagon tablets successfully smuggled into that country at over 500 million.

While captagon has been popular in the Middle East since the 1980s, high levels of demand for the drug didn’t take off until the early 2000s.  Initially, the market was supplied either by laboratories in southeastern Europe – primarily in Bulgaria, though laboratories were also uncovered in Slovenia and Serbia. The drug was then smuggled through Turkey, Syria, and Jordan before being sold in Saudi Arabia. By 2006 captagon laboratories began to appear in Turkey, including two uncovered in Gaziantep on the Turkish/Syrian border. Unconfirmed reports suggest that Syria began producing captagon that same year, while in 2007 Lebanon seized both precursor chemicals and the laboratory equipment for producing the drug.  Also by this time 75% of the global illicit production of captagon’s chemical precursor was shipped to “two countries in the near and Middle East.”

Wherever it was being produced, by 2006 captagon had started to flood Saudi Arabia. In that year, Saudi Arabia seized 12 tons of the drug; roughly equivalent, as the UN Office of Drugs and Crime dryly noted in the WDR 2009, to “to the sum of all UK seizures – the biggest amphetamine market in Europe – from 2000 to 2006.” In Syria, the level of captagon seizures doubled between 2007 and 2009, to 22 million tablets. Most trafficking routes still moved overland through Syria and into Jordan, though there are some indications that a route through Iraq was active by 2010.

The Syrian civil war has entrenched the nation’s role as an entrepot for the Middle East’s amphetamine market. Labs have been uncovered in Syrian cities such as Homs, as well as in northern areas held by insurgent groups. As well, an increasing number of Syrians have been arrested throughout the Middle East for captagon smuggling. While it is unclear which groups are involved in the production and smuggling of the drug, it is likely that both the Syrian regime and at least some of the rebel organizations are financially benefitting. The patchwork nature of territorial control along traditional smuggling routes likely force traffickers to pay tolls or bribes to both sides. One apparent benefit for the traffickers is that the dire economic straights of Syria’s law enforcement and military personnel have apparently made bribery, and thus smuggling, far easier.

It is possible that Syria could evolve into a thoroughfare for other types of narcotics as well. Cocaine trafficking, and a small domestic cocaine market, developed in Syria during the 2000s, with 77 KG of the drug seized in 2007.  Heroin seizures also grew dramatically during the 2000s, averaging 80 KG/year between 2007 and 2011.  For drug traffickers, Syria is a geographically well-positioned staging ground not only for the Middle East’s amphetamine market, but also for Europe’s far more lucrative cocaine and heroin market. The smuggling networks that bring weapons in and humans and antiquities out of the country could well be used for narcotics trafficking. The focus by both the insurgents and the government on perpetuating the stalemated civil war lessens the likelihood that any sort of meaningful action will be taken to halt the trade in drugs.

Out of Sight, Out of Mind: Barclay’s Bank Kiboshes Somali Remittances

Originally Published by the Global Initiative Against Transnational Organized Crime, Available Here.

In May, Barclays Bank announced it would be withdrawing banking services from 250 money transfer services, including a number that provided remittance services to Somalia and Somaliland. This was the last western bank serving Somalia.  Barclay’s rational for the service termination revolved around the weak internal controls against money laundering and terrorist finance many of the businesses reportedly had.

In reality, it is more likely that it was a fear of risk that motivated Barclays to act. Over the last decade, anti-money laundering regulations have become increasingly strict. In recent years, financial regulators have moved aggressively against banks handling “dirty money”, often levying massive fines for non-compliance. The $1.9 billion settlement HSBC reached with the U.S. this August, has prompted an increasingly risk averse banking community to minimize their exposure to businesses deemed to be potential money laundering and terrorist finance threats.

Anti-money laundering (AML) efforts are a tricky balancing act for banks. At a base level, AML efforts necessitate that exercise due diligence in providing banking services and implement “know your customer” (KYC) rules.  The challenge for many remittance services is that many users, and especially recipients, do not possess the official identification necessary to meet KYC requirements. Being unable to guarantee that those who engage in remittance activities via their banking partners are not laundering money or funding terrorists, banks have opted for the extreme option and excised them from their banking systems.  A report by Thompson Reuters issued this month offers a pragmatic, risk-based approach to KYC requirements.

In taking this decision, Barclay’s may have mitigated the risk that it faces, but its actions will have significant consequences for the economy, development and thus stability of Somalia, whose future is again looking more fragile.  This stems of the importance of remittances for senders and receivers, as well as the size of the economic flows. Somalia alone receives $1.2 billion in remittances annually. Many Somali families depend on remittance to supplement their incomes.  Furthermore, this decision is in fact only minimally effective, or possibly even counter-productive, in the broader battle against money laundering and organized crime. Given the importance of the remittance flows, there is little chance that the Somali diaspora will cease sending money simply because the legal channels are withering away.  Instead they will turn to informal, often untraceable money remittance systems – such as hawalas – to support their families in Somalia.

The shift from formal, traceable systems – despite their flaws – to untraceable channels hinder the efforts of FIUs and law enforcement agencies to identify and trace actual terrorist and criminal finance. It may even provide a benefit to criminal actors, as the new channels for otherwise licit remittance funds pulsing through the informal challenges will overwhelm and camouflage the far smaller number of illicit transactions. Thus, Barclay’s decision has produced few winners – not the migrants, the remittance receivers, nor law enforcement agencies. In an ironic twist, the only beneficiaries appear to be Barclay’s itself and the international criminals and terrorists that it ostensibly acted to impede.

Arms Trafficking in Syria: A Case of the Biter Getting Bitten

Originally Published by the Global Initiative Against Transnational Organized Crime, Available Here.

The grinding maelstrom that is Syria’s civil war continues to churn. While the grievances behind the conflict are complex and variable, there is one enabling factor that has been vital – access to weaponry. Despite pleas from insurgent groups for more arms, the geographic reach of the conflict and its intensity are indicative of a situation awash in guns. This is a striking shift for a country that historically has had far fewer weapons in civilian hands than its neighbors. Where then does the plethora of weapons in insurgent hands come from, and how have they arrived there?

The most important early source of weaponry for the insurgents were government stockpiles. Government weapons and ammunition have fallen into rebel hands in three ways: purchased from corrupt government officials, via direct assault, in some cases immediately using captured weapons to sustain rolling offensives or brought by defecting soldiers. Since the beginning of the conflict Syria’s military has struggled to staunch a steady stream defectors from joining the insurgents. The presence of these former soldiers bring has both increased the lethality of the insurgency, and helped to shape the types of weapons in demand.

Since the beginning of the conflict the Syrian insurgency has also been supplied weapons smuggled in from neighboring countries. Initially, weapons trafficking groups operated on a small-scale, almost ad-hoc basis and were basically apolitical. Individuals and local smuggling networks procured weapons in Lebanon, Iraq, and Turkey, from commercial and civilian sources. Highlighting the irony of weapons being smuggled back into Syria which, in in previous years its government had smuggled to insurgent groups in neighboring states, a western diplomat noted, “it’s a case of the biter getting bitten.”

The start of the conflict caused a spike in regional weapons prices, with prices for Ak-47s, sniper rifles and handguns in Iraq increasing nearly four-fold. While expensive, regional sources were able to provide a host of weapons, including AK-47s, M-16s, shotguns, sniper rifles, rocket propelled grenade launchers, anti-tank missiles, and Katyusha rockets. Once procured, the weapons were moved across the often unguarded border between Syria and its neighbors by vehicle, donkey, or by foot, before being offered for sale inside the country. As the conflict ground on, and the potential for profits increased, ad-hoc smuggling efforts were taken over by established arms trafficking and professional criminal groups.

A more centrally organized effort to source weapons began in 2012. Representatives of the Free Syrian Army made contact with weapons dealers in Eastern Europe and the Black Sea region, hoping to procure weapons that would then be smuggled across the Turkish-Syrian border. The Syrian rebels also reached out to militia groups in Libya for assistance. The Libyan groups have proven to be a particularly important source of weapons for the Syrian insurgents. Brokers in Libya procure weapons that have either been donated by sympathetic groups, or purchased from the well-stocked black market. Once sufficient quantities have been stockpiles the weapons are shipped by sea or air to Syria’s neighbors. After the Lebanese government seized 60,000 rounds of ammunition being shipped through the northern port of Tripoli, the Libyan groups have mainly transported their weaponry via Turkey, and in a small number of cases Jordan. While the exact amount of weaponry smuggled via this channel is unclear, some smugglers have claimed that over 28 metric tons have been delivered via air alone.

Efforts by Libyan brokers to supply the rebels have coincided with, and perhaps been tied to, efforts by Turkey, Qatar, Saudi Arabia, and Jordan to arm the rebels. Active support for the insurgency emerged in early 2012, spearheaded by Qatar and Saudi Arabia. At present, the weapons are primarily sourced from Eastern Europe, Croatia, Libya, and Sudan, with the Qataris and the Saudis purchasing and transporting the weapons to Turkey and Jordan. A rough division labor has emerged, with Qatar primarily supplying groups in the north of the country, while Saudi Arabia provisions those groups in the south. The official pipeline both a magnitude of order larger than unofficial efforts – delivering an estimated 3,500 tons of weaponry – it is also providing increasingly sophisticated weaponry. In at least two recent cases, Qatar is believed to have provided rebels with portable anti-aircraft systems. While the United States is not believed to have provided large amounts of weaponry, it has played a role in developing the arms pipeline and in vetting the Syrian groups that receive the weapons.

The weapons channels supplying Syria’s insurgents comprise a complex, overlapping web of state, non-state and criminal actors.  As the war grinds on these smuggling webs will become increasingly entrenched, and highly vulnerable to exploitation by organized crime groups. One needs look no further than the Balkans – where officially sanctioned smuggling routes were appropriated by crime groups as soon as the conflicts ended – for a vision of the organized crime challenge the Middle East may face in the coming decade.