Pirates, Inc.: Inside the booming Somali business

Meet the modern-day brigands behind the sometimes sophisticated, always risky operations that raked in an estimated $80 million in ransoms in 2008.

On a blazing morning in early May, Hassan Abdullahi and eight other men got into their small, wooden boat – each armed with a Kalashnikov rifle, a grenade, and outsized hope. They pushed out from a village near Bossasso, a large port in the Puntland region of Somalia, into the gentle waters of the Gulf of Aden to seek their fortune. They would make their way west 250 miles along the Somali coast before turning north toward Yemen, where busy shipping lanes narrow near the Red Sea.

Their goal, shared by a Somali businessman living abroad who funded their weapons and boat, was to attack commercial ships and hold them for ransom.

Neither Hassan, a fisherman, nor his crew mates – who like most men in a nation of goatherds had no seafaring experience – had ever worked as pirates before, and this was their maiden voyage. Their motive was simple: money. Their method was as elementary: Attack the first ship they saw.

"I was just doing fishing for the past eight years, and I was doing fine, but I [saw] friends doing piracy and getting rich," says Hassan, the 20-year-old leader of the group. "I thought I'd give it a try."

Meet the rank and file of Pirates, Inc. Legions of young men like these living in war-ravaged Somalia are the muscle behind piracy in the Indian Ocean. The brains behind this business – which raked in an estimated $80 million in ransoms in 2008 – can be as sophisticated as a CIA operation, with high-tech resources and highly placed personnel, or as haphazard as a Keystone Kops operation. Hassan's enterprise was more like the latter – and it didn't go well.

But that's just what was captured by cameras. Piracy is booming off the coast of Somalia. There were 111 attacks on ships here in 2008 (42 were hijacked successfully); more – 114 – were attacked just in the first four months of 2009 (29 were successful), reports the International Maritime Bureau's Piracy Reporting Centre.

World leaders recognize, to their chagrin, that the problem requires more than just a few warships and airdrops of food aid to a starving, well-armed, and desperate nation. Capturing men like Hassan does as much to solve piracy as arresting a drug dealer does to win the war on drugs. Hassan is the lowest rung in a criminal network that includes corrupt port officials, politicians, and investors from Europe, Asia, and America. The big bucks – with the average ransom now estimated at $2 million – never reach people like Hassan, say Somali piracy experts. At most, mere gunmen stand to earn $10,000 to $20,000 apiece. But in a country devastated by two decades of war, where the average income is $500 a year and 60,000 people are at immediate risk of starvation, $20,000 for a little dangerous work is a risk worth taking.

But while Puntland had a degree of security and stability missing in the rest of Somalia, government corruption allowed criminal enterprises to flourish, with arms smuggling and people-trafficking, counterfeiting and piracy. When pirates bring a ship to port for the protracted process of negotiating a ransom, they generally find safe harbor in Puntland's ports of Ayl and Bossasso.

Hassan says he was contacted by an investor "to attack foreign ships in exchange for ransom," but he refuses to name the man or say where he is based.

Given the hundreds of ships attacked over the past decade off the Somali coast – and now even as far away as the Seychelles in the Indian Ocean – it is clear that Somali piracy is a multimillion-dollar industry, worthy of a Harvard Business Review profile. The face of Somali piracy in your daily newspaper may look like Hassan – a baby-faced adolescent with an AK-47. But behind him is a vast network of investors and corrupt officials who buy the speedboats, weaponry, and GPS devices; who select targets from the Lloyd's of London list of insured ships; and who distribute the bulk of the dividends among themselves by underground money transfer systems.

Hassan's investor probably was a Somali expatriate living in Europe or North America, the Middle East or Australia, with anywhere from $50,000 to $250,000 to invest in piracy.

"It's like an IPO [initial public offering]," says J. Peter Pham, a political scientist and expert on Somali pirate financing at James Madison University in Harrisburg, Va. "For a start-up operation, you need more money, between $150 [thousand] to $250,000, but if you want to provide capital to an existing operation, then you can give $50,000 to have a share in the profits."

Like most diaspora communities, Somalis send money to family members still living back home to help them survive, using either legal but expensive money transfer systems like Western Union, or traditional and shady systems called hawala. Through hawala – "by air," in Hindi – a businessman can give money in Minneapolis or Manchester, knowing that it can be received in Mogadishu within hours. Hawala dealers profit the way Western Union does, by taking a small percentage. But hawala is off the books and untracked.

Hassan's investor was a relatively small player. Some pirate crews are given satellite phones to get real-time intelligence on the location and crew of a target. Some rent out "mother ships" to carry them far out to sea, giving the pirates enough cover to draw close to a targeted ship before launching their attack with smaller skiffs. Those who have mother ships even bring their own caterers to feed them for weeks at sea, says Professor Pham.

Early pirate crews headed to sea at the first sign of a ship on the horizon. Hassan's strategy wasn't much more evolved. But many of today's successful pirates track ships from port to port, often relying on inside information – the British newspaper The Guardian reported that pirates have "consultants" in the close-knit ship-brokerage and insurance industries of London to help target ships.

But shipping schedules are easily obtainable on the Web and in the local business press. Seeking ransom, the pirates are more interested in the crew than the cargo, Pham says.

"The pirates who planned the attack on the Maersk Alabama ... knew who was on that ship," says Pham. "When the ship [carrying food aid to Mombasa, Kenya] left Djibouti, everyone in port knew who the crew was and that it was due to arrive in Mombasa within a week. It didn't require a genius to plot a course to find the Maersk Alabama."

The capture of the ship brought Somali piracy to the attention of many Americans, as much for its violent resolution – with US Navy Seal snipers killing three of the pirates, and the fourth sent to the US to face trial – as for the hijacking itself. But had the pirates been successful, the owners of the Alabama would almost certainly have paid a ransom. Experts estimate that $80 million in ransom was paid by dozens of shipowners in 2008. The average ransom has risen sharply from $1 million to $2 million in the past six months. (The majority of the 42 hijackings in 2008 ended without harm to crews, a stark contrast to the more violent piracy now coming under control in the Strait of Malacca between Indonesia and Malaysia.)

"Generally, roughly 30 percent of the ransom goes to the investors, 20 percent goes to the government officials and port officials or even Islamists who guard the boat while negotiations are going on," says Pham, who has interviewed former hijackers and knowledgeable Somali and Puntland government officials. The remaining 50 percent goes to the pirates themselves, often on the deck of the hijacked ship, from the teenager who takes night guard duty ($1,000) to the actual pirates who board the ship ($10,000 to $20,000).

It is the sudden wealth – Somali "bling" – that proves an irresistible draw for young pirates. (And Hassan's crew was young – including a 19-year-old, five 20-year-olds, a 21-year-old, and the éminence grise, a 36-year-old fisherman.) Suddenly able to build homes and buy fast cars, a young pirate can find himself the most eligible man in his village, even if elders disapprove of high-seas robbery.

Mohammad Jumale, an aid worker from Mogadishu who travels often to the pirate haven of Haradhere on the southeastern coast, says that most Somalis know who the big pirates are in their area. "Even an uneducated village man knows who the pirates are," he says, noting that most Somalis believe the chiefs of piracy are the past and present leaders of Puntland itself.

The militia of former Somali Transitional Federal Government President Abdullah Yusuf is believed responsible for getting the first large pirate ransom – nearly $1 million – in the region when it seized a Taiwanese fishing trawler in 1997, say Pham and Mr. Jumale. It was under Mr. Yusuf's rule in Puntland that people-trafficking, counterfeiting, arms smuggling, and piracy took off, and Jumale says. Yusuf quickly surrounded himself with other businessmen involved in piracy, including current Puntland President Abdul Rahman Farole.

Small-time pirates may blow their money on girls and khat. But the big players are investing in property and – with a good accountant – laundering their money in a stable third country, such as Kenya, the United Arab Emirates, or South Africa.

Indeed, pirate booty is believed to account for the sudden influx of money in the Somali refugee enclave of Eastleigh in Nairobi. Ibrahim Ali Abdullah, a prominent Somali businessman there, says that while most streets in Eastleigh remain unpaved, gleaming glass-and-steel structures offering imported electronics and clothing at bargain prices are sprouting up.

"Who are the real pirates?" asks Andrew Mwangura, secretary-general of the East African Seafarers Association in Mombasa. "It's not these young boys on the boats. It's the people behind them, with the money to buy the boats and the motors and the guns and the GPS devices. They put their money here in Kenya, but also in Dubai or Canada or Mumbai." He pauses. "The real pirate could be a white person like you."

They may have already unwittingly given themselves away by buying provisions from locals and asking advice on the best course to plot to cross to Yemen. So after very little time they were sitting ducks for a patrol boat bearing a flag none of the men recognized. It was one of the three "ships" in the coast guard of the independent republic of Somaliland. Tipped off by villagers that the boat was full of pirates, the coast guard boat was prepared for battle.

Mr. Faratol and another crewman fought off the Somaliland coast guard with their fists (their guns and grenades remained hidden under a tarp). Faratol ended up with a badly swollen eye, the other ended up in intensive care.

It was all over within minutes, and with it Hassan's dreams of pirate wealth.

Somaliland's interior minister, Abdullahi Ismail Ali, says that Somaliland is "committed to fight against pirates and terrorists," even if its capacity to do so is limited. "We have great hopes that Somaliland will have an impact in bringing piracy under control," he said in an interview. "But at the same time, we have to realize that these are hungry boys. We even have youth in Somaliland with limited job prospects, and they can get the same wrong ideas from the youth of Puntland."

We meet the "hungry boys" from Puntland – Hassan, Faratol, and the rest of the pirate crew – in Berbera's central jail. At first quietly suspicious, they open up quickly with the arrival of a pretty Somali reporter, Moha Farah Jire, from Somaliland state television. One by one, they admit their criminal intent to attack ships, but plead for mercy from the Somaliland government.

"I'm really sorry I got caught," says Faratol, and he is especially sorry that he violated the waters of a country that he didn't even know existed: Somaliland. But given the choice, he would probably do it again. "At the end of the day, I'm a man. Life is full of challenges. I could have been a millionaire, but instead I got caught."

Most of the men are sullen, knowing that Somaliland has given stiff sentences to four other pirate crews captured over the past two years. But with the arrival of visitors to the jail, the tension of the past few weeks finally bursts for the youngest, a skinny 19-year-old in shorts. Breaking into giggles at the slightest provocation, he's sent away by smiling police officials to pull himself together.

None of the pirates believe the increasing naval patrols by the US, the French, NATO, the Indians, the Chinese, and others, is going to deter pirates. As long as there are opportunities to make money from piracy, there will be young men desperate for work, and "investors" providing weapons, speedboats, and information on which ships to attack.

"Absolutely not, foreign navies can't stop piracy," says Abdul Rashid Mohumud, a 21-year-old crew man. "There are no jobs in Somalia, no options for higher education. The youth of Somalia need money to survive."

In Somaliland, a country eager to be fully recognized as a pro-Western free-market-driven nation-state, justice comes swiftly. On May 10, six days after their arrest, Hassan and his pirate crew were sentenced to 20 years in prison.