Saturday, March 20, 2010

The enterprise of piracy.

As Charli Carpenter points out, one of the more interesting parts of the UNSC-mandated Monitoring Group on Somalia report is not just the rampant corruption, but one of the annexes to that report which details how piracy operations are run from that territory.

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 of 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.

As you may have already determined, there is a level of business sophistication one wouldn't expect from a group of "disorganized outlaws". It's downright Wall Street.

But then, maritime pirates have always been well ahead of the likes of both business and government. As Peter T. Leeson wrote in 2007, 17th and 18th Century pirates, far from either the romantic, swashbuckling buccaneers portrayed by Hollywood or the less savory image presented by the British Admiralty as bloodthirsty murderers, maritime pirates were actually well-organized, employed democracy to their benefit and lived by a strict code of behaviour amongst themselves.

They could easily have taught their land-based organized crime brethren a few lessons in personnel management. Apparently the last few crops of MBAs drifting out of the world's leading business schools caught at least a part of the lesson. The one where they pay themselves bonuses.

In any case, far from glorifying these acts, it is interesting to note that modern-day pirates continue to operate more like a business than an unorganized rabble. Take a look at page 97 of the report and then page 99.

Oh.... you have a question? Yeah. So do I.

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