The Business Of Piracy

A piece posted in today's Vancouver Sun by columnist Fazil Mihlar explored "What business executives can learn from pirates". (Mihlar is also a member of The Sun's editorial board and comes from a business background.) In his piece, Mihlar talked about the relationship between employers and employees, and how criminal groups like modern-day pirates have managed to maximize the potential for profits in this relationship. It's not such a bizarre idea - learning from pirates - and Mihlar mentions Peter Leeson's book, "The Invisible Hook: The Hidden Economics of Pirates", which also focusses on this subject.

I've spoken several times to business groups about this very topic. It wasn't alway the talk they were expecting, but the points I - and others - have raised come from a purely analytical look at things. These observations have nothing to do with supporting criminal activities in any manner. But when it comes to figuring out how to motivate one's staff in the midst of an economic downturn, maritime pirate gangs (in places like Somalia) have managed quite well.

A crucial aspect of doing so is to provide an economic reward when the prevailing sense is that there are no other options available. Hope where there is despair, if you will. By knowing there is a hunger - real and otherwise - out there, one can capitalize on the desire to make ends meets in individuals, harnessing their physical and mental energies to a greater purpose.

Fundamentally, all it takes is someone to say, "Here's a way to make yourself useful and successful." The desire to do so is inherently part of human society in a variety of applications. It's the basis of numerous late night infomercials and self-help seminars. It's someone else showing you a path and putting an end to all the troubles that ail you.

It is also often misguided in terms of the real goals imagined by those who engender such solutions, but it is nevertheless still very attractive to many, many people around the globe. When you have little or nothing to begin with, the risks of embarking on something that may be criminal in nature are of reduced concern. And the workforce available in those situations becomes very malleable. Of course one could always use some of the techniques used by pirate "managers" to motivate employees on a more positive, non-criminal level.

Risk, profit-sharing, group support - all are nothing new. They've been utilized by those calling themselves capitalists, communists, socialists, fascists and ordinary criminals for years. Understanding the base aspects of human motivations when it comes to piracy is important in figuring out how to combat the problem. It's just one of the elements that causes the issue to exist.

On a related point, I'd like to point readers to a piece called "Mutatis Mutandis" written by Alexander Martin on the U.S. Naval Institute blog back in late July. Some may have seen it, but for those who did not, Martin - an exceptionally perceptive writer currently deployed overseas with the USMC - gives an good precis on how Somali pirates came to be what we know them today. I meant to mention it earlier; apologies to Alex. Read it and you'll understand what the title refers to.

Confusion About New U.S. Counter-Piracy Policy

Last week's decision by the American administration to go after the financial assets acquired by those involved with Somali piracy has led to some confusion about how the government would actually do so and what the wider repercussions of this policy might mean for the commercial shipping industry. The concerns are based on the jurisdictional aspects of U.S. law and just how far the long arm of offices like the Treasury or Justice Departments can be extended. For instance, if monies believed to belong to a suspected pirate are tracked to a bank account in a certain third party nation, can they be seized or frozen? Hard to say, given the opaque nature of international banking. Of course, should some of those assets from suspected criminal activities end up in a financial institution that falls under U.S. regulations, that's a different story.

While the details of how Washington intends to proceed have yet to be clarified, there are already worries about what the ramifications might be for the shipping industry. As AP reports, one of the concerns is whether firms with U.S. interests might be able to pay ransoms to pirate gangs for the release of crew members and vessels taken hostage. Some observers worry that the vagueness in the Executive Order could lead to the prosecution of individuals who pay off pirates in order to free hostages, though the report does quote a Treasury Department official who said they were not interested in actually doing so.

Adam Szubin, the director of the Office of Foreign Assets Control with the Department, told AP, "We are targeting only those individuals and entities that freely choose to support acts of piracy or armed robbery at sea off the coast of Somalia, including through the supply of weapons, financing, communication devices, or small boats and other equipment."

So the key words in Szubin's comments would appear to be whether individuals 'freely choose' to support Somali maritime criminals. Few - if any - of those in the shipping world who pay ransoms would say they do so willingly, though there is a tacit understanding that many consider it part of the cost of doing business in piracy-prone waters. The harsh reality is that the millions of dollars that have been remitted to pirate gangs over the years have helped to sustain and grow the business of attacking passing vessels, as those criminal organizations re-invest in their ongoing operations.

Somali pirates increasingly sophisticated: Interpol

AFP had an item the other day about Interpol's 78th general assembly, which wrapped up on Thursday in Singapore. In the piece, the organization's executive director of police services - Jean-Michel Louboutin - commented on Somali piracy, calling it "organised crime" that involves people outside Somalia. The AFP report also talks of how pirates are "being controlled by crime syndicates", and are using sophisticated weapons, as well as tracking devices that have allowed them to extend their reach far out to sea.

Mike Palmer, the Australian inspector of transport security, is also quoted in the item, stating that, "Their weaponry continues to get more sophisticated, their attacks are taking place farther and farther out to sea... as far as 1,200 nautical miles offshore. This dovetails well with an excellent analysis that EagleSpeak provided today, entitled "Somali Pirates: Breaking the 600 mile barrier". And the financial costs of all this is laid out by Palmer, who tells AFP that "Apart from any ransom paid, shipping companies also lost an average of seven million dollars for every hostage-taking, which typically lasts about 70 days."

In some respects, this isn't startling news: The operational capabilities of Somali pirates have become increasingly organized over the course of the last five or six years (though there was an interruption in piracy back in 2006 when the Islamic Courts Union briefly held power over much of the southern parts of the country). The ability to send pirate teams hundreds, or thousands, of miles from their home ports to undertake missions shows the capabilities these criminal outfits possess, plus a degree of seamanship that must be recognized. It's what make combating the problem even more difficult, for there's an awful lot of water to safeguard against the threat of piracy when you factor in the western Indian Ocean. Simply put, the international community does not have the resources to effectively patrol the Red Sea, Gulf of Aden and Indian Ocean, and the pirates know this.

But as the AFP report mentions, there is a growing sense that another way to stem the tide of piracy off the Horn of Africa is to go after the money trail, to shut down the abilities of pirate gangs to move their finances around. This may be one of the most important means of suppressing piracy in that region of the world, for it's clear from my contacts that it's not like there are millions of dollars gleaned from ransoms lying about in Somali banks. Those at the top of the pirate leadership structure appear to be moving some of their money out of Somalia, possibly in order to create a nest-egg, of sorts, for their futures. If we can intercept the money-laundering and make naval patrols more effective, then the only other element missing in addressing piracy off the Horn of Africa is to find a way to bring security ashore.

As Jean-Michel Louboutin says, "It is very important to understand that this is not only a military problem. It's a civil problem and we have to help this country enhance its capacity and to provide technical support." Well said, for it should be remembered that piracy begins ashore. Meanwhile, hitting the pirates in their pockets is a definite asset in dealing with the problem.