Pirates off the coast of Somalia and the Horn of Africa have made between $339 million and $413 million in ransom profits, fuelling a wide range of criminal activities on a global scale, according to a United Nations-backed report released today.
Pirate Trails, produced by the UN Office on Drugs and Crime (UNODC), the World Bank and INTERPOL, uses data and evidence from interviews with former pirates, Government officials, bankers and others involved in countering piracy, to investigate the glow of ransom money paid out to Somali pirates operating in the Indian Ocean.
"The vast amounts of money collected by pirates, and the fact that they have faced virtually no constraint in moving and using their assets has allowed them not only to thrive, but also to develop their capacities on land," said the Chief of the Implementation Support Section in the Organized Crime and Illicit Trafficking Branch at UNODC, Tofik Murshudlu.
"These criminal groups and their assets will continue to pose a threat to the stability and security of the Horn of Africa unless long-term structural solutions are implemented to impede their current freedom of movement."
Piracy costs the global economy about $18 billion a year in increased trade costs. Because the outbreak of piracy has reduced maritime activity around the Horn of Africa, East African countries have suffered a significant decline in tourist arrivals and fishing yields since 2006.
"Unchallenged piracy is not only a menace to stability and security, but it also has the power to corrupt the regional and international economy," said Stuart Yikona, a World Bank Senior Financial Sector Specialist and the report's co-author.
The report found 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. Piracy profits are also laundered through the trade of 'khat,' a herbal stimulant, where it is not monitored and is therefore the most vulnerable to illicit international flows of money.
The report, which focused on Djibouti, Ethiopia, Kenya, the Seychelles, and Somalia, also analyzed 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. It found that between 30 per cent and 75 per cent of the ransom money ends up with these financiers, while the pirate 'foot soldiers' aboard the ships receive just a fraction of the proceeds, amounting to less than 0.1 per cent of the total.
Pirate Trails calls for coordinated international action to address the issue, and sets out how the flow of illicit money from the Indian Ocean can be disrupted.
"The international community has mobilized 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," said Mr. Yikona.
Among the range of measures recommended by the report are 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.