Pirates, Inc.: Inside the booming Somali business

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."

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