Courtesy of Lloyd’s List
With more than $400m in ransom money thought to have been poured into Somalia so far, pirate money laundering is becoming big business.
According to estimates published by the Financial Action Task Force on Money Laundering, a Paris-based intergovernmental body, 40% of ransom payments could be finding their way out of the war-torn country, and there is growing evidence that that money is being invested in the conventional economy of surrounding nations. Some sources have even claimed a property boom has taken off in Kenya, as pirates pour money into local property.
In response to the growing number of reports of pirate money laundering, global law enforcement has now stepped up its game to target pirates where it hurts — in their wallets.
“Maybe hitherto we haven’t devoted enough attention to tracking the [money] flows and getting at the pirate leaders,” Foreign Office minister Henry Bellingham admitted in a speech to the UK Chamber of Shipping earlier this month. “This is now a priority.”
Under Mr Bellingham’s instructions, the British Serious Organised Crime Agency is setting up a dedicated Maritime Intelligence Unit in the Seychelles, which will try to put a dent in money laundering in the region. According to regional sources, SOCA already has several officers stationed in the archipelago.
SOCA is not the first law-enforcement agency that is looking to open up a new front in the war on piracy. The UN Anti-Piracy task force in Nairobi began an investigation into regional pirate money flows earlier this month. FATF published its first report on the matter in July. Trailblazer Interpol made combating money laundering a top priority as early as 2010.
Politicians outside the UK are also starting to pay increased attention to this aspect of the piracy problem. In an interview with Lloyd’s List, Dutch MEP Peter van Dalen called for the creation of a “blacklist” of financial institutions involved in pirate money laundering earlier this month, citing a connection to unnamed Eastern European banks. Mr van Dalen hopes to push the European Commission to pursue an investigation of the matter before the end of the year, which he says will be a “first step” towards more targeted sanctions.
While many hope that following the money will allow law enforcement agencies to finally go after pirate kingpins, who have so far mostly remained beyond their reach, the increased attention to pirate financial affairs is not without risk to the maritime industry. Some fear growing regulatory heat could lead to criminalisation of ransom payments, or retaliatory action on the behalf of pirate leaders.
“It could push pirates to a more violent approach,” says Rory Lamrock, an intelligence analyst with AKE who was recently stationed with the UN Anti-Piracy task force in Nairobi. According to Mr Lamrock, regulatory bodies need to ensure that any new anti-pirate laws drawn up do not inadvertently target victims. “Legislation needs to differentiate between those that pay ransom and those that receive it,” Mr Lamrock said.
Shipowner fears of becoming a target of legislation are not unfounded. There has already been at least one reported case of courts blocking ransom payments. According to the FATF report on pirate money laundering, last year a Kenyan court blocked a transfer of funds by Abson Motors. This Kenyan company wanted to make a number of payments to Singaporean companies involved in the payment of the ransom that ensured the release of the 1997-built, 16,772 dwt Kota Wajar, which was carrying Abson Motors cargo. Since the court only moved to block payments after the ransom had already been dropped, the pirates had no reason to retaliate, but it is this type of scenario that gets negotiators nervous. “The last thing we need is law hampering the payment of ransom,” says Stephen Askins, maritime lawyer with London-based law firm Ince & Co.
The legislative dilemma posed by the need for unfettered ransom payment and the growing desire to strike at pirates’ financial assets is already apparent in the different approaches some governments have taken to tackling the problem legislatively. The US currently has the most draconian laws on the books, with a 2010 executive order mentioning several inpidual pirates by name as the target of economic sanctions. US nationals are forbidden to pay ransom to these pirates, though American law enforcement has yet to prosecute anyone for doing so.
On the other hand, UN resolutions concerning the matter have so far failed to mention pirates by name, even though the US has called for action on this front and provisions for such a move already exist in current anti-piracy resolution. Mr Askins attributes UN hesitation on the issue to pressure from the maritime industry. “I suspect that there is a lot of lobbying going on of the UK government, and perhaps others, to block that type of thing,” Mr Askins said.
Mr Lamrock added that while he supported extending further powers to law enforcement to trace pirate money flows, he felt that blacklisting financial institutions, as proposed by MEP Van Dalen would definitely take matters one step too far. “Blacklisting organisations caught handling ransom payments is almost the same as banning those payments,” he said.
Apart from offering a way to get at pirate leaders, increased scrutiny of criminal financial flows in East Africa also raises the enticing prospect of recuperating some of the money paid in ransom. However, this suggestion has been met with cynicism by those involved. Some still recall US Secretary of State Hillary Clinton’s boastful claims in 2009 — similar to those of her UK counterpart Mr Bellingham— that the US was going to “track and freeze” pirate assets.
“However, to date not a single dollar has been recuperated,” Mr Askins pointed out.
Law enforcement officials trying to tackle pirate money laundering have several high hurdles to overcome. Apart from the obvious problems caused by the lack of a functioning government in Somalia, the local financial landscape also poses challenge. More than 80% of ransom payments consist of cash air drops into Somalia, putting investigators at a disadvantage from the get-go. In addition, most transactions in the region are handled by an alternative remittance system known as a hawalla, which consists of a loosely knit network of independent operators who work together on the basis of mutual trust. The system operates mostly beyond the scope of government regulation, and leaves a very limited paper trail.
However, some have pointed out that even under trying circumstances, authorities could be doing a better job. A lack of co-operation between the different national and international agencies dealing with the issue is often cited as the main problem. “There is a degree of political will to tackle the issue, but no co-ordination,” Mr Lamrock said. With at least four international bodies now dealing with the problem (the European Union, UN, the Organization for Economic Co-operation and Development-affiliated FATF, and Interpol) in addition to various national governments, all without clear leadership on the issues, this is no surprise.
Also, because some of the organisations dealing with pirate finance are relatively new to the problem, some of them do not have adequate procedures in place for dealing with the nuts and bolts of forensic finance. On a very practical level, the FATF has called for establishing a database of the serial numbers found on bills used for ransom payments. According to the task force, there have been at least two occasions that this information has been lost due to bureaucratic ineptitude. FATF cites one incident in 2009, when Clipper Group paid $1.7m in ransom for the release of the 1994-built, 7,120 dwt CEC Future. The company logged all serial numbers and relayed them to the Danish authorities, which promptly lost them. The mishap came after a comparable incident occurred only a year before, when the Danish government misplaced serial numbers communicated to them by US law enforcement.
An increased focus on pirate finances can surely benefit the maritime industry. For one, the promise of more effective law enforcement is enticing, and any attempts to recoup money paid to pirates can be applauded, as long as the safety of hostages is taken into account. However, for now the most important thing for politicians to keep in mind is to ensure that shipowners are not hindered in their payment of ransom. “It remains the only responsible way to deal with the hostage scenario,” says Mr Lamrock. “That should not be interfered with.”