Always on the lookout for the weird and wonderful, today brings News from FT Alphaville who have spotted an obscure section of a UN publication which describes the business model used by Somali Pirates :

Piracy business model

The typical piracy ‘business model’ has evolved since the Monitoring Group’s December 2008 report (S/2008/769). The success and expansion of pirate militias has necessitated new organizational arrangements and practices.

Although leadership of pirate networks remains anchored in Puntland and central Somalia, participation in maritime militias and investment in pirate operations is open to a broad cross-section of Somali society. The refined business model guarantees every participant in the operation, if successful, a well-defined percentage or share of the ransom money.

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 if 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.

Interesting stuff and seemingly quite well tried as, according to Hellenic Shipping News, a total of eight ships have been hijacked by pirates over the weekend :

A UAE-owned merchant vessel and at least seven dhows trading with Somalian ports have been hijacked by pirates since Friday, officials say.

Makes you wonder how shipping companies down that way are funding the insurance which must be truly crippling by now.

As FT Alphaville says :

We look forward to the UN’s account of other equally questionable business models too.

Whatever next? Columbian Drug Cartels? Italian Mafiosi? It could prove to be quite interesting.