Pirate Victims Finance More Attacks With $100 Million in Ransom

By Robin Stringer, Gregory Viscusi and Alaric Nightingale

Nov. 24 (Bloomberg) -- A few years ago, Somali pirates menacing Africa’s east coast sometimes demanded tens of thousands of dollars for the safe return of a hijacked vessel and crew. Now they often seek $1 million or more. The reason: Ship owners keep paying.

“If you do pay, you are continuing to encourage future attacks,” said Pat Adamson, an official at MTI Network, a London-based crisis-management company that has advised the owners of most of the hijacked ships. Unless there is a cash payment, “your seafarers will lose their lives.”

A fresh example of owners acceding to ransom demands emerged on Nov. 22, when Mare Maritime Co. SA said it had paid a sum it declined to disclose to free its Greek chemical tanker, the MV Genius, and 19 crew members almost two months after Somali pirates seized them in the Gulf of Aden.

Last week, pirates demanded a record $25 million for the Saudi Arabia-owned Sirius Star seized off the coast on Nov. 15 -- $1 million for each crew member. The ship also holds more than 2 million barrels of crude worth about $100 million, probably covered by insurance. Negotiations on that ransom are “still ongoing,” said Andrew Mwangura, head of the East Africa Seafarers Association, said by phone from Mombasa.

Hijackings by Somali pirates in the Gulf of Aden region have leaped this year, with more than 581 crew members taken hostage from January to September, compared with 172 in all of 2007, according to the International Maritime Bureau.

$500,000 to $2 million

Before the Sirius Star incident, ransom demands had hovered between $500,000 and $2 million, up from tens or hundreds of thousands of dollars “in recent years,” said Chatham House, the London-based international affairs group, in a report last month.

The increasing income does more than just make the pirates more brazen. The more ransom they receive, the more sophisticated their operations become, said Will Geddes, managing director of ICP Group, a London-based security company.

Geddes estimates Somali pirates may have accumulated $100 million in ransom since the 1990s, booty that will make their attacks more effective.

“These boys can buy some fast, powerful boats, which can get them out quickly and easily into the channel,” he said. The Somali pirates also have access to “the perfect arms fair” -- Mogadishu, the capital of a nation wracked by civil war since the 1991 ouster of Mohammed Siad Barre.

Latin America Kidnapping

ICP Group has worked to secure the release of clients in Latin America, where companies whose employees are kidnapped face the same dilemma.

Giles Noakes, chief maritime security officer at BIMCO, the Copenhagen-based shippers’ organization, said his group advises companies not to pay ransom.

“But in the same breath, we acknowledge that ship owners have little option but to pay to protect the lives of their crew and get back their ships,” he said. “They have no other choice.”

Since January, at least 91 vessels have been attacked in the Gulf of Aden, an area almost twice the size of Alaska flanked by the Arabian Peninsula’s Yemen and Somalia on the Horn of Africa.

The hijacking of the Saudi ship was the most daring assault yet. The ship, known as a “very large crude carrier,” was the biggest ever seized. It was attacked about 420 nautical miles (833 kilometers) off Somalia, farther from the coast than any other hijacked vessel.

No Ransom, No Release

Per Gullestrup, managing director of Copenhagen-based Clipper Projects, said not paying a ransom to save a crew is no option at all -- a “fallacy” because “to my knowledge, no ship has been released down there without the payment of a ransom.”

One of his company’s ships, CEC Future, and a crew of 13 were seized in the Gulf of Aden on Nov. 2. Clipper Projects is undergoing a “set form for negotiating the ransom” through consultants, he said.

“The ship or the cargo they have little interest in; they understand that the bargaining piece is the crew because all the owners have their assets insured,” he added. “If they were to make high ransom demands for the ship, some owners would say, ‘fine, just take it.’ But when you’re dealing with human beings, it’s a totally different situation.”

The cost of insurance is climbing along with the number of attacks.

Insurance Increases

Shipping lines are now paying hijack and ransom insurance premiums of about $20,000 for every time a vessel passes the Gulf of Aden, said Liam Morrissey, a partner at BGN Risk, a London-based security risk consultant. Before the attacks escalated, it cost $500 to $600 per ship, he added. The $20,000 fee was calculated before Sirius Star was seized and is likely to have risen since, he said.

Even as they continue to pay off the pirates, shippers have been pressing the world’s militaries to get more aggressive in protecting shipping lanes. Navies have had some success against the pirates. An Indian Navy frigate destroyed a pirate vessel in the Gulf of Aden this month. British Navy commandos killed three suspected Somali pirates on Nov. 13, and French commandos freed two kidnapped nationals in September.

Paying ransom sets “a dangerous precedent,” said Sam Dawson, a spokesman for the London-based International Transport Workers Federation, which represents unions. “But we have to swallow our pride and recognize that it’s going to happen and if it doesn’t, the crew are never going to be seen again.”

To contact the reporter on this story: Robin Stringer in New York at rstringer@bloomberg.net; Gregory Viscusi in Paris at gviscusi@bloomberg.net; Alaric Nightingale in London at Anightingal1@bloomberg.net.