LONDON - TENS of millions of dollars extorted from ship owners by Somali pirates are immune from interception and seizure because they are pouring into the economy of a nation with no effective government or policing.

International crime gangs normally have to 'launder' their proceeds through the financial system to make them appear like legitimate funds, thereby creating a money trail that can make them vulnerable to detection.

But financial experts say this is not the case in Somalia, an archetypal 'failed state' which has no strong central authority, no formal banking system, and has known nothing but civil war for nearly two decades.

Pirates who seized the Saudi supertanker Sirius Star and its US$100 million (S$153 million) oil cargo last weekend in the biggest ship hijack in history have already made tens of millions, in cash, from scores of previous attacks this year.

'They live like monarchs, like kings. They do everything in public, without the need to hide or disguise the source of money,' said Hany Aby-El-Fotouh, an Egyptian banker and anti-money laundering specialist.

'The money is there, bulk cash. The local government doesn't mind, or doesn't have the authority to object, to control ...

All dirty deals are paid in cash,' he said, referring to the pirates' purchases of arms, communications gear, speedboats and other equipment.

'There is no need for them to launder the money, because the law enforcement is not there at all, the banking system is not there, so why even think of laundering money?'

Ransom boom
Pirate activity has grown into a small but profitable industry in one of the world's poorest countries.

'Apart from those who take part in the operations, who currently number more than 1,000, there are those who provide services ranging from negotiations with ship owners, procurement of weapons, training of pirates, information gathering, logistics and so on,' said Ismail Ahmed, a British expert with 20 years' experience of Somali financial and development issues.

He was sceptical of suggestions that some funds may be laundered via the Gulf, saying the pirates kept their money inside Somalia because they knew it would be intercepted if they moved it outside the country.

'Some invest in land and property in their home towns where they know that they would never be prosecuted,' Mr Ahmed said.

'All the towns in the area are booming ... Ransom money 'trickles down' to many people in the towns. This is one of the reasons why local people support it.'

Michael Weinstein, a Somalia expert at Purdue University in the US state of Indiana, said the trigger for the escalation of pirate attacks had been the collapse of the local economy in Somalia's Puntland region.

'The administration there is honeycombed with corrupt officials that have links to the pirates,' Mr Weinstein said. He said the government had no funds to pay its military, and the economy was beset by hyperinflation because of massive over-printing of Somali shillings. Mr Ahmed said the local economy now runs on dollars, with shillings used only for small change.

Experts said that while the pirates may enjoy tacit support from Somalia's leading Islamist group, al Shabaab, their motive is profit, not terrorism, and there is no evidence that they are linked to Al-Qaeda.

The US Treasury announced on Thursday new anti-terrorism sanctions against three al Shabaab leaders but did not link the move to the surge in pirate activity.

Al-Qaeda, which has conducted at least two major attacks at sea, may however watch the hijack dramas with keen interest.

A militant supporter wrote in a message to Internet forums this week, monitored by the US-based Site Intelligence Group, that the crisis was drawing Western navies to the seas off East Africa where they would be easy meat for Al-Qaeda attacks.

'The enemies of Al-Qaeda ... will swallow the bait and come to the area in which Al-Qaeda has woven its nets,' he wrote. 'At that time, Al-Qaeda will settle scores with America and its allies by striking their ships or sinking them.' -- REUTERS

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