Lifting the Eyepatch. The Business Models of Piracy

Index

Inhaltsangabe

Inhaltsverzeichnis

Abkürzungsverzeichnis

Abbildungsverzeichnis

Tabellenverzeichnis

Hauptteil

Literaturverzeichnis

Table of Contents

1 Introduction
1.1 Problem Statement
1.2 Research Objectives
1.3 Limitations of the Research

2 Current State of Research
2.1 Academic Field of Maritime Piracy
2.2 Economics of Crime
2.3 Economics of Maritime Piracy

3 Methodology
3.1 Research Design
3.2 Data Collection
3.3 Data Modeling

4 Economic Perspective
4.1 Root Causes
4.1.1 Economic Dislocation
4.1.2 Weak Authorities
4.1.3 Social Acceptance
4.2 Process of Sophistication
4.2.1 Incorporation Approach
4.2.2 Implementation of Hierarchy
4.2.3 Initiation of Criminal Governance
4.3 Impact
4.3.1 Impact on the Maritime Industry
4.3.2 Regional Impact
4.3.3 Global Impact
4.4 Deduced Economic Factors

5 Business Perspective
5.1 South-East Asia: Grand Theft
5.1.1 PESTLE
5.1.1.1 Political
5.1.1.2 Economic
5.1.1.3 Social
5.1.1.4 Technological
5.1.1.5 Legal
5.1.1.6 Environmental
5.1.2 Canvas
5.1.2.1 Key Partners
5.1.2.2 Key Activities
5.1.2.3 Key Resources
5.1.2.4 Value Proposition
5.1.2.5 Customer Relationships
5.1.2.6 Channels
5.1.2.7 Customer Segments
5.1.2.8 Cost Structure
5.1.2.9 Revenue Streams
5.1.2.10 Canvas Business Model
5.2 West-Africa: Armed Robbery
5.2.1 PESTLE
5.2.1.1 Political
5.2.1.2 Economic
5.2.1.3 Social
5.2.1.4 Technological
5.2.1.5 Legal
5.2.1.6 Environmental
5.2.2 Canvas
5.2.2.1 Key Partners
5.2.2.2 Key Activities
5.2.2.3 Key Resources
5.2.2.4 Value Proposition
5.2.2.5 Customer Relationships
5.2.2.6 Channels
5.2.2.7 Customer Segments
5.2.2.8 Cost Structure
5.2.2.9 Revenue Streams
5.2.2.10 Canvas Business Model
5.3 East-Africa: Kidnapping for Ransom
5.3.1 PESTLE
5.3.1.1 Political
5.3.1.2 Economic
5.3.1.3 Social
5.3.1.4 Technological
5.3.1.5 Legal
5.3.1.6 Environmental
5.3.2 Canvas
5.3.2.1 Key Partners
5.3.2.2 Key Activities
5.3.2.3 Key Resources
5.3.2.4 Value Proposition
5.3.2.5 Customer Relationships
5.3.2.6 Channels
5.3.2.7 Customer Segments
5.3.2.8 Cost Structure
5.3.2.9 Revenue Streams
5.3.2.10 Canvas Business Model
5.4 Deduced Business Factors

6 PECOBUS Model
6.1 Causal Conception
6.2 iModeler Concept Maps
6.3 Plausibility Check

7 Conclusion

8 List of Cited Literature

Dissertation

zur Erlangung des akademischen Grades eines Doktors der Wirtschafts- und Sozialwissenschaften (Dr.rer.pol.) der Fakultät Wirtschafts- und Sozialwissenschaften der Helmut-Schmidt-Universität, Universität der Bundeswehr

Eingereicht von:

Dipl.-Kfm. Hans-Christian Stockfisch, MBA

Wissenschaftliche Betreuung:

Univ.-Prof. Dr. Klaus Beckmann

Professur für Public Economics

Helmut-Schmidt-Universität, Universität der Bundeswehr

Univ.-Prof. Dr. Orestis Schinas

Professur für Shipping und Ship Finance

HSBA Hamburg School of Business Administration

Hamburg, 24.11.2017

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures

Figure 1: The Routine Activity Approach. Source: Townsley 2015

Figure 2: Flexible boundaries of law and moral. The construction of this figure is based on the work of Ingo Pies, who has had a research focus on the topic of corruption in 2003. Source: Visualization by the author

Figure 3: A pirate´s optimal number of pirate attacks. Source: Hallwood and Miceli 2013

Figure 4: Actual and attempted attacks in East Africa, SE Asia, and West Africa from 2006-2016. Source: Data from ICC IMB

Figure 5: Actual and attempted attacks in SE Asia from 2006-2016. Source: Data from ICC IMB

Figure 6: Actual and attempted attacks in East Africa from 2006-2016. Source: Data from ICC IMB

Figure 7: Actual and attempted attacks in West Africa from 2006-2016. Source: Data from ICC IMB

Figure 8: Main maritime circulation and acts of piracy from 2006-2013. Source: UNITAR 2014

Figure 9: Host Nations of Piracy in SE Asia. Source: Data from ICC IMB

Figure 10: Reported Piracy Incidents in SE Asia in 2015. Source: Data from ICC IMB in an application with Google Maps

Figure 11: Reported Piracy incidents in SE Asia in 2016. Source: Data from ICC IMB in an application with Google Maps

Figure 12: Failed State Index: Overall Trend for Indonesia, 2006-2017. Source: Fund for Peace 2017

Figure 13: Failed State Index: Indonesia, Security Apparatus Trend, 2006-2017. Source: Fund for Peace 2017

Figure 14: Prices of CPO and Gasoil. Source: Index Mundi and Platts, 2017

Figure 15: Failed State Index, SE Asia (Indonesia), Economic Indicators (EC: Economic Decline; UD: Economic Inequality; HF: Human Flight and Brain Drain; EX: External Intervention), 2006-2017. Source: Fund for Peace 2017

Figure 16: Canvas Business Model of Grand Theft in SE Asia. Source: Visualization by the author using the Canvas Template

Figure 17: Host Nations of Piracy in West Africa. Source: DATA from ICC IMB

Figure 18: Piracy incidents in West Africa in 2012. Source: Data from ICC IMB in an application with Google Maps

Figure 19: Piracy incidents in West Africa in 2016. Data Source from ICC IMB in combination with Google Maps

Figure 20: Failed State Index: Nigeria, Overall Trend, 2006-2017. Source: Fund for Peace 2017

Figure 21: Failed State Index: Nigeria Security Apparatus, 2006-2017. Source: Fund for Peace 2017

Figure 22: Failed State Index (Nigeria), Economic Indicators (EC: Economic Decline; UD: Economic Inequality; HF: Human Flight and Brain Drain; EX: External Intervention), 2006-2017. Source: Fund for Peace 2017

Figure 23: Canvas Business Model of Armed Robbery in West Africa. Source: Visualization by the author using the Canvas Template

Figure 24: Piracy incidents in East Africa in 2011. Source: Data from ICC IMB in an application with Google Maps

Figure 25: Piracy incidents in East Africa in 2015. Source: Data from ICC IMB in an application with Google Maps

Figure 26: Failed State Index: Somalia, Overall Trend, 2006-2017. Source: Fund for Peace 2017

Figure 27: Failed State Index: Somalia, Security Apparatus Trend, 2006-2017.Source: Fund for Peace 2017

Figure 28: Failed State Index, Somalia, Economic Indicators (EC: Economic Decline; UD: Economic Inequality; HF: Human Flight and Brain Drain; EX: External Intervention), 2006-2017. Source: Fund for Peace 2017

Figure 29: Evolution of Ransoms: Annual amounts collected by Somali pirates between 2005 and 2012. Source: The World Bank 2013, p.42

Figure 30: Stocks and flows of ships held and released by Somali pirates from 2008-2012. Source: The World Bank 2013

Figure 31: Canvas Business Model of Kidnapping for Ransom in East Africa. Source: Visualization by the author using the Canvas Template

Figure 32: The causal conception of the feasibility assessment of piracy business models. Source: Visualization by the author using the iModeler

Figure 33: The indirect connections between the factors Criminal Network and Deterrence in the visualized business model of SE Asian piracy. Source: Visualization by the author using the iModeler

Figure 34: The short-term influence of the factor Criminal Network on the factor Deterrence in the Insight-Matrix of the SE Asian piracy business. Source: Visualization by the author using the iModeler

Figure 35: The long-term influence of the factor Criminal Network on the factor Deterrence in the Insight-Matrix of the SE Asian piracy business. Source: Visualization by the author using the iModeler

Figure 36: Concept Map of SE Asian piracy. Source: Visualization by the author using the iModeler

Figure 37: Concept Map of West African piracy. Source: Visualization by the author using the iModeler

Figure 38: Concept Map of East African piracy. Source: Visualization by the author using the iModeler

List of Tables

Table 1: SE Asia (Indonesia), Political Factor Evaluation

Table 2: SE Asia (Indonesia), Economic Factor Evaluation

Table 3: SE Asia (Indonesia), Social Factor Evaluation

Table 4: SE Asia (Indonesia), Technological Factor Evaluation

Table 5: SE Asia (Indonesia), Legal Factor Evaluation

Table 6: SE Asia (Indonesia), Environmental Factor Evaluation

Table 7: Average Direct Cost Structure for SE Asia Piracy Operation. Source: Data from The Global Initiative against Transnational Organized Crime 2016; Index Mundi 2017. Reference Exchange Rate is 1 USD = 1,4 SGD

Table 8: Average Economics of a successful SE Asian Piracy Operation. Source: Data from The Global Initiative against Transnational Organized Crime 2016; Index Mundi 2017. It is assumed by the author, that the CEO receives a share of 55% since his accumulated risk is slightly higher than the risk of the investors.

Table 9: West Africa (Nigeria), Political Factor Evaluation.

Table 10: West Africa (Nigeria), Economic Factor Evaluation

Table 11: West Africa (Nigeria), Social Factor Evaluation.

Table 12: West Africa (Nigeria), Technological Factor Evaluation

Table 13: West Africa (Nigeria), Legal Factor Evaluation

Table 14: West Africa (Nigeria), Environmental Factor Evaluation

Table 15: Average Direct Cost Structure for West African Piracy Operations. If no specific data about West African piracy incidents was available, similar data from SE Asian incidents was used as a reference. Source: Data from The Global Initiative against Transnational Organized Crime 2016, p.16; Kamal-Deen 2015; Onuoha 2012; Percey 2011; Index Mundi

Table 16: Average Economics of a successful West African Piracy Operation. Source: Data from The Global Initiative against Transnational Organized Crime 2016; Index Mundi 2017

Table 17: East Africa (Somalia), Political Factor Evaluation

Table 18: East Africa (Somalia), Economic Factor Evaluation

Table 19: East Africa (Somalia), Social Factor Evaluation

Table 20: East Africa (Somalia), Technological Factor Evaluation

Table 21: East Africa (Somalia), Legal Factor Evaluation

Table 22: East Africa (Somalia), Environmental Factor Evaluation

Table 23: Average Direct Cost Structure for East African Piracy Operations. If no specific data about West African piracy incidents was available, similar data from SE Asian incidents was used as a reference. Source: The Global Initiative against Transnational Organized Crime 2016; Bueger 2013; Bowden 2012; Index Mundi 2017

Table 24: Average Economics of a successful East African Piracy Operation. Source: IMB Reporting Centre 2012; The World Bank 2013; Reuters 2011 War, trade, and piracy together are a trinity not to be severed Johann Wolfgang von Goethe, 1832

1 Introduction

Maritime piracy is anecdotally known as the second-oldest business in the world. However, at least in the Western culture, a stereotyped pirate is not being thought of as a capable businessman but as a savage outlaw, handicapped by an eyepatch and concealing a mystic map with guidelines to his secret treasure. In fact, the opposite is true. Today, real piracy leaders are professional entrepreneurs, who established sophisticated business models and embedded their “piracy companies” in transnational criminal networks.

Although the various negative impacts of piracy are taken seriously and triggered a broad spectrum of research in diverse academic disciplines over the recent years, most studies tackle the subject only with a one-eyed retrospective focus. Probably due to prepossession, many piracy incidents seem to be discounted as scattered events, resulting from an act of desperation, carried out by humble amateurs. Furthermore, most studies take only one of the piracy hotspots as an independent subject into consideration for their differing research objectives. As a consequence, the academic field of piracy lacks a consistent approach, which applies the same set of assumptions and tools to the different piracy hotspots, to illustrate the diversity of the criminal business models and thereby the big picture of piracy itself. Metaphorically speaking, not pirates but many academics have been wearing an eyepatch during their investigations, probably limiting themselves in getting the full picture of the business and overlooking the underlying processes.

The purpose of this dissertation is to “lift the eyepatch” to visualize the different business models of piracy without self-imposed limitations, to lay the foundation for a more profound and comprehensive research approach. To overcome this blind spot, pirates are not morally judged for their criminal behavior but considered as equal entrepreneurs of the economy. Instead of insinuating pirates to rush at single hijackings to make quick money desperately, they are believed to run professional companies, which base on sophisticated and repeatable business models. This impartial assumption makes the topic assessable by macro- and microeconomic tools and models. Furthermore, this approach allows analyzing the subject from a pirate´s perspective. From this opposite viewpoint, an economic assessment facilitates the identification of framework-factors, which have been responsible for the emergence and development of piracy in general. In a next step, the application of business models helps to reveal further relevant factors, which trigger the internal procedures of the piracy companies, running a business in the hotspots of South-East Asia, West Africa, and East Africa. These deduced elements will then be illustrated in an explorative qualitative cause and effect model, to visualize their interrelation and the corresponding processes between them, which ultimately lead to the feasibility-assessment of piracy businesses.

These visualized business models can be used as templates for further research objectives and enable academics to take the perspective of criminal entrepreneurs, to reveal new insights and weak-spots of illegal business models in general. These findings could be used to tighten effective counter-measures, which may not have been considered up to now. Metaphorically speaking, this dissertation aims at revealing the concealed treasure-map, which contains the “secret” core factors and processes determining the feasibility of the criminal business and thereby the ultimate rationale of the emergence of professional piracy per se.

1.1 Problem Statement

Over the last two decades, incidents of piracy in South-East Asia (SE Asia), East Africa, and West Africa frequently appeared in the media. Due to the empathetic impact, predominantly triggered by the business model of kidnappings for ransom, the piracy hotspot off the coast of East Africa had been of significant concern to the public and international bodies. This impact has led to a broad spectrum of counter-measures, which apply in the particular region. As a consequence, this massive approach contained the threat of Somali pirates for several years drastically.¹ Due to the succeeding decline in piracy incidents off the Somali coast, naval-presence and public focus on site declined over these years naturally. While East Africa faded from the spotlight, the hotspots in SE Asia and West Africa became more prominent. However, the inoperative piracy businesses in East Africa apparently tracked the withdrawal of naval-presence and launched new hijackings in 2017. This return not only triggered media attention once more but shows that the topic of piracy, concerning all piracy hotspots, is still of high actuality and relevance for the security of the seas and thereby for the maritime industry, regional economies, and global policymakers. Furthermore, it has become apparent, that pirates watch the market and adjust their operations and overall activity to the given framework. This phenomenon indicates that pirates run sophisticated business models.

The problem is that the academic field of maritime piracy lacks a fundamental rational model, which visualizes the diverse business models of the criminal hotspots, to help researchers understand and tackle the allocable dynamics which determine the feasibility of the illegal businesses.

So far, research in maritime piracy studies segments into three pillars, namely the study of causes, organizational structures, and practices of piracy, the corresponding institutional responses, as well as attempts to historicize and deconstruct the broader politics of this maritime crime (Bueger 2014). Most of these studies take the same assumptions about the causes of piracy, which fundament on the work of Vagg and Murphy, as a basis for their investigations. One of the central statements of these shared assumptions is that the economic dislocation of specific regions leads to a shortage of jobs and thereby to poverty, which in turn may lead the affected population to revalue criminal activities like piracy into a culturally thinkable alternative profession (Vagg 1995, 63-67).

An incentive for the journey of this dissertation, is the underlying impression, that a variety of researchers has been overemphasizing poverty as a cause for piracy up to a point, from where pirates are believed to be no more than humble amateurs, who are forced to raid ships in the act of desperation. As a consequence, the pirates have probably been underestimated and not been concerned as capable businessmen, who run sophisticated operations. Furthermore, this impression is presumably backed by prevailing prepossessions against criminal minds in general, whose illegal activities rely on decision-making processes, which may be incomprehensible for anyone, who concerns himself as a fine and upstanding citizen. These prepossessions, in turn, may have hampered researchers in an impartial analysis and assessment of the internal and external processes, which ultimately facilitate the criminal business models. The lack of an impartial approach and consequently the missing of corresponding worked-out factors, underlying the different business concepts, would explain, why only a few studies tackled the topic of piracy from a business perspective (c.f. Klein 2013, Percy 2011, The World Bank 2013, The Global Initiative against Transnational Organized Crime 2016).

However, the few studies which consider pirates as businesspeople chose only one of the piracy hotspots as an independent subject for their analysis, naturally missing to identify similarities and differences of the diverse business models present in the affected regions. Thereby, researchers have raised the issue of lacking the big picture, and consequently the necessary nuanced understanding of the offender´s decision-making progress and the opportunity structure in which the crime takes place, as well as an appreciation for what factors of the environment can be manipulated (Townsley 2015).

Anyhow, due to the broad approach of research concerning the specifics of each of the piracy hotspots, sufficient secondary data is available to deduce relevant factors and the interrelation between them, which are believed to trigger the underlying business models of piracy.

From this follows that the development of an applicable method, which enables researchers to visualize the business models of piracy in a comprehensible and assessable way from the perspective of a criminal entrepreneur, would facilitate a deeper understanding of the underlying dynamics. Such a template could reveal further insights and thereby add additional value to the academic field of maritime piracy.

1.2 Research Objectives

The purpose of this dissertation is to enable a better understanding of the business models of maritime piracy. This objective shall be achieved by approaching the subject from the perspective of a criminal entrepreneur, because this shift of view, in comparison to previous studies, is believed to facilitate a more impartial analysis of the underlying dynamics of piracy and provide further insights, which might have been overlooked in the past. Due to this rational analysis the relevant factors and their corresponding interrelations to each other, which form the internal and external processes of the piracy business models, shall be deduced. By an application of explorative qualitative cause and effect models, these complex structures shall be visualized and give a coherent view over the feasibility-assessment of piracy businesses.

These developed models could be used as templates to facilitate researchers to explore and expand the academic field of maritime piracy by more in-depth analyses, as well as examine similar problems of different criminal businesses and activities in the future, refining this method in the progress. Finally, policymakers, the maritime industry, and troops on the ground could use this technique as an expandable template to define and launch corresponding counter-measures against the core business models, which are determining the feasibility of the illegal business and thereby the ultimate rationale of the emergence of professional piracy per se.

This objective leads to the following questions:

- How can piracy organizations be equated with regular business structures?
- How can the complex business structures and activities of piracy be examined to deduce impartial factors, which are relevant to the underlying dynamics?
- How can the relevant factors and the interrelations between them be arranged to deduce internal and external processes, which subsequently form the dynamics of piracy business models?
- How can the internal and external processes of piracy be arranged to set up the causal conception of piracy business models?
- How can the structured business models be visualized to enable a better understanding of the emergence of professional piracy per se?

1.3 Limitations of the Research

Due to the interdisciplinary nature and complexity of the topic, this study can only examine some aspects of maritime piracy and makes several assumptions. Firstly, the subject is observed from an impartial viewpoint, ignoring moralities or other prepossessions against criminal behavior and assuming the equalization of piracy businesses with regular companies. This approach makes the topic assessable by macro- and microeconomic tools and models. Furthermore, this method allows examining the subject from a pirate´s perspective. However, due to the unavailability of real piracy leaders as interviewees for a closer examination, the validity of the assumptions cannot be proven.

Secondly, the piracy companies are believed to run their businesses on rational decisions with the long-term objective to make a repeatable monetary profit. Thereby pirates are neither seen as opportunistic small-time criminals nor as individuals or groups who use acts of piracy to gain attention for promoting their political views and rebelling against their government.² However, this assumption does not intend to justify the piracy business as an equal part of the economy in the real world, but to accept their interference.

Thirdly, the application of an explorative qualitative cause and effect model simplifies the identification and illustration of relevant factors which are responsible for the emergence and development of piracy business models. Due to this method of simplification, the model does not take subsidiary details, which are not elementary for the functioning of the business, into consideration. This procedure accompanies the purpose of the visualization method, which is to enable a better understanding of the interrelations between the factors and thereby the functioning of piracy business models in general. However, qualitative models cannot predict the future, and the model developed in this dissertation does not claim to have found the ultimate solution for containing the threat of piracy. Nevertheless, the relevant insights from this model are based on abductive logic and are thereby logically sound, unless the accuracy of the particular interrelations between the factors is falsified.

2 Current State of Research

To approach the problem of a missing method, which would enable researchers to take a criminal´s perspective and to visualize the corresponding insights in a comprehensible cause and effect model, a broad spectrum of piracy studies has to be taken into account, to base the approach on sufficient data. While most of the previous works do not directly relate to the economics of piracy, they offer an adequate range of data concerning the causes, organizational structures, and practices of piracy, the institutional responses to this illegal business, as well as attempts to historicize and deconstruct the broader politics of piracy. These studies are used as secondary sources from which relevant factors and their interrelations between each other can be extracted. Thereby, literature from the more general field of economics of crime builds the fundamental theoretical framework of this dissertation. A critical analysis of the related research studies highlights the gap in the maritime literature concerning the field of economics of piracy, which this thesis is attempting to bridge.

2.1 Academic Field of Maritime Piracy

Maritime piracy has become a prominent topic in the academic field of the recent years. Until the late 1990s, most academics studying maritime crime approached the subject as a historical concern or as a technical problem for port regulations and port authorities. From 2008³ on, the increase in piracy in three geographical areas, namely SE Asia, East Africa and West Africa, lead to a rising interest for piracy issues in a broad spectrum of the academic fields. Therefore, maritime piracy evolved into an interdisciplinary study, spanning economics, politics and international relations, area studies, sociology, law, anthropology, and security studies. While focusing on divergent perspectives and paradigms, piracy studies achieve coherence through a shared interest in understanding piracy and developing responses to it using scientific methods. There is also an increasing cross-fertilization between disciplines, spurred by the motivation of understanding the problem holistically (Bueger 2014). Bueger identified three pillars of piracy studies, namely the study of causes, organizational structures and practices of the criminal business, the institutional responses, as well as attempts to historicize and deconstruct the broader politics of piracy.

The first pillar focuses on inquiries on the phenomenon of piracy and investigates the conditions and causes that trigger these criminal activities. Furthermore, information about the organization, tactics and local networks of pirates have been drawn out from this perspective and lead to knowledge essential for developing effective responses. For example, there have been identified three factors which are driving piracy in the hotspot of East Asia: economic dislocation, “recognition of piracy as an available cultural or subcultural possibility,” and opportunity (Vagg 1995, 63). The first factor provides two reasons why a “local population would tolerate pirates,” that is “intimidation of the populace and economic incentives” (Vagg 1995, 67). The second factor describes a deeper reason, which allows for the idea that ‘raiding ships at sea is culturally “thinkable”’ (Vagg 1995, 67). “Opportunity,” according to this research, refers to the official, administrative corruption, which tolerates piracy and reduces the risk of getting caught. These studies complement further factors that contribute to the emergence of piracy. For example, Murphy introduced seven preconditions: (1) legal and jurisdictional opportunities, (2) favorable geography, (3) conflict and disorder, (4) under-funded law enforcement/inadequate security, (5) permissive political environments, (6) cultural acceptability/ maritime tradition, and (7) reward (Murphy 2007). These thoughts have been approached by several quantitative studies, like Nincic, who demonstrated that most piracy attacks occurred in the waters of failed states, or in proximity to them (Nincic 2008). In this context, Hastings analyzed the importance of infrastructure and the access to markets for criminal operations in those areas. He highlights that pirates in the proximity of a failed state go for less logistically hijackings, namely kidnappings for ransom, while weak states with a certain level of legitimate governance encourage more sophisticated attacks, namely the selling of the cargo and the ship itself (Hastings 2009, 213). Further studies have shown that piracy activities prosper in areas which are relatively stable, but also corrupt, and which have a sufficient level of infrastructure and resources (Coggins 2010). These findings suggest that it is not a high level of anarchy, an absence of authority or poverty which allows for piracy to prosper, but an ideal mix of weak governance, corruption, and sufficient infrastructure (Percy 2011). Murphy used a qualitative and historical analysis to investigate the actors, which created the conditions for piracy to flourish in Somalia. He shows that the criminal actors have learned how to turn piracy from an ad hoc operational to a highly professionalized profitable business (Murphy 2011).

The second pillar of piracy studies focuses on the international response and aims to develop counter-piracy policies. In many of these studies, legal questions are highlighted. Kraska assists in disentangling the complex organizational field involved, by taking a broad perspective in discussing legal resources along with a more extensive repertoire of diplomatic, corporative, and military responses to piracy (Kraska 2011). Geiss and Petrig discuss the legal regimes that pertain to the illegal business. They conducted a comprehensive survey of the legal resources and the institutional challenges of counter-piracy and documented the breadth of legal documents relevant in detailing the history of the law of counter-piracy (Geiss 2011). Their survey provides an overview that demonstrates that a sufficient legal regime to counter-piracy exists, but substantial legal problems in implementation and alignment of laws persist (Bueger 2014, 411).

The third pillar of piracy studies contextualizes contemporary piracy in a broader historical development, takes the concept of the subject apart, and discusses the normative dilemmas underlying the topic. Furthermore, the third pillar examines the international responses. In this context, mainly political, legal, and economic theories are used for the analysis. However, also the historical perspective is helpful, dismantling piracy, as it raises awareness that this criminal business is not a new phenomenon and connects the experiences of ancient piracy to its contemporary form. The third pillar shapes understandings of global order, the concept of sovereignty, the constitution of international law and non-sovereign spaces, the importance of world-trade in a capitalist age, and what constitutes legitimate violence (Bueger 2014, 412).

The three pillars of piracy studies show that piracy is a common concern for different disciplines where researchers use various theories and methods as tools to address the topic. However, the use of different tools and perspectives shares the willingness to tackle the problem in using scientific methods and shows that piracy-studies are not a “problem-solving research” but questions the frames of reference, discourses and worldviews of elites (Bueger 2014, 414). Unfortunately, these studies applied individual standards for their examinations and most works limited their focus on the analysis of single piracy hotspots. Therefore, the academic field of maritime piracy lacks a coherent and impartial pool of relevant factors, which are underlying the criminal business.

Nevertheless, most researchers are using the same data source for their investigations. The primary source of maritime piracy data, available for researchers, is the International Maritime Bureau (IMB). The IMB established the Piracy Reporting Centre to collect data about piracy worldwide. This data is offered to the public by annual reports from a retrospective perspective and proactively by broadcasting incident details to ships, coast guards and navies via the Inmarsat-C-SafetyNET service (ICC International Maritime Bureau 2013). Ship owners and shipmasters are submitting the data to the reporting center when an attack occurs. Therefore, these reports are analogous to self-report victimization data. The data includes the geographical location of the attack, date, time and a short narrative and limited information about the type of the attacked vessel and its crew. The IMB distinguishes between incidents that arise at sea and those that occur in ports. Furthermore, the data shows if the targeted ship was fired upon, boarded or hijacked, or if the attempted attack could be parried. This information is simplified by stating if an attack was successful or not. Since most academic papers on the topic of maritime piracy are based on this dataset, their findings are commensurable.

The Term Piracy

In maritime piracy studies, the legal term “piracy” has been adjusted to practical use.

The International law governing maritime piracy is contained in Articles 100-107 of the United Nations Convention on the Law of the Sea (UNCLOS)⁴. Article 100 states that “All states shall cooperate to the fullest possible extent in the repression of piracy on the high seas…” The term “repression of piracy” includes policing with naval warships, arresting, questioning, gathering evidence and detaining suspected pirates, transferring suspects to landward places of detention, placing suspects on trial and providing them with defense lawyers, and imprisoning those found guilty (Hallwood und Miceli 2013, 68). Article 101 defines acts that constitute piracy emphasizing “any acts of violence, detention of crew or passengers or any act of depredation, committed for private ends by the crew or the passengers or a private ship… or against another ship; also the taking over of a ship used/to be used in acts of piracy.” The term “private ends” includes robbery or hijacking-for-ransom and personal profit. This term is critical as it excludes criminal acts at sea not directed at those ends. Article 103 of UNCLOS defines a pirate ship as “intended by the persons in dominant control to be used for the purpose of committing one of the acts referred to in Article 101. The same applies if the ship or aircraft has been used to commit any such act, so long as it remains under the control of the persons guilty of that act.” Article 105 reads, “On the high seas, or in any other place outside the jurisdiction of any State, every State may seize a pirate ship or aircraft, or a ship taken by piracy and under the control of pirates, and arrest the persons and seize the property on board. The courts of State which carried out the seizure may decide upon the penalties to be imposed, and may also determine the action to be taken with regard to the ships, aircraft or property, subject to the rights of third parties acting in good faith.” Finally, Article 106 governs seizures at sea “without adequate grounds,” creating a liability for the arresting state to the flag state.

In summary, the Law of the Sea (UNCLOS) classifies only those incidents, which have taken place on the high seas⁵, as “piracy.” The “high seas” include the contiguous zones and exclusive economic zones in this context, but not the territorial sea, internal waters, ports or anchorages. Piratical acts of thefts that occur in these areas are considered as “armed robbery against ships,” “armed robbery at sea,” or simply “armed robbery” (Geiss 2011).

However, for practical purposes, piracy and armed robbery pose similar threats to the security of global shipping and share similar motivations behind the two crimes (Mejia 2012). For this reason, the term “piracy” is used to cover both types of crimes in this dissertation, irrelevant to the place where the incident occurs.

2.2 Economics of Crime

Researchers in a variety of academic disciplines have constructed and analyzed multiple theories of criminal behavior. Studies about the motivation and economic impact of crime and terrorism complement each other. The different approaches ultimately fall into one of three categories (Gottfredson and Hirschi 1990). First, the set of intrinsic personality characteristics that predispose an individual to acts of crime and violence have been studied for psychological explanations. Second, social scientists analyzed the environmental and cultural conditions and therefore extrinsic factors that may lead to criminal behavior. Thirdly, from an economic view, the rational choice explanation argues, that an individual criminal deliberately chooses to engage in crime and terror after weighing the costs and benefits of doing so. This economic view serves as a fundamental assumption for this dissertation, which predominantly applies economic explanations on monetary-profit seeking criminals to the topic of piracy.

According to Becker, “the combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and unflinchingly, form the heart of the economic approach [to the study of human behavior]” (Becker 1976). The economic approach assumes that the decision to engage in criminal behavior is the result of a rational resource-allocation process. The individual as a rational decision maker wants to allocate his limited resources among a wide variety of alternatives, to maximize the satisfaction of his wants and needs. Therefore, the individual will choose the alternative behavior that yields the highest excess of benefits over costs, even if it is a criminal one. The normative framework, given by this theory, enables the use of sophisticated quantitative methods to analyze the causes and effects of criminal behavior.

While Becker´s work set a theoretical framework for further analysis of criminal behavior in general, Frey studied the motivation and behavior of terrorism. His work analyzed the economic impact of terrorism and deduced possible countermeasures. While terrorists are usually aiming for political change, in contrast to criminals who typically focus on personal benefits, many similarities can be drawn from both perspectives. Especially Frey´s focus on the rational choice theory of terrorists can be transferred to the fight against criminals in general (Frey 2008). In other words, terrorists, criminals, and pirates alike weigh up the expected payoffs from engaging in a crime against the detection probability and the expected costs of punishment. This approach by Becker and Frey forms the underlying framework for this dissertation.

Another academic approach to criminology is the Routine Activity Theory (RAT) developed by Felson and Cohen. The premise of this approach is that crime is relatively unaffected by social causes such as poverty or inequality but triggered by the circumstances in which offenders and victims come together in space and time (Cohen and Felson 1979). Therefore, the RAT focuses on the situational aspects that may lead to criminal activities. The core concept includes the factors “a likely offender,” “a suitable target,” and “the absence of a capable guardian.” When a motivated offender encounters a suitable victim in the absence of a capable guardian, crime becomes possible. Townsley has applied the advanced RAT to maritime piracy in the case of Somali-Piracy (Townsley 2015). Figure 1 shows the components of the RAT and their interrelations in the crime triangle. The innermost triangle illustrates the main actors in the commission of a crime, namely the Pirates, the Ship (target) and the Place, where the ship is attacked (SLOC-Sea Line of Communication). The middle triangle shows controllers, namely the Handlers, the Guardian, and the Place Manager, representing individuals or institutions with direct responsibility for the actors in the crime triangle. These controllers help understanding crime patterns and the effectiveness of crime prevention, as the actions of the controllers permit or prevent crime from happening.

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Figure 1: The Routine Activity Approach. Source: Townsley 2015, p.7.

Thereby crime is less likely when Handlers directly supervise offenders, guardians directly supervise potential victims or targets, and managers directly supervise places (Felson, 1995). Consequently, the theory gives reasons why some crime prevention activities succeed and why others fail. Due to the focus on the offender´s perspective, Felson furthermore introduced four criteria that predict if a target is suitable for a crime to occur (Ferson 1998, 55-60). Those four criteria are called VIVA: Value, Inertia, Visibility, and Access. From the perspective of the offender, the value is the potential profit a target can provide, where the target may be both, an item or a person. Inertia is the physical difficulty and feasibility the offender must deal with when attacking the target. Visibility measures if the target can easily be seen or if it is hidden in any way. Access determines if the site where the target is located is easily accessible or if measures must be taken to reach it. All these factors can deter or motivate criminal acts, by merely making it more difficult or easier to commit the respected crime. Sampson, Eck, and Dunham (2009) advanced the theory by introducing the concept of super controllers. As figure 1 depicts, super controllers are actors responsible for creating incentives for controllers to prevent crime. The advanced RAT lists ten super controller types, each based on the nature of their authority over controllers and organizes them into three categories, namely formal, diffuse and personal (Sampson, Eck and Dunham 2009). The formal category includes institutions that rely on an authority that is established and widely recognized (i.e., governments, organizations, regulators). The personal category comprises individuals that use informal or personal influence to persuade controllers (i.e., clans, groups, and families). Diffuse super controllers form a hybrid of the formal and personal categories (i.e., political groups, markets, the media) (Townsley 2015). In practice, most super controllers represent coalitions of institutions and individuals.

In summary, the fundamental works of Becker and Frey, which facilitate the assumption that piracy businesses are determined to maximize their monetary profit and are rationally weighing their potential rewards against the probability of being punished, serve as a basis for this dissertation. Furthermore, the causal conception of the Routine Activity Theory, developed by Felson and Cohen, applied to the criminal sphere of piracy, amplifies the theoretical framework of this thesis.

2.3 Economics of Maritime Piracy

While many studies have covered research about the causes, organizational structures, and practices of piracy, as well as the institutional responses to maritime crime, and attempts to historicize and deconstruct the broader politics of piracy, the ex-post rationalization of their business models has not yet been studied adequately. Most studies, which have tackled economic aspects of maritime piracy, focused on measuring the economic impact caused by the illegal activities and deduced rationales for stronger countermeasures (c.f. Bowden 2010). Only a few studies have approached the topic from a business perspective (c.f. Klein 2013, Percy 2011, The World Bank 2013, The Global Initiative against Transnational Organized Crime 2016). However, these studies are not covering the overall phenomenon of piracy from an impartial rational business perspective. Furthermore, there is no study in the literature, which has tackled the topic from a pirate´s viewpoint. Finally, the few studies that consider pirates as professional businesspeople chose only one of the piracy hotspots as an independent subject for their analysis, naturally missing to identify similarities and differences of the diverse business models. From this follows that the academic field of maritime piracy lacks a rational model, which visualizes the different business models, to help researchers understand and tackle the allocable dynamics which determine the feasibility of piracy operations. The development of such a model could serve as a template, facilitating researchers to expand the field of economics of maritime piracy by further and more in-depth investigations, and would thereby bridge the gap in the current state of research.

3 Methodology

This dissertation aims to enable researchers of the academic field of maritime piracy to gain a better understanding of the underlying business models, whose feasibility is believed to be the ultimate rationale of the emergence of professional piracy per se. Therefore, this thesis processed the following steps.

Firstly, piracy organizations were approached from an economic perspective, by the application of a variety of economic theories in combination with findings of secondary data, to assume the equalization of piracy with regular business structures as an impartial rationale for the subsequent construction of the corresponding business models.

Secondly, piracy companies were approached from a business perspective by the application of macro- and microeconomic tools to examine the complex business structures and to subsequently deduce the core processes and factors, which are relevant for the underlying dynamics of the piracy businesses.

Thirdly, the deduced factors and the interrelations between them were structured to set up the causal conception for the subsequent visualization of the piracy business models, which has been achieved by the application of an explorative qualitative cause and effect model.

The resulting visualized business models may serve as templates for further use, expansion, and refinement by researchers of maritime piracy.⁶

3.1 Research Design

In this study, a combination of descriptive and explorative methods was used to visualize the business models of piracy in a qualitative cause and effect model. This qualitative approach was chosen, because the emergence of piracy, and subsequently the development of sophisticated business models, is predominantly determined by soft factors, which are difficult to quantify, yet crucial for a satisfactory understanding.⁷

As a preparative for the subsequent application of theories, tools, and models, the literature about the subject was reviewed extensively to compile a pool of sufficient data about the individual piracy hotspots and the corresponding framework which influences the emergence and the associated illegal activities of this criminal business. Based on this pool of data, also original research findings out of the academic fields of criminology and economics of crime have been used as a theoretical framework for the scope of this dissertation. These preparative measures were taken in the chapter “Current State of Research.”

In the chapter “Economic Perspective” the topic of piracy was approached from an impartial viewpoint, examining the root causes, the process of sophistication, and the impact of piracy. This approach was based on the theories of Rational Choice, Transaction-Costs, and Principal-Agent. Due to this method, it has been possible to assume the equalization of piracy organizations with regular business structures. Furthermore, the first set of relevant factors, which influence the internal and external processes of the illegal businesses, was deduced for the subsequent construction of the corresponding business models.

The chapter “Business Perspective” encompasses an examination of the different piracy hotspots, namely SE Asia, West Africa, and East Africa. These hotspots were analyzed descriptively to compile sufficient data about the complex business structures for the further assessment of the individual forms of the criminal businesses. In contrast to previous work in the academic field of maritime piracy, this approach has been examined from the viewpoint of a criminal entrepreneur to gain potentially overlooked insights and to exclude the potential influence of prepossessions against piracy as much as possible. As a consequence, macro- and microeconomic tools, which are usually used to examine regular business models, were applied to the individual piracy hotspots. The macroeconomic tool PESTLE was used to analyze the business environment of the specific regions. The micro-economic tool CANVAS was applied to document and analyze the business models which are underlying the piracy operations. Due to this approach, the second set of core processes and factors, which are relevant for the underlying dynamics of the piracy businesses, was deduced.

Based on both sets of deduced processes and factors, the chapter “PECOBUS Model” set up the causal conception for the subsequent visualization of the piracy business models, which has been achieved by the application of an explorative qualitative cause and effect model.⁸

Finally, the key findings were summarized and discussed, considering their relation to previous work of the maritime piracy literature. Since this dissertation developed applicable templates, the thesis concludes with the invitation of fellow researchers of the academic field of maritime piracy to use, expand, and refine the visualized business models.

3.2 Data Collection

A variety of methods was used, to compile sufficient factors for the subsequent visualization of the piracy business models in an explorative qualitative cause and effect model.

Since the academic field of maritime piracy lacked a comprehensive and equally applied analysis of the three global piracy hotspots, based on the same set of assumptions, theories, and tools, approached from an impartial economic perspective, the compilation of sufficient data had to be descriptively deduced from the literature, as a preparative for the further analysis. This compilation gave an overview about the framework-factors which influence the emergence and the activities of professional piracy in the different hotspots. In contrast to previous work, the subsequent analysis was examined from the viewpoint of a criminal entrepreneur to gain potentially overlooked insights and to exclude the potential influence of prepossessions against piracy as much as possible.

Economic Perspective

The qualitative assessment of maritime piracy from an economic perspective was based on findings of secondary data, the application of the Rational Choice Theory, the Routine Activity Theory, the Transaction-Costs-Theory, and the Principal-Agent-Theory.

In a first step, the “Root Causes” of piracy were analyzed. Findings of secondary data, which suggest that the economic dislocation of a region has a significant influence on the root causes of piracy, have been taken over. Furthermore, the application of the Routine Activity Theory, a middle range theory, mostly derived from the grand theory of Rational Choice, was used to indicate that criminal opportunities, which become present due to the weakness of local authorities, trigger piracy activities. Additionally, the setup of an economic model, which has been based on the fundamental work of Becker (Becker 1976), complemented this indication by evaluating the motivation of individuals to become professional pirates.

In a second step, the “Process of Sophistication” of the piracy businesses was examined. While the former chapter gives insight about the emergence of piracy and the disposition of individuals to become professional criminals, this chapter discusses, how the individual criminals established professional businesses. In this context, the Transaction-Costs Theory, which is based on the work of Ronald Coase (1937) and became most widely known by Oliver Williamson (1981), was used. The application of this theory supports the argument that the development of efficient business institutions is based on the effort of individual economic subjects, to minimize costs incurred by transactions between each other and the market (Williamson 1981). Thereby, the theory helped to examine, why individual pirates grouped and established piracy businesses. Subsequently, the Principal-Agent-Theory was applied, to illustrate that the piracy businesses formed professional chains of command to improve the efficiency of their internal structures. However, the application of this theory also identified difficulties, which naturally come along with this concept. According to the Principal-Agent-Theory, a dilemma exists in circumstances where the agents are motivated to act in their own best interests, which may be contrary to those of their principals (Jensen and Meckling 1976). Since the problem may have an even stronger impact in the piracy business, as the agents do not only act to maximize their outcome but also to avoid being prosecuted and arrested, the application of the Principal-Agent-Theory brought up valuable insights about the internal processes of piracy businesses. Therefore, all of the different piracy hotspots have developed criminal governance structures throughout their companies, to keep the agents aligned with the agenda of the companies. These findings were based on the analysis of a variety of studies, presented in the concerned chapter. Finally, the examination of secondary data has shown a significant learning-by-doing and skill accumulation among maritime pirates (Ratisukpimol 2011).

In a third step, the “Impact” of piracy on the maritime industry, as well as the regional, and global impact was deduced by a descriptive analysis of previous research. After the analysis of the root causes and the process of sophistication has illustrated, that sophisticated piracy is not a desperate act of crime but a professional business, this chapter shows the full dimension of the consequences which are caused by the acts of piracy. Especially studies about the economic costs and financial flows of piracy contributed to the findings of this chapter (Bowden 2010) (The World Bank 2013).

Due to the descriptive and qualitative analysis of professional piracy organizations, the first set of relevant factors, which influence the internal and external processes of the illegal businesses, was deduced for the subsequent construction of the corresponding business models.

Business Perspective

The qualitative assessment of maritime piracy from a business perspective was based on an extensive analysis of secondary data and the application of the macroeconomic tool PESTLE and the microeconomic tool CANVAS.

In a first step, the business environments of the individual piracy hotspots, namely SE Asia, West Africa, and East Africa were examined by the application of the PESTLE analysis. PESTLE is a standard tool for regular companies to analyze the framework of macro-environmental factors affecting their business in a specific market region, by identifying the relevant political, economic, social, technological, legal and environmental factors. The analysis of an illegal business model was an unusual approach but an applicable one, due to the impartial character of the assessment. However, the individual factors had to be partially adjusted or expanded to match the interests of piracy. The Political factor thereby studied the political influence in the economy, ignoring tax policy, labor or environmental law, trade restrictions or tariffs. This factor was extended to the analysis of Place-Manager attributes, derived from the Routine Activity Theory (RAT). The Place-Manager attributes built the framework for effective counter-measures against piracy and illustrated how far the government is willing and able to use national and international security forces to fight piracy. The Economic factor examined the regional changes in trade cycles and commodities that affect the piracy businesses, as well as the field of competitors in the region. Furthermore, the Economic factor studied the port structures and the accessibility and availability of local, regional and international markets. The Social factor considered the attitude towards criminal behavior by the regional communities who host the pirates. This factor illustrated in how far the communities are economic dislocated and may even support the illegal business by logistics and human resources if they benefit from piracy themselves. Furthermore, the social factor showed how easily pirates might establish a network of insiders and corrupt officials necessary for a professional business expansion. The Technological factor explored the availability of professional equipment for the targets to defend themselves and for the aggressors to attack the targets, as well as the required skill-sets to use them. While commercial ships and fishing boats may install barbered wire, or hire PMSCs as Guardians (derived from the RAT), the pirates may be interested in the market availability of automatic weapons, radar and communication devices and fast attacking boats with powerful engines and agile maneuverability. The Legal factor enquired the effectiveness of the regional jurisdiction in general as well as the willingness of the pirate´s victims to report an incident or to conceal it. Finally, the Environmental factor studied the geological nature of the region, showing if in how far natural cover is available to hide pirate´s bases at the shoreline in the vicinity of major shipping routes. Furthermore, the Environmental factor examined the general infrastructure in the region as well as meteorological events that may influence the piracy businesses.

In a second step, the individual business models of the different piracy hotspots were constructed, by applying the tool CANVAS. Usually, regular companies apply this tool as a template for documenting existing or developing new business models. The outcome of this method is a visual chart, which illustrates the elements describing the company´s infrastructure, value proposition, customers, and finances. These factors had to be partially adjusted to match the interests of piracy. The first element, infrastructure, considered the key partners, the key activities, and the key resources of the concerned piracy company. The second element, value proposition, and the third element, customers, had been two of the most convenient differentiators between the different piracy hotspots and approved the advantage of the application of this tool. The fourth element, finances, was worked out by the comprehensible analysis of actual piracy incidents, which have been reported in the literature. Missing details in those reports were proportionally constructed referring to comparable but more detailed reports of the other piracy hotspots to complement this section.

Due to this approach, the second set of core processes and factors, which are relevant for the underlying dynamics of the piracy businesses, was deduced. The descriptive analysis of the different hotspots and consequently the compilation of both sets of significant factors formed a sufficient pool of data and facilitated a logical deduction of an ultimate causal conception of the piracy business models for the subsequent construction of visualized cause and effect models.

3.3 Data Modeling

Due to the sufficient compilation of relevant factors, deduced through the analysis of the different piracy businesses from an economic and business perspective, the three business models of piracy have been visualized in an explorative⁹ qualitative cause and effect model, using the software iMODELER. Thereby, each business model has been modeled individually and serves as a template for further explorative examination, expansion, or refinement by fellow researchers.

Qualitative cause and effect modeling facilitates researchers to visualize complex conceptions of causal relations. In other words, this method demonstrates visually, how “more of one factor leads directly to either more or less of another factor.” Since the factors were qualitatively weighted¹⁰ by defining whether one factor´s impact on another is perceived weak or strong compared with other impacts, and whether this effect changes in the future, the iMODELER software simultaneously constructed indirect relations between the different factors and deduced short term, medium term, and long-term effects in an “Insight Matrix.”

In the context of this dissertation, the model visualizes the internal and external processes which ultimately lead to an assessment of the feasibility of piracy business models. The internal processes lead to an evaluation of the perceived business opportunity of a particular piracy hotspot, while the external processes lead to an assessment of the corresponding deterrence effect, triggered by the presence of law and order. Depending on the imbalance of both assessments, the feasibility of piracy businesses can be determined, which in turn triggers factors influencing the internal and external processes long-term. Taking this chain of causation as the center of the model, served the purpose of this dissertation, to facilitate researchers to approach the subject from the perspective of a criminal entrepreneur and to gain further insights in progress. The practical implementation of this approach is discussed in the corresponding chapter “PECOBUS Model.”

4 Economic Perspective

Before the different business models of piracy can be analyzed from an impartial business perspective, the big picture of piracy must be examined from its root causes, its stages of sophistication, and its impact on the maritime industry, the regional economies, and world trade. Therefore, the economic perspective constitutes the framework for a more in-depth analysis of the different hotspots, explains why individuals choose a career in the piracy business, shows how piracy enterprises develop over time, and how they trigger international responses from institutions and counter-piracy players. The factors from the economic perspective provide a sufficient heuristic for the conditions under which piracy companies emerge and reveal further internal and external processes, which influence the overall success of piracy businesses.

4.1 Root Causes

The root causes of maritime piracy base on three strands. Firstly, the economic dislocation and consequently the shortage of labor supply in geographical areas, which are located in the proximity of sea-trade-routes, can trigger incentives for piracy to emerge.

Secondly, weak local authorities are failing in the authentic deterrence of criminals and thereby trigger criminal opportunities. This phenomenon will be examined by the adaption of the Routine Activity Theory (RAT).

Thirdly, the motivation for an individual to overcome his inhibitions to conduct a criminal activity has to be initiated by a deliberate process of rational-choice and will thereby be examined by the adaption of the Rational Choice Theory (RCT). These three root causes ultimately determine the supply of human resources for piracy companies.

4.1.1 Economic Dislocation

While piracy can lead to promising profits, a direct causal link between poverty or lack of employment opportunities and criminal activities cannot be constructed. Rather than poverty alone, the crucial factor is the economic dislocation of the region. Communities that tend to be involved in piracy are those who have been economically marginalized and put at a disadvantage by economic developments and globalization processes (Bueger 2015). Once a state is economically dislocated, and the government fails to improve the participation of nationals in the private economy, while strengthening the human rights for low-skilled workers, as well as opening the public sector to foreigners to avoid risks of elite-building, the whole state can be threatened to fail long term (Acemoglu, Robinson 2012) (Besley and Persson 2011).

From this, a shortage of labor and a fiscal deficit naturally follows. Without a prospect for a regular income by legal employment, the population may change its moral attitude and culture towards semi-legal or obviously illegal alternative labor options. Once the fiscal deficit has hit the authorities, the consequently underfunded regulatory bodies can fail to preserve a nation-wide prosecution and law-enforcement. Thereby inhibitions of the population to accept criminal activities may be lost. From this follows the acceptance of the local community to tolerate pirates and, in extreme cases, the recognition of piracy as an available cultural or subcultural possibility, which may trigger incentives to become a pirate oneself (Vagg 1995, 67). Studies have shown, that higher real per-capita incomes and lower unemployment rates tend to reduce the number of pirates (Ratisukpimol 2011, 61). Furthermore, these studies signify that the chance of successful hijackings in the proximity of countries with higher political freedom is lower since these countries tend to protect the sea more effectively (Ratisukpimol 2011, 30). Therefore, the rise of maritime piracy is inversely related to the economic and political conditions of regions from which professional piracy emerges. From this follows that economic dislocation triggers incentives in the community to engage in extralegal activities like piracy.

4.1.2 Weak Authorities

If a nation is economically dislocated and criminals face weak authorities, criminal opportunities become more attractive due to the reduced risk of prosecution. Thereby, official and administrative corruption, which tolerates or even supports piracy, reduces this risk furtherly. This concerns various levels of law enforcement stretching from coastguard and naval capabilities by which coastlines and the sea are patrolled and surveyed, to policing, intelligence, and prosecution capabilities on land, as well as the efficiency of the judicial sector allowing for the prosecution of piracy (Bueger 2015, 2). This thought has been analyzed by several quantitative studies and revealed that most piracy attacks occurred in the waters of failed states, or in their proximity (Nincic 2008). Furthermore, the state of governmental destruction as well as the state of maintained infrastructure and thereby the access to markets limit the number of operational possibilities, and therefore the options for different business models of piracy. While pirates in the proximity of a failed state typically go for less logistically hijackings, namely kidnappings for ransom that do not require professional port-infrastructure nor regulated markets, weak states, offering maintained infrastructure and organized markets, encourage more sophisticated attacks, namely the selling of the cargo and the ship itself (Hastings 2009, 213). Further studies have shown that piracy prospers in areas which are relatively stable, but also corrupt, and which have a sufficient level of infrastructure and resources (Coggins 2010).

Subsequently, the Routine Activity Theory (RAT) will be used, to examine the criminal opportunities arising in the affected regions. This middle range theory is mostly derived from the grand theory of Rational Choice and takes the perspective of the offender to find explanations for understanding and preventing crimes. RAT uses the general factors place, target and offender to explain the triggering of a criminal act, while the factors Placer Manager (PM), Guardian (GU) and Handlers (HA) may prevent the crime. In the field of maritime piracy, we define the “place” of a piracy attack to be the sea and particularly the coastline of the host state from where the pirates operate. It is therefore analogous to a predatory crime occurring in public space. However, place controlling in a maritime environment is difficult due to the sheer expanse of the ocean and legal ambiguities that may inhibit effective enforcement (Ramsey 2011). In East-Africa pirates operate up to 1000 nautical miles away from the coastline. Therefore, the operational place for Somali-Pirates encompasses about two million nautical square miles, a dimension that is impossible to protect without a gap. In West Africa, most attacks are conducted in the vicinity of several territorial waters and therefore much closer to the coast. While the typical operational field in West Africa is apparently much smaller than the one in East Africa, and theoretically easier to overview, problems of jurisdiction arise. As several states share the same maritime place, each of them naturally claims its sovereign responsibility for their territorial waters. Pirates in West Africa can thereby complicate effective law enforcement relatively easily, by leaving the territorial waters where the attack occurred and entering the territorial waters of a bordering state, that is not responsible for law enforcement concerning that attack. In SE Asia on the other hand, attacks occur in territorial waters as well as in the open sea.

In Routine Activity Theory, the manager for the maritime place is represented by several instruments and institutions. The government to whom the territorial waters belong is responsible for the jurisdiction and the corresponding law enforcement. For law enforcement, the state operates police ashore, and coastguards and national naval forces at sea. These must be constantly trained and armed with sufficient vessels and equipment. The high sea, which is expanding from the territorial waters¹¹, does not have any jurisdiction by nature. If threats in the high sea arise, any state in the world may freely intervene with its national navy, when such an operation is legitimate to its jurisdiction. If such a threat, like maritime piracy, has an impact on multiple states in the world, bilateral or multilateral operations may be formed by the countries concerned. If the threat even triggers international interest, organizations like the European Union or the United Nations Organization may also establish missions that will tackle the problem. The influence and the regulatory body of these international institutions can be seen as the formal Super-Controller of the PM, as shown in figure 1. Problems arise when a maritime threat appears near territorial waters that belong to a government, the manager, that holds no or only insufficient law enforcement but does not allow international players to intervene in its national territory.

The target is considered to be a whole ship, particular cargo, and other valuable items onboard the ship, or the crew itself. Whatever particular interest the pirates may have, access to the target requires the boarding of the vessel.

The corresponding GU to the target is the ship´s crew as well as external security measures. The GU can use the VIVA criteria¹², to take measures for protecting the ship and themselves. To prevent the vessel from being hijacked, the crew may install water cannons, barbed wire, high-speed maneuvers or other measures, promoted by Best-Management-Practice (BMP). BMP is an open book that developed guidance detailing the most effective actions and precautions, which ship-owners and masters can take to prevent pirate attacks. Next to these internal measures, also external measures like contracting Private Maritime Security Companies (PMSC), both armed and unarmed, can provide further protection onboard the ships. Naturally, the shipping companies represent the main Super-Controller for the GU. Likewise, insurance companies have emerged as super controllers to facilitate higher levels of guardianship (Townsley 2015, 5). For example, in 2008 Lloyd´s Joint War Committee declared the Gulf of Aden High-Risk Area (HRA).¹³ This declaration led to a substantial increase in premiums for transiting ships (Giampaolo 2011). As insurance underwriters have offered significantly reduced premiums if armed guards are on board, more shipping companies started to hire PMSCs for enhanced protection (Brown 2012).

In the maritime piracy context, offenders represent the present professional piracy organizations. Depending on the particular hotspot, the concerned criminal structures may comprise corrupt officials, warlords, mafia systems, and other illegal businesses out of the present criminal network. Accordingly, Handlers are the local community and society in general, promoting moral standards and ethics. Depending on the area, also local clan leaders, religious representatives or businesses offering alternative jobs may represent Handlers. In the case of Somalia, clan elders act as judges and enforcers of “xeer” (an oral justice system) and could discourage young men away from criminal involvement (Kraska 2009). However, the proceeds of piracy can provide need support for local economies. Therefore, clan elders are often involved in recruiting, financing, and directing piracy operations (Kraska 2009). Non-Governmental Organizations (NGO), the United Nations Organization or other players may establish missions and incentives, which try to trigger social standards and ethical codes of conduct, may serve as Super-Controllers, influencing the HA.

Like any other theory, the RAT has its limitations. The derived methods used to reduce crime do not automatically change the criminal behavior. These methods only prevent the crime in a given situation. While the crime may be prevented, the criminal can still be motivated to do other unlawful acts somewhere else to another time. Therefore, the theory is a crime preventing theory, but not apprehended, because it does not give any optional measures for rehabilitation (Miró 2014). However, RAT in the context of maritime piracy unfolds several factors that will be further analyzed in the following chapters.

4.1.3 Social Acceptance

In economically dislocated areas, where criminal opportunities arise, a social acceptance for extra-legal activities may emerge in the society. Thereby the moral scruples of individuals to be involved in an illegal business are decreasing. The following figure illustrates this process:

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Figure 2: Flexible boundaries of law and moral. The construction of this figure is based on the work of Ingo Pies, who has had a research focus on the topic of corruption in 2003. Source: Visualization by the author.

The left part of figure 2 shows four spheres, which are segmenting legal and legitimate activities. The circle represents the moral perception of culture. Sphere 1 represents activities or businesses which are legal but perceived as immoral. In sphere 2 law and moral are congruent. Sphere 3 stands for activities or businesses which are illegal but are perceived as morally acceptable. Finally, sphere 4 represents acts which are unlawful and immoral to the concerned culture.

In the case of economic dislocated regions, the moral perception may be expanded and embrace activities, which had been perceived as illegal and immoral initially, as shown in the right part of the figure. A weak or even failing state, which is located in such a region, may intensify this process due to the fading presence of law and order, which in turn revokes the rationale between legal and illegal issues in general.¹⁴ Once a local community faces such a condition, it is a more or less purely rational decision for individuals to get involved in criminal activities as a legitimate alternative to making a living.

In a previous study, this process of individual motivation has been illustrated in an economic model that treats pirates as rational maximizing individuals to study their evaluation process of legal and illegal options leading to a decision of involvement (Hallwood and Miceli 2013, 69-71). The application of such an economic model is a standard approach for analyzing criminals since Becker in 1968 (Becker 1976). Based on this assumption, Hallwood and Miceli have built the following model¹⁵:

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In this function, the outcome, E(NB(n)), stands for the expected net return of a planned number of attacks, (n), from becoming a pirate. This outcome results from the cumulative probability of not being caught in “n” attacks, CPR(n), times the value gained per attack on n attacks subtracted by the opportunity cost¹⁶ of piracy per attack on n attacks, [n( $booty - $wage )], minus the probability of being caught on n attacks times the implicit monetary cost of spending time in jail, (1 – CPR(n))( $jail ).

In simpler words, the causal conception of this function illustrates, that the feasibility of the individual engagement in piracy results from the trade-off between the potential profit gained from piracy activities and the risk of being caught and prosecuted. This causal conception will likewise serve as the center of the visualized cause and effect model, which will be developed in the process of this dissertation.

While this deduced causal conception serves as the key takeaway from the previous work of Hallwood and Miceli for this dissertation, their research provides further insight into piracy. By differentiating their original function, the resulting first-order condition shows, that a risk-neutral pirate will choose n to maximize. In other words, as long as a pirate expects not to get caught in the act of his next attack, he will remain in the business. The determination of the optimal number of attacks, n *, is shown graphically in figure 3. Based on this figure, it can be assumed that as the number of piracy attacks grows, the value of booty collected per attack increases – perhaps because more experienced pirates become better at locating high-value targets (a learning-by-doing effect). Then the marginal benefit of piracy may rise with the number of attacks by a given private (Hallwood and Miceli 2013, 70). If this effect were strong enough, then there would be no limit to the number of attacks. That is, the MB function in figure 3 would be positively sloped. In this case, a person would plan on becoming a pirate for life and not limit himself to a given number of attacks.

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Figure 3: A pirate´s optimal number of pirate attacks. Source: Hallwood and Miceli 2013, p.70.

Furthermore, the factors $wage and $jail would increase the optimum number of attacks for an individual pirate, if there are low-opportunity cost ($wage) and low-value placed on jail time ($jail). It can also be supposed that the higher the efficiency of a piracy business is, the higher is the probability of not being caught on an attack and the more significant $booty is, the further to the right is the marginal benefit curve in figure 3.

From this follows that the more efficient and experienced a piracy business is, the longer individual pirates will remain in the company and the more sophisticated attacks will emerge from there. This development leads to the following analysis of the process of sophistication of maritime piracy.

4.2 Process of Sophistication

In this chapter, it is examined, why pirates consolidate and form groups, which eventually emerge to professional businesses. This analysis is based on the principles of the transaction-cost-theory. Closely related to this theory, the principal-agent-theory is applied to the hierarchical structures of piracy companies to interpret the top-down management and the division of responsibilities in place. Finally, further steps are taken to analyze the compliance and governance structures, which have probably been developed to lower the risks of operational failure. These three phases reveal the factors, which are responsible for the overall sophistication of the business of piracy.

4.2.1 Incorporation Approach

Minimizing Transaction Costs

The transaction cost theory can be used to explain why individual pirates group together, develop sophisticated organizational structures and thereby form professional businesses. The transaction cost theory is based on the work of Ronald Coase (1937), but became most widely known by Oliver Williamson (1981), who argues that the development of efficient business institutions is based on the effort of individual economic subjects, to minimize costs incurred by transactions between each other and the market (Williamson 1981). The theory assumes opportunism among the actors and bounded rationality. Williamson argues that the three critical dimensions for describing transactions are uncertainty, frequency, and the degree to which transaction-specific investments are required to realize least cost supply (asset specificity).

In the piracy business, each attack, as well as any associated activity within the company, can be seen as a transaction. Rationally, one of the leading concerns of pirates is to lower their risks within each transaction in all three dimensions. The first dimension, uncertainty, could be identified as the risk of being caught before, during or after an attack. To lower this risk, pirates rely particularly on information, action plans, and proper equipment. In a group, many of these tasks and issues can be solved in-house or are sourced out, while individual pirates entirely rely on external providers and with that on environmental uncertainty. Nevertheless, a piracy group, like any other business, at least partly relies on external providers and on environmental uncertainty, too.

The second dimension, frequency, considers that a piracy group naturally plans for a repeated business. From this follows that pirates reinvest parts of their booty for future transactions. This internal process typically triggers the urge to protect or hedge the invested capital and effort within the transaction-partner relationship. The establishment of a piracy group, and therefore the vertical implementation in the hierarchy, assures the individual pirates that their investment is relatively safe, as they depend on each other.

Thirdly, Williamson argues that the final dimension, the asset specificity, is the most important one (Williamson 1981, 555). In the context of maritime piracy, the asset specificity can be identified as the availability of human capital, that is willing to engage in an extralegal activity, and the availability of specialized equipment, which is necessary to conduct boarding procedures. From this follows that the business of piracy relies on a set of various specialists who have to be recruited out of criminal networks. Due to the extraordinary character of a criminal enterprise, which naturally involves extra risks, the human assets are assumed to be opportunistic and thereby placed in a vulnerable position. The involved pirates risk their financial investments and simultaneously their freedom, due to the risk of prosecution. Consequently, the high specificity, and therefore the business of piracy, drives transaction costs up.

Finally, coordinating and contracting costs, within the piracy group as well as with competing groups in the region, account for the transaction costs and involve all three dimensions of Williamson. Therefore, the consolidation of individual pirates, as an attempt to minimize transaction-costs, can be seen as a kind of incorporation approach.

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¹ Between the years 2012 and 2016, not a single successful hijacking operation of Somali pirates has been reported (IMB Piracy Reporting Centre 2012-2017).

² In SE Asia and West Africa, several politically motivated groups take hostages or damage public facilities to express their protest against the political agenda of the regional government. These activities do not rely on a monetary business model and will therefore not be of further concern. However, piracy groups, which emerged from these rebellious groups, like the maritime part of the MEND Movement in Nigeria, will be assessed as professional piracy syndicates in the course of this study.

³ The hijacking of the MV Faina on 25th September 2008 lead to widespread public attention, as the Ukrainian flagged vessel carried Soviet-made tanks, heavy weapons, and ammunition. This incident, followed by a subsequent rapid increase in hijackings, triggered the academic debate on maritime piracy.

⁴ The Convention was signed in 1982 and ratified in 1994.

⁵ As stated in the United Nations Convention on the Law of the Sea, 1833 – 397, article 101 from 1982.

⁶ The visualized models have been developed as open source templates, which are publicly accessible on the internet. The models can be found on the website http://www.know-why.net by searching for the keyword “PECOBUS.”

⁷ Concerned soft factors are for example the prevailing cultural and social perception of criminal acts like piracy, the political intent to counter piracy, or the applied internal criminal governance structures of piracy companies.

⁸ The tool which has been used to visualize the cause and effect model is called iMODELER. More information about this software is presented in the following chapter. The software can be accessed in the internet: www.imodeler.info

⁹ The explorative character of this approach lies in the handling of the software, which facilitates the modeler to easily shift the focus of the factor-arrangement from one process to another. This playful method inspires new approaches to the subject and can provide further insights. Furthermore, the open-source character of the model allows fellow researchers to work with the model and to expand it in progress.

¹⁰ The process of weighing the factors was conducted by keeping the sum of all weights, which influence a particular factor, below or equal 100. By this method, the weights of the impacts can be interpreted as percentage values more easily.

¹¹ In this context, the naming of territorial waters includes the attached contiguous zone and the exclusive economic zone.

¹² The VIVA criteria have been introduced in chapter “2.1 Economics of Crime”.

¹³ In December 2015, the declaration has been revised, due to the decline of piracy in the area.

¹⁴ Discussions with a closer focus on the ethical assessment of this issue can be found in the work of Ingo Pies.

¹⁵ A more profound derivation and description of this function can be found in the corresponding study (Hallwood and Miceli 2013).

¹⁶ The factor opportunity cost represents the wage given up that could have been earned by a pirate in a legal job.