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Another Hijacking off Somalia Keeps World's Weirdest Stock Market Moving

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"Investors" in Somalia fund pirate missions and share in the spoils after ransoms are paid.

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Somali pirate hijackings are financed by what may well be the world's most unusual "stock market."

A pirate interviewed by Canada's National Post says that, in Haradheere, 250 miles northeast of Mogadishu, brigands set up an exchange of sorts to fund their activities.

"Four months ago, during the monsoon rains, we decided to set up this stock exchange. We started with 15 'maritime companies' and now we are hosting 72. Ten of them have so far been successful at hijacking."

He explained that, "The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials."

After a ransom payout for releasing a Spanish vessel, "investor" Sahra Ibrahim, was lined up outside the exchange waiting for her cut.

"I am waiting for my share after I contributed a rocket-propelled grenade for the operation," she said. "I am really happy and lucky. I have made $75,000 in only 38 days since I joined the company."

On Monday, the UAE-owned, Panama-flagged merchant ship MV Orna, was seized by pirates 400 nautical miles northeast of the Seychelles.

Between June and September, the number of hijackings drops, as monsoon season makes it difficult for pirates to operate the small skiffs used in attacks. Come autumn, the attacks begin once again, which are so frequent that Frontline Ltd. (FRO), the world's largest operator of oil supertankers, which transports cargo for companies including ExxonMobil (XOM), BP (BP), and Chevron (CVX), has in the past considered avoiding the Gulf of Aden altogether.

Pirates know that the value of the ship and its cargo are usually worth far more than however much they are demanding, and a few million dollars is a drop in the bucket in relative terms for the ship operator. Whatever risks there are -- the international task force of naval vessels patrolling the area, for one -- the risk of not collecting a ransom is lowered still, as "Kidnap & Ransom" insurance today seems to be the rule, not the exception. K&R insurance is not something generally offered by the Aetnas (AET) of the world; it's a highly-specialized slice of the overall insurance industry and is only available through a handful of companies like Lloyd's of London, which wrote the world's first K&R policy in 1932 after the kidnapping of the Lindbergh baby.

Here's how it works. In the event of a pirate attack, the vessel's crew contacts company headquarters, which in turn, contacts its insurance company, which in turn, contacts a security firm, which then begins negotiations with the hijackers.

James Wilkes of maritime risk company Gray Page, likens this to a "tense boardroom negotiation."

"A commercial transaction is probably a good way to describe it," he tells the BBC. "They have hijacked the ship, the crew and its cargo and they want a certain amount of money for its release."

In most cases, there are no laws to prevent a ransom from being paid by a private entity.

"Paying ransoms is not illegal," Guillaume Bonnissent, a special risks underwriter for Hiscox Insurance Co. Ltd, which writes about two-thirds of the world's kidnap-and-ransom insurance policies, tells Time magazine. It is, however, illegal for insurance companies themselves to pay ransoms, which is why Control Risks and others make the payments. "K&R is really reimbursement," Bonnissent said. "We reimburse clients for ransoms paid."

"The money is concealed in large floating plastic containers, and flown by air and dropped," says Mike Regester, an insurance broker for Cooper Gay. "Then the pirates go out and pick it up," he says.



Though the 24-nation Combined Maritime Forces patrol as effectively as possible, "The number of forces is never going to be enough to guarantee protection," a spokesman for the CMF told Bloomberg. "Pirates are opportunists who will seek the easiest target available."

In the event a ransom is paid in person, the one couriering the cash could wind up being that target.

As risk consultant Darren Dickson, whose firm has arranged several payments to pirates, says, "Some of these people who have done these drop offs by boat actually have to fend off pirates as they are delivering the ransom themselves."
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