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Somali pirates laundering billions in Kenya ‘miraa’ trade

By Standard Reporter | November 5th 2013
Al Shabaab militia. Substantial amounts are invested in funding militias, migrant smuggling and human trafficking.

By Standard Reporter

Kenya: Pirates have secretly invested part of the Sh35 billion ransom in the lucrative miraa trade in Kenya, a new report has revealed.

Over seven years, the dirty cash from piracy in Somalia has fuelled criminal activities including funding militia like the Al-Shabaab terrorist group that killed over 70 people in the Westgate Mall attack.

But financiers of piracy have “cleaned” the dirty cash by investing in miraa trade in Kenya, which is largely unmonitored by government, in miraa trade in Kenya, which is largely unmonitored by government, says the report by the World Bank, Interpol and the United Nations Office on Drugs and Crime released Monday.

The study says much of the ransom is not being “cleaned” through the real estate sector in Kenya, as is widely believed, but mainly through the miraa trade, which is most vulnerable to illicit international cash flow.

An estimated US$339 million (Sh28.96 billion) to US$413 million (Sh35.3 billion) was paid in ransom between April 2005 and December 2012, according to the report.

“Ransom was laundered through the khat trade, particularly in Kenya, where it is not monitored and therefore is the most vulnerable to illicit international flows of money,” says the report titled Pirate Trails: Tracking the Illicit Financial Flows from Pirate Activities off the Horn of Africa.

Dirty cash

It added that the ‘dirty’ cash was invested in criminal activities such as arms trafficking, funding militias, migrant smuggling and human trafficking, and was used to further finance piracy activities.

“Given the lucrative nature of the khat trade, which is a predominantly cash-based business, the culture of khat chewing in Kenya and Somalia, and control that Somali nationals have over the distribution network of the khat trade, there is evidence suggesting that pirates are increasingly buying into this network,” the report says.

It added: “It is not surprising that the khat trade is partially funded by ransom money from pirates. While pirates buy the khat for consumption purposes, several pirate financiers are also investing in it.” 

The report says pirates have bought into the vast and highly lucrative miraa distribution network in the region, which moves the commodity from Kenya to almost all corners of Somalia and other countries in the region. 

The network, which is efficient in distributing the highly perishable miraa, involves many players, including the farmers who grow the commodity, the middlemen who buy khat in markets in Kenya, drivers who are responsible for ensuring its swift delivery, and local carrier companies that fly it into Somalia and other foreign airports.

“The concern is that pirates are buying into the khat trade and using it as a way to launder the proceeds of piracy underpinned by control that Somalis have over the distribution network of the khat trade,” said Stuart Yikona, a World Bank Senior Financial Sector Specialist and the report’s co-author.

According to a United Nations report on piracy published in 2011, one of the fathers of piracy, Mohamed Abdi Hassan (also known as Afweyne), who has publicly retired from piracy, invested heavily in the khat trade. Pirate warlord Isse Yuluh was also reportedly engaged in the khat business.

The report says that unlike in Kenya, miraa trading is well monitored in Djibouti and Ethiopia, where the likelihood of money laundering is significantly lower than in Kenya.

Traditionally, Kenya has been the major supplier of khat to neighbouring Somalia.

It is estimated that about 3,000kg of miraa is flown out of Kenya three times a day to Mogadishu throughout the year. Therefore, about 3.285 million kilogrammes of khat is exported annually to Mogadishu alone, making the trade highly attractive to pirates with dirty cash. 

“Given the predominant cash-based nature of transactions in the khat business, it is easy for pirates to buy into the business and for ransom money to be laundered through the khat trade,” said Yikona.

The report recommends robust monitoring of the miraa trade and its distribution in Kenya and Somalia, saying the lack of transparency of the miraa business in Kenya makes the business susceptible to abuse by criminal networks.

At the same time, the report has downplayed earlier fears that had gripped Kenyans that piracy money was being invested in the real estate sector in the country and fuelling the sharp rise in prices.

It said that a review of data from both the formal and informal economy indicates that the increase in the price of houses appears more likely to be due to a number of factors unrelated to piracy.

Available data

“Analysis of the available data shows that bank credit and remittances from the diaspora are major sources of finance in the purchase of real estate in Kenya and elsewhere in the region.

It added: “ It is the study’s finding that the money pirates made between 2005 and 2012 is a drop in the ocean compared to the bank credit and remittance flows into the real estate sector. In Kenya, for example, the annual bank credit to the real estate sector was US$491 million. Consequently, the ransom payments cannot influence the property prices, as is suggested by many.”

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