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June 11, 2015

ISIS, Where Mafia Meets the IRS

In the last year, a once-obscure extremist group has overrun some of Iraq’s major cities, seized control of oil wells, industries and banks and emerged as the world’s richest and most feared terrorist force.

Despite nine months and $2.44 billion in U.S. airstrikes against the fighters and their oil facilities and smuggling networks, the self-proclaimed Islamic State has proven to be as resilient financially as it’s been militarily.

The group that President Barack Obama dismissed in January 2014 as a junior varsity team last year seized an estimated $675 million from banks, plus $145 million in oil sales and ransom payments and tens of millions more from other commercial enterprises, looting and extortion, according to U.S. Treasury and United Nations figures.
“This isn’t your average terrorist group operating from your average safe haven,” said Juan Zarate, a former assistant secretary of Treasury for terrorist financing and financial crimes who spent years targeting al-Qaeda funding. “They have access to oil in Iraq and Syria; access to major population centers; access to banks, antiquities and smuggling groups -- all of that allows them to be more agile and have access to more capital and resources than your average terrorist group.”

U.S.-led airstrikes against oil refineries and tanker convoys, coupled with lower crude prices, have cut Islamic State oil revenue by as much as two-thirds, but the group has shifted to demanding higher taxes, fees and “protection money” from people and businesses.

It’s also plundering everything from phosphates and grain to jewelry and antiquities and confiscating property and land, according to 12 current and former U.S. officials and several experts on terrorist financing.

No Accurate Estimate

U.S. Treasury and intelligence officials say they don’t have an accurate estimate of what the group is now earning, and caution that guesstimates by outside analysts are based on limited information and outdated assumptions.

“The truth is nobody really knows how much they’re making now,” said Daveed Gartenstein-Ross, a senior fellow at the Foundation for Defense of Democracies. “The U.S. government is getting closer to pegging the group’s finances because of things like last month’s raid in eastern Syria. But no one knows how much they’re getting versus their spending.”

Islamic State “is in some ways a proto-state, in some ways a terrorist organization, in some ways an insurgency and in some ways a transnational criminal group,” he said. Like drug cartels in Colombia and Mexico and al-Qaeda offshoots in Somalia, northern Mali and Yemen, the group is extorting taxes, plundering local resources and taking a cut of commercial enterprises, he said.

Terrorist Tax Base

Jacob Shapiro, a professor at Princeton University, said the challenge for U.S. policy is that Islamic State is “not as vulnerable as other transnational terrorist groups because they have a tax base. As long as it holds territory, it can tax and raise revenue. Think of them as a small economy with no central bank and no currency.”
Islamic State, also known as ISIL or ISIS, has taken over banks, natural resources and agriculture, and is expanding its looting of antiquities and private property and its protection rackets, demanding 5 percent to 20 percent taxes on salaries, plus fees for a range of economic activities, U.S. officials say.

“ISIL extorts money in connection with everything from fuel and vehicles transiting ISIL-held territory to school fees for children, all under the auspices of providing notional services or ‘protection,’” Jennifer Fowler, deputy assistant secretary of the Treasury for terrorist Financing and financial Crimes, said in a speech at the Washington Institute for Near East Policy.

‘Back-Door Banking’

The group siphons money from Iraqi government employees who leave Islamic State territory to get their paychecks. It also has established “back-door banking” in places outside its control, including the Iraqi Kurdish city of Kirkuk.

Matthew Levitt, a former deputy assistant secretary of Treasury, cited cases of funds being deposited -- often by aspiring foreign recruits -- in bank accounts in the U.S., European Union or elsewhere, and then immediately withdrawn from a bank just outside Islamic State territory. Saudi Arabian officials have reported the group soliciting money through online media such as Twitter and Skype and receiving prepaid purchase cards.

“To date, the amount of outside financial support is minimal in comparison to their revenue-producing activities” in areas controlled by Islamic State, said Gerald Roberts, who leads the FBI’s global terrorist financing investigations. Still, “by ‘following the money,’ we are not only able to identify individuals and networks who are financially supporting ISIL, but it also enables us to identify foreign fighters and aspirant travelers before they depart the U.S. and other countries.”

‘Achilles Heel’

Levitt, director of the Washington Institute’s program on counterterrorism and intelligence, said Islamic State’s “Achilles’ heel” may turn out to be having “more expenses than they can cover. While it’s true they’re the best-financed terror group we’ve seen, they’re still an insurgent group, and they have a lot of expenses.”

Moreover, the money seized from banks in Mosul and elsewhere isn’t being replenished, and its revenue from black-market oil sales is diminishing, according to U.S. officials.

Already, the group’s “revenues are insufficient to fund the several-billion-dollar annual budget that the government of Iraq had previously allocated” to territories that Islamic State now controls, Fowler said.
Better Picture
A U.S. raid in Syria last month that seized laptops and mobile phones belonging to an Islamic State financial officer known as Abu Sayyaf is helping the U.S. get a more detailed picture of where some of the money comes from and how it’s spent, according to State Department and Treasury officials.

“In the recent raid on Abu Sayyaf, we collected substantial information on Daesh financial operations,” Marine General John Allen, the presidential envoy for the coalition against Islamic State, said last week in Doha, Qatar, using an Arabic name for the group. “We’re gaining a much clearer understanding of Daesh’s organization and business enterprise.”

Still, said Zarate, “there’s not a magic button for Treasury to push that will allow us to constrict the budget of Islamic State” short of retaking its territory and resources. “The reality is we have to dislodge this group.”

Source: First Enercast Financial

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