Friday, December 18, 2015

Funding the Islamic State

A study by the Congressional Research Service looks at the source of funding that keeps the Islamic State functional.  Since ISIL has taken on the task of acting like a government in the regions that it has seized, it must have access to funds to provide its leadership and followers with both the materiel needed to fight their ongoing hostilities as well as offering services to the civilians who live in the regions that it controls.

The study opens by noting that ISIL has been able to limit its exposure to the international financial system by raising funds largely within the territory that they have conquered; this also means that ISIL has been able to fly under the radar of the world's government-based intelligence network, making it almost impossible for the West to combat this new type of terrorist financing.  This has made it very difficult for the West to slow ISIL's rate of growth since their funding cannot be cut off at the source as in the past with al-Qaeda and other terrorist groups.  Within the areas that it holds, the Islamic State controls a variety of both resources and public infrastructure in its wide-ranging income-generating portfolio as you will see in this posting.

Let's open with a map that shows the types of infrastructure and resources in ISIL's area of operation:

Here is a listing of the main sources of funding for the Islamic State:

1.) Oil and Natural Gas Sector in both Syria and Iraq:  I have posted on this source of ISIL funding  previously here.  Prior to the civil war in Syria, the government was producing approximately 400,000 BOPD from its feels in the eastern part of the nation with about 150,000 BOPD being exported to Europe and Turkey.  Since hostilities began, Syria's oil production has fallen to about 20,000 BOPD as its infrastructure has sustained significant damage in the months between March 2011 and June 2014.  The Islamic State also controls a number of relatively small oil fields located in northern Iraq and added the Baiji refinery to its assets when it was captured in June 2014.  This refinery has the capacity produce 170,000 BOPD of petroleum products, however, during the five month period that it was under ISIL control, it produced at significantly lower volumes.  ISIL also has small mobile refineries that are capable of producing 300 to 500 BOPD of petroleum products that are used to fuel its own military movements.  ISIL's oil-related activities generated as much as $1 million daily but, after sustaining significant damage, it is estimated that ISIL's oil infrastructure now generates several million dollars weekly. 

2.) Antiquities:  Analysis suggests that ISIL's second largest source of income is from the looting and sale of antiquities looted from the regions that the group controls.  These antiquities are stolen from national museums, storage depots and private collections as well as from newly excavated archeological sits.  It is estimated that one-third of Iraq's archeological sites are under ISIL control; the Islamic State is reportedly granting excavation sites along the Euphrates River in Syria and overseas their excavations.  In the city of Manjbi, ISIL has established an office which handles antiquities and supplies metal detectors to prospective treasure hunters.  The antiquities are sold to approved dealers who sell the goods in U.S. dollars after a tax of between 20 and 50 percent is paid.  As of early 2015, nearly 100 looted Syrian artifacts have been smuggled into the United Kingdom; these include Byzantine coins, Roman pottery and glass objects.  Some estimates suggest that the total volume of illicit trade in antiquities exceeds $100 million annually, however, some of the antiquities are also being sold by the Syrian government, Free Syrian Army and other Islamic militias.

3.) Taxes, Extortion and Asset Seizure:  A report by the Financial Action Task Force found that ISIL funded itself through extortion rackets in its areas of operation.  The group "manages a sophisticated extortion racket by robbing, looting, and demanding a portion of the economic resources in areas where it operates, which is similar to how some organized crime groups generate funds."  ISIL uses relatively sophisticated and formalized internal financial management techniques  by even providing receipts for levies that are paid.  Here are some of its key activities:

a.) Bank Looting:  ISIL now derives a significant portion of its wealth by controlling the bank branches in the regions where it operates.  The cash at state-owned banks are considered to be ISIL property while the cash at private banks remains in vaults and is taxed at 5 percent by ISIL when it is withdrawn fly the bank's customers.  It is estimated that ISIL has either generated or has access to at least $500 million in cash as a result of its control of the banking sector in four provinces of Iraq (Ninevah, Al-Anbar, Salah Din and Kirkuk).  Much of this cash is denominated in the local currency (dinar) making it difficult for ISIL to use it outside of Iraq.   

b.) Human Trafficking: ISIL primarily targets women as a source of revenue; women are kidnapped and bought and sold in ISIL "slave auctions".  Prices paid are relatively low (approximately $13 US) so this is not a particularly lucrative fund-raiser for ISIL.   ISIL has even generated a "suggested retail price listing" for its slavery business as you can see here:

                A woman aged 40 to 50 years is sold for 50,000 dinars.
                 A woman aged 30 to 40 years is sold for 75,000 dinars.
                 A woman aged 20 to 30 years is sold for100,000 dinars.
                 A girl aged 10 to 20 years is sold for 150,000 dinars.
                 A child aged 1 to 9 year, is sold for 200,000 dinars.
For your information, one Iraqi Dinar equals 0.00087 U.S. dollars or, conversely, one U.S. dollar is worth 1155 Iraqi Dinar.

c.) Customs and Passage Fees: ISIL controls some key border checkpoints, allowing the group to charge fees from those who seek to transport goods in or out of ISIL-held areas.  Drivers reportedly pay between $200 US and $1000 US in fees and bribes to move goods into ISIL territory.  A similar process exists for smuggling persons across the Turkey - Syria border.

d.) Business Taxes: Individuals who seek to do business in ISIL-held territory pay a percentage of their earnings to the group; for example, in the case of pharmacies in Mosul, they are taxed at between 10 percent and 35 percent of the value of drugs sold.  The Islamic State also taxes farmers and shopkeepers, describing the fees as zakat or "obligatory charity", an obligation for all Muslims who must pay annually to help the poor in their community.  Interestingly, ISIL charges a monthly tax on students who attend school in cities under its control; $22 for elementary school, $43 for secondary school and $65 for university.

e.) Utilities Tax: Since ISIL controls the infrastructure in some regions, they can demand payment for utility services that they provide.  In Raqqah, ISIL charges business owners $20 on a bimonthly basis for providing electricity, water and security.

f.) Religious Tax: ISIL has imposed jizyah, an extra tax imposed on non-Muslims (particularly Christians) who live under Muslim rule, according to the rules of the Quran.  Jizyah is imposed once a land is conquered by Islamic armies and is paid as a sign of submission, giving non-Muslims legal protection in return.  Some reports state that Christians had to pay one half ounce of gold to secure their protection and in others, jizyah amounted to a few dollars monthly.

4.) Kidnapping for Ransom:  ISIL has generated between $35 and $45 million in ransom fees in 2014 alone, according to the United Nations.  The victims are usually local residents, however, ISIL has included foreign aid workers and journalists.  In the case of American journalist James Foley, a ransom of $132.5 million US was demanded.  France has reported paid $18 million for four of its captured journalists in April 2014.  While the United States and United Kingdom governments refuse to pay ransom as a matter of policy, other European nations have paid ransoms to ISIL under the guise of "development funding".

5.) External Support:  Externally generated funding of ISIL is relatively small with estimates that the Islamic State accumulated up to $40 million in funds from donors in Saudi Arabia, Qatar and Kuwait in 2013 - 2014.  Some of the groups foreign fighters also receive funding from their home nations.

6.) Agriculture: By seizing the land along the Tigris and Euphrates Rivers, ISIL now controls significant portions of Iraq's most agriculturally productive lands.  One study estimates that the selling of ISIL-controlled wheat and barley on the black market could generate roughly $200 million annually, even if the goods are sold at half price.  By mixing their agricultural products with products from other regions of Iraq that are not under the control of the Islamic State, ISIL can "launder" the origins of any harvests that they are trying to sell.  ISIL now controls about one-third of Iraq's wheat and 40 percent of Iraq's barley.  Silos taken over by ISIL in northern and western Iraq in the summer of 2014 enabled the militants to acquire 1.1 million tons of wheat, roughly 20 percent of Iraq's annual wheat consumption.  

Let's close this posting by taking a quick look at what ISIL does with its money.  In early 2015, ISIL approved a $2 billion budget for the year with a surplus of $250 million, an enviable fiscal position indeed!

1.) Salaries:  ISIL pays its fighters between $400 US and $600 US monthly with married fighters getting an extra stipend.   Iraqi and Syrian government workers who still work for their governments in ISIL-controlled areas are still paid by their respective governments, however, when the government employees withdraw their salaries in cash, ISIL taxes the withdrawals at rates of up to 50 percent.

2.) Infrastructure:  ISIL must maintain and repair infrastructure in the regions that it controls, particularly infrastructure that provides electricity and water.  ISIL issued three tenders in late 2014 for the installation of aerial cables between power substations in eastern Syria.

3.) Social Welfare:  ISIL's leadership has emphasized that the group must provide services to the civilian population under its control.  It covers mostly subsistence expenses for poor, disabled, orphaned and widowed civilians, runs schools, Islamic courts, a Consumer Protection Authority, local police forces, food kitchens and other social projects that are unrelated to the group's military objectives.

As I noted at the beginning of this posting, unlike other terrorist groups, ISIL is able to self-fund within the territory that it controls.  Unlike other terrorist groups like al-Qaeda, it does not rely on donations from wealthy individuals or foreign Islamic charities since it functions more-or-less like a government.   This factor is what will make it difficult to choke off its sources of funding; until the regions that it holds are recaptured, the Islamic State is quite capable of funding its own operations since it works beyond the control of the Western governments that have traditionally been able to cut off the supply of funds to other terrorist groups.

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