Non-kinetic Activities
Some of the non-kinetic responses aimed at cracking down on Al–Qaida fund-raising include a series of federal regulations that were designed to impose stricter requirements on financial institutions, the implementation of rules and guidelines by national and international regulatory and standards-setting organizations stressing the importance of due diligence KYC laws, as outlined by the FATF’s recommendations.145 Government-regulated official financial systems have tightened controls on bank-based money transfers across borders. Charitable organizations supporting Al-Qaida have been shuttered. Others have been hampered after being added to the UN list of organizations that support terrorism. These charities have been disrupted or deterred from continuing their activities.146
The government of Saudi Arabia “took some counter-terrorism measures immediately after 9/11,” but American authorities remain concerned about the ability of religious charities to support terrorism beyond Riyadh’s watch, as these organizations use money transfers to move funds to remote locations around the globe.147 The government of the UAE has taken some steps to regulate hawala transactions, requiring users to register and provide background information about the identity of the remitters and beneficiaries on forms submitted to the Central Bank.148 In Afghanistan, businesses that offer hawala services have to hold a license and report transactions to a financial intelligence agency that operates as part of the Central Bank.149
CONCLUSION
When thinking about the difficulty of countering terrorism financing in a globally connected, increasingly borderless world, consider the following: An Algerian citizen and AQIM member living in Spain with banks accounts in Palma de Mallorca in the name of an American company formed in Delaware transmitted funds to allegedly pay invoices for the services of an information technology company with branches in Holland and Germany. The invoices turned out to be false, while the Fiscalia of the High Court (Audiencia Nacional) in Spain determined that the money was transported to Algeria and Syria and used for “other purposes.”150 Financial crimes that support terrorism are increasingly occurring across countries, continents, cultures, and companies, spanning jurisdictions, legal regimes, and national governments in a complex web of transactions. Responding to this challenge requires a nimble, adaptive, and resilient counterthreat finance architecture that is willing to share information and relinquish sovereignty in some cases. According to Hoffman, “while bin Laden’s death inflicted a crushing blow on Al-Qaida, it is still not clear that it has necessarily been a lethal one. He left behind a resilient movement that, although seriously weakened, has nonetheless been expanding and consolidating its control in new and far-flung locales.”151
CHAPTER 8
The Islamic State of Iraq and Syria (ISIS): Building a Caliphate in the Levant
BACKGROUND
The Islamic State of Iraq and Syria1 grew out of its predecessor organization, Al-Qaida in the Land of Two Rivers or AQI, which itself was an outgrowth of a group named Jama’at al-Tawhid wali-Jihad (JTWJ), headed by Abu Musab al-Zarqawi.2 The group currently known as ISIS began metastasizing following the United States withdrawal of troops from Iraq in 2011 and continued to rest, rearm, and resupply its ranks until mid-2014, when it began its offensive throughout Iraq.3 In an effort to build up its operational and organizational capabilities, ISIS took advantage of chaos in neighboring Syria while gaining recruits as a result of the marginalization of Iraqi Sunnis by Iraq’s then-Prime Minister Nouri al-Maliki.
Under the Maliki regime, sectarianism intensified, pushing Iraqi Sunnis, many of whom were formerly associated with Saddam Hussein’s Baath Party, into the arms of ISIS.4 At the same time, foreign fighters from around the globe flocked to join the group, emboldened by its recent string of successful military victories and a slickly marketed media campaign unrivaled in its sophistication, technical prowess, and reach. The estimates vary widely, but some intelligence officials believe that there are currently approximately 15,000 citizens from 80 countries fighting with ISIS in Syria and Iraq, making it the most significant transnational jihadist conflict of all time.5 Fighters have traveled from far afield, including many fighters from the United States, various European countries, Australia, and even other countries not normally associated with global jihad, like Chile and Cambodia.
HOW ISIS FUNDED ITS ACTIVITIES
For the most part, ISIS is locally funded. Unlike other terrorist groups that rely on external state support, ISIS funds its operations through various crimes, ranging from oil theft to bank robbery to extortion. The group has been described as a “ruthless and entrepreneurial enterprise run by bosses determined to squeeze out every penny of profit.”6 Some estimates put ISIS’s daily income as of July 2014 at an astonishing $1 million per day.7 Another self-described “conservative” estimate of this group that has been described as having “built its organization using a financial strategy characterized by ruthless efficiency and pragmatism” is that ISIS will earn between $100 to $200 million this year.8
The group “inherited” tens of millions of dollars from the criminal activities it undertook while known as AQI, which was so well-endowed at certain points that Al-Qaida senior leadership was requesting that AQI kick up funds to core Al-Qaida in Pakistan, instead of the other way around.9 Indeed, during the insurgency against U.S. forces in Iraq, much of AQI’s logistical apparatus operated out of neighboring Syria, including the Abu Ghadiyah, network which was responsible for managing the flow of men, money, and material back and forth along the Iraqi–Syrian border.10 One report even suggested that ISIS militants paid for their English language Web site using the virtual currency Bitcoin, a claim which if true, could have serious implications for how the group’s financing is countered.11
Gray Economy
In an interesting twist, ISIS is now thought to be the most financially well-endowed insurgent group ever, though the group’s finances are almost exclusively raised and spent locally.12 To be sure, the lion’s share of ISIS’s funds is generated through the dark economy. However, as moneymaking ventures like the smuggling and trafficking of oil are curtailed, the group will inevitably be forced to broaden its aperture to focus more closely on raising money through the gray economy. If ISIS is able to maintain a hold on territory throughout both Iraq and Syria, this will provide more opportunities for it to generate money from fraud and perhaps even the establishment of legal businesses. To be sure, ISIS’s mafia mentality when it comes to finances ensures that its members will continue to engage in any activity necessary to keep the group fully resourced.
Diaspora Support
While perhaps not part of an Iraqi or Syrian diaspora in the traditional sense, ISIS has nonetheless managed to receive support from radical elements within the broader ummah, to include financial and logistical support from foreign terrorist fighter facilitators in countries including Georgia, Indonesia, Qatar, Kuwait, Turkey, and Jordan.13 Still, ISIS’s leadership realizes that funds donated from external states, wealthy patrons, and diaspora communities14 are more vulnerable to law enforcement than funds generated within Iraq and Syria. To date, there has been no evidence that the Syrian diaspora has been supporting ISIS with funding or material support.15
To the extent that one considers the Muslim diaspora worldwide, the vision of reestablishing some semblance of a caliphate has long appealed to young Muslim (mostly) men from the Middle East, North Africa, South Asia and many Western countries as well.16 This partly explains the large number of Westerners, especially Europeans, who have traveled to Iraq and Syria to join ISIS.17 As David S. Cohen, the Under Secretary for Terrorism and Financial Intelligence at the U.S. Treasury Department has noted, although ISIS does not rely heavily on donations from abroad to fund its operations, “as ISIL gains additional prominence in the global terrorist movement, we must be prepared for the possibility that wealthy extremists will increasingly seek to fund it.”18
Charities
The sheer magnitude of the funding provided by
some states to different groups in Syria is worth considering. For example, in addition to more than $300 million in Kuwaiti government grants, independent charities in that country raised $183 million for humanitarian aid work in Syria. As Dickinson observes, in what seems like somewhat of an understatement, “It is [also] possible that at least some private Kuwaiti donors do not know exactly where the funds they raise will be channeled, entrusting logistics to existing groups or donor networks who share their ideology or political views.”19
When operating under authoritarian regimes, many Islamic charities have demonstrated a predilection toward ambiguity and in some cases secrecy.20 But even more challenging than operating under the watchful eye of an authoritarian government is operating in an active conflict zone, as evidenced by the work of Islamic charities in places like Afghanistan, Chechnya, and the Balkans. In war-torn Syria, the truth about which charities are cooperating with specific groups may not surface for years to come, if ever. Although core Al-Qaida has historically eschewed social service provision, the Islamic State controls large swaths of territory, which could potentially allow the group to set up charities in areas it controls.21 If charities are established within insurgent-held territory, this could provide ISIS with another avenue to fund its activities, although such charities would be extremely vulnerable to disruption.
Fraud
In a country as chaotic as Iraq, the anarchic conditions provide numerous opportunities for fraud of various kinds. One fraud perpetrated by AQI was a real estate scam in which the insurgents stole 26 ledgers that contained the deeds to approximately $88 million worth of property, which were later resold.22 Furthermore, the insurgents likely take a cut from the various frauds connected to the fraudulent diversion of imported fuel and crude oil. As Williams notes, in 2005 alone, approximately 200,000 trucks entered Iraq from Turkey, which “provided all sorts of opportunities for abuse and exploitation, especially theft, fraud, and smuggling.”23 The insurgents also engaged in document fraud, which served as a facilitator of human smuggling and the trafficking of women in Iraq. The high levels of violence created a massive refugee problem and a market for those Iraqis who wished to flee the country. Forged passports and fake identifications could fetch in the tens of thousands of dollars.24
Legal Businesses
While much of the attention on ISIS activities in Iraq has focused on extortion and other criminal activities, the group’s involvement with legal businesses and front companies has received far less scrutiny. In Mosul in 2011, a dip in violence was in part attributed to the direct involvement of both ISIS (at the time known as ISI) and other jihadist elements with construction companies operating in the area.25 Indeed, ISIS has worked through front companies to conceal its activities for several years, beginning at some point in the mid- to late-2000s and continuing to the present day.26 ISIS has been able to insert itself into Iraqi owned businesses because of the group’s control of territory throughout northern Iraq. Its leadership is well aware that the massive revenues it earns from oil will not continue unabated.27 As such, it is seeking to diversify its portfolio across both the gray and dark economies in order to sustain the organization well into the future.
Money Laundering
The money the Islamic State generates from smuggling oil throughout Iraq and Kurdistan and into Syria, Jordan, and Turkey is laundered back into Iraq through trade-based schemes and informal financial institutions, including money exchanges like hawalas.28 While much is still unknown about exactly how the group is moving its millions, some anti-money laundering professionals have speculated that the group could attempt to keep its money “liquid,” as in cash form, or move it to gold. Moreover, even when ISIS moves its money into the formal financial system, it will attempt to obfuscate the origins of the money and will almost certainly insulate its leadership from being tracked by having a shadowy network of operatives, agents and front companies in its employ.29 In what amounts to a form of passive support for ISIS, states in the Persian Gulf with notoriously loose financial regulations (e.g., Kuwait, Qatar, and the UAE) essentially offered the militants a “tacit nod of approval” by allowing the group to take advantage of its poor money laundering protections.30 According to a 2013 U.S. Department of State Country Reports on Terrorism, “despite a strong legal framework, judicial enforcement and effective implementation of Qatar’s anti-money laundering/counterterrorist the financing of terrorism [sic] (AML/CFT)31 law(s) are lacking.”32
Dark Economy
In many ways, ISIS has benefited from its predecessor organization, AQI. But of all the capabilities inherited, the well-funded networks of raising money are perhaps the most important. Through KFR, armed robbery and theft, money gained from extortion and racketeering, as well as the sale of oil smuggled and trafficked across the region, ISIS has separated itself from the other jihadist groups fighting in Syria on a financial level. It remains likely that even if what small percentage of funding ISIS does receive from wealthy patrons in the Gulf dries up, the group is well positioned to keep earning money through a wide array of criminal activities.
Kidnapping for Ransom (KFR)
Although ISIS is perhaps most notorious for executing the individuals it kidnaps, in particularly gruesome fashion by beheading them and then sending the video around on social media, the group also relies on KFR as a form of revenue generation. This is not a new tactic, as AQI earned approximately $36 million a year by ransoming foreign reporters and aid workers it had kidnapped.33 ISIS has continued relying on this tactic for a number of reasons, including that it remains an activity with a low barrier to entry, but also because it is undeniably lucrative. In 2013, ISIS earned approximately $20 million from ransoms generated through kidnapping.34
In an effort to curb ISIS’s revenue from this tactic, the U.S. Treasury Department is attempting to gain broad consensus with other nations that adopting and implementing a no-ransom policy will help persuade terrorist groups like ISIS to jettison KFR as a means of raising money, since a no-ransom policy means no remuneration from groups and perhaps opprobrium from those who might criticize the group as illegitimate for preying on civilians.
Armed Robbery and Theft
Perhaps the most legendary tale of ISIS’s sudden rejuvenation is the armed bank robbery of Mosul’s central bank that allegedly netted the group approximately 500 billion Iraqi dinars, or $425 million dollars. In addition to the money, ISIS fighters also pilfered large quantities of gold bullion.35 Without even considering ISIS’s finances from the range of other rackets described within this chapter, the Mosul heist immediately made the group the richest terrorist outfit in history.36 Robbery has helped make the group financially independent, while helping improve its ability to pay its fighters and further expand its territory throughout both Iraq and Syria. In Aleppo, ISIS has made money from stealing industrial machinery from plants and factories and selling them on the black market.37
Throughout the areas it occupies, ISIS has stolen livestock and crops from farmers.38 In the lead up to the Anbar Awakening, many prominent scholars believe that it was AQI’s heavy reliance on criminal activities, including robbery and theft from the Iraqi population in the country’s Anbar province that led Sunni tribal sheikhs to turn against the group and begin working with the Americans to provide intelligence and then manpower to combat the insurgents.39 If the coalition of nations aligned against ISIS is able to significantly curtail the group’s financing, especially the money it earns through the smuggling and trafficking of oil, the militants may find themselves faced with the difficult decision to make do with much less or to return to the predatory forms of criminality that caused the Iraqi Sunni tribes to turn against it back in the late 2000s.
Smuggling, Trafficking, and Counterfeiting
A significant portion of the money raised by ISIS between June 2014 and September 2014 came from the group’s capture of key oil fields and refineries in northeastern Syria as well as parts of Northern Iraq, in addition to its control of key ar
terial roads and other centers of commerce.40 Indeed, the smuggling and trafficking of oil—which is smuggled out in tanker trucks before it is sold on the black market in Turkey and Syria (including to the Assad regime)—provides ISIS with tens of millions of dollars of steady funding each month. ISIS sells crude at a discounted price of between $20 to $35 a barrel to either truckers or middlemen.41 The money ISIS has earned from the sale of oil has helped the group “to establish a significant level of self-reliance and financial autonomy,” notes Keatinge.42
The territory ISIS controls, as of late 2014, had a total production capacity of more than 150,000 barrels per day, although actual production was estimated to be much lower than that.43 When ISIS takes over a refinery, it keeps the technical workers in their jobs and replaces the top management with its own people.44 The black market oil smuggling routes are well-established, dating back to the reign of Saddam Hussein and the oil-for-food scam he ran in response to sanctions.45 In addition to oil, ISIS has made money trafficking antiquities46 and kidnapped women from minority communities.47
Extortion and Protection
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