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How Islamic State became ‘the best-funded terrorist group in history’

by Dmitriy Shapiro/JNS.org/Washington Jewish Week

September 4, 2014 | 11:51 am

<em>U.S. Sens. Bob Casey and Marco Rubio (pictured) wrote in a letter to Secretary of State John Kerry that the Islamic State’s "criminal activities—robbery, extortion, and trafficking—have helped the organization become the best-funded terrorist group in history." The senators called for the Obama administration to target all aspects of Islamic State’s operational funding, and for the Treasury Department to classify the terror group as a Transnational Criminal Organization (TCO). Photo by Gage Skidmore via Wikimedia Commons.</em>

U.S. Sens. Bob Casey and Marco Rubio (pictured) wrote in a letter to Secretary of State John Kerry that the Islamic State’s "criminal activities—robbery, extortion, and trafficking—have helped the organization become the best-funded terrorist group in history." The senators called for the Obama administration to target all aspects of Islamic State’s operational funding, and for the Treasury Department to classify the terror group as a Transnational Criminal Organization (TCO). Photo by Gage Skidmore via Wikimedia Commons.

After months of rampaging through Iraq and stoking international fears that the Islamic State terrorist group could spread, a combination of Iraqi and Kurdish security forces, aided by targeted United States airstrikes, appear to have pushed back the self-proclaimed caliphate’s rampage in the region.

Yet Islamic State’s potential reach and brutal tactics continue to worry lawmakers and analysts. The terrorist group, experts say, has managed to brilliantly leverage its acquisitions—including land grabs, hostages, and oil—in a style that is part mafia tactics, part bureaucratic wile. So far, the group continues to be well-armed, flush with cash, and in possession of American and European captives.

Even with the U.S. Senate in recess, Sens. Bob Casey (D-Pa.) and Marco Rubio (R-Fla.) sent a joint letter to Secretary of State John Kerry on Aug. 26, calling for the Obama administration to target all aspects of Islamic State’s operational funding and to have the Treasury Department classify the group as a Transnational Criminal Organization (TCO).

“[Islamic State’s] criminal activities—robbery, extortion, and trafficking—have helped the organization become the best-funded terrorist group in history,” the senators wrote. “This wealth has helped expand their operational capacity and incentivized both local and foreign fighters to join them.”

Islamic State is an offshoot of al-Qaeda in Iraq. Islamic State’s extreme viciousness led al-Qaeda to cut ties with it. According to Thomas Joscelyn, senior fellow at the Foundation for Defense of Democracies (FDD), most of al-Qaeda’s deep-pocketed, Gulf-based terrorism financiers remained with the parent organization, forcing Islamic State to adopt unorthodox fundraising methods.

At first glance, the senators’ request that the Obama administration cut off Islamic State funding sources looked to some like political posturing. Islamic State, after all, was classified by the State Department as a Foreign Terrorist Organization in 2004 and its assets within America’s control were frozen. That designation further established sanctions for cooperating economically with the terror group. With the U.S. in open conflict with Islamic State, is there really more to be done to choke off Islamic State’s cash flow?

“I think there are [additional] things we can do to try and cut off the funding; it’s really hard,” said Austin Long, assistant professor in security policy at Columbia University’s School of International and Public Affairs. “Even when there were 100,000 U.S. troops in Iraq at the height of the surge, we couldn’t cut off all the funding to al-Qaeda in Iraq, the predecessor of the Islamic State.”

When a group is designated a TCO, its operations are restricted, as outlined in Executive Order 13581, which prevents members of TCO-designated organizations, and those aiding and abetting them, from transferring, paying, exporting or withdrawing assets in the U.S. “or in an overseas branch of a U.S. entity”—essentially the same barriers currently facing Islamic State.

Some of the groups presently listed as TCOs include: The Brothers’ Circle (Eurasia), Camorra (Italy), Yakuza (Japan), Los Zetas (Mexico), Yamaguchi-Gumi (Japan), and Mara Salvatrucha (El Salvador).

Sens. Casey and Rubio are part of a larger group of lawmakers pushing to include the Lebanon-based terrorist organization Hezbollah under the TCO classification through the Hezbollah International Financing Prevention Act. The bill was passed unanimously by the House in July and is currently awaiting approval from the Senate Committee on Banking, Housing and Urban Affairs.

Jonathan Schanzer, vice president for research at FDD and a former terrorism finance analyst at the U.S. Treasury Department, said that the TCO designation would allow for a broader scope to investigate and cut off Islamic State’s funding sources.

“It allows the intelligence community to work with a broader array of actors to counter [Islamic State], and it allows for the FBI to have a greater role as well,” said Schanzer. “It basically widens the ability of the United States government to act on multiple levels with multiple players—inside and outside the United States. If it’s considered a criminal organization, the FBI can look into whatever assets may be here. So, in other words, it becomes a warfare issue as well as a criminal one.”

Operating like an organized-crime family, Islamic State has surprised—and even, in a dark sense, impressed—the international community with its numerous, creative methods to fund itself.

“The common assumption has been for a long time, and I don’t know where it comes from, but there are a lot of people who have surmised that Islamic State’s funding comes from various Gulf individuals or a number of different Gulf governments including Qatar and Kuwait,” said Lee Smith, senior fellow at the Hudson Institute. “This is not true. There has been some money in the past but this is not the main source of Islamic State’s funding. The main source of funding comes from the fact that Islamic State sells oil on the black market. That’s the number-one source of income. The number-two source of Islamic State’s income is its extortion rackets in towns it runs —and it runs a few, including Raqqa in Syria and Mosul in Iraq, which are both fairly large Arab cities.”

Islamic State’s most profitable venture is the selling of oil that is produced in areas under the group’s control. Two of its biggest oil wells are located in a region it occupies in northern Syria—the cities of Deir ez-Zor and Raqqa. Upon occupying an oil field or oil-producing city, the group makes the local populace an offer it can’t refuse, said Columbia’s Long.

“That’s what they try to do. People don’t always cooperate, but in general, if somebody says, ‘We’re going to keep paying your salary, just keep showing up for work’ and the alternative might be something bad happens to you, then you can either keep showing up for work or you can become a refugee, and I think a decent number of people don’t want to become refugees understandably,” Long said.

Much of the oil is then sold internally, to the Syrian and Iraqi residents of Islamic State-occupied territories.

“People have lots of cars,” said Long. “Iraq is just like every modern country, but in some sense is more dependent on it. You need trucks to move food around—without gasoline, the economy grinds to a halt.”

The rest of the oil is smuggled out and sold abroad and, surprisingly, some of the buyers include governments that are fighting Islamic State—such as Syria and Turkey.

“That’s a pretty typical feature of Arab warfare,” said Smith. “People make all sorts of deals with all sorts of different people.”

Determining who exactly is bypassing sanctions and buying oil from Islamic State sources—or even exactly how much of it is being bought—is difficult to determine. The oil is sold on the black market and transported by smugglers to refineries located mostly in Turkey.

“The oil could be going across the border in Turkey, and the Turks maybe aren’t asking too many question about who it comes from, hypothetically, because of course it won’t be necessarily somebody waving the Islamic State flag that drives the tanker truck across the border,” Long said.

Once the crude oil gets to a participating refinery, it is mixed with crude from other sources, making the final product even harder to trace. Just as difficult to track are the proceeds, mostly in cash, which make their way into the hands of middlemen, smugglers, and corrupt politicians as kickbacks.

What makes this oil attractive to even those at war with Islamic State are the vastly discounted prices offered. According to a recent estimate by BBC News, Islamic State exports about 9,000 barrels of oil per day at prices ranging from about $25-$45 a barrel—a significant discount from the current international price of around $100 per barrel. With prices so low, both Islamic State and its enemies win from the transaction.

Islamic State’s second major source of funding comes directly from the population it controls, coming in forms such as religiously mandated tithing called “zakat,” tributes from religious minorities who remain in Islamic state-controlled territory, bank robbery, and mob-style protection rackets.

“So you go to a business and you’re like, ’Oh, it would be a shame if something terrible happened to this nice business,’” Long said.

Yet another, more sinister Islamic State fundraising strategy—kidnapping Westerners—has been at the forefront of the public consciousness since the beheadings of American journalists James Foley and Steven Sotloff. Opponents of paying the ransoms demanded by groups like Islamic State say that doing so incentivizes those groups to continue kidnapping. Official U.S. policy is not to pay ransoms to terrorist organizations in return for hostages.

Before video of his beheading was released Tuesday, Sotloff was one of four Americans currently being held by Islamic State. Experts believe ransoms make up the smallest part of the terror group’s budget.

“There are lots of uses for [captives] and in the worst-case scenario, you can use them for propaganda,” Long said. “That’s why I think it’s not something they (Islamic State) necessarily count on, but it’s a nice bonus.”

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