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Writer's pictureCodex Compliance

Terrorist Financing - The Practices of Islamic State.

Updated: Oct 9, 2019

//a bit out of date but generally still accurate with some missing bits - I will do an update when I get a minute.


Introduction


Islamic State is the collective term for Islamic State of Iraq and the Levant (ISIL), and Islamic State in Syria(ISIS). They are also known as DA’ESH or DA’ISH, an acronym for its name in Arabic. They are now the worlds most renowned Terrorist group and have shaped a new twisted form of terrorist organisation, uniquely independently well-funded, organised with ever-growing reach and influence. Once known as al-Qaeda in Iraq and established in 2004 by Abu Mus’ab al-Zarqawi, they initially officially backed Al Qaeda and Osama Bin Laden (nctc.gov, 20xx). Now they stand alone as the greatest terrorist threat to the democratic rule of law in many countries.


In line with the jihadist ideology of Al Qaeda, the goal of transforming international politics and establishing a caliphate in the middle east lies in the base jihadi belief that the world is divided into true followers of Allah and non-followers. Islamic State wish to bring about an absolutist revolution, waging a holy war against the west (and anyone else they deem to be non-followers or supporters of the US) to achieve their goal of controlling a territory once ruled by Muslims Caliphs and to govern this state in accordance with their exacting version of sharia law. (Key Issues in International Terrorism, 2016)


Image: Hizir Kaya / Unsplash

Their growth and international following is on a scale unlike any group before it, attracting Foreign Terrorist Fighters from around the world. They have spread outside of Iraq and Syria, into Pakistan and Afghanistan, Algeria, the Caucasus, Egypt, Libya, Saudi Arabia, West Africa, and Yemen (nctc.gov, 20xx).


Islamic State and its factions were active in 15 new countries, bringing the total number of

countries they were active in to 28(nctc.gov, 20xx). In 2015 Europe saw some it’s most devastating terrorist attacks at the hands of the Islamic State, notably in France (Paris), Belgium(Brussels) and Turkey (Ankara), for these countries the experiences were some of the most damaging attacks in their history. In total IS were the most deadly terrorist group in 2015, killing 6,141 people globally. Of the ten worst attacks in OECD (The Organisation for Economic Co-operation and Development) countries, the top 8 were either Islamic State directly or individuals/local groups inspired by them. (Global Terrorism Index, 2016).

Existing Methods of Terrorist Financing


Terrorist financing is generally defined as the collection or movement of funds, directly or indirectly, unlawfully and wilfully, with the intention to finance an act of terrorism or support a terrorist groups operation in full or in part. (International Convention for the Suppression of the Financing of Terrorism, 1999)


There are a number of extensively studied, rooted and well established methods of terrorist financing which cover fund generation and provision, these include; the use of charitable organisations, (both knowing and unknowing donations), self-financing, criminal activity such theft, illicit drug production and smuggling, support from state-sponsors, alongside the use of cash smuggling, informal value transfer services such as ‘hawala’ and traditional money laundering methods to move funds from one jurisdiction to the other.


There has been a concerted effort from numerous state, inter-governmental and private departments/organisation to gather intelligence relating to terrorist groups and individuals to help secure the financial system and prevent terrorism, these include but are not limited to OFAC, FATF, SWIFT, UN Security Council, Council of Europe.


Banks and financial providers have employed various methods to mitigate the risk of facilitating terrorist financing and frustrate the terrorists operations, led by the guidance of the FATF 40+9 Recommendation relating to Anti-Money Laundering and Terrorist Financing. (FATF, Terrorist Financing, 2008). The inclusion of stringent customer due diligence and transaction monitoring requirements in financial sector policy supported by the national legislation such as the UK Money Laundering Regulations 2007, and lofty fines for those entities who do not comply, have helped support the fight against terrorist financing as part of the wider battle against financial crime and the underlying predicate crimes.


States have implemented and ratified the FATF and United Nations Security Council Resolutions to protect the financial system from criminal abuse, and established targeted economic sanctions informed by counter-terrorism intelligence gathered from countries around the world working together to protect systems and society.

Preferred Financing Method(s)


Islamic state is said to be the most well-funded non-state terrorist group in history and this is apparent from their ability to wage war on numerous fronts, attaining weaponry and resources at will, which leads to success in gaining and holding territory. Without a continuous influx of huge amounts of money, they would not be able to sustain the current level of armed conflict and global terrorist cells which pose a real and immediate threat to international security.


In the order of importance and returns gained, the 5 revenue sources identified as primary to the funding of Islamic State are,

1) Illicit proceeds from the occupation of territory, such as bank looting, extortion, control of oil fields and refineries, and robbery of economic assets and illicit taxation of goods and cash that transit territory where ISIL operates;

2) kidnapping for ransom;

3) donations including by or through non-profit organisations;

4) material support such as support associated with FTFs and

5) fundraising through modern communication networks.”

(Financing of the Terrorist Organisation ISIL, 2015)


The above identified methods, namely 2 to 5, are largely popular amongst the more established terrorist organisations. Number 1 has elements that are widespread, though no terrorist group has been as prolific and successful in their ability to take-over and control large areas of populated, economic and strategically significant land mass as IS (in both Iraq and Syria). Their ability to succeed in this ferociously violent land-grabbing has allowed them access to uniquely lucrative financing, which is concurrently necessary to support the scale of their operations and their overall goals.


Estimates from the American government believes that in 2014 the oil revenues alone were making the group $2million a day (Economist, 2015). The group reportedly have control of 7 oil fields and 2 refineries in northern Iraq and 6 of 10 oil fields in eastern Syria (Financial Times, 2016). Unfortunately there is continued regional demand from neighbouring states, including Iraq and Turkey but specifically Syria, who are funding the enemy in a vicious cycle, whereby the Syrian regime have no choice but to buy oil from brokers whose source is Daesh (Buzzfeed.com, 2014) (Financing of the Terrorist Organisation ISIL, 2015).


Aleppo / Image: Aladdin Hammami / Unsplash

Extortion, taxation, kidnapping for ransom and trafficking have been seen employed to great success in Iraq and Syria, the territory they control is estimated to hold a population of 6-8million people, which gives them a plethora of victims to extort, tax and loot from. In addition in 2014 kidnapping ransom netted the group $20million (Economist, 2015) and in 2015 there were an estimated 15,000 Foreign Terrorist Fighters, most of whom would have brought funds with them, facilitated by globalization, the Internet and social media communication they also bring additional supporters and recruits, and in turn more money (UNODC, 2015). Other groups also employ these methods of financing most notably and very successfully in recent times used by Boko Haram in West Africa (Terrorist Financing in West Africa, 2013).


Though these foreign fighters, donors, and the groups transfer funds via various methods, often in small amounts through regular bank accounts or money transfer businesses, they also informal value transfer services such Hawala, to transfer funds. These methods are seen to play a key role in funding terrorist groups, are difficult to analyse and largely untraceable.

Unlike other non-state actors involved in Terrorism, that have congruous goals such that gain political and social gravitas from their welfare and governance work, and affords them the revenue streams from and religious donations, as well as support from believers in their cause both wealthy and otherwise. Islamic State have no good deeds to bare, just atrocities and devastation left in their wake in efforts to fund their war on the West, its supporters and the non-believers.


Combating the Financing of Terrorism


The funding operations for Islamic State are buoyed by their oil revenues which were purportedly $2-$3 million per day at the highest and up to $1.3 million per day in 2015, the former figures are prior to the coalition airstrikes which have had a marked effect on the production output and distribution. In a financial system whereby traditional methods of combating money laundering, terrorist financing and financial crime in general have largely been focused on external controls, mitigation via sanctions and preventing facilitation by financial institutions with customer due diligence and AML methodology, ISIS have made it necessary to employ military methods to combat their financing not only their operations and general war against the West.

A cohesive multi-national strategy is required to disrupt and destroy the threats brought about by Islamic State. The Coalition Against ISIL, known as the ‘coalition of the willing’, is now a 68 nation effort against Islamic State (CBC News, 2017), the largest international alliance to date. Airstrikes by the US led coalition have targeted their oil refineries and operational hubs, having a significant effect in reducing on the output and transfer of oil. There have also been efforts to counter the smuggling of oil within Iraq and by Turkey. These operations are specifically used against Islamic State due their unique situation, and while it has been somewhat successful their oil and gas operations continue to bring in substantial funding.


Money makes it go round / Image: Christine Roy / Unsplash

Multi-lateral communication and action is required and the ratifying of the FATF Recommendations, implementation of OFAC and UN Sanctions and embargoes are key, for example, UNSC Resolution 1617. This contains the first explicit reference to the FATF 40 + 9, and states “Regardless of FATF membership/affiliation, all member states of the UN are directed to have laws and processes to combat TF,” all combine to create barriers to the funding reaching the destination. UNSC 1267 which dates back to 1999, implemented the asset-freezing of those individuals and entities found to be related to terrorist groups or funding. Though initially targeting the Taliban, the freezing measures have been applied to numerous groups (Countering the Financing of Terrorism, 2007). A multi-pronged attack is essential to have an immediate and permanent effect in stifling and ultimately razing the terrorist group.


Regulatory enhancements in the banking system, led by the FATF recommendations, UNSC and OFAC Sanctions requirements have been useful in bringing attention to the area and are key to tackling the issue of terrorist financing. Banks have brought in stringent policy and procedures to mitigate risk against money laundering and terrorist financing, these include measures when on-boarding new clients and ongoing monitoring depending on the risks posed. There are many known factors or areas of concern that can help to evaluate or identify risk involved in dealing with certain individuals and companies, these can be divided into two main categories, customer due diligence and transaction monitoring. Customer due diligence involves the identification of the customer and verification their business activity, it is generally referred to as KYC (Know Your Customer) though technically KYC is a part of the due diligence process and it is required that enhanced measures are taken where risk is increased. (FATF 40 Recommendations, 2004 / Basel Committee on Banking Supervision, 2001) transaction monitoring involves as it suggests the investigating any account activity deemed to be suspicious. Red flags in relation to money laundering and terrorist financing do overlap and in terms of CDD can be, amongst others, one or a combination of the below;

Industries and Jurisdictions with known money laundering, terrorism or sanctions links, and /or poor regulatory oversight; complex company organisational structures domiciled in banking havens with low transparency; any adverse information or negative media which may bring financial or reputation risk and any links to government and individual who have, or have had a high political profile can pose a higher risk to money laundering due to their position potentially making them vulnerable to corruption.


Red flags in relation to transaction monitoring may be payments to/from industries or entity types with Terrorism nexus such as charities or money service businesses; transactions that do not match the profile of the customer in relation to amount, industry or location; payments from sanctioned countries or those with strong ties to religious extremism/terrorism.


An additional measure such as United Nations Security Council Resolution (UNSC resolution 2161 (2014)) states that the payment of ransoms to any party related to terrorist groups is in effect financing terrorism and therefore prohibits such action. This is a logical and succinct point but in reality governments such as Germany, France and even the UK have paid ransoms to terrorist organisations (Independent, 2014).


In relation to fundraising through modern communications networks (social media, crowdfunding, charity sites, etc) there is little that can be done other security measures taken to identify those who they do business with, and the above mentioned due diligence and transaction monitoring by banks, but these efforts and methodologies must be adapted and transferred to these communication and funding sources more effectively to tackle an increasingly prominent issue. KYC measures should be implemented wherever there is a potential risk of terrorist financing.


Summary


Islamic State are a distinctive, and devastatingly effective terrorist group, they operate with a ruthless efficiency, and their organisational and funding methods are well established and effective. They are truly a new type of terrorist group, and a very real threat to international security, as they have proven on several occasions.


Combating Terrorist financing is a complex task, the global approach via various multi-pronged strategies applied cohesively to halt funds reaching the terrorist groups are and have been effective only to a point. In general, methods such as sanctions, embargoes, asset freezing, customer due diligence and banking regulation have been effective in mitigating the risk of financing terrorism. In relation to Islamic State the reality is that these measures whilst effective and will hinder their operations somewhat, they alone cannot sufficiently disrupt the funding of the group for the simple reason that the bulk of their funding and inherent operational strength comes from within the territories they hold in Iraq and Syria, namely

Illicit proceeds from the occupation of territory, such as bank looting, extortion, control of oil fields and refineries, and robbery of economic assets and illicit taxation of goods and cash that transit territory where ISIL operates.”

(Financing of the Terrorist Organisation ISIL, 2015).


These sources of funding are being attacked by air strikes on oil related facilities, discouraging buyers of illicit oil and via attempts to identify and close oil smuggling routes but it is evident that the efforts at present will need to be increased in relation to (coalition) military operations if Islamic state are to be truly stopped.


2014 Air Strike in Syria / src: defense.gov

Outside of their held territory where splinter groups and smaller cells operate around the world, the above mentioned methods should have a much more significant effect, which is a positive sign however very little funding is required for attacks carried out by individuals or lone wolves, whether they are supporters of IS, fanatical jihadists groomed online, group members sent to a location to specifically attack, or build a cell, in an area.


In the present climate, considering the strength and size of the group, its global reach and influence, and their ability to gain significant territory, they can be deemed a success as though their goal, of establishing a caliphate, is not fully achieved they have done so in the land they control. The coalition is losing the battle. Islamic State defend the land and their source of funds, though maybe not as prosperous as they once were (in relation to oil revenues), are certainly enough to continue their operations to defend gained territory and to fight to gain more.


Their funding cannot be tackled only with traditional banking regulation and criminal justice measures, but must be tackled with emphasis on the war model, which previously, against other groups such as the Taliban and Al Qaeda, has been in simple battle against the groups, to seek and destroy, expelling from territory and state, to lessen their impact on a region and ultimately expunge. A multi-pronged attack is essential and more relevant than ever.


Never previously has a source of funds been so prevalent and entwined with the territory, creating a desperate need to attack critical infrastructure, defended with equal intensity bringing inherent complications and difficulties. The territories in Iraq and Syria must be won back to effectively reduce their funding and reach, whilst concurrent efforts in the traditional space are bolstered, or ground will continue to be lost.


Al.




PS.

This was written in 2017 for a Terrorism Studies Certificate. It remains reasonably accurate, but there are a few things missing (agriculture/drug trade) which I will address soon hopefully. Though inherent to the subject matter, it's reassuringly downbeat, which is still pretty much my style.

 
 

References

https://www.nctc.gov/site/groups/isil.html National Counter-Terrorism Center.


Key Issues in International Terrorism, 2016. Informa / University of St Andrews.


Global Terrorism Index, 2016. National Consortium for the Study of Terrorism and Responses to Terrorism (START).


FATF, 2015, Financing of the terrorist organisation Islamic State in Iraq and the Levant (ISIL).


FATF, 2013, Terrorist Financing in West Africa.



UNODC 2015. UNODC Initiative on Criminal Justice Responses to Foreign Terrorist Fighters.


Matthew Levitt, 2015. Countering ISIL Financing: A Realistic Assessment.


David S. Cohen, 2014. “Attacking ISIL’s Financial Foundation”-







Basel Committee on Banking Supervision, 2001. http://www.bis.org/publ/bcbs85.pdf

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