Counterterrorism Issues: Islamic State Financing

Counterterrorism Issues: Islamic State Financing

March 2, 2017
Counterterrorism Issues: Islamic State Financing
Introduction
 Kidnapping for Ransom, Antiquities, and External
The Islamic State (IS, aka ISIL/ISIS or the Arabic acronym
Donors. The Treasury Department and independent
Da’esh) is a U.S.-designated Foreign Terrorist Organization
researchers estimate that the Islamic State earned
that has controlled parts of Iraq and Syria since 2014 and
between $20 and $45 million from kidnapping for
has threatened to conduct attacks against the United States
ransom in 2014, but significantly less in 2015 and 2016
and its citizens. As part of broader efforts to restrict the
due in part to the reduced presence of potential Western
group’s ability to operate, the United States has sought to
hostages. Treasury officials indicate that antiquities
limit the Islamic State’s ability to raise funds and access the
smuggling has not been a significant source of income
international financial system. While IS revenue streams are
for the Islamic State, although the group generates
in decline, in part due to U.S. and coalition military strikes,
income from taxing those who engage in the activity.
the group retains the capability to conduct operations inside
U.S. officials have stated that funding received from
its territory as well as to inspire attacks abroad.
outside donors makes up only a small portion of the
group’s overall revenue.
Revenue Sources

Imprecise Revenue Estimates
The Islamic State’s revenue is derived primarily from oil
Although the Islamic State was once described as the
sales and taxes levied on local residents, but the amount of
richest terrorist group in the world, its financial prospects
revenue from each source has fluctuated.
are believed to be in decline. One study estimated that its
 Oil and Natural Gas. During its wide territorial
revenue has declined from approximately $1.9 billion in
expansion in 2014 IS captured oil and gas facilities in
2014 to some $870 million in 2016. The Treasury
eastern Syria and northern Iraq. Income from these
Department estimates that the group generated roughly $1
facilities initially provided the majority of the group’s
billion in revenue in 2015. Multiple factors may explain
revenue, but gradually declined as a percentage of
why IS revenues are difficult to estimate with precision:
overall IS revenue due to airstrikes by the United States
 The Islamic State benefits from a mix of regenerating
and coalition partners. In July 2016, U.S. officials
and non-renewable income sources, but the percentage
estimated that Operation Tidal Wave II had reduced the
group’s monthly oil revenue by half
of revenue derived from each source varies by year.
.

 Renewable revenue streams, such as taxation, have
Operation Tidal Wave II. In October 2015,
fluctuated due to changes in the group’s tax base as it
coalition forces began Operation Tidal Wave II,
gains or loses territory, and changes to residents’
which targets IS oil and natural gas infrastructure to
available income (in 2015, the Iraqi government
restrict the group’s ability to fund governance
suspended the payment of salaries to workers in IS-held
activities and terror operations. Strike targets have
territory).
included oil tankers, oil and gas separation plants,
 Not all income generated by the group is in liquid cash
well heads, and pumping infrastructure. Air strikes
form or other assessable goods. A significant portion of
also targeted the Islamic State’s Ministry of Oil
the group’s revenue is generated from “confiscations,”
headquarters in Mosul, targeting the group’s ability
such as land or items the group declares to be
to administratively manage illicit oil and gas
contraband (e.g., cigarettes). It is unclear how the value
operations. Coalition forces have expanded strikes
of real estate or commercial items is assessed in
against Syrian oil fields, primarily in the eastern
calculations of IS revenue.
province of Dayr az Zawr, which had been
providing two-thirds of the oil seized by the Islamic
Expenditures
State according to Defense Department officials.
The Islamic State spends a significant portion of its revenue

on salaries for its fighters, as well as on administrative staff
Taxation, Extortion, and Asset Seizure. The Islamic
that manage its network of “ministries” within Syria and
State earned approximately $360 million from
Iraq. U.S. officials have stated that the Islamic State has cut
“taxation” in 2015, according to U.S. Treasury
salaries for fighters defending the group’s self-declared
Department officials. This includes taxes levied on
capital at Raqqah, likely reflecting cash shortages
government workers, traders and business owners,
throughout the organization. The group also expends funds
farmers, religious minorities, and other local residents,
to maintain and repair infrastructure, as well as to provide
which in effect amounted to extortion. The Islamic State
social services. Terrorist attacks conducted by the Islamic
has increased its taxation of local residents in response
State reportedly cost relatively little when compared to the
to U.S. and coalition military operations that have
group’s other expenses.
reduced the group’s ability to profit from oil and gas
infrastructure. Some estimate that taxation is now the
group’s largest source of income.
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Counterterrorism Issues: Islamic State Financing
U.S. Policy Responses
Iraq coordinated sanctions on an Iraqi exchange house
Nested within U.S. and international objectives to defeat the
and a Syrian national accused of acting as an IS banker
Islamic State is the goal of disrupting the group’s revenue
and financier.
sources and its ability to move and use such funds. Because

most of the group’s revenue is generated from territory it
Financial Intelligence Information Sharing.
Responding to regulatory requirements and IS red flag
controls in Iraq and Syria, policymakers were challenged at
alerts, U.S. financial institutions file suspicious activity
the outset to modify the standard approaches for countering
reports, including some 800 IS-specific filings each
the financing of terrorism (CFT)—which were developed to
month. Actionable reports are, in turn, shared with law
respond to groups, such as Al Qaeda, that are dependent on
enforcement, intelligence, and international partners.
external donors and charities for fundraising and which
Intergovernmental platforms, such as the Egmont Group
attempt to use traditional financial mechanisms to move
of Financial Intelligence Units, the Financial Action
funds and support transnational activities. Since 2015, the
Task Force (FATF), and CIFG provide additional ways
United States has taken unilateral, bilateral, multilateral,
for information on IS financing to be shared. In 2015,
and coalition-based CFT actions, described below.
FATF published two reports that reflected emerging
Counter-ISIL Finance Group (CIFG). In
CFT risks and IS-specific illicit finance typologies.
January 2015, the Global Coalition to Counter ISIL
 Diplomatic Engagement. Efforts to galvanize
established the CIFG, co-chaired by the United
cooperation to combat IS finances have included a May
States, Italy, and Saudi Arabia. The group last met in
2015 CIFG Communiqué on denying government
October 2016. CIFG’s four key objectives are to:
ransom payments to terrorist groups, a December 2015
1. deny IS access to the international financial
U.N. Security Council “Summit of Finance Ministers”
system;
on CFT, a FATF-CIFG joint meeting in February 2016,
2. counter the extraction and exploitation of
and events to raise awareness of antiquities trafficking
resources, including extortion of the local populace,
as a source of IS revenue.
that transit, enter, or are derived from IS territory;
 IS-Material Support Investigations and
3. prevent IS external fundraising; and
Prosecutions. The U.S. Department of Justice has
4. block IS from providing financial or material
actively pursued material support cases in the United
support to foreign affiliates.
States involving U.S. persons seeking to facilitate IS-
related travel or financially support the Islamic State.

The Federal Bureau of Investigation warned in a public
Military Actions in IS-held Iraq/Syria Territory.
2015 notice that it could charge those who purchase IS
Coalition forces have targeted IS sources of internal
looted antiquities with providing financial support to a
revenue through airstrikes on oil and natural gas targets,
terrorist organization.
bulk cash storage sites, and senior IS leaders, including
at least two “finance ministers.” U.S. special operations
Issue Outlook
forces have also conducted ground raids, including one
According to FATF, Syrian bank branches still operate in
in 2015 that killed top IS financier Abu Sayyaf.
IS-held territory. FATF has also reported that the Islamic
Continued losses in physical territory directly degrade
State may exploit bank branches just beyond the areas it
the Islamic State’s ability to tax and extort local
controls to access the international financial system. Cross-
residents and commercial activity.
border trade continues to generate income in the region and,
 Financial Actions to Limit Cross-Border
while Iraq has identified some IS-implicated exchange
Transactions. In 2015, the Central Bank of Iraq (CBI)
houses, many more remain in operation.
halted the distribution of government salary payments in
IS-territory, blocked 90 compromised bank branches,
In the longer run, while success in curtailing IS finances has
and barred some 140 IS-related currency exchange
been linked directly to coalition territorial gains on the
houses from accessing its currency auctions. The United
battlefield, the 115th Congress may continue to monitor
States and Iraq also established a “Bilateral Committee
whether IS financing tactics change in the face of lost
to Counter Terrorist Financing.” The United States and
territory and a depleted war chest. Meanwhile, in its
the International Monetary Fund are supporting longer
FY2017 budget request to Congress, Treasury sought
term technical assistance to improve Iraq’s capacity to
resources for CFT, including funds to combat IS financing,
maintain sound anti-money laundering and CFT
for its Office of Terrorism and Financial Intelligence and
practices. Turkey and Jordan have reportedly ramped up
Financial Crimes Enforcement Network, as did multiple
border security efforts, in part to deter cross-border
offices in the U.S. Department of State. A consolidated
illicit financial flows.
budget request across U.S. federal agencies for funds to

counter IS finances is unavailable.
Financial Sanctions. Targeted sanctions are intended to
restrict IS members, financial facilitators, and related
Carla E. Humud, Analyst in Middle Eastern Affairs
entities from accessing the international financial
system. In 2015, the United States unilaterally
Liana W. Rosen, Specialist in International Crime and
designated more than 30 IS-linked actors. The United
Narcotics
States also nominates individuals for U.N. sanction, a
IF10612
process expanded in 2015 to incorporate the Islamic
State as a key element. In 2016, the United States and
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Counterterrorism Issues: Islamic State Financing

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