The landscape across which most IED events are currently occurring is dominated by two loose, rival networks of armed Salafi-jihadi groups: the caliphate and provinces of the self-styled Islamic State; and the longer-established Al-Qaeda core and its regional affiliates. Groups operating in Afghanistan and Pakistan, and in sub-Saharan Africa, have their own additional networks and sometimes linkages with regional governments and security agencies. Within these networks and a host of subsidiary micro-networks, funds, materials, technical expertise and personnel are exchanged, primarily through mechanisms such as the international banking system, hawaladars and money transfer services, the Internet and social media, and across porous borders in the Middle East, sub-Saharan Africa and the Afghanistan-Pakistan region. We will examine existing and emerging financial processes later on.
Behind the terrorist groups themselves – though to a lesser extent than before, thanks to strategic adjustments as well as AML/CFT measures (anti-money laundering and combating the financing of terrorism) – stand generous state sponsors and deep-pocketed private donors in Qatar, Kuwait, Saudi Arabia and the UAE, with Turkey also playing a role. The key sponsors and donors will be discussed in detail in section 6. In addition, members of the Saudi and Qatari ruling families and other wealthy individuals have, for the past four decades, been propagating and financing the Wahhabi interpretation of Islam that has inspired jihadists and incubated a sympathetic climate for their actions among sections of Muslim communities in all regions of the world. We will be studying historical and contemporary patterns of Gulf-originated influence-spreading and Salafi propaganda, with special reference to the establishment of mosques and provision of preachers in Europe and the United States, in section 7.
Methods of terrorist financing are continuing to evolve rapidly along with changes in the nature, scope and geographic range of non-state (or self-styled state) armed groups and their activities. In addition, there have been expanding opportunities for jihadist groups and their sympathisers to organise operations and solicit and receive funds online. AML/CFT measures have made traditional transactions through the international banking system and money transfer services somewhat less straightforward for outlawed groups, though they are still a major channel for fund transfers, together with hawala services and the physical transportation of cash. The Hajj pilgrimage that draws around two million Muslims to Mecca each year provides another rich opportunity for networking, exchanging funds and information, and raising pious donations ostensibly for relief work in areas of armed conflict.
At the same time, however, groups have adapted. In some cases they have become less reliant on external sponsors and donors by developing and exploiting their own sources of funding: illicit revenues from sales of oil, gas and other natural resources in territory under their control; quasi-sovereignty-based activities such as raising taxes on people and goods transiting ‘their’ territory; and a range of criminal activities such as looting banks, drug-smuggling, mafia-style extortion rackets and kidnapping for ransom.
The rise in lone-actor and small-cell operations, especially in the West, requiring relatively small amounts of money, materials and training has also made viable new and more opaque patterns of procurement and supply. And the phenomenon of largely self-funding foreign fighters (increasingly non-Arab as well as Arab) travelling to conflict zones – predominantly Syria and Iraq – poses a further challenge for those seeking to deny resources to perpetrators of IED attacks.
Work by the international Financial Action Task Force (FATF), looking primarily but not exclusively at the funding of Islamic State (IS), would seem to downplay the role of direct financing by Salafi-Wahhabi governments, one of the revenue streams that have continued to attract close attention from Western enforcement agencies. Important, too, are gifts from wealthy donors in the Gulf, often channelled through Islamic charities. However, some progress has been made in clamping down on these, notably since Saudi Arabia and the UAE became uncomfortably aware of the threat to their own security from the Frankenstein-like rise of IS in their neighbourhood, IS-authored IED incidents on their own soil, and the return home of, especially, Saudi citizens after fighting alongside IS in Syria and Iraq.
FATF lists the traditional terrorist financing methods and revenue-generating mechanisms that remain significant as:
- private donations;
- the abuse and misuse of non-profit organisations;
- the proceeds of criminal activities such as smuggling, robberies and tax fraud;
- extortion of the local populace and kidnappings for ransom;
- legitimate commercial enterprise (business dealings, often through front companies); and
- state sponsorship of terrorism – to which it refers diplomatically in only the most general terms (among the countries collaborating in FATF’s work is one of those most commonly accused of this, Saudi Arabia).
Among new and emerging forms of terrorist financing, FATF pays particular attention to the phenomenon of largely self-funded foreign fighters who, while not representing a major source of funds, nevertheless constitute a significant material resource. They may raise the money for their journeys in the weeks or days beforehand from their families, by taking out bank loans, or by selling personal goods such as a car or large consumer items purchased on credit without the intention to repay. They may also finance their stay by receiving money transfers from family or friends, or through continuing to draw salaries or welfare benefits from their bank accounts while abroad. When individuals make sudden and unusual small-scale transactions in this way it is particularly challenging for financial agencies to determine whether they are suspect or legitimate, especially if they have not previously been on any watch list.
Other emerging terrorist financing mechanisms identified by FATF are:
- fund-raising through social media, including crowdfunding websites, with all the benefits of anonymity and the difficulty of identifying an end-user or beneficiary;
- new payment products and services, such as e-wallets and applications like CashU, as well as the loading and selling of pre-paid cards such as those marketed for travel;
- virtual currencies such as Bitcoin, which are already being used by criminal groups and are seen as likely to be used by terrorist groups; and
- exploitation of natural resources – the oil and gas sector in Syria, Nigeria and Colombia, and other mineral extraction industries in West Africa and Afghanistan; timber, drug cultivation and charcoal supplies elsewhere, etc.
The ‘Islamic State’ (IS)
When IS declared itself the “caliphate”, or sole Islamic state, in June 2014, it soon became clear that it presented a new and unprecedented set of challenges for international efforts to combat terrorist financing. As US Treasury Undersecretary David Cohen remarked in October of that year (referring to IS by an earlier name, “the Islamic State in Iraq and the Levant”, or ISIL):
“In many respects, our campaign against ISIL’s financial foundation will build on our work over the past ten years, and closely resemble our previous campaigns. But to some extent, ISIL poses a different terrorist financing challenge… its revenue sources have a different composition from those of many other terrorist organisations. Unlike, for instance, core al-Qaeda, ISIL derives a relatively small share of its funds from deep-pocket donors, and thus does not, today, depend principally on moving money across international borders. Instead, ISIL obtains the vast majority of its revenues through local criminal and terrorist activities…
“First, ISIL has raised a significant amount of its money – many millions of dollars – from selling oil it extracts from fields in Syria and Iraq…
“Second, ISIL also kidnaps innocent civilians to profit from ransoms paid to obtain their release…
“Third, like its predecessor, al-Qaeda in Iraq (AQI), ISIL raises money – up to several million dollars per month – through a sophisticated extortion racket. In Iraq and Syria, ISIL extracts payments from those who pass through, conduct business in, or simply seek to live in the territory where it operates…
“Fourth, ISIL also profits from a range of other criminal activities. They rob banks. They lay waste to thousands of years of civilisation in Iraq and Syria by looting and selling antiquities. They steal livestock and crops from farmers. And despicably, they sell abducted girls and women as sex slaves.
“Finally, as I mentioned earlier, ISIL derives some funding from wealthy donors. Even though ISIL currently does not rely heavily on external donor networks, it maintains important links to financiers in the Gulf, as a spate of Treasury designations last month made clear.”
We will examine below the most important of these sources of funding for IS’s operational and maintenance requirements, together with new revenue streams it has developed and their evolution in terms of relative importance.
Meanwhile, the international Counter-ISIL Finance Group (CIFG), co-chaired by Italy, Saudi Arabia and the United States, was established in March 2015 to tackle the unique challenges posed by IS for combating terrorist financing. It set itself the following objectives:
- to prevent ISIL’s use of the international financial system;
- to counter the extortion and exploitation of economic assets and resources that transit, enter or are derived from ISIL-held territory;
- to deny ISIL funding from abroad; and
- to prevent ISIL from providing financial or material support to foreign affiliates in an effort to expand its global ambitions.
In April 2016, when CIFG took stock of its achievements in its first year, it was able to report much enhanced information-sharing and technical assistance, and some successful measures taken by the Iraqi authorities. But it also identified the need for more work to disrupt IS’s financial linkages to its foreign affiliates, particularly in Libya, and for better coordination with coalition working groups on the phenomenon of foreign terrorist fighters, a topic we addressed in section 4. The point raised in CIFG’s objective (4), as we shall see, is an increasingly important one: the two-way nature of the flow of funds both into IS-controlled territory in Syria and Iraq and outward from this territory to IS affiliates and supporters elsewhere, notably in Europe.
A diversified ‘state’ economy
A significant difference between IS and other terrorist organisations has been its determination to administer the territory it has conquered as a quasi-state under Sharia law. This is an essential part of its claim to represent the Islamic caliphate that the global jihad aspires to establish, and it is supported by a substantial bureaucracy. Among reports of military progress and depictions of the brutal punishments IS inflicts on those who do not follow its line, the group’s propaganda includes utopian images of a thriving economy and settled lifestyle in the caliphate, to which Muslims everywhere are invited to migrate.[i]
IS’s brutal imposition of its extreme Salafist moral and legal code has become notorious, but the group has also adopted a vast range of other, more benign, quasi-governmental functions. These range from managing the economy, exploiting the oil and agricultural sectors and raising taxes to providing bread subsidies and services like street cleaning, and paying public sector salaries as well as fighters’ salaries and the costs of military operations (this approach has been replicated, possibly emulated, albeit on a smaller scale, by AQAP in Yemen.)
The relative weighting of different sources of revenue has varied between Iraq – where IS managed to seize for a time a small but highly lucrative proportion of the state’s vast oil resources – and Syria, where at one time it controlled as much as 60% of that country’s much smaller and poorer oil sector. Coalition strikes on oil-related targets, together with softening oil prices, have also, over time, degraded though not destroyed IS’s income-generating capacity from oil. As a result, it has stepped up efforts to diversify into other economic areas and intensify its taxation and extortion activities.
Revenue raised from the extraction, refining and sale of oil
Even before the breakthrough capture of Mosul in June 2014, the event that emboldened IS to declare its new status as a “caliphate”, the group’s leadership had identified oil as fundamental to their vision of maintaining an Islamic state. When it pushed through northern Iraq and took over Mosul, IS also seized the Ajil and Allas fields in north-eastern Iraq’s Kirkuk province. On the very day of its takeover, locals told a Financial Times investigation team, militants secured the fields and engineers were sent in to begin operations and ship the oil to market. “They were ready, they had people there in charge of the financial side, they had technicians that adjusted the filling and storage process,” said a local sheikh. “They brought hundreds of trucks in from Kirkuk and Mosul and they started to extract the oil and export it.” IS lost these fields to the Iraqi army in April 2015, but by then it had made an estimated $450 million from them in the 10 months it controlled the area.
While earlier terrorist organisations like al-Qaeda were heavily dependent on donations from wealthy foreign sponsors, IS has derived its core funding from its status as monopoly producer of an essential commodity consumed in vast quantities throughout the area it occupied. The critical role of oil is reflected in the fact that it is centrally controlled by the top IS leadership, along with military, security and media operations, whereas the group’s structure is in most other respects highly decentralised, with regional governors being left to administer territories according to precepts laid down by the ruling shura council.
By late 2014, IS controlled over 300 oil wells and production facilities in Iraq alone, and about 60% of Syria’s total production capacity. At that stage it was earning amounts that fluctuated wildly with changing circumstances but were estimated to average $2.5 million a day. Supplies had initially been boosted by draining oil pipelines and seizing storage facilities in areas that came under IS control. Revenues came not only from smuggling oil and refined products out for sale on the black market but also from sales of fuel to the local population.
While sustained US-led coalition airstrikes have targeted and taken out many IS oil assets, it has proved harder to destroy the plethora of mobile micro-refineries that IS has used, which can readily be reassembled or replaced if hit. In fact, despite international efforts to destroy it, IS’s oil operation has reportedly grown in size and expertise, and is minutely managed by carefully recruited engineers, technicians and administrators. Its daily earnings were estimated in October 2015 to have declined to a still substantial $1.5 million a day, but remained IS’s biggest source of revenue. Even without normal access to export markets, the IS oil operation can thrive because it has a huge captive market in Syria and Iraq. Indeed, diesel and petrol produced in IS areas are consumed in territory the group controls but in areas that are technically at war with it, such as Syria’s rebel-held north. Even the Damascus government appears to have bought IS oil: in November 2015 the US Treasury Department sanctioned Syrian businessman George Haswani, together with his engineering and construction company HESCO, for acting as a middleman for oil purchases by the Syrian regime from IS.
A Financial Times investigation in October 2015 revealed even closer cooperation between Damascus and IS over gas. Gas supplies 90% of Syria’s power grid, on which both sides are critically dependent, and several gas plants have in effect become joint ventures between the Assad regime and IS. Some agreements are extensions of pre-existing deals made with other groups, such as Jabhat al-Nusra, that controlled the areas before IS took over in mid-2014. In a written statement, Syria’s Ministry of Oil and Natural Resources said: “There is no co-ordination with the terrorist groups regarding this matter.” But it acknowledged that some of its employees work under IS “for the sake of preserving the security and safety of these facilities”. In late 2015 IS controlled at least eight power plants in Syria, including three hydroelectric facilities and the country’s largest gas plant. The regime was getting a share of the electricity produced from the methane-heavy “dry gas”, while IS took the fuel products – cooking gas and condensate, used for generators – made from the plants’ liquid gas. One plant, Tuweinan, was partly run by George Haswani’s company HESCO, mentioned above, which workers said was sending IS 15 million Syrian lira (about $50,000) every month for protection. Haswani’s son Michel, a manager at HESCO, denied this, though he said IS was “partly” running the plant.
Syrians in the oil industry who say IS tried to recruit them told the Financial Times that IS headhunts engineers, offering competitive salaries to those with the requisite experience, and encourages prospective employees to apply to its human resources department. It appoints IS members who have worked at oil companies in Saudi Arabia or elsewhere in the Middle East as “emirs” to run its most important facilities, and also recruits from among its supporters abroad.
An analysis of the impact of falling crude oil prices on IS finances by the Combating Terrorism Center at West Point in January 2015 concluded that the group would have to turn to other financing methods, such as extortion and organised crime, to address the revenue shortfall. Unlike most hydrocarbon states, it said, IS had not had the benefit of having been around long enough to build a stabilisation fund – the cash reserves that can smooth out the highs and lows of commodities markets – and would therefore either have to reduce its military operations (seen as unlikely), cut back on public services and infrastructure projects, or find new methods of raising funds. “Because it claims to adhere to Sharia dictates regarding fixed tax rates (zakat for Muslims and jizya – a poll tax on certain non-Muslims living under Muslim rule – for Christians and Jews),” the author argued, “it does not have recourse to tax hikes to offset falling oil sales. Instead, it could raise import duties, but these are already high and doing so would likely further erode already waning popular support.”
Taxation, customs duties and extortion
As stated earlier, the IS economy, while dominated by oil, has always been financed from a diverse range of sources, including looting banks and profiteering from the sale of cultural artefacts, along with the terrorist staples of robbery, extortion and kidnapping for ransom, of locals and foreigners. As Conflict Antiquities blogger Sam Hardy put it in October 2014:
The Caliphate has formalised the definitive, sovereign state-style control of a classical mafia, which ‘legislate[s]… and administer[s] justice, lev[ies] taxes and excises (through extortions), provide[s] services and social security, reward[s] the faithful and punish[es] those who are not, and exert[s] control on the labour market, trade and productive activities’ (It has even formalised the guarantees of its protection rackets through the establishment of a Consumer Protection Authority.)
By December 2015, a second Financial Times investigation found that looting, taxation and extortion had probably overtaken oil as a source of IS funds. The group rigorously collects zakat, a form of almsgiving dating back to the time of the Prophet Mohammed, obligatory on Muslims and calculated at 2.5% of surplus capital, which can be levied on personal or business assets and is intended for charitable purposes or work to further the cause of Allah (see also section 6.7, Islamic charities).
Before IS held territory and claimed to be administering a system of taxation, it simply extorted millions of dollars from businesses. As the group started seizing land in Iraq, it first relied on confiscations for income, looting banks, military bases, government grain stores and the homes of Iraqi officials. In each province, it set up and started to operate a so-called “war spoils” office that calculated the dollar value of loot and paid a fifth of it to the militants who ran the raid. Non-military goods are sold at local “loot markets”, fighters and locals say; Isis members are allowed to buy at half price.
This would appear to be a modern version of another Muslim tax from the Prophet’s time, the khums, or fifth, a 20% windfall tax on the profits of war, which has reportedly also been applied to pre-Islamic antiquities, again citing prophetic tradition as precedent. With regard to IS profiteering from cultural artefacts, Syrian archaeologist Professor Amr al-Azm was quoted in 2014 as saying that “IS[IS] militants don’t do the digging themselves. Instead, they sanction illicit excavation by locals and then levy a special Islamic tax, called khums, that takes 20% of all profits on treasure for the state.”
IS meanwhile imposes a common zakat framework across its territory, which it pursues remorselessly. It takes 2.5% of capital from wealthy residents and businesses, whether that business is a factory or a truck with a single driver. From farmers, it levies the equivalent of 5% of irrigated crops and 10% of rain-fed crops. Agriculture is one of the most lucrative sources of zakat, with wheat, barley and cotton the primary produce. In Iraq, farmers pay zakat in livestock and crops, while Syrian farmers report that many IS tax collectors calculate market prices and ask for the cash equivalent.
One major source of income in Iraq for a time was taxing the salaries of government employees, until Baghdad controversially stopped transferring payments to perhaps 400,000 employees living in IS territory, including the city of Mosul. Members of Iraq’s parliamentary finance committee said the salary payments amounted to more than $1billion, which IS taxed at a rate of between 10 and 50%.
IS is also known to have raised significant funds from exchange rate manipulation and transactions in Jordan and Iraq. An inquiry by the UK House of Commons Foreign Affairs Sub-committee on IS financing heard in April 2016 how IS managed to multiply its looted cash, by feeding it into the regular official auctions of US dollars that are held in Iraq. The group was able to move its money in such a way as to exploit small differences in the official exchange rates between the US dollar and the Iraqi dinar. The system it allegedly used involved transferring captured money out through regional banks and money service businesses – disguising its source – and then inserting the money back into the Iraqi banking system in Baghdad. The money was then entered into foreign currency auctions, where IS was able to make a profit on the differential between wholesale and retail exchange rates. Any profit from these activities was then transferred back into IS-controlled areas through the hawala system.
In April 2016, following reports of IS fighters being forced to take pay cuts, further evidence emerged of the way oil losses were hurting IS’s finances. A report by Iraq’s central court of investigation, based in part on the confessions of captured IS suspects, said the group was resorting to alternative revenue-generating activities including fish farming and car dealerships. The report quoted Judge Jabbar Abid al-Huchaimi as saying that “the terrorists’ current financing mechanism has changed from what it was before the announcement of the caliphate nearly two years ago… After the armed forces took control of several oil fields Daesh (IS) was using to finance its operations, the organisation devised non-traditional ways of paying its fighters and financing its activities.”
Fishing in hundreds of lakes north of Baghdad generates millions of dollars a month, according to the court report. Some owners fleeing the area abandoned their farms while others agreed to cooperate with IS to avoid being attacked. “Daesh treats its northern Baghdad province as a financial centre,” said al-Huchaimi. He added that this area was IS’s primary source of financing in the capital, where it carries out frequent bombings against security forces and Shia residents. The report also described the militants’ taxation of agricultural land, a 10% levy on poultry and other duties on a range of imports into ‘their territory’. New revenues are also being generated from car dealerships and factories once run by the Iraqi government in areas seized by IS, such as Mosul, but al-Huchaimi said oil smuggling from Syrian refineries remained the group’s primary source of international financing.
The Iraqi court’s report described how funds were channelled to IS’s Bayt al-Mal, or Treasury Department, in Mosul and then distributed to other provinces through hawala offices, first in the city of Irbil and from there to other parts of Iraq. It also said that in addition to salaries, IS fighters might receive rent allowances, financial rewards for up to four children, and occasional bonuses like one worth $1,000 distributed after the militants captured Mosul in June 2014.
As has been noted already, IS has been far less reliant on foreign state sponsorship or donations from abroad than most terrorist groups. One notable exception to this was the work of Tunisian-born Tariq bin al-Tahar al-Harzi, named by the US Treasury Department in September 2014 as a Specially Designated Global Terrorist and killed in a drone strike in Syria in June 2015. Al-Harzi was a high-profile IS official operating in Syria who worked to raise funds and recruit and facilitate the travel of fighters for the organisation. He helped to raise funds from Gulf-based donors for IS, and in September 2013 arranged for IS to receive approximately $2 million from an unnamed Qatar-based IS financial facilitator. This person required that al-Harzi use the funds for military operations only; he also enlisted al-Harzi’s assistance with fundraising efforts in Qatar.
Al-Harzi was reportedly IS’s emir for the border region between Syria and Turkey and, in this capacity, was tasked with receiving new foreign fighter recruits and arranging light weapons training for them before sending them into Syria. Specifically, he facilitated the movement of Europeans – from the UK, Albania and Denmark, for example – to Turkey and eventually Syria, and he also recruited North Africans.
As of late 2013, al-Harzi held another interesting position, as IS’s emir of suicide bombers. He was a key figure in an IS facilitation network that played a central role in IS’s suicide and VBIED attacks in Iraq, and worked with other IS members to facilitate the travel of individuals from Syria into Iraq. In October 2013, he requested suicide bombers for operations in Iraq from a Syria-based associate. Al-Harzi also worked to provide material support to IS by procuring and shipping weapons with his brother from Libya to Syria.
Meanwhile, intelligence officials have flagged up crowdfunding through social media as an emerging source of finance for IS. Volunteer fighters from Middle Eastern countries have often collected donations online from sources in the Gulf, and there is concern that such activity is also going on in Europe. According to FATF reports, there have been plenty of cases where appeals for supply and equipment were quickly matched and specific instructions were given over encrypted platforms about where to direct the funds. In May 2016, for example, an undercover reporter for Britain’s Sun newspaper exposed a cases in which an IS fundraiser use an encrypted Telegram account to source cash, mobile phones and computer equipment from London for the group.[ii]
Foreign terrorist fighters and microfinancing
In addition to the loss of oil revenue referred to earlier, recent losses of territory for IS in Iraq and northern Syria have been shrinking the group’s tax base. Under this new financial pressure, as well as in response to military setbacks, IS is shifting towards greater reliance on largely self-funding foreign terrorist fighters (FTFs). These volunteers not only bring in money and material support but also present opportunities to stage low-cost operations in Europe and Arab countries when they return home. In the eyes of some analysts this threat is growing as IS’s strength in its core zone of operation is reduced. Plotters involved in the Paris and Brussels attacks had returned to Europe after being trained in northern Syria by an IS cell tasked with causing chaos in the West. According to an IS official quoted by Martin Chulov in the Guardian in September 2016, “morale is desperate, even in Raqqa [IS’s stronghold in Syria]. But they are very smart. They have made plans for all of this. They are investing a lot in sending their people to Europe, and it won’t be over soon.”
We have referred to the subject of FTFs and the potential security threat they pose to Western, especially European, states and to states in the Arab and Muslim world in section 4. Here, though, we will examine their role in the new configuration of IS’s finances, together with the related and increasingly important area of small-scale transactions in IS funding.
Research published in May 2016, by Dr Magnus Ranstorp of the Swedish Defence University, catalogues the ways in which
“IS recruits from Europe are today raising significant funds for the group through multiple microfinancing techniques within the European Union. Moneymaking schemes to date have included petty theft, fraudulent loan applications, social insurance fraud, and sophisticated VAT fraud. Aspiring and active European operatives then use a range of techniques to transfer money to IS in Syria and Iraq, including bringing money with them when they travel to join the group, withdrawing funds from ATMs and money service businesses (MSBs) such as Western Union (WU) and Moneygram along the Turkey-Syria border, sending cash couriers, and using the hawala system.”
This research, which draws on extensive interviews with law enforcement, financial investigators and intelligence officials, also provides important insights into the web of IS’s transnational networks and local recruitment and facilitation hubs. IS encourages each individual recruit to bring whatever assets are available to them to contribute to the group’s cause; their efforts are often well organised and supported by IS facilitators. Recruits with good credit histories and those well placed to defraud financial institutions, as well as those with a network of contacts willing to provide funds, are particularly prized. FTFs often make sudden asset sales or transfers ahead of their departure. They often quit their jobs if they are employed, and they commonly make unusually large withdrawals from their accounts. In terms of company financial activity, recruits often generate very large amounts in short periods: business purchases, often of IT or mobile phones, are made at high levels to maximise credit limits, with orders placed within a short period as unpaid invoices accumulate.
A significant number of European FTFs have past criminal convictions and so turn, unsurprisingly, to theft and petty crime when raising funds for the jihad. Extremist preachers, such as Khalid Zerkani, who recruited dozens of Belgians to fight jihad in Syria between 2013 and 2014, have justified such criminal fundraising on religious grounds. Zerkani encouraged his acolytes to rob people in the street and steal the luggage of tourists, and then distribute the proceeds to fund their travel to Syria. In another example, eight young men in Germany were prosecuted for robbing churches and schools to finance IS in Syria. They stole €19,000 worth of religious items and laptops and cash between 2011 and 2014, and often seriously damaged the premises before they left. Prosecutors said the central figure in the gang, a 26-year-old Moroccan, had uploaded a video to YouTube encouraging Muslims to fight for IS; he himself travelled to Syria, where he was trained in a military camp.
Many FTFs have taken out loans from banks without any intention of paying them back. One of the most common fraudulent practices is to secure a car loan or leasing option with no intention of paying back the debt and every intention of reselling the vehicle. This also provides IS sympathisers with opportunities to send cars or SUVs to IS in Syria. Vehicles are also often driven from Europe to Turkey and then into Syria by FTFs.
Investigations in Denmark, Belgium, France and the Netherlands have found cases of FTFs continuing to receive welfare payments while fighting in Syria. British authorities have also been looking into the extent to which British FTFs are abusing the social insurance system through false claims, online fraud and even student loans.
Although it is still reliant on access to banking services in Syria and Iraq, IS has far less access to the international financial system than it once did, and small-scale transactions through the hawala system and through MSBs, both regulated and unregulated, are playing a greater role in the transfer of funds to and from the group and its operatives. Money transfers are broken down into multiple transactions below the threshold for mandatory reporting. MSBs in Turkey are used to transfer FTF funds coming from Europe to recipients within the IS area, using MSB offices and ATMs in towns straddling the Syrian-Turkish border. After receiving instructions from recruiters and facilitators, FTFs arrive in pre-determined destinations where they take out funds from their home country bank accounts through MSBs or via wired cash. An official 2015 UK report noted that “funds are typically broken down into smaller amounts to avoid the need to provide identification and to avoid detection. Intelligence also indicates that employees have been known to facilitate funds to terrorists through their position within MSBs.”
Cash couriers are another way of bypassing the international financial system to get money to IS. Sometimes FTFs carry money themselves; money smugglers also operate. For example, five men, all South African, were arrested at Johannesburg’s main airport in August 2015 as they were about to board a flight with $6 million stuffed in bags. A senior police officer told Fox News the suspects were believed to have been heading for the IS caliphate via Dubai, and there was “one … we are particularly interested in, as records show he was flying to Dubai every two days for a year”. The Iraqi ambassador to South Africa, Dr Hisham al-Alawi, told local news service IOL he was not surprised at suspicions the money could have been destined for IS. “There has been increasing activity in South Africa with regards to recruitment and fundraising for IS,” he said. “We are always receiving information about people who are joining. It could also be a possibility that those returning are being sent back to recruit or fundraise. It is something we must be wary of.” The ambassador’s remarks came a week after reports that eleven South Africans had returned from territory controlled by IS. The eleven claimed they had travelled there as aid workers.
FTFs are encourage to bring other useful material resources with them. FATF’s February 2015 report on IS financing offered the following case study as an example:
A suspicious traveller from a Nordic country arrived in Istanbul Sabiha Gökçen Airport. When interviewed by the competent authorities, he admitted that he travelled to Turkey with the intention of travelling to Syria and joining IS. Camouflage, AK-47 type gun parts and cartridges, a first aid kit, three knives, binoculars, batteries, sport shoes, wire ropes, torches and military supplies were found in his luggage. He was denied entry into Turkey and was deported to his country of residence.
In April 2016, senior officials within FATF, meeting at the UN in New York, discussed the role of small transactions in terror finance, and the difficulty for financial institutions of stopping them. The head of Belgium’s Financial Intelligence Unit, Philippe De Koster, said the November 2015 attacks by IS in Paris that killed 130 people were in part financed through welfare benefits, received in Belgium, that were moved via Western Union (WU) transfers. Duncan DeVille, WU’s global head of financial crimes compliance, said one suspect in the attacks sent seven WU wires totalling $552 and another sent a single wire for $226, illustrating the very small amounts of money involved. There have long been concerns about the use of WU and other MSBs to wire funds to IS-linked fighters joining the jihad in Syria and Iraq, although WU has not been accused of wrongdoing. Following the Paris attacks, however, the company received a total of 75 subpoenas, which identified more than 850 people, from authorities in the United States, France, Germany, Bulgaria, Austria and the United Kingdom, DeVille said.
The FATF meeting also heard how a pilot programme of the UK Joint Money Laundering Intelligence Taskforce had enabled Barclays Bank to identify transactions involving FTFs who had links with IS, by looking at card spending near the Syrian border, tracing the payments to determine the source of funds, and looking for links between the people involved, reporting suspicious activity where appropriate. The bank was then able to share its information with, and get feedback from, law enforcement officials.
This kind of heightened vigilance and detailed information sharing clearly has an impact on IS. Ranstorp’s research found, for example, that IS modifies its instructions to recruits and facilitators from time to time, and after WU and a number of other MSBs began watching more closely for IS-linked transactions in the Syria-Turkey border area, IS urged aspiring European FTFs only to transfer sums under €5,000 ($5,700). For a period of time it also encouraged them to transfer funds through MSBs to recipients in Bosnia, particularly in the Brcko district, a well-known jihadi hotspot, because it was seen as a safer option.
Since then, Spanish police claim to have made a breakthrough with the arrest in July 2016 of two Moroccan brothers suspected of financing IS operations in Syria and Iraq. The two Moroccans, aged 22 and 32, diverted funds from Europe to pay for the transfer of members of IS into conflict zones, the interior ministry said. Police discovered a large amount of cash and telecommunications data at the brothers’ home, which was expected to assist authorities in exposing the group’s presence in Europe. Ministry sources said that a third brother was involved in the funding, but was believed to have died fighting in Syria. The three had used false identities provided by IS. The death of the one of the brothers in Syria, who had travelled to the country with his wife and children to join IS, did not end their fundraising activities in Spain. Authorities say they used recent legislation to tackle money laundering in order to trace the international money transfers the cell was making. The ministry said this was the first time Spanish police had been able to trace remittances to IS end-to-end, establishing that the money was put at the group’s disposal and used primarily to cover recruiting costs.
Reporting on the arrests, the Spanish newspaper El Pais noted that hundreds of young residents in Spain, mostly Moroccans, have joined IS, and at least 13 have died in suicide missions against Syrian regime forces. At the same time, Spain has become a major terrorist financing hub for jihadis in Syria and Iraq through an extensive network of 250 phone call centres, butchers’ shops and neighbourhood grocery stores, where money is transferred through the informal and virtually untraceable hawala system, according to Spanish intelligence agencies. This secret network, which manages the savings of over 150,000 Muslims and is also being used to help fund groups such as IS and Jabhat al-Nusra, is comprised of about 300 hawaladars, the majority of them Pakistanis. Oversight is “practically zero”, according to anti-terrorism officials. “We know that the system is helping the jihadists in Syria,” said one investigator.
Ranstorp’s research on IS microfinancing, cited earlier, draws the important conclusion that there is an increasingly urgent need to integrate financial intelligence into counterterrorism machinery within and across EU states, as intelligence officials point out that money flows are not just going in one direction – from recruits to IS in Syria and Iraq – but also now from IS sources to recruits and supporters in Europe as ways to fund terror operations.
This post is part of the report, “Understanding the regional and transnational networks that facilitate IED use”. To see the sections of the report please go here. This research was undertaken with assistance from the NATO Counter-IED Centre of Excellence.
[i] Dabiq magazine, passim
[ii] Sun, p. 16, May 16,2016
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