Financing Terror: Islamic State and the Price of Empire – The London Economic

Financing Terror: Islamic State and the Price of Empire

By Simon Bartram

Terrorists strike fear into the hearts of their fellow citizens by bombing and brutalising their homeland, but it is the contents of their wallet that should give us more cause for concern.

Whether it’s a company like BHS or a state fighting for survival like the Soviet Union, success or failure depends on having a winning financial strategy. So how does ISIS fare?

Firstly, ISIS has been able to accrue a vast amount of wealth. In 2014, the US Treasury reported that ISIS received $600 million from extortion and taxation, $500 million from oil and gas sales and $45 million from kidnappings and ransoms – figures which have likely increased due to their acquisition of new territories since 2014. This suggests that ISIS receives most of its money through its operations as a functional state.

As an example, in Mosul, Iraq’s second largest city which, at the time of writing, is still controlled by ISIS fighters, ISIS taxes government employees as it does the rest of its subjects. Public sector workers on the Iraqi State’s payroll pass on a percentage of their earnings to ISIS just as they would under any functional state (indeed, the Iraqi state paid roughly $170 million per month to employees in ISIS-controlled states until August 2015). It is even reported that ISIS, in Syria, are taxing their subjects at a lower rate than the Assad regime in order to win hearts and minds.

In order to justify their taxation policies, ISIS takes control of key public infrastructure and charges the public for its use. They often secure infrastructure such as the water supply, when seizing control of towns, making the local population dependent on them. They also instate their own law courts. They have started charging tolls on transport crossing their territories, and selling permits to perform particular activities in regions under their control.

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This trait of state financial planning is not wholly surprising when we consider that many ex-officials under Saddam Hussein’s Sunni Ba’athist regime, including civil servants, joined ISIS. It is for these reasons that ISIS has won the accolade, according to the US State Treasury Department, as one of the “best-funded” terrorist organisations ever confronted. They control a resource-rich region, both in terms of oil and workers, which is administered by people who are not entirely inexperienced.

With this income, ISIS created a budget in 2015. They projected a $250 million budget surplus, with expenditure of $2 billion, implying income of over $2 billion. Most of their expenditure is used to pay their fighters, between $500 and $600 per month, as is expected under any war economy. The terrorist group has provided ration cards, for a nominal fee, to their population. These cards bear the ISIS logo. They distribute resources only to people who possess and use those ration cards, thereby maintaining control over the population economically. They also opened their first Islamic bank in Mosul with the authority to make loans and hold people’s deposits, which again binds the local population to the regime

Their planned expenditure included monthly wages for the poor and disabled, orphans, widows and families of individuals killed in US-led coalition airstrikes. This charitable expenditure mimics the charity work performed by other terrorist organisations such as Hamas. The extent to which this budget represents propaganda is not easy to ascertain, but the clear intention and ambition to establish a comprehensive welfare state is evident.

However, their ambition is unfeasible. The Iraqi government’s own local government budgets for the areas now controlled by ISIS well-exceeded $2 billion. Their zakat tax is a specific tax levied to help the poor, but this sort of benevolence will not win hearts and minds if water and electricity run out.

mosul

This emphasis of accruing wealth through empire-building and taxation distinguishes ISIS from many other terrorist groups such as al-Qaeda which received most of its income from donations (particularly from the wealthy Gulf States). The West has historically challenged al-Qaeda through anti-money laundering initiatives such as asset-freezing resources suspected of being used to finance worldwide terrorism, placing sanctions on wanted donors, and through the 2001 US-led invasion to dismantle the Taliban which provided them with shelter.

Unlike ISIS, however, al-Qaeda never had to mount a full-scale invasion, or defence, of sovereign nations on the scale that now exists in the middle-east. Its terrorist atrocities were piecemeal, and, with the exception of 9/11, largely just required investment in staff training and weapons rather than the provision of state services. Al-Qaeda are a network, without any base or significant overheads and therefore never required funding on the scale that ISIS now requires (and required for the previous two years), to attack, defend and sustain a territory.

Of course, ISIS’ income is small change compared to £533.7 billion that the UK’s HMRC collects from its citizens in tax (54 per cent of which is collected in income/payroll taxes), but the United Kingdom is one of the richest countries in the world – the UK’s tax revenue alone exceeds Iraq’s GDP of $223.5 billion. When we consider that, according to Reuters, the Iraqi state only received $430 million in taxation in 2008, we start to understand the scale of ISIS’ ability to extract money from its subjects relative to other state actors in the region. ISIS’ oil revenue is at half a billion, which is meagre compared to the $80 billion that Iraq received in 2011 from its oil, but is still substantial, and reveals the extent to which part of ISIS’ wealth is dependent upon the wider region’s acceptance of their exports, and of banks in the region to turn a blind eye to income that they suspect has been received from the trade of stolen commodities.

This is an aerial view of the Electrical Power Generation Plant, located in Bayji, Salah Ad Din Province, Iraq (IRQ), during Operation IRAQI FREEDOM.

ISIS has benefited from asset-stripping the lands which they’ve taken over – indeed $500 million alone was reportedly seized from the Central Bank’s Mosul branch. These are, however, one-off streams of income. Their oil facilities have been attacked, illegal oil traders have been internationally sanctioned, bulk cash storages have been bombed and state employees in ISIS-controlled territories have had their pay halted. All of this has seemed to have had an effect, with ISIS having to reduce the pay of their fighters by 50 per cent, asking Raqqa residents to pay for energy in black market dollars, and selling detainees for $500 per person. Previous perks, such as free Snickers bars and energy drinks, have now ceased. This will have a significant effect on the morale of current fighters, their retention, and the attraction of new recruits. For an organisation that boasted of minting its own currency, the widespread trading in dollars comes as a humiliation. Its rapid loss of territory in the second half of 2016 will have dire financial consequences for the organisation – Fallujah, Tikrit, Kobane, Manbij, among others, have all fallen, and ISIS’ brutal crimes in these towns have been exposed for all to see.

When plundering no longer becomes a viable source of sustainable finance and the realities of maintaining a fully-functional economy against international opposition begin to take effect, and when the gruelling nature of stalemate warfare becomes apparent, not even the slickest of recruiting videos will help to maintain ISIS as a regional force. The terrorist group will be shown to be ideologically and financially bankrupt. They are not long, the days of wine and roses.

Simon Bartram is a freelance writer and qualified accountant, having graduated with a first-class degree in Modern History and Philosophy from the University of St Andrews.

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