24 Feb 2016
Having belatedly moved to degrade and destroy the primary Daesh funding source within its reach, the international community must now embark on the next phase through targeted financial strategies against middlemen and capacity building in peripheral economies.
Despite the woefully slow start, the effort to ‘degrade and ultimately destroy’ Daesh (also referred to as ISIS, ISIL or Islamic State) and its financing has gained momentum and now commands significant international attention. An ‘unprecedented’ gathering of Security Council Finance Ministers in New York in December 2015 to pass Security Council Resolution 2253 was stage-managed to display the united resolve of global financial leaders.
Additionally, a significant uptick in the tempo of coalition airstrikes is driven in the main by the realisation that the only meaningful influence the international community has over Daesh’s current sources of funding is the destruction of its oil production and distribution infrastructure. Efforts to sever Daesh from access to the international financial system are also belatedly developing.
Whilst recent reports of 50 per cent salary cuts for certain Daesh fighters suggest the targeting of sources of revenue is clearly a somewhat effective endeavour, further efforts should be targeted at effecting isolation from financial services that would disrupt financial flows at two levels: at a regional level between Daesh and the traders on whom the group relies for essential supplies and, on a wider scale, between Daesh and its globally-dispersed affiliates and supporters.
Regional Disruption and Isolation
Recognising its inadvertent contribution to Daesh’s coffers, in August 2015 the Iraqi Government ceased paying salaries to state employees still working in Daesh-controlled territory. This flow of funds, estimated at up to US$170 million per month by the US Treasury, was being taxed by the terror group at a rate of 20-50 per cent. Whilst this represents a positive step, a consideration of the disbursement of such income is required.
A substantial portion of Daesh funding is used locally to cover military and civilian expenses. However it seems entirely probable that Daesh funds are used to source essential supplies and materiel from beyond Daesh’s borders where opportunistic traders and middlemen facilitate the movement of goods and supplies into Daesh territory. While the transit of oil out of Daesh-controlled territory has declined significantly, the smuggling routes used are well-established and are also employed for bringing food, cigarettes and ammunition into the ‘caliphate’. Opportunity for financial gain rather than ideological alignment motivates the facilitators of this flow who, being businessmen, require financial services for storing and moving their funds. Targeting their financial access via disruption and sanction should be a priority.
Global Disruption and Isolation
As international airstrikes continue to impair Daesh’s capacity to raise revenue from oil, financial pressures on the group’s operations in Syria and Iraq will increase the need for free-flowing financial networks with affiliated groups elsewhere. Herein lies a potential vulnerability that should be a focus for exploitation by the international community as it seeks to isolate Daesh from globally-dispersed affiliates and supporters.
Some sensible steps have been taken. The Iraqi Central Bank has published the details of money exchange houses operating under Daesh control and banned them from accessing currency auctions. Furthermore, international money service businesses have suspended transfers to and from agents operating within, and close to, Daesh-controlled territory. More could and certainly should be done.
A Heavy Burden
The burden of action falls heavily on countries such as Turkey, Lebanon, and Jordan; countries already overwhelmed by the ever-increasing fallout of the conflict raging across their borders. The ability of nations to disrupt illicit and threat finance varies significantly. Reviews by the Financial Action Task Force, the global standard setter for anti-money laundering and counter-terror finance, reveal shortcomings across the region, shortcomings that almost certainly assist both traders seeking to benefit from the cross-border trade opportunities created by the various factions embroiled in the five-year old conflict and also Daesh and its supporters seeking to move funds to/from Syria and Iraq.
Whilst the international community has worked hard, and increasingly effectively, to disrupt the domestic sources of Daesh funding, efforts to disrupt its use of funds and international access appear to be less focused. The next phase of the financial strategy against Daesh must embrace these issues urgently. Firstly, support must be given to regional governments to identify traders benefiting from Daesh demand; secondly, banks, money exchange houses, and remittance companies in peripheral nations must be monitored and regulated to ensure funding connected with Daesh-linked trade, or funding sent or received by Daesh in Syria and Iraq, is interdicted; and thirdly, the international community should provide training, support and capacity-building to these peripheral nations to assist with the unprecedented challenges posed by this imperative to monitor and disrupt Daesh’s flow of resources and funding.
The financial fight against Daesh requires innovative and predictive thinking. Airstrikes on revenue-generating oil and gas assets to restrict the group’s sources of funding should continue. But as efforts to disrupt Daesh finance take effect, the international community must assume that the group will itself continue to innovate, perhaps imitating Hezbollah and turning to tapping into the growing demand for drugs in the Middle East, to create new streams of income. The international community must also anticipate the evolution of the financial landscape including efforts by Daesh to create financial linkages with its foreign branches. Thus far, the more challenging elements of disrupting the use and transfer of funds by Daesh and its affiliates have been mostly neglected. These must be urgently addressed.
Tom Keatinge is a Director of the Centre for Financial Crime and Security Studies, RUSI, Whitehall, London
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