Fighting the funding of fighters

Introduction

This article is divided into two parts.Here is the first part of the article which is named as “Fighting the funding of fighters” Part – I

The much spoken and stalwart terror group-Islamic State of Iraq and Syria or simply Islamic State (ISIS) has already occupied vast area of Eastern Syria till Central Iraq and ruling them with a strict Sharia law. The group is on a spree of establishing a single Islamic state (or Caliphate) across Syria, Iraq, Jordan, Lebanon and has been observing the most brutal and ruthless tactics in meeting this objective.

To accomplish this goal, it has so far managed to acquire heavy weapons including tanks, towed field guns, anti-aircraft cannons, Humvees (vehicles to travel easily in desert areas) to name a few, escorted with AK-47s in every jihadist hands.While part of the equipment was acquired through purchases, much of the heavy equipment was gained from Iraqi armed forces through invasions. In order to maintain the huge army of jihadists, further procurement of arms & ammunition, international travel, run the government in the occupied regions etc., enormous funds are essential and ISIS have so far managed to create a treasury of $2Billion as of 2014, making them the world’s richest terror group.
The major funding sources for ISIS as observed by Financial Action Task Force (FATF) in it’s Feb-2015 report are Oil Smuggling, extortion, taxes, kidnapping for ransom, human trafficking, sales of antiquities, looting the banks in Iraq, donations from wealthy individuals, Agriculture. A brief understanding on how each of these are avenues for funds is:
Oil smuggling: Iraq and Syria are enriched with vast oil fields and some of these fall in the ISIS occupied zone. The group has the technology and equipment to operate these assets including extraction of crude oil and this forms the major and also sustainable source of revenue.
Extortion, taxes, kidnapping for ransom and human trafficking: Another avenue of funds is by taxing the individuals, businesses and almost everything in the occupied regions. While Sunni Muslims pay a relatively lesser amount, other branches of Muslims and non-Muslims pay a higher value. Christians in the region have to pay “Right to Live” tax.Also, kidnapping the western journalists and trafficking the women for sex slavery generate significant values.
Sales of Antiquities: The ISIS started destroying the historic and heritage sites in the region with a two- fold purpose. One is to ensure the upcoming generations doesn’t get an opportunity to witness the history except the current caliphate while other is to sell the remains as antiques in the black market for hefty prices.
Robbing the banks: The banks in the regions were robbed during invasions and this has brought an extensive cash to the group. In June 2014, ISIS has attacked Mosul, the second largest city and looted a staggering $429Mil from Central Bank of Iraq’s office.
Agriculture and donations from wealthy individuals: Sale of region’s yield such as wheat and barley along with foreign donations from Saudi Arabia, Kuwait, and Qatar also contribute to Islamic state’s funding stream.

The money-laundering perspective

Much of the group’s payments and receipts occur in the form of cash leaving no trail and making it difficult for the investigators to understand the movement of funds. Remaining portions of the financial activities occur through Financial Institutions such as Money Services Businesses which are unregulated and trade based formats using fake invoices through front companies. Thus ISIS abuses all the forms of money laundering as identified by FATF which are through financial institutions, bulk-cash smuggling and trade-based money laundering.

Cash activity

Oil is traded through smugglers to the dealers at the Turkish Border by offering a huge discount of up to 80% against the prevailing market rates and antiques are sold through black marketers at the Lebanese and Jordanian borders. Much of these transactions in addition to the tax receipts and ransom amounts occur in cash.
However, the demolition of oil fields in the region through coalition airstrikes have significantly reduced the inflow of funds. The group’s revenue and treasury are also in the form of cash and experts opine a considerable drain out of cash as it takes around $360Mil to pay salaries for the fighters alone.

Financial Institutions

Though sanctions exist on Syria for commercial transactions and Iraq has seized international banking activities from the branches located under ISIS control, the group is still connected to financial system with correspondent banking relationships. For example, the Syrian International Islamic Bank despite sanctioned by USA and EU, provides online banking, forex facilities and ATM services through various branches. Banks in Istanbul, Ankara and towns along the southern border of Turkey also bank ISIS by opening private banking accounts with least identity, transaction monitoring and suspicious activity reporting.
Other form of financial services used by ISIS is the Money and Value Transfer Services (MVTS). Unlike banks, these MVTS do not provide wire transfers but would exchange messages through phone, mail or fax with their counterparts for transfer of value. This system is predominantly used by ISIS for payments to the wives of fighters towards salary and reparations to the families of killed or captured jihadists.
Trade based money laundering: Front companies were created in both IS regions and some western countries for flow of funds. Some of these were registered as NGOs publicizing themselves as supporting humanitarian aid to refugees in Iraq and Syria. In Sweden, four people were arrested on the suspicion of funding IS and stated these individuals have used businesses to strait funds.

Continue reading the second part of this story

Share the knowledge
2 entries
0 comments

About the author

Srinivas is a Certified Anti Money Laundering Specialist (CAMS) with significant experience in Transaction Monitoring and Reporting, KYC, EDD and Sanctions filtering.

8 Responses

  1. Want to know more on crowd funding and related identity theft methods used by Isis to exploit e wallet systems

  2. A very well written article by Srinivas. Internal controls to prevent trade based money laundering is something banks need to prioritize. Banks also need to develop a robust framework to mitigate risks arising from e wallets and new age payment technologies.

  3. nice article. the writer has good knowledge on the subject matter. This article is helpful to the society.

  4. Very good article Shrinivas. Lots of insights into terror funding, awareness much needed.

    Good job.

  5. A meticulous article presented after a lots of research and understanding of the topic. Yet to read part 2. Good work in creating the awareness.

Comments are closed.