An Overview of Current Trends in Terrorism and Illicit Finance Lessons from the Islamic State in Iraq and Syria and Other
September
7, 2018
Testimony presented before
the House Financial Services Committee, Subcommittee on Terrorism and Illicit
Finance on September 7, 2018.
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An Overview of Current Trends
in Terrorism and Illicit Finance: Lessons from the Islamic State in Iraq and
Syria and Other Emerging Threats
At the height of its
territorial control in 2015, Islamic State in Iraq and Syria (ISIS) generated
over $6 billion—the equivalent of the gross domestic product of Liechtenstein.3
This raises the question: In a post-9/11 environment in which governments and
the private sector are more aware than ever of the importance of countering
terrorist financing, how was ISIS able to develop a war chest of this
magnitude? While ISIS’s territorial control has declined, it still retains
financial power; ISIS’s surviving leadership is alleged to have smuggled as
much as $400 million out of Iraq and Syria and used it to invest in legitimate
businesses—hotels, hospitals, farms, and car dealerships— throughout the region,
including in Turkey, where some militants have also reportedly made large
purchases of gold. ISIS’s financial
holdings and funding model have made it the wealthiest insurgent group in
history, and its diversified funding portfolio and ability to raise money
through criminal activities provides it with an opportunity to survive and even
make a comeback in Iraq and Syria over the next several years.
The fact that ISIS was able
to acquire such a vast financial reserve demonstrates that, despite laudable
progress over the past decade and a half, the international community is still
learning how to combat terrorist financing. To that end, we must review exactly
what we mean by terrorist financing, explore how terrorist groups generate
income, analyze how ISIS might seek to use its funds to regenerate, and,
finally, understand current and emerging trends in this area. In this testimony, I define terrorist
financing and place it in its proper historical context. Second, I analyze how
terrorists generate income and how their methods have changed over time and
identify current trends in the financing of terrorism, including the
crime-terror nexus. Third, I describe what I see as the most significant threat
to international security—ISIS—and how this group may attempt to finance a
renewed campaign of terror. I conclude with an assessment of the current
campaign to counter ISIS finances and the implications for U.S. national
security.
Defining Terrorist Financing
Terrorist financing is the
raising, storing, and movement of funds acquired through licit or illicit
methods for the purpose of committing terrorist acts or sustaining the
logistical structure of a terrorist organization. Terrorists and insurgents are always seeking
innovative means to evade law enforcement, and security officials must be
dogged in their pursuit of countermeasures to deny, destroy, detain, and
disrupt these networks. In the contemporary global security environment, these
challenges are further complicated by the cross-border movement of people,
goods, and money. Considering the already complex landscape of weak states and
poorly governed territories, those tasked with “following the money” have an
immensely difficult task.
Even though, by definition,
violent nonstate actors exist largely outside of the formal economy, their
illicit activities are connected to it in a variety of ways. Terrorist and
insurgent organizations are relentless in their use of the tools of
globalization, comingling their money with the trillions of dollars of capital
transfers that occur each day.9 These groups have learned how to combine their
resources and profits with legitimate funds, compounding the challenge of
identifying where criminal funds end and legitimately earned funds begin.
Financing is used to augment
militant groups’ ability to execute attacks and fund organizational components
aimed to increase group cohesion.
Terrorist organizations must generate significant levels of income just
to survive, much less sustain operational capabilities and funding day-to-day
activities. Unlike states, terrorist organizations lack the ability to legally
tax citizens, although such groups as the Liberation Tigers of Tamil Eelam in
Sri Lanka and the Taliban in Afghanistan taxed and extorted civilians for gain,
activities that the Taliban continues today.
In Iraq and Syria, ISIS
generated the lion’s share of its vast fortune by mimicking the actions of an
actual nation-state. It collected taxes and tariffs from the population in the
territory it controlled and ran state-owned businesses and trading entities,
including the oil trade, while extorting individuals, ethnic groups, private
companies, local businesses, and the Iraqi government. While ISIS’s actions
could be a historical anomaly in the financing of terrorist groups, they could
also serve as a model for militants to emulate. Yet before looking to the
future of terrorist financing, it is crucial to analyze how terrorists have
raised funds in the past and how this phenomenon has evolved over time.
Evolution of Terrorist
Financing
Throughout the Cold War, both
sides of the conflict funded proxy groups that engaged in civil wars and
insurgencies and committed acts of terrorism. In the immediate aftermath of the
dissolution of the Soviet Union and the end of the Cold War, great-power
geopolitical competition came to a temporary halt—as did the sponsorship of
terrorist and insurgent proxy groups throughout the world, from Africa to the
Middle East to Latin America. Several highprofile groups no longer benefited
from the largesse of state sponsorship, which included not only funding but, in
many cases, training and equipment.
Around the same time, inexpensive weapons flooded the global arms
market, fueling the civil wars and insurgencies that raged throughout the 1990s
and enabling terrorists to seek to replace funding from external patrons with
money gained from criminal activity, such as armed robbery, extortion, and
kidnapping for ransom. There were
changes in the frequency and strength of cooperation among terrorists and
criminals, who were forced into a marriage of convenience to survive.
In addition, many terrorist
groups underwent radical changes to their command and control structures, as
vertically aligned, top-down organizations grew more networked and
decentralized. This organizational change was accompanied by another shift, as
some terrorist groups, including al-Qaeda, sought to move beyond local
grievances to transnational agendas that included attacks across the globe.
Inevitably, the desire to establish a transnational presence brought these
groups into contact with terrorist and criminal enterprises in other parts of
the world, and this contact sometimes acted as a force multiplier.
To insulate their
organizations from shocks similar to those like losing an external sponsor,
terrorist groups moved to insource the bulk of their financing.16 Phil
Williams, a professor at the University of Pittsburgh and one of the world’s
leading scholars of transnational organized crime, recognized this shift and
subsequently characterized it as “do-it-yourself organized crime.”17 Other
scholars, including Tamara Makarenko, have referred to this phenomenon as “the
crime-terror nexus.”18.
In its quest to fund its
organization, ISIS has embraced the notion of the crime-terror nexus, going to
great lengths to recruit members from the criminal underworld and even
peppering their propaganda with slogans along the lines of one used by a
British jihadist group, Rayat alTawheed—“Sometimes people with the worst paths
create the best futures.19 Terrorism expert Magnus Ranstorp has dubbed this
grassroots phenomenon “micro-financing the Caliphate,” in which jihadists
engage in various types of fraud, petty theft, and other low-level criminal
activities.20 Sometimes these jihadists use their criminal skills to make them
more effective attackers.21 This hybridization, sometimes called “gangster
jihad” refers specifically to
individuals who drift from the world of crime towards jihadism, perhaps as a
way to redeem a lifestyle characterized by sin and illegal acts.22
ISIS: The Wealthiest
Terrorist Group in History
ISIS is different from
previous terrorist groups because the territory it controlled provided
extremely lucrative resources, such as oil, and a renewable funding source in
the form of a taxable population. As former Assistant Secretary for Terrorist
Financing at the Department of the Treasury Daniel Glaser has noted, ISIS
generated its wealth from three primary sources: oil and gas, which generated
about $500 million in 2015, primarily through internal sales; taxation
Tamara Makarenko, “The
Crime-Terror Continuum: Tracing the Interplay between Transnational Organized
Crime and Terrorism,” Global Crime, Vol. 6, No. 1, 2004, pp. 129–145.
19 Rajan Basra and Peter R. Neumann, “Criminal Pasts, Terrorist
Futures: European Jihadists and the New CrimeTerror Nexus,” Perspectives on
Terrorism, Vol. 10, No. 6, 2016.
20 Magnus Ranstorp, “Microfinancing the Caliphate: How the Islamic
State is Unlocking the Assets of European
Recruits,” CTC Sentinel, May
25, 2016; Elisabeth Braw, “Foreign Fighters Financing,” Foreign Affairs,
October 25, 2015; and Joby Warrick and Greg Miller, “New ISIS Recruits Have
Deep Criminal Roots,” Washington Post, March 23, 2016. 21
Rajan Basra and Peter R. Neumann, “Crime as
Jihad: Developments in the Crime-Terror Nexus in Europe,” CTC Sentinel, Vol.
10, No. 9, October 2017. As Basra and Neumann point out, these skills include
the ability to access weapons, forged documents, safe houses, vehicles, and
other logistical necessities of a terrorist plot. The authors add familiarity
with violence as an enabling “psychological skill.” 22
Kacper Rekawek, Stanislav Matejka, Martina
Babikova, Tomas Nagy and Jakub Rafay, From Criminals to Terrorists and Back?
Bratislava: GLOBSEC, December 2017, p. 7.
and extortion, which garnered
about approximately $360 million in 2015; and the 2014 looting of Mosul, during
which ISIS stole about $500 million from bank vaults.
To put ISIS financing in perspective,
it is useful to consider not only ISIS’s similarities to other group but its
differences as well. Indeed, there are far more differences than similarities,
as ISIS is unique in the scale and scope of its financing activities. Like many
other terrorist groups in the contemporary era, ISIS relies on a range of
criminal activities, including but not limited to extortion, kidnapping for
ransom, robbery and theft, and antiquities smuggling. ISIS may also have been
involved with narcotics trafficking. There
is little evidence to suggest that foreign donations from nation-states have
been a significant funding source for ISIS, although wealthy individuals from
the Gulf have been accused of financing terrorists in Syria.25
In addition to funding its
organization from the bottom up, through petty criminality, ISIS also relied on
a top-down funding structure from a range of sources associated with its
control of territory. As mentioned in the introduction, ISIS is unique in
recent history as one of the few terrorist groups to generate most of its
funding from the territory it held—revenue amassed from taxation and extortion,
the sale of oil and various oil-related products, looting, confiscation of
property and cash, and fines levied against the population by the religious
police for a litany of offenses.26 ISIS’s reputation as incorruptable, a
defining characteristic inherited from its predecessors, al-Qaeda in Iraq (AQI)
and Islamic State of Iraq (ISI), helped boost popular support.
Most concerning, however, is
that ISIS continues to make money from oil to this very day, despite the
drastic reduction in its territorial holdings. In late June, four members of
ISIS’s Oil and Gas Network were killed during Coalition operations in the
central Euphrates River Valley in Syria.
According to a United Nations Security Council report from just a few
weeks ago, ISIS has regained control of oil fields in northeastern Syria and
continues to extract oil, both for its own use, but also for sale to
locals. So while significant progress
has been made in combating ISIS’s ability to raise money through oil, this
revenue source has yet to be completely eradicated and likely never will be.
Even when ISIS’s predecessors did not control large swaths of territory in Iraq
between 2006 and 2009, they were similarly able to raise substantial sums of
money from oil, including by extorting local and regional distribution
networks.
Countering the Return of the
Caliphate
Despite major victories in
countering terrorist financing since 9/11, the struggle against ISIS has proven
that, even with enhanced tools, continued progress in this area will remain
fraught with serious challenges. Since fall 2015, forces from Combined Joint
Task Force – Operation Inherent Resolve have regularly conducted targeted,
intelligence-driven strikes on the group’s oil infrastructure and bulk-cash
storage sites in Iraq and Syria.30 To mitigate the prospects of an ISIS
revival, these operations must continue well into the foreseeable future. There
are already indications that, even with ISIS’s substantial loss of territory,
smaller cells of ISIS fighters are regrouping and engaging in fundraising and
recruitment.
As ISIS’s stranglehold on
territory is further reduced, it might attempt to compensate for losses in
certain revenue streams by increasing revenue generation in other areas. Accordingly, every potential facet of ISIS
revenue should be nominated for targeting or sanctioning, with the most
difficult areas to counter—taxation and extortion of the local population—a
longer-term objective more closely tied to postconflict reconstruction. This is
especially important given ISIS’s (and before it, AQI and ISI’s) penchant for
extorting construction companies.
Reconstruction aid to newly
liberated cities, while well intentioned, would provide an attractive target
and potentially facilitate ISIS’s ability to make significant sums of money
even without holding large swaths of territory.
At present, there are no law
enforcement or security service entities capable of preventing ISIS from making
large sums of money from reconstruction contract skimming. The policing assets
that do exist are underfunded, and their resources are already strained. Based
on observation of other conflict zones, nonstate armed groups present on the
ground are more likely to seek profit in their own right than risk fighting
ISIS to enforce laws on the behalf of a repressive regime. A related issue is
that ISIS members meticulously collected personal information, including asset
and income information and the addresses of extended family members, from the
population within the territory it controlled. This information provides ISIS
with more leverage in intimidating and extorting civilians in the future.
As the caliphate disappears,
much of the counter-ISIS mission in Iraq should transition from military force
to law enforcement, especially when elite Iraqi security forces can hamper
ISIS’s ongoing efforts to tax local populations. Intelligence will be essential
for these forces to combat ISIS’s renewed efforts to earn revenue through
taxation and extortion. This means investing more resources in training Iraqi
and other law enforcement entities, an effort that must be more comprehensive
than simply supplying equipment. In Syria, the situation is far more difficult,
since Bashar al-Assad remains in power and there is no semblance of state
security services capable of policing large swaths of eastern Syria. There are,
of course, nonstate armed groups operating throughout the country, including highly
capable groups like the People’s Protection Units of the Democratic Union
Party, although it is not certain whether these groups would enforce the law,
turn a blind eye to criminal activities not directly concerning their
objectives, or collude with other terrorist groups.
As ISIS continues to evolve,
its sources of revenue could change, with the group working to secure external
funding from sympathetic donors throughout the Arab and Islamic world or from
nation-states in the Middle East that view ISIS as a useful proxy in the
region’s ongoing internecine conflict. I
see this change as unlikely, as throughout its history ISIS has eschewed a
reliance on outsiders, but it is still worth monitoring for signs of such a
change. Given the current geopolitical dynamics in the Middle East, it is not
entirely unreasonable to imagine Turkey or one of the Gulf states becoming a
passive sponsor of terrorism.
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