Want to Hurt ISIL’s Finances? Go After the People Doing Business With It

In recent months, Western and certain Middle Eastern governments have devoted themselves to attacking the finances of the Islamic State of Iraq and the Levant (ISIL) as part of a holistic approach to degrade and ultimately defeat the group. In some respects, ISIL is funded in the same way that al-Qaida and its affiliates have traditionally obtained money, relying on a network of donors, facilitators, and other supporters to provide it with the resources it needs to operate. It is now clear, however, that the criminal gangs and legitimate businesses who, wittingly or unwittingly, are involved in oil smuggling and other criminal activity provide significant financial support to the terrorist group. While lucrative for ISIL, the involvement of these actors—driven largely by the desire for profit rather than ideology—makes available a new suite of tools to deter them from continuing this behavior, thereby degrading ISIL’s financial base.

The motivations of the people who fund ISIL are many and varied, but they tend to fall into two general categories: Those who are driven by political or ideological sympathy with the group; and those who may or may not be sympathetic to ISIL, but whose participation in their financial schemes is motivated by an opportunistic desire to profit from its activities.

In the past, deep-pocketed donors in the Arabian Peninsula and elsewhere “formed the backbone of al-Qaeda’s financial support network.” These donors worked with a network of financiers and facilitators to move money from the oil-rich states of the Gulf to al-Qaida’s base in Afghanistan and Pakistan to facilitate training and operational planning. While the Gulf—and particularly countries like Kuwait and Qatar—remains an important source of support for certain terrorist groups, other countries in the region like Saudi Arabia and the United Arab Emirates have taken strong steps to counter ISIL funding, which has contributed to a relative decline in the importance of wealthy Gulf-based donors to ISIL’s financial support base.

In place of some wealthy donors who traditionally financed al-Qaeda, a kind of third party, opportunistic criminal activity has flourished in areas in and surrounding territory controlled by ISIL, providing the group with significant resources. When groups like ISIL (or al-Shabbab in Somalia) control large amounts of territory, it becomes substantially more difficult, though not impossible, to curtail the extortion and racketeering activity that provides them with resources.  This is because the legitimate governmental actors whose role is to suppress that kind of criminal activity have melted away in the regions under the control of the terrorist groups.

But what makes ISIL different from other groups that have relied on crime to raise funds is the fact that much of the criminal ecosystem that provides ISIL with crucial support operates outside of territory under the group’s control.  They are thus much more susceptible to having their activities disrupted by law enforcement, regulatory, and national security agencies.

Indeed, a significant amount of reporting in recent weeks has highlighted the ways in which external criminal groups operating for profit are providing some of the crucial support that ISIL needs in order to recruit and pay operatives, conduct operations, and meet its aspirations to govern. An organized crime group in Turkey, for example, acted on ISIL’s behalf to attempt to kidnap a local leader of a moderate Syrian rebel group. The criminals reportedly were to be paid $500,000 for their efforts. In detailed remarks delivered last week, US Treasury Undersecretary David Cohen described the robust ecosystem that has developed, also in Turkey, to commercialize oil extracted from areas that ISIL controls.

What makes this ecosystem unique is also what makes it vulnerable, because the traders who sell oil from ISIL territory do so for a profit. While some probably do so because they adhere to ISIL’s ideology many, perhaps most, are sensitive to the costs and benefits of their actions. ISIL has been selling this oil to intermediaries at “substantially discounted prices,” presumably because of the risks involved in trading it, so that middlemen can resell it at market prices later on. But this means that if the costs of engaging in commercial activity on behalf of ISIL rise, the attractiveness of the commercial opportunity will diminish.

There is also another way in which this kind of expanded reliance on profit-driven criminal groups represents a vulnerability—it engages the private sector as an additional set of actors that can make it more difficult for ISIL to raise, move, and use funds. This became clear when Cohen spoke about ISIL’s oil trading networks last week. He noted that:

“At some point, that oil is acquired by someone who operates in the legitimate economy and who makes use of the financial system. He has a bank account. His business may be financed, his trucks may be insured, his facilities may be licensed. All that makes ISIL oil facilitators vulnerable.”

By enhancing the due diligence that Turkish banks and their Western business partners do on customers who might—wittingly or unwittingly—be trafficking oil and related goods on behalf of ISIL, private institutions might be able to identify and put a stop to illicit financial activity. The increased scrutiny, and enhanced likelihood of government intervention, will deter those who are motivated purely by profit to deal in crude on the group’s behalf. And with time, ISIL may find it more difficult to smuggle oil to provide support for its operations.

Engaging with businesses that may unwittingly interact with ISIL might not conclusively solve the problem of the group’s funding.  But as we have seen with Iran, the private sector often adds substantial leverage to measures taken by governments to address illicit financial activity. In the Iran case, banks, insurance companies, and others curtailed certain kinds of business because, having learned about Iran’s deceptive and illicit conduct, they were not willing to be unwitting participants in its schemes. So too can the private sector take steps that will make ISIL’s life substantially more difficult.

  

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About the Author(s)

Zachary Goldman

Executive Director of the Center on Law and Security at NYU School of Law