This article is published in collaboration with Washington Post.
Weapons, vehicles, employee salaries, propaganda videos, international travel — all of these things cost money. The recent terrorism attacks in Paris, which the Islamic State has claimed as its own work, suggest the terrorist organization hasn’t been hurting for funding. David Cohen, the Treasury Department’s Undersecretary for Terrorism and Financial Intelligence,described the Islamic State last October as “probably the best-funded terrorist organization we have confronted” — deep pockets that have allowed the group to carry out deadly campaigns in Iraq, Syria and other countries.
But where does the Islamic State get all this money? It turns out that the group’s methods of financing are very different from other prominent terrorist organizations, and much more difficult for the United States and other countries to shut down. Unlike many terrorist groups, which finance themselves mainly through wealthy donors, the Islamic State has used its control over a territory that is roughly the size of the U.K. and home to millions of people to develop diversified revenue channels that make it more resilient to U.S. offensives.
Normally, U.S. efforts to cut off funding for terrorists focus on tracking and stopping the flow of funds through the international system. Since 9/11, the United States, other countries, and international organizations such as the International Monetary Fund and the United Nations have set up initiatives to detect and stop the flow of funds to terrorists. Leaders of the Group of 20 issued a statement on Sunday calling for better coordination to cut off funding channels to terrorist organizations, including exchanging information and freezing terrorist assets.
While the Treasury Department says these efforts have disrupted terrorist networks and saved lives, the Islamic State is a different animal. The Islamic State often avoids international finance, instead generating and spending funds within its own territory or immediately along its porous borders. “As for disrupting the revenue that ISIL generates from extortion and other local criminal activities, we recognize that Treasury’s tools are not particularly well-suited to the task,” Cohen said in October, using another name for the Islamic State.
Estimates of the precise amount that the Islamic State earns from these activities tend to vary a lot and fluctuate over time, but what is certain is that the group is heavily diversified — meaning that if one funding source is shut down, the group can turn to others to generate revenue. Its main methods of generating money appear to be the sale of oil and antiquities, as well as taxation and extortion. And the group’s financial resources have grown quickly as it has captured more territory and resources: According toestimates by the Rand Corporation, the Islamic State’s total revenue rose from a little less than $1 million per month in late 2008 and early 2009 to perhaps $1 million to $3 million per day in 2014.
The Islamic State has other expenses, besides the cost of carrying out terrorist attacks and waging war. The terrorist group runs schools, a religious police force, food kitchens, an Islamic court system and even a Consumer Protection authority. It reportedly pays fighters roughly $400 a month, which is more than the Iraqi government offers some staff. The Islamic State sets and approves annual budgets, and it uses a chief financial officer-like figure to manage its accounts. It’s also “fastidious” about documenting a return on investment for its funders. The Islamic State has established a central bank and even planned to mint its own currency — although in practice the group generally uses local currency, such as the Iraqi dinar and the Turkish lira.
Its control of an expansive territory obviously gives the Islamic State a valuable source of funding and flexibility. However, some U.S. officials have argued that having territory might also be seen as a weakness for the group. Maintaining a state of 8 million to 10 million people, waging war around its borders, and financing and carrying out international attacks are costly and difficult tasks. Without adequate funds to provide services to the local population, people in Islamic State territory might turn against the group, provoking a backlash that might end its grip on power, the thinking goes. In addition, reports from territory held by the group paint a picture of a brutal, two-tiered society, in which terrorists and their families live well and most others suffer. Under this pressure, the economy struggles to function, leaving the Islamic State with less and less to tax and to sell.
As other writers have pointed out, considered as a state ISIS looks quite poor, with a budget roughly on par with Afghanistan or the Democratic Republic of Congo. But considered as a terrorist organization, it looks wealthy and diversified. Below are 12 ways the Islamic State earns its revenue:
Oil: The oil fields that it has captured in Syria and Iraq have been a major source of funding for the terrorist group. Although it’s relatively easy for the United States and other countries to prevent large-scale exports of oil from Islamic State territory, it’s much harder to control the black market oil trade that reportedly flourishes along the porous borders of territory controlled by the Islamic State and surrounding countries.
The terrorist group mostly refines oil in small, mobile refineries, then ships it by truck to the Turkish border, where oil brokers and traders buy or barter for it. Because the trade is illegal, the oil is sold at a steep discount that can fluctuate wildly. Smugglers reportedly use mobile messaging services like Whatsapp to coordinate exchanges of products. Some traders may even have been selling oil from the Islamic State back to the regime of Bashar al-Assad, which the Islamic State is fighting in Syria, according to the Boston Globe.
Oil sales initially provided much of the Islamic State’s revenue, but that has declined since the U.S. and others launched an extensive campaign of airstrikes on the group’s oil and gas facilities, according to a report by the Congressional Research Service in April. By October 2014, the U.S. had reportedly destroyed about half of the group’s refining capacity. The United States has also tried to identify and target oil brokers and encourage Turkey to clamp down on smuggling on its border.
The Islamic State’s oil and gas revenue has also suffered because the engineers and other technical experts necessary to make these products have either fled the area or been killed. The terrorist group has been trying hard to recruit skilled people, as a recording by Islamic State leader Abu Bakr al Baghdadi calling for scientists, engineers, doctors and people with administrative expertise in July 2014 shows.
Taxation/extortion: Because the Islamic State controls an expansive territory, it can levy taxes on the people who live there. Some of these taxes are akin to those of a normal state, while others are more like extortion.
The Islamic State levies taxes on things including goods sold, utilities such as electricity and water (when they run, that is — in some areas, the electricity isonly on for an hour a day), telecommunication companies, cash withdrawals from bank accounts, employee salaries, trucks entering Islamic State-controlled territory at checkpoints, looting archaeological sites and non-Muslim communities in general. A report by Thomson Reuters estimates that this system of extortion and taxation could generate as much as $360 million per year for the terrorist organization.
People in the area describe a kind of two-tiered system, where the Islamic State fighters and their families receive a variety of free services, including housing and medical care, while others are taxed heavily.
Kidnapping for ransom: A U.N. report from October 2014 cited estimates that the Islamic State had generated $35 million to $45 million in the previous year through kidnapping for ransom alone.
The United States and U.K. have tried to limit this financial channel by making it illegal to pay ransoms to terrorist organizations. The policy can seem very cold-hearted to the families that are affected by kidnapping, but officials maintain that it discourages terrorists from taking American and British hostages in the first place.
The Islamic State also generates a significant amount of revenue from kidnapping for ransom in its own communities, acts that tend to go unreported in the international press.
Wealthy donors: Although the Islamic State isn’t primarily financed by wealthy donors the way that other terrorist organizations are, these contributions are still a substantial source of revenue.
Some estimates say that the Islamic State received up to $40 million in 2013-2014 from businessmen, wealthy families and other donors in Saudi Arabia, Qatar, Kuwait and the United Arab Emirates. Many of these elite donors chose to fund the Islamic State because of fear and animosity for Iran and Syrian President Bashar al-Assad. A report by the Brookings Institution in 2013 observed that donors in Kuwait were channeling hundreds of millions of dollars to various Syrian rebel groups.
After then-Secretary of State Hillary Clinton and others in the international community criticized these countries for financing terrorists, Saudi Arabia criminalized financial support in 2013 for the Islamic State, al-Qaeda and other terrorist organizations. The United Arab Emirates also appears to have made headway in limiting terrorist financing, according to Brookings. But other funding channels, including through unregistered charitable organizations that funnel money to the Islamic State, are still open.
Sales of antiquities: As the Islamic State has gained territory, it has taken control of museums, private collections and archaeological sites, such as the 9th century B.C. grand palace of Assyrian king Ashurnasirpal II. This has given the terrorist group an expansive supply of precious art and historical artifacts. Earlier this year, the group had at least 4,500 cultural sites under its control, according to the Paris-based Financial Action Task Force.
Some of these antiquities are destroyed, but others are resold for a profit, often flowing to markets in Turkey and Jordan, and from there to Europe and other advanced countries.
In November 2014, Matthew Levitt of the Washington Institute for Near East Policy told a House committee that the sale of antiquities — both those stolen from collections and those that were newly excavated — was the group’s second-large source of revenue after illicit oil sales. Other U.S. estimates put the total volume of trade in antiquities at more than $100 million a year.
Iraqi banks: The Treasury Department has estimated that the Islamic State gained at least half a billion dollars in cash by seizing branches of state-owned banks in northern and western Iraq in 2014.
“Before Mosul, their total cash and assets were $875 million. … Afterward, with the money they robbed from banks and the value of the military supplies they looted, they could add another $1.5 billion to that,” a U.S. intelligence officer told the Guardian.
Sales of other looted property: As the Islamic State captures territory in Iraq, it has acquired American vehicles, weapons and ammunition that can be used or resold. It has also reportedly resold construction equipment, generators, electric cables, cars, livestock, furniture and other goods.
Real estate: According to Niqash.org, a Web site published in partnership with a German nonprofit, the Islamic State has been generating cash by renting and auctioning off the properties of people who have been killed or fled newly occupied areas. “Property owned by individuals that the IS group considered their enemies — such as Iraqi army and police, government officials, politicians, judges and public prosecutors — has also been seized. And recently the group decided they should also own the property belonging to specialists in certain fields, such as doctors,” the report says.
According to an analysis of Islamic State documents from Mosul, property confiscated by Islamic State can be rented to locals, become bases for Islamic State fighters or members, or be redeveloped as new structures.
Foreign fighters: Some foreign fighters who travel to join the Islamic State bring with them hard currency — though this appears to be a relatively limited funding source for the Islamic State.
Agriculture: Islamic State now controls some of the most fertile parts of Iraq and Syria, which produce a lot of wheat and barley. According to Thomson Reuters, if those crops were sold at a 50 percent discount on the black market, that could still generate more than $200 million in annual income for the Islamic State.
Other crops are simply taken from farmers — one Syrian refugee interviewed by The Washington Post said the Islamic State took 10 percent of her family’s wheat crop. Some of the wheat is milled in Islamic State-owned flour mills, according to reports, and subsequently sold to local people and bakeries.
Phosphate, cement and sulfur: The area that Islamic State has captured is rich in natural resources including phosphate, cement and sulfur. Thomson Reuters estimates that phosphate resources might generate as much at $50 million a year for Islamic State at discounted prices, while sulfuric acid and phosphoric acid might generate $300 million.
Human trafficking: Many reports have documented Islamic State’s practice of selling women and girls into marriage or sexual slavery, including many women from the Yazidi and Shia-Tukoman minorities.
Publication does not imply endorsement of views by the World Economic Forum.
To keep up with the Agenda subscribe to our weekly newsletter.
Author: Ana Swanson is a Reporter at The Washington Post.
Image: An Islamic State fighter walks near a black flag belonging to the Islamic State as a Turkish army vehicle takes position near the Syrian town of Kobani, as pictured from the Turkish-Syrian border. REUTERS/Umit Bektas.