Spring/Summer 2015
Number 28

Finding the Islamic State's Weak Spot

Celina B. Realuyo

Since the end of the Cold War, we live in an increasingly interconnected and thriving world. For the most part, what has come to be known as globalization has positively transformed our lives, facilitating the free flow of goods, services, capital, ideas and technology. At the same time however, these drivers of globalization have also empowered illicit networks of terrorists, criminals and their facilitators that threaten the security and prosperity of the global community. These illicit actors, like al-Qaeda and Mexican cartels, actively capitalize on weak governance, socioeconomic vulnerabilities and corruption to conduct terrorism and crime throughout the world.

Over the past year, the dramatic rise of ISIL (the Islamic State in Iraq and the Levant) has emerged as the most compelling illustration of the convergence of terrorism and crime destabilizing the Middle East. Illicit networks require critical enablers, in particular illicit activities and financing, to carry out their violent agendas. ISIL derives its ideological, economic, and military strength from these enablers, and financing is the most critical of these enablers. Therefore, in order to degrade and defeat ISIL, the U.S. and its allies must enhance their efforts to attack ISIL’s funding streams.

Mapping the network

At their core, illicit networks threaten the four key missions of government: (1) to guarantee the nation’s security and sovereignty, (2) to promote economic prosperity, (3) to safeguard society and the rule of law and (4) to ensure that the government represents the political will of the people. Through their illegal activities, terrorists, criminals and their facilitators exploit the global marketplace to promote their own interests—and do so at the expense of the national security of the United States and its allies.

Herein lies a crucial difference. While rogue nation-states and terrorist groups tend to be motivated by ideology, transnational criminal organizations (TCOs) are driven primarily by greed. The transnational trafficking of drugs, arms, people, and counterfeit goods and the money laundering that accompanies these illicit activities compromises the safety of consumers, robs inventors of their intellectual property, denies governments significant tax revenues, and undermines our economies.

These illicit networks require several critical enablers in order to sustain their activities and realize their political or revenue objectives:

  • Leadership. Illicit networks need leadership that directs and manages resources to achieve their mission of political objectives or maximizing profits. Their leadership can be organized in hierarchies or, more likely, as loose networks of affiliates that diversify the “key man risk” associated with relying on a sole leader for command and control.

  • Personnel. Illicit networks must recruit and maintain personnel to support all aspects of their activities.

  • Illicit activities. Illicit networks can engage in a broad spectrum of illegal revenue-generating activities including trafficking in narcotics, arms, humans, exotic wildlife, and contraband, as well as money laundering, cybercrime, extortion, and kidnapping for ransom.

  • Logistics and supply chains. Illicit networks rely on global supply chains, commercial transportation, resources and other logistical support to move matériel, personnel, services and funding from supply to demand points of their enterprises.

  • Weapons. Illicit networks use force or the threat of force to dominate their operating areas; access to weapons, the ability to deploy them, and a lack of concern for collateral damage are what make illicit networks so violent and lethal.

  • Technology and communications. Illicit networks diligently adopt new technology and communications methods to avoid detection by security forces, and monitor and adapt to changes in their areas of operation.

  • Corruption. Illicit networks prefer operating in ungoverned or weakly governed spaces, where state control and oversight are lacking or can be compromised. While they may not necessarily aspire to topple and replace governments, they seek out officials vulnerable to corruption who can facilitate illicit activities in certain geographic areas.

  • Financing. Illicit networks consider revenue as both a key objective in case of crime and an essential enabler for terrorism. Financing serves as the lifeblood for these networks and their illicit endeavors; they derive power from their wealth and use it to corrupt and co-opt rivals, facilitators, and/or government and security officials.(1)

Combating the network

That last element, financing, is perhaps the most vital enabler of illicit networks, as all the other critical enablers require funding. Consequently, financial intelligence and investigative tools are essential to better understanding, detecting, disrupting and dismantling terrorism, crime and corruption. Tracking how terrorists and criminals raise, move, store and use money has been instrumental in degrading and defeating groups such as al-Qaeda “core,” Sri Lanka’s Tamil Tigers (LTTE) and the FARC in Colombia.

Money serves as the oxygen for any activity, licit or illicit. In a globalized world, we have grown to appreciate how “following the money trail” can enhance our efforts to counter illicit networks. Since the tragic attacks of September 11, 2001, the U.S. and other governments have incorporated the financial instrument of national power in their efforts to combat terrorism and crime. They have done this through intelligence and law enforcement operations, like the Iraq and Afghan threat finance cells, to pursue terrorist financiers and money launderers; public designations, sanctions and asset freezes and seizure; and domestic and international capacity-building in the counter-threat finance discipline in the public and private sectors.

In the main, these measures have proven effective. Enhanced anti-money laundering and counterterrorism finance measures have significantly damaged illicit networks. Over the past decade, al-Qaeda operatives and affiliates from Iraq to Afghanistan have complained about increased difficulty in funding terrorist operations and supporting their networks. Similarly, transnational criminal organizations in the Western Hemisphere, like the various cartels operating in Mexico, realized that greater oversight of international banking and offshore accounts after September 11th complicated their ability to launder profits through the formal banking sector. Following the money trail and the surveillance of facilitators, like the bankers and lawyers moving and sheltering money for terrorist and criminal groups, produced critical financial intelligence that has led to the weakening of key illicit actors.

The convergence of terrorism and crime

Terrorism, crime and corruption have existed since the beginning of human civilization, and traditionally were addressed as local security issues. Now they have gone “global.” In an age of globalization, the magnitude and velocity of terrorism and crime, driven by interconnected economies and advances in communications and technology, have resulted in unprecedented profits and record levels of violence. In many cases, terrorist groups, international drug cartels, mafias, and gangs are better armed, funded, and trained than the government security forces charged with confronting them.

In recent years, terrorist groups have become increasingly reliant on criminal activities in order to sustain themselves as state sponsorships and donor support have evaporated. Insurgent movements, like the FARC in Colombia and Peru’s Shining Path, are examples of this evolution in Latin America, as these terrorists have become increasingly involved in the cocaine and other illicit trade. Meanwhile, some criminal organizations have adopted ideological agendas and act more like terrorists, using violence against innocents. This is the case with the Haqqani Network in Afghanistan and Pakistan, which was once considered a criminal mafia controlling supply routes. In 2012, it was designated as a Foreign Terrorist Organization by the U.S. due to several high-profile insurgent attacks on U.S. and other foreign personnel in Afghanistan, including the assault on the U.S. Embassy in Kabul in 2011.(2)

We are now witnessing a disturbing trend: the dangerous convergence of terrorism and crime that is becoming a formidable threat to sovereignty. Convergence is defined as “the process of coming together and having one interest, purpose, or goal.” In the case of terrorists, that purpose is a political end state and in the case of criminals, it is maximizing profits. What terrorists and criminals have in common and how they converge is in the threat they pose to national security and sovereignty. Such is the case with the Haqqani Network in Afghanistan, the FARC in Colombia, al-Qaeda in the Islamic Maghreb, Hezbollah’s global networks and now ISIL, all of which have leveraged illicit activities to realize their terrorist agendas.(3)

All eyes on ISIL

ISIL has dominated the news since last summer with the brutal beheadings of Western hostages, remarkable military offensives in Iraq and Syria, the persecution of religious minorities and a compelling foreign fighter recruitment campaign. As a result, the group has been designated a foreign terrorist organization by the U.S. and United Nations. But ISIL also represents a formidable example of the convergence of illicit networks, combining the ideological aspirations of a terrorist group and the profit-seeking objectives of a criminal organization.

In addition to the world headlines reporting their vicious acts of violence against non-believers, ISIL is widely characterized as being the “richest” terrorist group in the world. To conduct its ambitious military operations, recruit and support its fighters and maintain control of its “caliphate,” ISIL requires significant financing and is engaged in a broad spectrum of criminal activities.

The group’s principal source of finances is derived from its control and sale of oil, estimated at bringing in $1 million a day, according to recent U.S. Treasury Department assessments.(4) The group is estimated to produce forty-four thousand barrels a day from Syrian wells and four thousand barrels a day from Iraqi ones, although the Coalition air campaign is impacting these production levels. The group then sells the crude to truckers and middlemen. By selling well below market price, traders are incentivized to take on the risk of such black-market deals. The oil-starved Assad regime, Turkey, and Iraqi Kurds—all apparent enemies of ISIL—are rumored to be among its customers.(5)

Additional funding comes from extortion networks, kidnap for ransom, criminal activities like stolen antiquities and human trafficking, and some donations from external individuals.(6) Ransom payments provided ISIL upward of $20 million in 2014, including large sums for kidnapped European journalists and other captives, according to the U.S. Treasury.(7) ISIL is also believed to extort businesses in Mosul, netting upward of $8 million a month.(8) Christians who have not fled the city face an additional tax levied on religious minorities. Protection rackets bring in revenue while building the allegiance of some tribesmen. Exploitation of natural resources and trafficking in antiquities also contribute to the ISIL’s coffers.(9)

This diversified portfolio makes ISIL a challenging adversary. Accordingly, the financial front has once again become an indispensable aspect of combating terrorist groups like ISIL by attacking their financing abilities.

Pushing back

The dramatic rise of ISIL, and its ability to conduct terrorist atrocities, occupy territory in Iraq and Syria, attract ideological support, recruit foreign fighters, and harness economic resources has refocused counterterrorism efforts worldwide. In September of 2014, the United Nations Security Council unanimously adopted Resolution 2178, underscoring the need to prevent the “recruiting, organizing, transporting or equipping of individuals who travel for the purpose of the perpetration, planning of, or participation in terrorist acts, associated with the Islamic State in Iraq and the Levant (ISIL), Al-Nusra Front (ANL) and other affiliates or splinter groups of Al-Qaida.”(10)

The United States, for its part, has built a global coalition of some 60 nations with the aim of degrading and ultimately defeating ISIL. The White House has set forward a comprehensive strategy featuring the following nine lines of effort to counter ISIL, ranging from denying the group safe haven to expanded intelligence collection.(11) But it is the disruption of ISIL’s finances that arguably represents the most critical initiative being undertaken.

The U.S. strategy to counterISIL financing is focused on disrupting the group’s revenue streams, restricting ISIL’s access to the international financial system, and targeting its leaders, facilitators and supporters with sanctions. The U.S. is also collaborating with international partners on this issue; in March 2015, for example, the U.S., Italy and Saudi Arabia formally established the Counter-ISIL Finance Group.(12)

Likewise, the coalition has been conducting a military air campaign against the group since August 2014. “Operation Inherent Resolve,” now underway, conducts targeted airstrikes of Iraq and Syria, at least some of which have been directed at ISIL-linked oil infrastructure and supply networks in Syria and Iraq. According to U.S. Central Command, 152 oil infrastructure targets have been damaged or destroyed as of May 8, 2015.(13) Mobile refineries have been specifically targeted to reduce the availability of refined oil products, and their successful destruction has impacted—but not destroyed—ISIL’s illegal oil sales.

On May 16, 2015, U.S. Special Forces operators conducted a daring raid in Syria against Abu Sayyaf, a senior leader considered the Chief Financial Officer of ISIL. Although the high-value target was killed rather than captured, his wife was detained for interrogation, and a treasure trove of mobile phones, computers and documents were collected at the safe house. This operation illustrates the growing importance of targeting ISIL’s financial infrastructure and the value of financial intelligence in better understanding and undermining ISIL. Due to the diversified sources of its income, the campaign against ISIL’s financing will require perseverance and a multi-pronged approach across agencies and jurisdictions.

The way forward

Over the past decade, the U.S. and other governments have increased their efforts to detect the financing of terrorism and crime, impose economic sanctions, and raise awareness of how the international financial system can be abused to fund the infrastructure, members, and operations of these illicit actors. To effectively counter ISIL, the financial instrument of national power must be leveraged to the fullest extent possible at the national, regional and international levels. The goal is simple: to starve the group of financing. Going after the funds that are its lifeblood is a critical component of the overall mission to defeat the terrorist group.

Here, the track record is decidedly mixed. The international coalition against ISIL has not proven very effective to date. Since August 2014, the U.S.-led mission, “Operation Inherent Resolve,” has conducted over 3,400 air strikes over Iraq and Syria at a reported cost of over $2.5 billion.(14) Yet in May 2015, ISIL made significant military gains by seizing control of Ramadi, the capital of Anbar province in Iraq, and the ancient city of Palmyra in Syria. According to the Syrian Observatory for Human Rights, an activist monitoring group, ISIL is now in control of 50 percent of Syria. As ISIL advances militarily, it enriches itself by plundering their newly conquered territories and extorting their new subjects.(15) It is feared that Palmyra, an historic city founded over 2,000 years ago and designated as a UNESCO World Heritage Site, will be destroyed by ISIL or be pillaged to sell looted antiquities on the black market, as it has previously done with the 9th century Assyrian palace in Nimrud, Iraq.

To better attack ISIL on the financial front, the coalition should establish a specialized counter-ISIL threat finance cell to collect, analyze, and exploit financial intelligence to better understand ISIL’s networks, operations, and vulnerabilities. It should also develop specific target sets to disrupt and destroy the financial infrastructure of ISIL. By attacking its funding sources, the coalition can deprive ISIL of its most critical enabler.

Going forward, the United States and its allies will need to halt the political, ideological, and military advance of ISIL, and actually reclaim control of territories occupied by the group in both Iraq and Syria. This daunting mission will require a comprehensive and proactive strategy—and one that, above all, targets the group’s financial lifeblood.

Celina B. Realuyo is Professor of Practice at the William J. Perry Center for Hemispheric Defense Studies, National Defense University. This article is adapted from her testimony before the House Financial Services Committee on May 21, 2015.

1.   For more, see Celina B. Realuyo, “The Future Evolution of Transnational Criminal Organizations and the Threat to U.S. National Security,” in Paul T. Bartone and Mitchell Armbruster, eds., The Shifting Human Environment: How Trends in Human Geography Will Shape Future Military Operations (National Defense University Press, May 2015), http://ctnsp.dodlive.mil/2015/05/06/dtp-107-shifting-human-environment-h...

2.   Karen DeYoung, “Haqqani Network to be Designated a Terrorist Group,” Washington Post, September 7, 2012, http://www.washingtonpost.com/world/national-security/haqqani-network-to...

3.   Celina B. Realuyo, testimony before the House of Representatives Committee on Foreign Affairs Subcommittee on Terrorism, Non-Proliferation, and Trade, February 4, 2014, http://docs.house.gov/meetings/FA/FA18/20140204/101702/HHRG-113-FA18-Wst...

4.   David S. Cohen, “Attacking ISIL’s Financial Foundation,” Remarks at the Carnegie Endowment for International Peace, Washington, DC, October 23, 2014, http://www.treasury.gov/press-center/press-releases/Pages/jl2672.aspx

5.   Financial Action Task Force, Financing of the Terrorist Organisation Islamic State in Iraq and the Levant, February 2015, http://www.fatf-gafi.org/documents/documents/financing-of-terrorist-orga...

6.   Charles Lister, “Cutting off ISIS’ Cash Flow,” The Brookings Institution, October 24, 2014, http://www.brookings.edu/blogs/markaz/posts/2014/10/24-lister-cutting-of...

7.   Cohen, “Attacking ISIL’s Financial Foundation.

8.   Zachary Laub and Jonathan Masters, “The Islamic State,” Council on Foreign Relations Backgrounder, May 18, 2015, http://www.cfr.org/iraq/islamic-state/p14811

9.   Micah Zenko, “Preventing Cultural Destruction by ISIS,” CFR.org, March 6, 2015, http://blogs.cfr.org/zenko/2015/03/06/guest-post-preventing-cultural-des...

10.  United Nations, “Security Council Unanimously Adopts Resolution Condemning Violent Extremism, Underscoring Need to Prevent Travel, Support for Foreign Terrorist Fighters,” September 24, 2014, http://www.un.org/press/en/2014/sc11580.doc.htm

11.  White House, Office of the Press Secretary, “FACT SHEET: The Administration’s Strategy to Counter the Islamic State of Iraq and the Levant (ISIL) and the Updated FY 2015 Overseas Contingency Operations Request,” November 7, 2014, https://www.whitehouse.gov/the-press-office/2014/11/07/fact-sheet-admini...

12.  Carla E. Humud, Robert Pirog and Liana Rosen, Islamic State Financing and U.S. Policy Approaches, Congressional Research Service, April 10, 2015, https://www.fas.org/sgp/crs/terror/R43980.pdf

13.  U.S. Department of Defense, “Operation Inherent Resolve,” n.d., http://www.defense.gov/home/features/2014/0814_iraq/

14.  Alexander Mallin, “Inside the Nerve Center of the US-Led Campaign Against ISIS,” ABC News.com, June 7, 2015, http://abcnews.go.com/International/inside-nerve-center-us-led-campaign-....

15.  Pamela Engel, “The ISIS Economy Just Got a Huge Boost,” Business Insider, June 1, 2015, http://www.businessinsider.com/the-isis-economy-just-got-a-huge-boost-20....