The Buzz

Cutting the Islamic State's Money Supply

Fallujah’s liberation from Islamic State fighters caps a string of recent successes in the campaign against the group, also known as the Islamic State of Iraq and the Levant (ISIL). This includes the recapture of Ramadi in January, the death of the group’s second in command in March and recent progress made against the group’s capital in Raqqah. Although the fight for Mosul still looms large on the horizon, the Islamic State appears on the run, at least for the moment.

One reason behind this momentum has been the successful fight to counter ISIL’s finances. After the May, 2015, raid against ISIL Oil and Gas Emir Abu Sayyaf yielded terabytes of data on the group’s oil operations, U.S. airstrikes kicked off a major effort last year to cripple ISIL’s oil production in Iraq and Syria, dubbed Operation Tidal Wave II. Airstrikes have hit ISIL tanker trucks, oil fields and refineries, and the group’s overall revenues have been reduced by 30 percent. In January, U.S. warplanes began to target    the banks where ISIL stores its cash, destroying millions of U.S. dollars and Iraqi dinars used by the group to finance operations and pay its fighters. In line with precursor groups’ past behavior under pressure, ISIL has cut fighter salaries in half due to cash shortages in Raqqah, Mosul, and across its territory.

The net effect of these operations has been crystal clear – ISIL’s coffers simply aren’t what they used to be. Administration officials and analysts alike have been quick to pile on praise for this part of the campaign, correctly labeling the financial line of effort a success.

However, it would be a mistake to view the Islamic State as a poor man’s version of its old self. New steps are needed to counter the group’s wealth.

In May 2016, Assistant Secretary of the Treasury for Terrorist Financing, Daniel Glaser, stated that ISIL’s main income now comes from taxing and extorting the local population. Far exceeding oil revenues, taxation brings in an alarming $360 million per year in revenue according to Glaser. This leaves ISIL with a potent war chest still at its disposal. As work continues toward the primary goal of rolling the group back from its territory, work should also continue to try and stop ISIL from taxing and stealing money from within that territory.

Extortion and taxation are not new to the group and date back to the days of its predecessor, al-Qaida in Iraq (AQI). AQI relied upon extortion, theft, and black market sales to finance its insurgency, according to prior research into the group’s own documents dating back to 2005. 

Today, ISIL levies a variety of taxes against local sales of agricultural goods, charges rent for access to market stalls, and raises transit taxes against goods shipped through ISIL-held territory. Oil sales in local markets are taxed repeatedly – at the wellhead, at the refinery, and when sold into civilian markets. The group also maintains an exhaustive list of fines that punish its own fighters and local civilians for violations of its strict interpretation of Islamic law.

Although each tax may seem small, the breadth of ISIL’s reach into local markets means they add up quickly – and to date, relatively little has been done to stop them. For one, dropping bombs on ISIL-held oil fields and cash storage locations is simply easier to do, and with a more concrete and measurable benefit. Second, there is no clear way to stop ISIL’s tax collection from the air alone – ISIL collects money overtly and covertly across its territory, and the intelligence burden necessary to find and interdict tax-related targets is significant.

But if ISIL is raising $360 million a year from these revenues, is there any way to cut taxes in Islamic State territory?

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