AdSlot 1 (Leaderboard)

Corporate terror: how the Islamic State accounts for terrorism

FOR many UK citizens Mohammed Emwazi, the masked, black-clad militant who became infamously known as Jihadi John, was the chilling face of the Islamic State.

Emwazi, who became the most wanted man in the world with the release of a series of gruesome videos in which he beheaded British aid workers David Haines and Alan Henning, among others, was killed with a drone missile strike in IS’s de facto capital of Raqqa, Syria, in November last year. A month later, US military officials revealed that an air strike had killed Muwaffaq Mustafa Mohammed al-Karmoush, aka Abu Salah.

The death of Abu Salah didn’t quite make the same impression on the collective psyche of the UK as the ‘evaporation’ of British national Emwazi, but his death is arguably of much greater importance to the Islamic State, which overran territories across parts of Syria and Iraq, declaring a ‘caliphate’ in the summer of 2014. Salah served as the Islamic State’s finance director.

Emwazi’s political rants and clear British accent provided sophisticated terrorist propaganda for IS’s professionally produced films. Finance, too, sits alongside publicity as the ‘lifeblood’ of a terrorist organisation, and like its propaganda that sophistication extends well into its finance and military activities.

“There is one constant all jihadist groups share. All terrorist organisations are reliant on finance. Without finance, these groups cannot sustain their organisations and operations,” explains Dennis Lormel, an expert in terrorist financing and former special agent at the FBI.

Indeed, US military spokesman Col Steve Warren described Salah as “one of the most senior and experienced members” of the militant group’s financial network. “Killing him and his predecessors exhausts the knowledge and talent needed to coordinate funding within the organisation,” Col Warren said.

The death of Abu Sayyaf, one of Salah’s predecessors who helped direct the group’s financial operations, was previously confirmed in May. One senior US defence official described Abu Sayyaf, which translates as “bearer of the sword” in Arabic, as the CFO of IS, while a mid-level IS commander said Sayyaf was responsible for the group’s finances, known internally as “bayt al-mal”, an Arabic term that translates into “the house of money”.

Terror is business – a good one
But to what extent, if any, do Sayyaf, Salah and their ilk resemble chief financial officers in the truest sense of the word? On one level the group, which styles itself as a medieval caliphate, has more in common with a traditional conglomerate corporate structure than with the seventh?century warriors that the group’s leaders aspire to emulate. Their theological views are extreme, yet their financing and management structure remain distinctly corporate.

Financial records, which included payrolls, supplier purchases and administrative records were discovered during a routine patrol in the Anbar region of Iraq in 2007. According to the Rand Organisation, a US Department of Defense-funded think tank which analysed the data cache, the records show that the group – then calling itself the Islamic State of Iraq – was a “bureaucratic, hierarchical organisation” that exercised “tight financial control” over its largely criminally derived revenue streams.

“With IS, as with other terrorist groups, there is proper bookkeeping with a meticulous listing of incomes from different sources and an offset of the expenses for salaries, bribery or weapons. Terror is also a business – a good one,” Louise Shelley, the founder of the Terrorism, Transnational Crime and Corruption Center at George Mason University and author of Dirty Entanglements: Corruption, Crime and Terrorism, told German weekly Spiegel last year.

Lormel too says if we liken a terrorist organisation to a corporation, business planning would be an essential ingredient for obtaining support and measuring success.

“In one sense, a terrorist organisation is a business. In that vein, who are the potential stakeholders? Jihadist stakeholders would include group members, wealthy donors, business fronts and/or facilitators, recruits, like-minded jihadist organisations, financial institutions, and so on. A successful business would have a business plan,” Lormel says (see box).

 

Business model essentials
Dennis Lormel, a recognised subject matter expert in the anti-money laundering, terrorist financing and fraud communities, and former special agent with the FBI, outlines the business model of terrorist groups.
The business model should contain five components:
1) Mission statement What is the mission of the jihadist group? Is it to establish a caliphate; does it want to operate as a transnational, regional, or national organization; where is the group’s base of operations; what is its organizational structure; and what are its sources of funds?
2) Desired infrastructure To accomplish its mission, a terrorist organisation must build an infrastructure to support its operations. If it wants to establish a state like Hezbollah or Hamas, does it require a military wing, a political wing, and/or a social wing? If it wants to be like the Islamic State of Iraq and the Levant (ISIL) and form a caliphate, does it require funds for governance and funds to support its fighters?
3) Funding requirements In order to build the desired infrastructure and establish its capacity, a terrorist organisation must identify its funding requirements. How much money will it take to support the infrastructure? How steady will the flow of funds have to be to sustain operations? The jihadist group must have the ability to raise, move, store and access money as needed.
4) Funding sources Once the funding requirements are identified, the terrorist organisation must develop funding sources. The more robust and diverse the funding sources, the more likely operations will be sustained and the group will succeed. The source of funds would likely be derived from licit and illicit fronts and must be sufficient to support infrastructure and capacity.
5) Funding mechanisms The bases of operations for most jihadist groups are in countries or regions of great instability. Many of these locations have cash-based economies. Numerous groups have established global funding streams. Therefore, terrorist organisations rely on both the formal and informal financial systems to move funds in and out. These funding streams would be designed to avoid detection.

 

The House of Money
Islamic State has evolved into the world’s wealthiest terrorist organisation. According to Ben Bahney, an adjunct at Rand, it operates a “different model” from what we see in other terrorist organisations. Despite its divisional organisational structure, it is a “bit of a stretch” to describe the group’s head of finance as a CFO.

“Because IS has territory, they have real assets, they have the ability to collect taxes, they have a book value,” he tells Financial Director. Indeed, the group’s finances, and the role of its finance chief, is more akin to that of a state and chancellor of the Exchequer. They control oil production, levy taxes, rely on extortion, theft, kidnapping, other criminal activity and wealthy donors as funding mechanisms.

The money IS raises from these sources is considerable. The Washington Institute for Near East Policy recently published the infographic (reproduced below) which demonstrates how IS funds its operations. As an organisation, IS is estimated to be worth more than $2bn (£1.4bn). According to HM Treasury’s report, UK National Risk Assessment of Money Laundering and Terrorist Financing, IS raised an estimated £23m to £32m from September 2013 to September 2014 through ransoming hostages.

A recent Financial Times investigation into IS’ oil-trading operation something almost akin to a state oil company. The group is believed to be making an estimated $50m (£33m) a month from this trade, equivalent to $600m (£398m) a year. And, according to a recent New York Times investigation IS is thought to make as much as $900m (£597m) a year from residents and businessmen in its territory, charging import taxes, rent for businesses, fines for breaking laws, utility bills and income tax.

Small costs, big impacts
Nevertheless, terrorist attacks are widely believed to be a cheap business to undertake. Indeed, the multi-faceted attacks on Paris in November last year in which 130 people lost their lives is thought to have cost no more than $10,000 when weapons, explosives, housing and transportation are factored in.

“You can buy a Kalishnikov for less than £1,000 – you don’t need money to engage in terrorism,” suggests Anthony Harbinson, a past ACCA president and expert on anti-money laundering.

Terrorists’ costs are small and they increasingly seek to be self-sufficient rather than dependent on other countries. They make the cash themselves from small business to buy the material to buy guns or build bombs. The trails that banks seek to spot terrorists and anticipate their criminality are more likely to lead to the criminal underworld than to banks.

According to Ged Daley, the head of terrorist finance at Europol, the European investigative agency: “The difficulty we are facing more and more is the individual self-funding cell or individual. It doesn’t take much to strike. So we are not looking at $150,000 to carry out 9/11. You can do it very, very cheaply. There are still hierarchical aspects with IS, yet a lot of it is individually financed. The ideology or the goal is still hierarchical, but most of the fundraising is left to the individual. There can be disbursement of money, but a lot of it is self-funded.”

Simon Dilloway, the Metropolitan Police officer who meticulously investigated the financial evidence left behind at the scene of the crimes and subsequently found in the bombers’ accommodation in the 7 July 2005 outrage in London, says that some evidence was found of credit card accounts, “but the great majority of the bomb-making equipment was bought with cash. Three out of the four bombers were petty criminals who were used to handling cash and they carried this into their terrorist activity.” Dilloway’s consultancy Lopham is today advising governments on countering terrorist financing.

Understanding terrorist finance starts by analysing the role of finance in the criminal group, says Dilloway.

“These are small compact groups,” he says. “Their funding is not clever and how they handle cash is basic. It is all based on keeping things quiet.”

Vehicles for moving funds from headquarters to the ‘sleepers’ on the ground waiting to launch an outrage include charitable organisations, purporting to take funds to a deserving cause or companies owned or controlled by the groups. Ceferino Alvarez Rodriguez, a Brussels-based policeman, says that supporters of groups linked to Hamas in Gaza remitted funds from a number of European countries under the guise of charitable giving. Money was stripped from the charity to fund the group’s armed activities once it entered Gaza.

Legitimate businesses are used by some groups to both create the funds and to move them. So businesses linked to Al Shabaab in Somalia are engaged in charcoal manufacturing. Purchasers of the charcoal are said to support the group’s activities by remitting funds back to the group in Somalia. A similarly indirect financing route was used by the Tamil Tigers, whose supporters in Sri Lanka owned shipping companies. Chains of public houses and small boarding houses in Southern Ireland – coupled with petrol smuggling – part-funded the IRA’s activity in the north of Ireland. The exploitation of Iraq and Syria’s oil sector is well understood to provide funding for Islamic State. The group is linked to primitive refiners in the Kurdish part of Iraq, who produce a saleable commodity said to net some $300m a year for the group.

Bank systems aimed at spotting terrorist finance are most likely to be alerted when they spot a match between a suspicious name listed in a bank blacklist and a customer name, says Tom Keatinge, director for the Centre for Financial Crime and Security Studies at the Royal United Services Institute. However, he says this system is prone to false positives.

Funding ISIS infographic

Legal means

Money laundering is too often conflated with terrorist financing by banks who seek to apply the systems used to spot one activity to the other. In fact that is highly unhelpful, says Daley.

“Money laundering and terrorist funding don’t go hand in hand,” he says. “Sometimes there is no money laundering involved at all. There are a lot of legal means to fund terrorism, and a lot of criminal means that have not necessarily gone through a money laundering process.”

Money is much more likely to be moved by the terrorist operative through underground hawala systems, a simple system based on trust where agents in different countries give and receive instructions, with the security of a password. The agents, called hawaladars, belong to the same ethnic group as the terrorist and can thus be trusted both with the remitting process and with the identities of the terrorists who are giving and receiving funds. Somali warlords are thought to receive funds from expatriate Somali communities in the UK and elsewhere through more formal remitting systems, where due diligence of deposits is minimal.

Hawalas are known to operate on the Turkish border with Syria, channelling funds from the illegal state into enterprises they control in Turkey, according to Aimen Dean, a consultant on terrorist financing and founder of the Five Dimensions consultancy. Dean’s research point to an Istanbul-based bank handling the funding for a baby milk manufacturing plant in Poland and car and computer dealerships in Turkey.

“Turkish authorities connive at the movement of IS money across borders,” says Dean. Keatinge points to Turkey’s “weak framework for identifying and freezing terrorist assets – for example, its definition of ‘terrorism financing’ is too narrow and its asset freezing procedure is too slow.” He says Turkey remains on the Financial Action Task Force’s grey list, where it has been listed since 2011.

“Turkey had surely hoped that, with its new law and recent decision to freeze the assets of individuals and legal entities known to have links to al-Qaeda and the Taliban, it would be treated likewise,” he says. “It was not.”

Given increasing evidence of its support to IS funding channels, Keatinge believes Turkey may be moved to the ‘black list’ of non-compliant members of the international organisation.

Funds need to be stopped at their source before they reach any operative on the ground, primed to launch an attack.

“It is crucial to spot the individuals with the funds prepared to move them to a group or use them to buy bombs,” says Keatinge. “That means improved and deeper intelligence about funders and their businesses. By the time the money has reached the war zone it is too late.”

Cooperation with the banking sector can be improved. “We need to strengthen feedback and communication,” says Europol’s Daley.

Accounting for terrorism

ISIS literature from inside the annual report

Like any corporate that details its financing, the Islamic State also details the key metrics or KPIs by which it judges its effectiveness and performance. Since 2012, the group has published annual reports, outlining its activities by geography and operation type, such as number of bombings, assassinations, checkpoints, suicide missions, cities taken over and apostates converted to the IS cause.

Indeed, the publication of two annual reports in a row demonstrated that the group has a well-established and functioning organisational structure.

“IS publish their accounts, which shows how financially savvy these people are,” says Harbinson at ACCA. “Propaganda is a tool of war. These groups want people to know they are well resourced, create a level of fear and control risk – definitely more than propaganda.”

According to the US-based Institute for the Study of War, which analysed the two ‘annual reports’, publishing attack metrics “effectively demonstrate the use of centrally distributed resources”, such as suicide bombers. Metrics also provide a means to communicate organisational efficacy to outside parties, such as donors, al-Qaeda groups and adversaries.

The reports paint a picture of a sophisticated and well-run organisation that belies the Dark Age, savage barbarism perpetrated by its fighters. While IS is not a corporation and doesn’t have shareholders in the true sense of the word, as Louise Shelley told Speigel, the detail of its accounts, the sources of its funding and its ability to distribute these finances sounds “more like corporate interests than caliphate interests”. ?

Related reading

/IMG/022/271022/diamonds44
/IMG/932/163932/export
/IMG/370/178370/graph-arrow-upwards-growth
Theresa May 1