The ISIL money chain – funding the newly created radical Islamic “State”

An often unexplored consequence of the reality of burgeoning terrorist groups around the world, with particular emphasis on ISIL is the impact on the global banking and financing environment. The practical aspect of how the richest terrorist group in the world has amassed its wealth and how this is likely to impact our everyday lives in South Africa is explored in this excellent article by Gillian Faichnie. – LF

By Gillian Faichnie*

Over this past year, the Islamic State of Iraq and the Levant (ISIL) has made deliberate and steady progress towards its goal of establishing a caliphate that straddles Syria, Iraq and Jordan. The Islamic group has slowly carved out a chunk of territory across Syria and Iraq and now claims to be in control of an area the size of the United Kingdom with a population of more than 10 million people. Along the way it has destroyed buildings, families, infrastructure and the lives of many.

For most people in South Africa, this rampage across distant countries is so far away from our daily lives, even the heightened threat of terrorist activity in major centres around the world seems like someone else’s battle, not ours.

We may soon, however, be drawn into this fight, in a way that we’re yet to understand. The rising threat of ISIL is causing a great deal of concern among leading global authorities, and there are signs that corporations around the world, including South Africa, may be significantly impacted by changing regulation, enacted in a bid to cut off ISIL from its funding.

We see, for example, the Financial Action Task Force (FATF), an influential inter-governmental body, for the first time in its history releasing a counter terrorism financing (CTF) warning that targets a specific group. Set up to tackle money laundering and terrorist financing, FATF released a statement on October 24 saying that it is ‘deeply concerned’ with the financing that is being generated by, and provided to, ISIL, and urged its members to take action.

This is a significant statement and testimony to the growing international anxiety around the apparent success of ISIL’s funding mechanisms. It is warnings like these from the FATF that will probably, within a year or so, become regulation that will affect the way that we do business.

The richest terrorist organisation

The concern is understandable. Commentators are calling ISIL the ‘world’s richest terrorist organisation’. Indeed, a recent report estimated an income of US$2.9 billion[1]

ISIL’s financial success is due to the fact that, like any successful organisation, it planned for success and where possible has diversified its income, building more than one sustainable revenue stream. These include both traditional and innovative methods of financing, such as:

  • Kidnapping and extortion – Targeting local politicians, businesspeople, clerics and foreign nationals, ransoms apparently draw in as much as US$10 million a month. ISIL also ‘taxes’ the many businesses now under its control. The capture of Mosul for ISIL was significant – as the second biggest city in Iraq, this centre is believed to contribute US$8 million in taxes every month.
  • Foreign donations – a fast expanding band of followers allegedly show their support for their favourite extremist group with US$50 million a year.
  • Financial sector – ISIL captured Mosul in June 2014 and shortly afterwards took control of several branches of private and public banks, including the Central Bank of Iraq. Not only did this reportedly net them US$425 million, it is the first action of its kind and has helped to lay strong foundations of the much desired caliphate.
  • Oil – ISIL now controls several oil fields across Syria and Iraq and as well as two refineries in Syria. Oil is channelled out via Turkey, earning the organisation a reported US$1 million to US$2 million a day[2].
  • Natural gas – ISIL also gained control over several natural gas fields in Syria and Iraq, which includes the largest Iraqi reserve of natural gas.
  • Phosphate, cement and sulphur – with its occupied territory so rich in natural resources, ISIL has been quick to leverage what’s available to them, and this includes phosphate mining and cement plants. According to the owner of one of the now hijacked mines, trading of just phosphate alone could be earning ISIL around US$50 million a year.
  • Agriculture – the Iraqi provinces now under ISIL control happen to be some of the most fertile in the region, producing around 30% of the national wheat production and 40% of the barley production.

Although all these figures are estimates, it is clear that the group is drawing a significant sum through various sources and it is unimaginable that this level of financial flow somehow bypasses the legitimate global financial system. And if it has entered the financial system, this means of course that ordinary businesses, in South Africa and elsewhere, may be unwittingly helping to fund acts of terror and militancy.

Consequences

In its statement of October 24, the FATF urges all countries to ‘fully implement the FATF standards’ in a bid to prevent ISIL from accessing global financial systems.

This obliges regulators of signatory countries to check what policies they have in place and to tighten up any gaps and to start visibly policing these policies if they haven’t already done so. The FATF standards includes high levels of disclosure and reporting systems, as well as transparency, and, notably, more intense scrutiny of non-profit organisations, a big source of global funding for terrorist organisations.

For financial institutions and companies in South Africa, a signatory to the FATF, this will require even more scrutiny of clients and their transactional behaviour. It will require more detail, more time and more resources. It is an ever increasing compliance trend that looks set to continue for some time, but a failure to take action could expose a company to the risk of unwitting association with a fast growing, notoriously militant organisation.

[1] Brisard, J-C & Martinez, D, ISLAMIC STATE: THE ECONOMY-BASED TERRORIST FUNDING, Thomson Reuters, October 2014

[2] Islamic State oil output was $2 million/day before air strikes: IHS, Reuters, October 20 2014

*Gillian Faichnie began her writing career as a fish journalist for an online news portal writing trading reports for global fishing companies, before moving on to writing and producing reports on business in Africa for CNBC Europe. Now she writes about the intensifying and scary world of compliance and financial crime for a marketing department of Thomson Reuters. As a welcome respite from crime, she is currently co-authoring a book on family walks in the Western Cape.