ISIS financing: ‘Follow the money, disrupt the flow,’ say experts

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Britain’s role in thwarting financial flows destined for Islamic State (IS, formerly ISIS/ISIL) was examined on Tuesday, as a panel of experts advised the British government on how it can curb the terror group’s funding sources.

The inquiry into IS funding, which was conducted by a sub-group of the Foreign Affairs Committee (FAC), was chaired by Tory MP John Barron.

The inquiry’s panel of expert witnesses consisted of Executive Director of the Iraq Energy Institute Luay al-Khateeb, Associate Fellow at Chatham House David Butler, and Director of the Centre for Financial Crime and Security Studies Tom Keatinge. Deputy Chief of Mission from the Turkish Embassy in London Güçlü Cem Işik also answered questions.

Oil as a source of revenue

In the opening of the session, Barron said the government had evidence suggesting IS funding comes from oil sales, local sources and black-market sources. He then asked each of the panel experts if they agreed.

Butler said stolen assets from Mosul were originally the terror group’s biggest source of funding, while oil was also a very lucrative source for a period. However, he said oil is no longer a sustainable source of funding for the terror group as a result of coalition airstrikes.

Butler said the US-led coalition’s targeting of well heads and road tankers monopolized by IS had been effective, as had the Kurds’ seizure of certain oil fields. He argued a lot of work to disrupt oil financing that sustains IS has been done, and it is vital to examine the wider sphere of illicit finance the terror group relies on.

Al-Khateeb said stolen assets from Mosul functioned as start-up finance for IS, but this has largely been usurped. He said the media’s depiction of the terror group as wealthy and self-sufficient is a myth, as is the claim that oil makes up 40 to 50 percent of its revenue.

Al-Khateeb said the declining profitability of oil for IS is a result of coalition airstrikes and the terror group’s difficulties in managing oil fields. He also stressed IS-controlled territories are net importers, not net exporters, of oil.

On the question of which states are trading oil with IS, Al-Khateeb said middlemen in neighboring states Turkey and Kurdistan are possibilities. While he acknowledged official state actors are not necessarily involved in this illicit trading, he said ramped up border control in these jurisdictions would be helpful.

Al-Khateeb said IS’ “unconventional warfare” requires unconventional responses. He argued financial transactions that support IS are not conducted in a regular, transparent fashion but rather infiltrate unregulated, black market economies.

He said the Middle East has thrived on black market trades for decades, accentuated by sanctions in the 1990s and these long established shadow economies have been highly beneficial to IS.

'Follow the money'

Tory MP Crispin Blunt asked precisely how IS financing should be disrupted. Butler insisted following the money is the key.

Expanding on Butler’s point, Keatinge said it’s important to consider where the money is coming from, where it is going and who is facilitating its flow. He suggested such inquiries should be conducted at a cross-border level.

Keatinge said IS should be envisioned as a state from a financial perspective. He said weaknesses around the periphery of IS-controlled territory with respect to financial regulation and border control is an important concern. He called on Britain to assist with a cross-border effort to uncover and tackle these weaknesses head on. He also noted that banks operating in the global economy can discern which bank branches are operating in IS-controlled areas and boycott them.

On the question of how IS financing can be interrupted, Butler said cooperation with Iraqi financial authorities is key, while military pressure is effective and needs to continue. He also noted corruption is a huge issue, and said certain figures have intimate knowledge of how things work in the shadow economy of Iraq and are using it to their advantage and the advantage of IS.

Al-Khateeb said the sustainability of IS cash flow should be assessed. He said the conflict is costing Iraq 20 percent of its GDP each year and a similar audit should be conducted for IS. To disrupt IS financing, he added, Western and other sympathizers must be tackled.

Last December, the UN Security Council unanimously backed a US-Russian resolution demanding more robust measures to exclude IS and other terror groups from the global financial system.

Shortly afterwards, Chancellor of the Exchequer George Osborne pledged to change UK law to allow for the resolution’s full implementation. Following a rare meeting, Security Council member finance ministers also agreed to put pressure on states to implement existing rules more vigorously that are designed to thwart the flow of money, equipment and fighters to IS.