The Attack on Terror Financing

Destroying Daesh will require destroying its means of support

UNIPATH STAFF

Coalition members fighting Daesh and other violent extremist organizations in the Middle East and South and Central Asia are waging a multifaceted campaign to starve the terrorists of the financial fuel needed to spread their twisted ideology and wage their savage terror campaigns.

Traditional military strategies incorporating airstrikes and ground battles are augmented with strategies that target the illicit flow of cash to extremists through banking institutions and criminal enterprises.

By all accounts the campaign is working. For proof, look to Daesh, considered the wealthiest violent extremist group ever to wage a terror campaign. It stole in excess of $1 billion from banks while rampaging across portions of Iraq and Syria, has collected millions from black-market oil sales, and extorted millions more from people living in the territory it occupies. But Daesh is experiencing steep drops in its cash reserves as a result of the coalition’s campaign to squeeze its finances.

Territory once claimed by Daesh in Iraq and Syria is being retaken by military forces, and with it the oil reserves and population centers where innocent residents are extorted. Millions in reserves are literally going up in smoke as targeted airstrikes destroy the buildings where Daesh stockpiles its cash.

At the same time, countries engaged in the fight against terror have adopted laws that criminalize the laundering of terror money and facilitate the seizing of assets owned by offenders who support terror. Bank employees are being trained to recognize suspicious transactions.

The cumulative effect has been a reduction in Daesh’s ability to function. Its reserves have taken a hit, and its windfall from oil sales have been reduced by as much as a third. Monthly payments to each fighter, estimated by the Rand Corp. at $100, reportedly have been cut in half, a blow to morale and to the phony aura of invincibility projected in its warped propaganda.

The right tools

While this war on finances has become a focus of late, it is by no means a new strategy. The international Financial Action Task Force (FATF) was created in 1989 to combat money laundering. Twelve years later, after the September 11 terror attacks, FATF members were galvanized to stem the flow of money to violent extremists. Today, the FATF has 37 members, including Gulf Cooperation Council members Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

The FATF offers 40 recommendations nations can employ to disrupt terrorists accessing the international banking system. In line with that mission, the organization works with nations to enact legislative and regulatory reforms needed to identify and prosecute terror financing operations.

The September 11 attacks also inspired the U.S. Department of Treasury to establish the Terrorist Finance Tracking Program, which enables the U.S. and its allies to locate terror operatives and their financiers, identify terror networks and keep money out of their hands. Several years later, the Treasury Department created the office of Terrorism and Financial Intelligence to develop and deploy financial strategies for attacking terror financing. In 2004, recognizing the proliferation of threats to countries in the Middle East and North Africa, an FATF regional body called MENAFATF was created in Bahrain and is represented by 18 nations that pledged cooperation.

Having these tools in place is essential to pursuing terror financing today. In the past, terrorists were typically financed by rich individuals or states with shared ideologies or common enemies. Al-Qaida under Osama Bin Laden relied on benefactors rather than criminal enterprises to generate terror. Daesh and present-day al-Qaida affiliates collect income through an array of criminal activities, from extortion to illicit drug sales, kidnapping for ransom and the sale of oil and looted antiquities. Phony charities use the Internet to launder contributions.

By June 2014, according to U.S. Treasury Department estimates, Daesh was reaping $1 million a day from black-market sales of crude and refined oil. But airstrikes beginning in October 2015 have degraded the oil income. The first six months of airstrikes, known as Operation Tidal Wave II, reduced Daesh’s oil income by 30 percent, the Rand Corp. reported.

The United Nations also took aim at financing in 2015, banning all trade in antiquities from Syria and threatening sanctions on anyone buying oil from Daesh- and al-Qaida-linked al-Nusrah Front terorists. It urged states to stop paying kidnapping ransoms.

Individually, nations across the region have increased cooperation. A 2015 FATF report found almost all the nearly 200 nations it studied had criminalized the financing of terrorist acts or terrorist organizations. And nearly 30 had expanded laws to criminalize the financing of travel for the purposes of terrorism or terror training.

Getting results

While some countries are better at adopting the new laws than enforcing them, a number of others are getting results. According to the FATF, Saudi Arabia and Kazakhstan are among the top countries for achieving convictions related to terror financing.

The United Arab Emirates, which toughened its terror finance laws in 2014, was praised in a U.S. State Department report when it “openly advocated fighting violent extremism not only militarily, but holistically, including by stopping violent extremist funding.” A regional center for global commerce, the UAE amended its laws to address gaps in the monitoring and prosecution of groups and individuals engaged in fundraising for extremists. “Notably, the amendments codified in law the obligation of all covered entities to report suspicious transactions related to terrorism financing,” the report noted.  The UAE’s 2014 trial of 15 conspirators for supporting the al-Qaida-affiliated al-Nusrah Front and Ahrar al-Sham in Syria resulted in a number of convictions and lengthy prison sentences, The National newspaper reported.

In Iraq, airstrikes have destroyed millions in cash Daesh stole from banks, extorted from territories it occupies and otherwise obtained through criminal enterprises that include the sale of looted antiquities, kidnapping for ransom and heavy taxes.

But Iraq’s success isn’t limited to the airstrikes. Its Financial and Economic Intelligence Department, in cooperation with the Central Bank of Iraq, seized three banking companies in March 2016 that it said were transferring money to Daesh-controlled areas in the provinces of Baghdad and Kirkuk.

Investigators can track the large amounts of money Daesh moves through traditional banks, and transactions made by foreign fighters traveling to Iraq and Syria can also leave a trail. According to The Associated Press, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) screens roughly 55,000 reports it receives daily from financial institutions for activity involving Daesh. The data allows investigators “to connect the dots between seemingly unrelated individuals and entities,” a FinCEN spokesman said.

Also on the offensive is Kuwait, which created the Kuwaiti Financial Intelligence Institute in 2013 and established laws that require suspected terror financing be reported and assets immediately frozen. Similarly, Saudi Arabia provides specialized training for bankers, prosecutors, judges, customs officers and others who might come across suspicious financing.

In April 2016, Oman’s elected Shura Council approved amendments to the county’s Anti-Money Laundering and Financing of Terrorism Acts that could put violators in prison for 10 years. Mohammad Al Zadjali, head of the legal committee at the Shura Council, said the new law is meant to enhance Oman’s internal security and at the same time give the authorities the ability to arrest offenders quickly. Oman adopted laws in 2002 that detailed the responsibilities of banks and provided for the seizure of assets possessed by offenders. It required banks to train its employees to spot signs of money laundering.

And in Bahrain, Foreign Minister Sheik Khalid bin Ahmed al-Khalifa urged a gathering of world leaders in 2014 to do more to cut the funding for violent extremists and prevent them from profiting from illegal businesses. He urged delegates to “put an end to their ability to smuggle goods and extort funds from commercial enterprises.”

Powerful incentive

All of these efforts matter. As the Rand Corp. found after studying al-Qaida, there is a direct correlation between money and attacks. Squeezing revenue limits the scope of the criminal acts committed by terrorists.

In fact, many observers believe Daesh is conducting relatively inexpensive European terror attacks so it can project an image of strength at a time when coalition forces have dramatically weakened its financial standing, and in turn its ability to recruit and maintain loyal troops.

An April 2016 report by the consulting firm IHS found that Daesh’s monthly income had dropped from a peak of $80 million to $54 million. According to an IHS analyst, “This drop in revenue is a significant figure and will increase the challenge for the group to run its territory in the long term.”

It’s evident that the whole-of-government approach to destroying Daesh is beginning to work. The military gains on the ground are limiting Daesh’s extortion rackets and oil revenues, while the targeted airstrikes on cash reserves and the efforts to crack down on money laundering is cutting into the group’s reserves and cash flow.

To be sure, Daesh still holds sizable reserves and demonstrated in Brussels and Paris that it can reach beyond its borders, even in its weakened state. But results to date offer a powerful incentive for coalition members to continue their pursuit of the illicit money that finances Daesh’s campaign of death and destruction. By destroying the reserves, identifying the players behind illicit financial transactions and imposing tough penalties on those assisting terror enterprises, coalition forces can hasten the defeat of Daesh.