Islamic State mixed funding sources pose a challenge for international efforts to eradicate group

The Islamic State's varied sources of funding – from oil revenue to the sale of looted antiquities – are a challenge for U.S. and international efforts intended to weaken and destroy the terrorist group, according to the Congressional Research Service.

"The diverse sources of revenue may well safeguard the group, at least in the short term, from shocks that could result from the disruption of any single revenue stream," noted an April 10 CRS report (pdf), which was made public on the Public Intelligence blog May 5.

"For example, although some observers have expressed hope that recent reductions in the global price of oil may disrupt the Islamic State's financial base, the group seems to have found viable alternative fundraising opportunities, including local extortion, kidnap for ransom schemes, increased import duties, and receipt of donations from foreign benefactors," the report's authors wrote.

Oil sales initially provided the bulk of the Islamic State's financing, but they have gradually declined as a percentage of its overall profits, partly as a result of U.S. and coalition strikes against the group's oil facilities, said the report.

However, some analysts claim that the second largest revenue source is the sale of antiquities looted from areas controlled by the group. They include items from national museums, storage depots, private collections and items excavated from hundreds of archeological sites.

CRS said other sources of revenue come from extortion rackets in the Islamic State's areas of operations, according to a February report from the Financial Action Task Force, an international body focused on combating money laundering and terrorism financing. That task force report noted that while the Islamic State "frames its activities as 'taxation' or 'charitable giving,' it in fact runs a sophisticated protection racket where involuntary 'donations' purchase momentary safety or temporary continuity of business."

For example, it's estimated the group gained at least $500 million in cash by looting banks. It also collects passage fees from people who transport goods in and out of the group's controlled areas. In some cases, drivers have said they paid $200 to $1,000 in bribes and fees, the CRS report said. And the group has imposed a tax on earnings of individuals that want to do business in its territory and a tax on utility services.

The terrorist group, which is also popularly known by the acronym ISIS or the Islamic State of Iraq and Syria, has also imposed a protection tax, known as "jizyah," on some Christian communities otherwise the people may face death. They're also given a choice of converting to Islam.

"Reports conflict over the precise amount of the tax – some reports state that the Islamic State demanded that Christians pay half an ounce of pure gold to secure their protection, while other reports describe the tax as a few dollars per month," the CRS report said.

The group has generated significant income, possibly $35 to $45 million in 2014, in ransom fees from kidnappings. And it receives financial support from donors in Gulf and European countries, up to an estimated $40 million in 2013-14.

Analysts, according to the CRS report, have noted that international efforts to counter the Islamic State's funding sources may weaken, but not destroy the group and such efforts will take time. And even if the group's external funding sources are eliminated, it can still rely on local donations and extortion schemes.

A factor in favor of international efforts may be the group's expenses. For example, the Islamic State has battlefield resources, including equipment repairs, soldiers' salaries, and administrative expenses, which could impact its long-term financial stability.

But the CRS report cited criticism of the Treasury Department's counter-terrorist financing campaigns, which resemble those of years past, whereas the Islamic State "presents a unique financial profile."

"Policymakers may choose to evaluate the effectiveness of the Treasury Department's efforts to combat [Islamic State] financing and assess whether its current resources and capabilities are sufficient to meet the challenge that the Islamic State presents," the report said. 

For more:
download the CRS report on Islamic State financing (pdf)

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