The Islamic State's 'business model' is failing, study says
(c) 2017, The Washington Post.
LONDON -- When the Islamic State advanced in Syria and Iraq in 2014, its fighters looted banks, took over oil fields and kidnapped foreigners, seemingly without facing much resistance. But fortunes have changed, and the caliphate is now in deep financial trouble, according to a new study.
The report, released by the London-based International Center for the Study of Radicalization (ICSR) and accounting group Ernst & Young, estimates that the group's revenue has fallen by about 50 percent over the past two years.
"It is clear that the Islamic State's business model is failing," said ICSR director Peter Neumann. "It used to be the world's richest terror group because it basically was a state. But its biggest strength at that time - the ability to loot and extract money through taxes in newly conquered territories - became its most significant weakness as it suffered battlefield losses."
The new numbers, based on internal Islamic State documents obtained by the researchers as well as a review of previous analyses, challenge previous estimates of the Islamic State's finances by the U.S.-led coalition against the group, which may have been exaggerated. The study will be presented at the Munich Security Conference on Saturday.
The fragility of the Islamic State's financing model was already evident in 2014. Back then, looting, confiscations and taxes constituted the most significant revenue source for the jihadist group. As the group's advance began to stall, the overall share of looting among the group's total revenue dropped from 52 percent in 2014 to only 20 percent in 2015.
Taxes and oil revenue became more important, but both are inherently risky ways of earning money for militant groups. The coalition led by the United States targeted the group's oil fields in air strikes as more locals fled its territory.
As local fighters started to push back Islamic State militants in Syria and Iraq in 2016, all revenue sources declined - apart from ransom money paid by governments for kidnapped citizens. The researchers believe that the Islamic State losing control over the densely populated Iraqi city of Mosul would result in a major drop in revenue for the group and in a significant setback for the financing of its battlefield apparatus.
The authors also challenge the idea that rich fundamentalists abroad are backing the group. "Whereas al-Qaeda relied heavily on foreign donors, we have not found any evidence of such foreign support in the case of the Islamic State," King's College terrorism researcher John Holland-McCowan said in an interview. "In fact, internal documents show that the group's leadership instructed foreign donations should not make up more than five percent of the group's overall revenue."
Two other sources of income for the group also were deemed insignificant: ransom money paid by governments for their kidnapped citizens and the selling of antiquities.
The Islamic State's ransacking of archaeological sites has earned lots of international attention, but the ICSR says the Islamic State was mostly not involved in trading looted antiquities but rather earned money through issuing permits for locals to sell them abroad. "At the beginning, we observed a wave of looted antiquities from Syria and Iraq sold abroad," said Stefan Heissner, an anti-fraud specialist with Ernst & Young who co-authored the report. "The supply of looted antiquities has significantly declined since then, along with Islamic State's occupied territories. Traders are now also more careful about looking into the origins of such items."
And although the kidnapping of foreigners may have been a huge propaganda boost for the Islamic State, it didn't pay off financially. The U.S. government, for instance, categorically refuses to pay ransom for kidnapped citizens to avoid providing militants with an incentive to take hostages.
But the researchers cautioned that an imminent collapse of the Islamic State is unlikely. "The group remains a threat despite such losses," said Rajan Basra, a researcher with the ICSR. "The financial 'barriers to entry' when it comes to terrorist attacks in Europe is very low."
"Attacks in Europe are typically 'self-sufficient' in how they are financed, so IS finances being hit doesn't mean that terrorists in Europe will find it more difficult to fund any attacks," he said.
Keywords: Islamic State, Syria, Iraq, revenues, financing, terrorism, militants, Middle East