Essay: Formulation and financial structure of ISIS

I. Abstract:
This paper will provide background on the formulation and financial structure of the terrorist group known as ISIS. Once revenue streams are realized, there will be a discussion on the U.S. coalition’s response to each revenue source and how they have gone about stopping it. The final section will use the previous sections to analyze what ISIS may do in the future to increase revenue and maintain their presence in the region.
II. Introduction:
The Islamic State of Iraq and Syria began as an offshoot of al-Qaeda (Hashim) following their defeat in the U.S. invasion of Iraq. Their original founder, Abu Musab al-Zarqawi (AMZ) was a well-known Jordanian criminal who had previously fought alongside the mujahidin and failed numerous times to start a resistance against the Jordanian government. AMZ eventually was brought into a loose alliance with Osama bin Laden and later pledged official allegiance to the group. This allegiance led to the creation of al-Qaeda in Iraq (AQI) and gave AMZ a significant stronghold to grow his caliphate (ISI). On June 7, 2006, Abu Musab al-Zarqawi was killed by a U.S. airstrike and his position was passed unto Abu-Omar al-Baghdadi. After four years of coalition airstrikes and multiple regime changes, ISI reemerged under the leadership of Abu Bakr al-Baghdadi who slowly gained traction and support across the region. Using regional instability and under-equipped government services, Abu Dua aggressively began taking territory in Iraq and Syria while rebranding into the group we know today: ISIS. In 2014, Abu Dua officially declared a caliphate in Iraq and Syria, “The Islamic State”, to implement sharia law across the world and drive out the infidels by any means necessary. The success of the group has come from the ability to create and maintain a centralized organizational structure which has been flexible enough to allow lower level leaders to do as they see fit as long as they stay within the parameters of the established guidelines.
The structure of ISIS is set up as a fully functioning government entity with four main heads. Abu Dua sits atop the executive branch which also consists of his most trusted advisors as well as his second in command. They are in charge of the policymaking and overall governing of the organization. The other three key elements are the shura council, military council, and the Security and intelligence council. The shura council is responsible for ensuring that all decisions made by the group are within the ISIS interpretation of sharia law. It consists of 11 members, including Abu Dua. The military council is comprised of three members and a leader, appointed by Abu Dua himself. The key function of the military council is to oversee and direct the leaders of each province in ISIS territory. The most secretive, and perhaps the most important council, is the Security and Intelligence council. It was formed by former leaders in Saddam Hussein’s security services and they play a key role in the safety of the group. Some of their duties are said to include: providing security and protection to Abu Dua himself, maintain links of communication between key members and Abu Dua, and providing counterintelligence to ensure that the group is not infiltrated by adversaries.
Lower level structure groups include the Finance council which is of utmost importance to keeping ISIS alive and be able to continue fighting in the name of the caliphate. It is no secret that ISIS has developed an impressive war machine that is able to keep churning, even after losing most of its physical territory. An original source of revenue came from the capture and sale of oil to the Syrian government and other groups within the region, however, the taxation of the population in which they control has become a most critical operation. During the highest point of success, ISIS controlled upwards of $1billion dollars (Rand Corp.) through revenue alone.
III. How ISIS Makes Money:
In the period between 2014-2016, The Islamic State of Iraq and Syria put on a masterclass of how to generate income as a terrorist group and reinvented the scope of what was possible. ISIS has generated its vast wealth from three primary sources: oil, taxation, and the looting of Mosul (Glaser 2016). At its peak, ISIS collected within the range of $40 million per month (Johnston) by stealing and selling oil. This was achieved by the caliphate’s movement into the eastern region of Syria, where the majority of Syrian oil fields are located. ISIS has also had success in capturing oil fields in northern Iraq, at the same time as they were fighting for control of Mosul in 2014. This large-scale operation was spearheaded by Abu Sayyaf (Solomon, Chazan, Jones) until his death in 2015. Given the complex system of refineries and delivery trucks, ISIS was able to deliver its product well outside local towns, reaching into Turkey and Iran. This ability to generate such rapid and consistent revenue increased ISIS revenue exponentially and thus became one of the U.S. coalition’s main targets.
ISIS has been able to develop and maintain a complex system of extortion and taxation on citizens living inside its occupied territory. First, ISIS charges all person with a zakat, or religious taxation, which comes from the Five Pillars of Islam. Traditionally, a Muslim would give 2.5% of their earnings towards a holy cause. ISIS uses their caliphate as that reason, since they are fighting for the implementation of Sharia law throughout the world. Second, ISIS charges a “state” tax on all Iraqi and Syrian state employees in their region. This tax was estimated to have brought in over $300 million (Center for the Analysis of Terrorism) in 2015 alone. Civil taxes are used on everyday items such as milk and bread, with ISIS capitalizing on stores and open market. ISIS has also been able to implement an agriculture tax. By seizing areas in the most fertile regions, ISIS was able to control production of wheat and start taxing the sale of wheat along with the initial production of the product. These revenue streams have been used to fund their campaign and attempts to expand territory in the region.
The last of the three main revenue sources was the invasion and capture of Mosul. During the fall of Mosul in 2014, ISIS was able to loot multiple banks and empty their vaults. The result was a theft of over $500 million (Glaser 2009) in cash. It is also believed that ISIS was able to steal a large amount of gold from the city as well. The problem with analyzing this theft is that it is impossible to track the gold and money once it was stolen. Experts believe that the gold was smuggled to safety and may have been sold periodically as the group needed financing. The cash has most likely been used or smuggled away depending on which story is to be believed. The large influx of cash meant that ISIS could expand territory and afford to pay more fighters to keep their territory in terrorist hands.
IV. Coalition Response
The coalition has used a series of bombing assaults to counter ISIS oil infrastructure. By eliminating the means of production and transport, ISIS has seen a sharp decline in overall profit from oil. This number has not quite reached zero, as local sales have continued, with as much as $4 million (Johnston) still being generated per month. The U.S. along with the separate Russian counterterrorism operation, continue to monitor the situation and use kinetic action when deemed necessary. Perhaps the most important aspect of the U.S. policy is its ability to eliminate the key ISIS oil and gas leaders. Along with Abu Sayyaf, the coalition has been able to identify and kill members as they rise in importance. Abu Khattab al Iraqi and three of his followers were killed in June 2018 (U.S. Central Command), again showing the U.S. ability to identify and eliminate key members of the group. Despite these significant gains, ISIS shows an innate ability to adapt and survive. The problem that the U.S. coalition has is that by targeting oil fields held by the group, they are in fact limiting future potential revenue streams for the local population and governments once we leave. However, for ISIS, as stated above, they are still generating upwards of $4 million per month from oil and there is no concrete data to suggest they will stop anytime in the near future.
The U.S. coalition has been successful in decreasing ISIS taxation revenue by overtaking ISIS-controlled territory and helping to establish a legitimate government in those regions. Coalition forces, combined with local militias and troops, have made massive strides in eliminating ISIS territorial control and forcing fighters to abandon those areas. The successful recapture of Mosul has hampered the ability of ISIS to control a large territory, and thus decreasing the amount of taxation they are able to collect. Current U.S. policy indicates a firm commitment to keeping ISIS from regaining large portions of regional control and to continue to assist local assets in drawing out the remaining forces.  It is premature however, to suggest that ISIS will continue to exponentially lose profit from taxation. With a new wave of fighting popping up, it is a possibility that ISIS will be able to gain control of a new territory for a short time and implement their system of control and taxation. As the data has shown, even an incremental gain in territorial control can lead to massive revenue gains for the group. This is the fundamental problem facing the U.S. as it grapples with the idea of liberation. We understand the necessity of continuing to take territory and drive out members of the group, yet will not enter into a direct ground conflict. Relying on the governments of Iraq and Syria is a tactical move, but as has been seen previously, does not always lead to a successful end result.
In direct response to the theft of Mosul, the U.S. started to target ISIS bunkers that were believed to have been used as cash stashes. Targeted airstrikes with bunker penetrating missiles, including the much talked about MOAB, have been instrumental in in this process. Destroying the flow of cash severely limits ISIS’s ability to do business, manage its payroll, and recruit new members. This kind of financial blow has been pivotal to the success of coalition operations in the region. Working with Iraq and Syria, the coalition has been able to clamp down on ISIS financial system and prevent ‘banks’ from being used by the group as a means of paying its members in the country.
V. What is the future of ISIS?
The most important step for ISIS is being able to generate revenue without holding territory. If they can be successful in this endeavor, their operating profit will increase exponentially. Since the coalition’s success in reducing territory has been so widespread, ISIS has gained the advantage of not having to fund their pseudo-state. Not having to pay for such things involving state operations and control, their operating budget has tanked, thus allowing them to hoard revenue and save for future campaigns. Guerilla warfare seems to be the most likely future outcome, with kidnapping, robbery, and extortion becoming the most profitable revenue streams for the group. From an actual terrorism perspective, we have seen that lone wolf attacks are still prevalent, and ISIS does not necessarily even pull off these attacks. There have been multiple cases of lone wolfs declaring allegiance to ISIS without actually being members. This has become essentially a free form of advertising for the group, since they can simply claim credit for attacks while not funding or even having knowledge of such an incident.
Another likely outcome is that ISIS will make droves of revenue in the rebuild of the territories they once held. With the Western world eager to rebuild the region, ISIS will rely on an activity it became largely successful at back when it was still known as al-Qaeda in Iraq. Under the tutelage of al-Zarqawi, AQI was able to reap the benefits of Western rebuilding by extorting the various companies and entities responsible for the rebuilding. Construction and contracting companies became a massive source of revenue for the group and required very little personal danger or sacrifice for the group. If ISIS can find a path to do this, it will lead to a massive rejuvenation for the group and provide a solid base for future activities in the region.
VI. Conclusion
The core success for ISIS has come from their ability to control large amounts of populated territory. Taxation from these populations, along with oil revenues, enabled them to create a massive war chest during their peak times. The U.S. coalition has been able to identify and isolate members of the core structure and initiate a successful ground campaign to take back oil fields and territory. Based on these statistics, the future success for ISIS will rely on their ability to generate revenue without claiming territory, and expanding their social media platform for recruitment throughout the world. With countries throughout the world vowing to put an end to the jihad group, it is premature to expect a full recovery. It is also premature to write ISIS off into the history books.