Money Laundering Bulletin
http://www.moneylaunderingbulletin.com/terroristfinancing/is-and-will-be-yet-112349.htm
Islamic State controlled areas in Syria and Iraq
The oil price may have dropped
but Islamic State runs varied funding streams, making it brutally
resilient. New thinking on financial lines of attack may be needed,
discovers Paul Cochrane, in Beirut.
The
Islamic State is touted as the wealthiest terrorist organisation on
the planet, yet the financial war against the group is stumbling,
highlighting deficiencies in methodologies and approaches to
countering the financing of terrorism.
There
has been no shortage of effort against the IS, including: UN Security
Council
Resolutions– for example 2199 (2015), requiring member
states to do all they can to prevent its financing; the Financial
Action Task Force (FATF) has published an extensive
report
on the group's funding; a Bahrain-hosted November 2014 meeting of
counter terrorist financing (CTF) experts result in the
Manama Declaration, which set out policy proposals;
and Italy, Saudi Arabia, and the United States co-established a
Counter-ISIL Finance Group in Rome. Despite such measures,
ISIL goes from strength to strength in northern Iraq and Syria.
Black
gold behind the black flag
“Twelve
months ago everyone was saying ISIL [Islamic State of Iraq and the
Levant] is incredibly wealthy from oil. Although it seems its ability
to rely on oil revenue has declined considerably since then, it is
still functioning reasonably well,” said T
om
Keatinge, Director of the Centre for Financial Crime and
Security Studies at RUSI in London.
Indeed,
reports suggest IS was generating millions of dollars a day in oil
revenues, either sold in territory under its control, smuggled over
borders or, in a curious twist, sold to the Syrian regime. The group
appears to have weathered the recent drop in oil prices and adapted.
“When
IS first started to control territory there were a number of jackpot
events; there may or may not have been a large quantity of money in
the Central Bank in Mosul, and it took oil storage facilities and
agricultural stores. That was phase one, using resources it gathered.
Now it needs to raise finance from day to day, like any other
governing authority, something it seems to do effectively albeit by
imposing increasing taxes on people and businesses,” said Keatinge.
Adaptive
response
Furthermore,
ISIL appears to be getting around many of the financial controls
arrayed against it. Jimmy Gurule, Professor of Law at Notre Dame
University in Indiana, and a former undersecretary of the US
Treasury, describes the CFT strategy against the group as “weak and
ineffective,” saying the efforts by FATF and the US Treasury have
been “misguided”.
“There
are a couple of obvious observations – one, not going after the
money, and if there is a strategy, it's been largely ineffective.
Secondly, the current strategy is based on the old Al Qaeda model, so
we need to do something different,” said Gurule.
While
FATF recognises that IS presents “a new
form of terrorism” and that its financing is a “constantly
changing picture,” Gurule criticises
the focus on money going to IS, and not out from its territories.
“When money comes in typologies makes sense, but for services (ISIL
needs) that is money going out, and I don't think typologies work
there. Let's target service providers that help ship or transport
oil, and impose sanctions on these providers,” he said.
He
cited the lack of IS-linked designated individuals under US Executive
Order 13224 on blocking terror funds as indicative of the
difficulties of going after external financiers. “I testified
before a Congressional hearing last November (2014) and I pointed out
the paucity of designations, just three that worked on raising money
for ISIL,” he added.
To
Gurule, part of the problem is treating ISIL as a non-state actor
when it controls land and is operating like a government. The
international community “doesn't want to recognise
it as a government or at the UN but it's a defacto state. Because of
the way it's generating revenues it shouldn't be treated merely as a
terrorist organisation. If it is state like, governs resources and
provides services, then it needs to be treated like a state to change
its behaviour. That strategy should include
second tier economic sanctions that have been relatively effective
against Iran.”
In
February, following the release of the FATF report, a senior
international AML/CFT export told MLB that “there may need to be
some changes to typologies, but the existing machinery is likely to
be adequate. We will be doing a typological renewal, having another
look at the ways finances flow.” A new report is slated to be
published in October (2015).
“I
do think there is a need for a typology review, and the FATF report
has been an excellent tool for the private sector,” said Jon Byrne,
Executive Vice President of the Association of Certified Anti-Money
Laundering Specialists (ACAMS). “The new head of FATF is actively
seeking input from the private sector, and this has become
increasingly important as ISIL has access to oil and other revenues,
and money has to go somewhere, through legitimate institutions.”
Alternative
sources of funds
To
John Cassara, a former US Treasury special agent, the fight against
IS has fallen short in its approach to trade-based money laundering;
he argues a new methodology that adds to a fact-finding intelligence
report would “break some new ground.”
“I
would urge FATF, instead of getting experts with a PhD from the US or
UK to (address shortcomings), to get them from MENA-FATF. Get the
Lebanese, the Saudis involved, those that know the region and what
needs to be reported,” he said.
With
IS using multiple streams to generate funds, new typologies may need
to address certain revenue streams. “The potential exfiltration of
value – antiquities – is a risk spot. It is striking how little
the UN appears to know about this trade. Everyone says its happening,
but where is the evidence and the facts? That's where the argument
stops,” said Keatinge.
An
approach to tackling the smuggling of artefacts from ancient sites in
Iraq and Syria that IS now controls, such as Palmyra in eastern
Syria, should also include looking for orders for items. “I heard
from a source that when Palmyra was overrun (in May 2015) you could
ask for a specific piece. So apparently there is a pull as well as a
push factor,” Keatinge added.
Gurule
also raised the issue of antiquities traded on the black market.
“Selling stolen artefacts is generating tens of millions of
dollars, but what are the typologies?” Kidnap for ransom has also
been identified by FATF as a key revenue stream for IS. “Is there a
typology for money generated from the release of hostages? If the
family of a victim agrees to pay $1.2 million, how is that money
transferred? Are ransom payments being deposited in offshore bank
accounts or disguised as donations to charities or NGOs?” said
Gurule.
Human
trafficking is a further area of concern. “Is IS making money from
human traffickers as they seek to traffic migrants through areas
under its control?” said Keatinge.
Whether
typologies ought to be made public, and risk enabling IS to wise up
to CFT efforts is also in question. Byrne cited the example of banks
looking for account-holders who suddenly fall off the grid, and are
then found to be withdrawing cash in Turkey. In another example,
potential fighters or funders give a third party their ATM cards to
withdraw cash in another country, such as Italy, and then the cash is
taken to IS territory. “But any time you make typologies public
they become stale. I think it is about staying as current as much as
you can, as IS is obviously able to get hold of information so much
easier now through social media,” said Byrne.
FATF's
report downplayed the role of foreign 'deep pocket' funders behind
IS, despite a statement in 2014 by US Vice President Joe Biden that
fingered supporters in the Gulf, and other reports that have
surfaced. MLB has also reported on donations and funding from the
Gulf, particularly Qatar and to a lesser degree Kuwait, Saudi Arabia
and the United Arab Emirates (see
http://backinbeirut.blogspot.com/2015/03/islamic-state-model-of-modern-terrorist.html).
Financial
institutions are certainly keeping an eye on Gulf countries. “It is
all very well for international banks to do their bit to interrupt IS
financing, but the regulatory and enforcement structure in
surrounding countries (bordering Iraq and Syria) represent possible
vulnerabilities and ways IS funds could get into the international
system,” said Keatinge.
The
Gulf has made public moves to show it is trying to counter ISIL
financing, such as organising the Manama Declaration on CFT in
November 2014, but Keatinge suggests this rhetoric needs to be
reinforced by continued raising of regulatory and enforcement
standards.
Cassara
believes more pressure should be brought on the Gulf states. “Even
though for the most part they have adhered to the FATF
recommendations and put in place compliance programs, with some
exceptions enforcement has been somewhat lax,” he said. “If the
West comes to them with a case, 'look at this', they'll do it, unless
(it involves) a politically exposed person (PEP), but they rarely use
their own initiative, and that is frustrating as they know what is
going on or should.”
Image via Wikicommons
