ISIS’s economy smaller and shabbier than Iraq’s

Given the territory it controls, the economic prospects of the Islamic State of Iraq and Syria (ISIS) are crummy, researchers have argued.  Oil notwithstanding, the economies of northern Syria and western and northern Iraq weren’t so great to begin with before the rise of ISIS (also known as Daesh).  The economy in areas of ISIS control has probably worsened given the number of people who have fled or who otherwise lost their jobs when ISIS took control.  On top of that, ISIS spends its money on aggression, not on public service delivery.

This is a persuasive argument.  It has a bit more substance to it than the usual happy talk from than speeches from U.S. Treasury Department officials.  Kudos to Jamie Hansen-Lewis and Jacob N. Shapiro for their research, which was published in the journal Perspectives on Terrorism (hat tip to El Grillo).  A salient excerpt from their article follows:

…Daesh has limited economic activity to draw on. Daesh area’s total economic activity according to G-Econ was at most one-fifth of the rest of Iraq’s and one-third of the rest of Syria’s. Using the more refined DMSP-OLS data the group’s poverty is equally stark, with 2012 illumination in the regions it now controls amounting to no more than one-third of the rest of Syria and one-eighth of the rest of Iraq.

And these methods almost surely overestimate Daesh’s current revenue base. First, we included areas of Daesh support from which their economy might draw in part, but it is not clear how much authority the group has to extract in these areas. Second, we use pre-war data, but the massive population movements that accompanied the Daesh takeover means these areas surely have less economic activity than they did in 1990 (for the GEcon data) or 2012 (for the DMSP-OLS data).[39]

Assuming Daesh is able to transform that economic activity into military spending at rates similar to comparably sized states we should not expect it to be able to sustain large defense expenditures. Worldwide defense expenditures peak at 10.2% of GDP in South Sudan, with many conflict-affected countries spending only 3% of GDP on defense.[40] Countries close to Daesh’s Gross Cell Product had a 2014 GDP of approximately $30B or $4,700 per capita. Combined with the range of observed expenditures this suggests the group could support defense expenditures in the range of $900M to $3B per year. While Daesh’s potential spending totals are large compared to its economic neighbors, they pale in comparison to Iraq’s 2014 spending of $9.5B, Turkey’s $20B, UAE’s $22.6B, or Saudi Arabia’s $80B.[41] While spending clearly translates only indirectly into military power, the gap between what is monetarily feasible for Daesh over the long-run and what its neighbors spend is striking.

Moreover, if we turn to the population under Daesh’s control it is fairly sparse…

Jihadist ops and wages dominate ISIS’s expenses

How does the Islamic State of Iraq and Syria spend its millions (or billions)? The Congressional Research Service offers this summary of ISIS expenditures (h/t El Grillo):

The Islamic State has established a network of ministries to govern the territory it controls and has sought able administrators. IS leader Abu Bakr al Baghdadi in a July 2014 audio recording called for “scientists, scholars, preachers, judges, doctors, engineers and people with administrative expertise of all domains” to move to the Islamic State, which required their expertise. In December 2014, the IS Office of Zakat—a finance ministry equivalent—announced that it would give a series of assessment tests to recruit new staff. The office said it was seeking candidates with PhDs in Islamic law and economics, as well as those with high school diplomas. The Islamic State in late 2014 also announced plans to mint its own currency out of gold, silver, and copper, but as of early 2015 this had not materialized. Iraqi sources in January 2015 stated that the Islamic State had established its own bank in Mosul, which granted loans and accepted deposits.

The Islamic State approved a $2 billion dollar budget for the year in early 2015, including a projected $250 million dollar surplus, designed to cover the costs of operations in both Iraq and Syria. Some have argued that despite this budget, the group does not generate enough revenue to fully cover all of its expenses. In addition to the cost of military operations, the Islamic State must also provide salaries, maintain and repair infrastructure, and fill other state functions, such as the provision of social services…

CRS further estimates that ISIS pays each unmarried fighter $400 to $600 a month.  That’s about 10 times higher than prior research showed. An estimate of infrastructure and service delivery was not provided.

Experts study 52 Al Qaeda money schemes

When it comes to Islamic terrorism, we typically aren’t looking at money laundering scenarios. Rather, we’re looking money made through legitimate channels which is then diverted toward terrorism.  These recent findings from researchers at the National Consortium for the Study of Terrorism and Responses to Terrorism (START) align with previous Money Jihad analysis.

This graphic from their study shows the breakdown of the different types of financial schemes most commonly employed by Al Qaeda supporters in the U.S.:

A summary of the report is here with links to the full study.

Hat tip to @switch_d and @skinroller on Twitter for sending this over.

Term of the week: Tajheez al-Ghazi

There are some quotations about halfway down the right-hand margin of this webpage including a statement attributed to Muhammad that “The warrior gets his reward, and the one who equips him gets his own reward and that of the warrior” (Sunan Abu Dawud, Book 14 No. 2520) and a sales pitch from Osama Bin Laden who told Muslim businessmen, “Your duty is to support the Mujahideen with money and men… The Zakat of one affluent Muslim merchant is enough to finance all the Jihadi front against our enemies.”

These are central concepts behind the money jihad, or al jihad bi-al-mal (see here and here). Those who wage jihad with their life or their money are to be considered of greater worth than Muslims who “sit at home” according to classic Islamic texts.

Another element of this principle is the concept of tajheez al-ghazi. Tajheez means “preparation” and al-ghazi means “warrior.” Those who cannot personally join the fight are asked to prepare (ie to fund, arm, gird, or fit) the warrior for battle.

Edwina Thompson and Aimen Dean learned more about this concept during extensive field work and interviews with 65 current or former jihadist operatives, and published it (along with co-author Tom Keatinge) in the July/August 2013 edition of Perspectives on Terrorism journal. This is a must-read:

…There are many examples from the Qur’an which illustrate the importance of giving generously to the cause of jihad and the war effort. Islam recognised from the beginning that wars, whether defensive or offensive, cost money. Therefore Islam devised a mechanism by which people would voluntarily contribute, and contribute generously, to the war effort while considering such contributions as charity. As history shows, early Muslims took this message to heart. Contributions to the Jihad took many forms: some provided arms and shields, others food and livestock, or horses and camels. The most common method of contribution is ‘Tajheez al-Ghazi’ – simply defined as fitting or arming a soldier, which allows for those who cannot, or will not, join the jihad physically for whatever reason, to achieve the honour and heavenly reward of waging jihad by proxy. The Prophet Muhammad encouraged this type of sponsorship: ‘Whoever arms a Ghazi then he would be considered a Ghazi, and whoever looked after the family of an absent Ghazi, he will too be considered a Ghazi’ (Bukhari, 2630). More popular than shields, armour, and horses is now money, which is paid to individuals aspiring to make their way to jihad theatres of conflict.

Jihad volunteers are the life and blood of such theatres in Afghanistan, Iraq, Yemen, Somalia, North Africa and Syria today. Therefore, without Tajheez being readily available for potential Jihadists the ability of groups such as al-Qaeda and the Taliban to sustain their level of activity in these theatres would be severely limited. From primary research that covers the period from 1991 to mid-2012, it emerged the Tajheez cost per jihadist was between US $3,000 and $4,000 in Bosnia (due to the number of countries that the volunteer needed to pass en route and the need to cover the cost of his AK-47), and US $2,000 to reach Afghanistan and have enough money to cover basic needs. In the case of the roughly 100 foreign jihadists who made it to Chechnya, the cost of Tajheez skyrocketed to more than US $15,000 per person due to the difficulty of entering Chechnya.

As jihad theatres emerge around the globe and attract public and media attention, local individuals, clerics and small fundraising cells organically emerge to organise and collect funding for Tajheez. Again, primary research conducted by one of the authors indicates that four out of ten Jihadists received their Tajheez from money raised or contributed by women. The funds are collected in cash, handled by individual and small cells, with almost no banking transactions occurring or with funds moving through officially registered charitable channels. Some contributors use their own credit cards to purchase tickets for traveling jihadists. Tajheez relies on hundreds of outlets, whether they are clerics or coordinators, dispersed over dozens of countries and with no organisational links between them or to a central authority, making it impossible to track them all. What unites them is a common cause…

Anybody who is serious about understanding the motives behind those who donate money to jihadist causes or the methods behind terrorist fundraising must grasp this concept.

Rewind: wages to fighters for Al Qaeda in Iraq

In early 2013, Money Jihad came across informative research by Danielle Jung and Jacob Shapiro at Princeton University (hat tip to University College London lecturer Paul Gill) into wages paid to members of Al Qaeda in Iraq (AQI)—the group that eventually became the Islamic State. Money Jihad drafted some bullet points on some of the findings from the research, but didn’t publish them in a blog post at the time. But better late than never—details about AQI’s wage structure have been lost in the shuffle amidst bigger commentary on ISIS’s money from oil, ransoms, and looted antiquities.  Yet the expenditure side of the ledger is just as important:

• AQI paid insurgents using a flat wage structure with additional compensation based on the size of the fighter’s family, not based on the fighter’s seniority in the organization.
• No correlation was found between wages to terrorists to the amount of risk they took.  In other words, jihadists engaged in riskier operations were not rewarded more than those engaged in lower risk activities.
• 53 percent of compensation to fighters consisted of non-wage payments such as ad hoc payments for equipment, food, living expenses, etc.
• Payroll records varied among AQI cells with some cells using handwritten ledgers and while others used Microsoft Excel.
• One AQI document indicated that wages for a single Iraq insurgent with no children were set at $41 a month with $20 extra per dependent.
• Payments to families of suicide bombers continued after the fighter’s martyrdom.
• The level of compensation was fairly low even by Iraqi standards; about equal to that of an administrative assistant.
• The low wages may have helped AQI screen for true believers, but they also noted that there was a large supply of willing fighters.
• The guaranteed pension to martyr’s families may have been an incentive that offset the downsides of low wages, basically serving as a life insurance benefit to jihadists.

Jung and Shapiro’s original paper appears to be unavailable at this time, or was subsequently combined with Rand Company analysis, or else we would include a link to it.

Seven habits of highly effective kingpins

Criminal and terrorist groups are highly interconnected according to new analysis of data by West Point’s Combating Terrorism Center. The conventional wisdom was that criminals worry that working with terrorists may draw unwanted scrutiny from their governments, and they are only inclined to cooperate only in resource-poor environments where it is necessary to survive. But the CTC finds that transnational traffickers and criminals appear to be more than willing to partner with terrorists, and that they benefit from these relationships in a wide variety of environments.

The full report can be read here. It is very thorough (89 pages) and includes academic language and models. Here are a just a few of the salient points from the study about members of the global underworld that may be of interest to practitioners and analysts outside of academia:

1. Interconnected: 98 percent of the individuals in the global illicit marketplace are within two degrees of separation of each other.
2. International: One in three individuals in the network have international relationships.
3. Distributed power: Unlike typical hub-and-spoke networks where 80 percent of the connections rely on 20 percent of the actors involved, the global illicit network is somewhat less dependent on a small number of powerful actors/kingpins. Twenty percent of participants are responsible for only 65 percent of underworld connections. This diffuse hub-and-spoke model makes the network tougher for law enforcement to disrupt.
4. Willingness to work with terrorists: “Individuals involved in other illicit activities link to terrorists 35 percent of the time” (p. 43). Terrorists often serve as “boundary spanners,” that link and form introductions between disparate groups such as drug traffickers, arms dealers, and organized crime.
5. Frequent bilateral links with the United Arab Emirates: The top two bilateral connections in the criminal underworld–the U.S. and Colombia and the U.S. and Mexico–are probably unsurprising to Americans. The third most prevalent bilateral connections are between India and the U.A.E., and the sixth most common are between Pakistan and the U.A.E.
6. Organized crime, not just terrorism, benefits from state sponsorship. We know that state sponsorship of terrorism exists, but for some reason we erroneously assume that state sponsorship of crime does not. The evidence from North Korea, Russia, the Balkans, and Pakistan indicates that criminals can carry out national interests—a phenomenon deserving further study.
7. Convergence is not driven by poverty. Terrorists and criminals are drawn together in a variety of environments, not just in countries where there are little money or resources. The evidence indicates that the opposite is often true—that criminal masterminds prefer climates where there is some level of predictability and economic development, such as Monzer al-Kassar operating in Spain and Dawood Ibrahim in Dubai. Focusing only on failed states could be a red herring.

Acknowledgment: Thanks to Twitter user @El_Grillo1 for sending in a link to the CTC study.

This piece has also been published at Terror Finance Blog.

Philippine jihad relies on Saudi zakat

The terrorist organization Abu Sayyaf Group relies mostly on kidnapping for ransom for its revenues. ASG also collects money from extortion and from the collection of zakat according to a March 2014 report from Thomson Reuters. The key point of origin of the zakat for the jihadist group is Saudi Arabia. An excerpt from the report follows:

…The ASG has also maintained the collection of Zakat, one of its traditional sources of funding, though not as profitable as its criminal activities. Zakat, which prescribes Muslims to donate 2.5% of their net revenue to charity, is legitimate under Shariah law. The ASG which claims to struggle for the establishment of an independent Islamic state in Mindanao, benefits from Zakat collected locally and abroad. Locals and those abroad who believe that militant groups are in pursuit of jihad donate substantially to support their operations and upkeep. Some donors however, are not aware that their donations end up in the treasury of militant groups.

Crucial to the collection of Zakat in the Middle East are a small number of sympathetic Filipino workers who help source donors and channel funds to the militant groups through the Overseas Filipino Workers (OFW) remittance system. The Philippines is one of the major exporters of labor to Saudi Arabia with more than a million Filipino workers in that country. Annual remittances amounting to more than a billion pesos have literally kept the Philippine economy afloat. Lack of regulations or monitoring of these remittances allows the flow of funds from supporters abroad to militant groups like the ASG. The ASG has not established a stable support group in any other country except for Saudi Arabia. They depend only on a few core supporters, mostly relatives and friends, both locally and abroad. In the past they collected donations during Friday congregational prayers and used the proceeds for the procurement of ammunition, medicines, and military supplies. It is estimated that from 1992 to 2007, the ASG collected almost ₱20 million from Zakat.

Propaganda is critical for the continuity of Zakat. There is no recent evidence that the ASG is publicly engaged in propaganda which suggests less reliance in Zakat. Previously, the ASG organized lectures and seminars to encourage people to take part in jihad by sharing their wealth through Zakat. The ASG is also known to compile video footages of militant training and actual combat operations. In October 2007, the ASG had appealed for funds and recruits on You Tube by featuring a video of two slain ASG leaders…

$100,000 sent from Gulf to fund 25 assassins

Amniyat, the elite intelligence unit of the Somali terrorist organization al-Shabaab, received 100,000 USD from Somali businessmen based in Qatar, Saudi Arabia, and the U.A.E. to carry out a wave of assassinations in Mogadishu, according to a UN report.

The money was remitted between October to December 2012 with bombings and suicide attacks conducted from January to April of 2013.  At least 22 people were assassinated in Mogadishu as a result of the operation.

The following findings come from the July report of the UN Monitoring Group on Somalia and Eritrea, with internal citations omitted:

26.  The Monitoring Group was also provided with confidential information regarding the preparation at the end of 2012 and the partial execution of a large-scale assassination operation by an Amniyat cell in Mogadishu. The objective was to mobilize a team of 25 Amniyat operatives to conduct a wave of assassinations of national intelligence officers and members of the Federal parliament. To that end, money was collected amongst supporters of Al-Shabaab within the Somali business community in Qatar and sent via Dahabshil, a money remittance company, to Mogadishu, where it was received by the Amniyat Finance Officer in Mogadishu, Ali Mohammed Ali ‘Abdullahi’, and delivered to the Amniyat commander in charge of the operation.

27. The Monitoring Group had further access to three additional cases in which cash U.S. dollars were collected from the Somali business communities in Saudi Arabia and the United Arab Emirates, and transferred by remittance companies to Mogadishu, with the knowledge and aim of financing terrorist activity in Somalia, and specifically to support Amniyat operations in Mogadishu. In the period October to December 2012, the aggregate amount transferred for the four operations was approximately 100,000 USD.  In addition to spreading fear amongst the population and government officials, Somali businessmen in the diaspora supporting Amniyat assassinations may serve to achieve ulterior goals, whether clan revenge or elimination of business competitors or political opponents.

28.  In a press communiqué dated 18 April 2013, the so-called Press Office of Harakat Al-Shabaab Al-Mujahideen claimed responsibility for the killing of “127 Somali intelligence agents, officials and spies in Mogadishu”, and for the subsequent resignation of the head of the National Intelligence and Security Agency (NISA) of Somalia, Ahmad Mo’alim Fiqi. It further stated that the assassination campaign was conducted by the “Mujahideen counter-intelligence teams” in Mogadishu, and led by the “Muhammad Ibn Maslamah Brigade”.  The phrase “counter-intelligence teams” is in reference to Amniyat. However, the high casualty figure appears to be propaganda, since, according to UN statistics, only 22 individuals were assassinated by Al-Shabaab in Mogadishu between January and March 2013.

Amniyat answers directly to the chief of al-Shabaab.  Amniyat’s clandestine cell structure is designed to avoid detection and survive even if al-Shabaab itself were destroyed.

Amniyat financing from Persian Gulf countries suggests independence from conventional al-Shabaab revenue sources of local taxation and money laundered through Al Hijra (Muslim Youth Center) by the Pumwani Riyadha Mosque Committee in Kenya.

Al-Shabaab’s charcoal business booms despite loss of Kismayo

UN says terror group’s annual revenues likely exceed 25 million USD

In what seemed like a major military and financial setback for al-Shabaab, the capture of the important port of Kismayo by Kenya Defence Forces (KDF), African Union Mission in Somalia (AMISOM) troops, and the Ras Kamboni clan militia in September 2012 has turned out to be mere window dressing for a profit sharing arrangement between militiamen, the Kismayo business establishment, and al-Shabaab itself.

The pre-existing agreements for taxes and royalties to be paid to al-Shabaab at each stage of the lucrative Somali charcoal production and supply chain appear to be intact despite the change in management of the port.  Add that to checkpoint taxes imposed on truckloads of Somali coal and expanded charcoal export operations at the beach port of al-Shabaab controlled Barawe, and you have a recipe al-Shabaab success.

In its exhaustive 400+ page report in July, the UN Monitoring Group on Somalia and Eritrea lays out al-Shabaab’s unexpected ability to snatch victory from the jaws of seeming defeat:

…Overall, despite the fact that the KDF/AMISOM and Ras Kamboni forces replaced Al-Shabaab’s control of Kismayo, the charcoal business architecture remained intact. While the production and trade in charcoal has always existed in Somalia on a smaller scale, during Al-Shabaab’s control of Kismayo it became a large-scale international enterprise combining local clan and Al-Shabaab financial interests, as previously documented by the Monitoring Group (S/2011/433 and S/2012/544). The nature of the business enterprise forged by Al-Shabaab continues with Al-Shabaab, its commercial partners and networks still central to the trade. Essentially, with the changeover of power in Kismayo, the shareholding of the charcoal trade at the port was divided into three between Al-Shabaab, Ras Kamboni and Somali Kenyan businessmen cooperating with the KDF.

In addition to Al-Shabaab’s shareholding at Kismayo represented by individual charcoal traders in the local business community, there is seamless movement of charcoal trucks between Kismayo and Barawe and regular coordination between the two ports, not least because of the personal and commercial relations between charcoal traders, individuals in Ras Kamboni and members of Al-Shabaab.

This dramatic increase in scale of the charcoal trade since the time when Al-Shabaab exclusively controlled it, actually benefits Al-Shabaab as it draws considerable revenue from its partial shareholding in the expanded business. In fact, its shareholding in Kismayo charcoal, in combination with its export revenues at Barawe and its taxation of trucks transporting charcoal from production areas under its control are likely exceeding the revenue it generated when it controlled Kismayo, previously estimated by the Monitoring Group to be 25 million USD per year (see annex 9.2). As such, Al-Shabaab has managed to exploit and profit from the diversification of interests in the charcoal trade (see annex 9.2)…

Meanwhile, Persian Gulf countries flagrantly violate the UN’s ban on the Somali charcoal trade by continued importation.  If there is any saving grace to the charcoal fiasco, it is that the Monitoring Group believes al-Shabaab cells outside of southern Somalia may not be receiving increased revenue.

See prior Money Jihad coverage of how the Somali charcoal trade benefits al-Shabaab here, here, and here.

Helping Hand honored despite close ties to a Hamas-funding Pakistani charity

Charity Navigator, a leading evaluator of nonprofit groups in the U.S., has published 15 different “top 10” lists to help donors assess charities.  Among those lists is a list of 10 charities with low overhead costs that rely on private donations.  Helping Hand for Relief and Development, a Michigan-based Islamic charity, ranks seventh on that list.

Charity Navigator does not appear to have factored in Helping Hand’s ongoing cooperation (see here and here) with the Al-Khidmat Foundation, a Pakistani charity which gave a 6 million rupee check to Hamas leader Khaled Meshaal in 2006.

The Pakistani tie-in is even more alarming considering that the auditing firm that prepared Helping Hand’s financial statement for 2011, the most recent year available, divulged that “We did not audit the financial statements of the Organization’s operations in Pakistan which reflect total assets and revenues constituting 55 percent and 60 percent, respectively, of the related consolidated totals.”

It is also worth noting that Helping Hand reported having $7 million in medical supply and drug assets in their last tax return.  The fair market valuation of drugs donated to and distributed by charities, especially deworming medication, has been an area of increased scrutiny.  Helping Hand states that it uses current accounting standards to comply with IRS mandates in this area, but some analysts still believe that in-kind donations to charities are being overstated.  This has the effect of exaggerating the net worth of some charities, and it makes administrative costs appear to be a small share relative to their size.  Charity Navigator is well aware of this ongoing controversy, but how closely it examined drug valuations by charities on their top 10 lists is unclear.

The Charity Navigator rating is already being exploited by Helping Hand, which is running a banner across its homepage in large font and all capital letters with misleading phrases “TOP 10 HIGHLY RATED CHARITY” and “DONATE WITH CONFIDENCE” along with Helping Hand and Charity Navigator logos.  Muslim news websites such as ABNA (hat tip to Creeping Sharia and Islamist Watch) have touted the rating as well.

The Muslim advocacy group ICNA has also congratulated Helping Hand for the rating in a press release.  But the ICNA statement should be taken with a grain of salt because 1) ICNA is a partner organization with Helping Hand, and 2) ICNA has received a loan from Helping Hand with favorable financing terms.  ICNA’s indebtedness to Helping Hand was not disclosed in the press release.

Institutional donors who may be considering donations to Helping Hand and private donors who intend to give zakat to Helping Hand should consider the serious questions about Helping Hand’s operations in Pakistan and donate elsewhere.  Banks with relationships with Helping Hand should also review the risk of maintaining those accounts.

The ratlines of Hamas

Hamas and tunnel owners are making millions of dollars a year from Gaza Strip smuggling.  A nice little summary of the long-known situation comes to us from a new, scholarly article entitled “Terrorist Use of Smuggling Tunnels” in the latest edition of the International Journal of Criminology and Sociology:

…The amount of money made by Hamas off taxing contraband smuggled through Gaza Strip tunnels, as well as the political advantage of Hamas controlling both absolute and conditional contraband tunnel smuggling, has been addressed in the business management popular press. For example, one source reported that “the tunnels generate $188 million in tax revenues on things like cigarettes, gas and building materials” (Topol, 2013, para. 13).

Palestinians estimate that 25% of the Hamas government’s budget comes from taxes imposed on the owners of the underground tunnels. For example, Hamas has imposed a 25% tax and a $2,000 fee on every car that is smuggled into the Gaza Strip. Hamas also charges $15 for each ton of cement, eight cents for a pack of cigarettes, and 50 cents for each liter of fuel smuggled through the tunnels (Toameh, 2012).

The political advantage the smuggling tunnels provided to Hamas included that while the tunnels are essential for transporting absolute contraband and materials into Gaza, they are also critical for maintaining the goodwill of Gazans by providing them with cut-price commodities even with surcharges added by Hamas officials (Alster, 2013). The financial rewards of engaging in criminal smuggling of contraband between Egypt and the Gaza Strip are an important part of transnational tunnel analysis because the Gaza Strip is a site of an estimated 600 millionaires (Toameh, 2012)…