ISIS manipulates currency in northern Iraq

Reuters says that the Islamic State of Iraq and Syria (ISIS) “rigs currency rates.”  That sounds sophisticated—activity you would expect from a central bank.  Once you read their article you find that ISIS is forcing currency dealers in Mosul to exchange fewer dollars for the same amount of Iraqi dinars.  That sounds more like an organized crime racket than public financial administration.  Either way you cut it, ISIS’s fighters are getting pinched with lower wages, which is a good thing.

Islamic State rigs currency rates in Mosul to prop up finances

Islamic State militants in the northern Iraqi city of Mosul are manipulating the exchange rate between U.S. dollars and Iraqi dinars to squeeze money out of local people as coalition bombers attack the group’s finances.

The U.S-led coalition has said that in addition to attacking Islamic State’s fighters and leaders it will go after financial infrastructure too.

Air strikes have reduced Islamic State’s ability to extract, refine and transport oil, a major source of revenue that is already suffering from the fall in world prices. Since October the coalition says it has destroyed at least 10 “cash collection points” estimated to contain hundreds of millions of dollars.

U.S. military officials say reports of Islamic State cutting fighters’ wages by up to half are proof that the coalition is putting pressure on the group.

Average pay has been cut from $400 to $200 a month. While wages for foreign fighters, which were between $600 to $800, have also been cut, it is not clear by how much, said U.S. Army Colonel Steve Warren, spokesman for the international coalition.

Yet the militants, who have near total control of the local economy, appear to have adapted to these setbacks in Mosul by introducing a new revenue stream.

The group earns dollars by selling basic commodities produced in factories under its control to local distributors, but pays monthly salaries in dinars to thousands of fighters and public employees, currency traders in Mosul told Reuters.

It earns profits of up to 20 percent under preferential currency rates it imposed last month that strengthen the dollar when exchanged for smaller denominations of dinars, they said.

“Daesh sells (the products) to traders in dollars, but it pays salaries in small denominations of dinars,” said an exchange bureau employee in Mosul, using an Arabic acronym to refer to Islamic State.

At the official rate set by the Iraqi government, $100 is currently valued at around 118,000 dinars.

In Mosul, the same amount costs 127,500 dinars when purchased with 25,000-dinar notes, the largest bill in circulation, according to the owner of a currency exchange bureau. The rate rise to 155,000 dinars when purchased with 250-dinar notes – the smallest bill available. Islamic State prefers the larger bills as they are easier to transport.

‘NOBODY WOULD RISK IT’

Three other currency traders confirmed those details. They all spoke to Reuters on condition of anonymity for fear of being punished by Islamic State. Security restrictions in areas the group controls prevented Reuters from independently verifying their accounts.

It was not possible to determine how much money Islamic State is making by controlling the currency market. It was also unclear if these practices extended beyond Mosul, the largest city under Islamic State control, to other territories in Iraq and Syria.

Parallel trading at more competitive rates is very limited, traders said, because Islamic State has threatened to confiscate the money of anyone who breaks the rules. If it happens, it is in complete secrecy.

“Nobody would risk it,” one of the traders told Reuters.

Islamic State, which is frozen out of traditional financial institutions by international sanctions, operates a cash economy and controls most means of production, including factories producing cement, flour and textiles…

 

Hacking and stealing money for terrorism

Indonesian jihadists update financial strategy

The Jakarata Globe has published a good article (excerpt below) reviewing developments in terrorism in Indonesia over the past year, including an examination of “Santoso”—a high-profile terrorist.  It was Santoso operatives who committed a cyber-attack against a foreign currency exchange website to make nearly a million dollars:

As the Bali bombing trials illustrated, many Muslim fundamentalists believe that theft for jihad is permissible under Islamic law.  This hacking case also demonstrates another facet of ongoing economic cyber warfare against “infidel” banks and stock markets.

Theft and robbery

Despite lacking in striking capabilities, police discovered in June that terrorism groups might have turned to a more sophisticated method to gather funds. The finding was made after Densus 88 arrested Rizki Gunawan, who is suspected of having made Rp 8 billion ($830,000) as a result of online hacking.

A Densus 88 source said that Rizki’s hacking work had funded the bombing of a church in Solo, in September. The source also said that Rizki had taken part in paramilitary training in Central Sulawesi in January and February last year under the leadership of Santoso, who is still on the run.

During the bombing of several churches in 2000 and the first Bali bombing in 2002, funding came directly from international terror group Al-Qaeda. After the funding stopped, terrorism cells resorted to donations from their own members and sympathizers.

But the 2002 Law on Terrorism, and later the 2010 Money Laundering Law, makes this method almost impossible, prompting many terrorism cells to conduct theft and robbery to finance their attacks.

Saud said the new funding methods were devised by Santoso, who came up with the strategy after realizing that Rizki and his protege, Cahya, were IT experts. The pair decided to hack a foreign exchange trading website.

Cahya was arrested in March for financing the Solo church bombing as well as channeling money to terrorism suspect Umar Patek, who was sentenced this year to 20 years for his role in the 2002 Bali bombing.

Santoso seems to be this year’s Most Wanted Terrorist, with nearly all terrorism attacks — successful and foiled — having had some form of his alleged involvement…