The Islamic State in Iraq and the Levant had a total revenue of $2.4 billion in 2015. ISIL is not alone in its rather large budget; Al-Qaeda, Boko Haram, and Hezbollah also possess significant amounts of funds to drive their operations. Money drives economies, trade deals, and basic organizations; terrorist groups are no exception.
The current U.S. strategy to combat terrorist financing is mainly led by the Department of the Treasury and the U.S. Department of State. The strategy is to starve terrorists of their resources and isolate them through sanctions on entities, countries, and people, blocking transactions, and making the formal financial sector more transparent. This plan is detailed, yet flawed, as it focuses on the wrong area of finance to combat. The State Department claims only $170 million has been blocked through the formal financial sector in total. This amount is only a fraction of ISIL’s whole budget, let alone every terrorist group on the globe. A solution is needed in the U.S. strategy to combat terrorist financing, and it can be found in combating the specific fundraising methods that the terrorist groups execute to raise their funds.
Terrorist groups raise funds legally and illegally to financially support their organizations. Legal fundraising methods include money funneled through charities, zakat donations, and legitimate businesses. Frequently used illegal methods are narcotic and human trafficking; diamond trades; and kidnap/ransom. This money is often laundered through legitimate banks and is what the U.S. is currently aiming to uncover and block. The problem here is that the money is more often than not laundered in countries that are not equipped with proper anti-money laundering (AML) and counter terrorist financing (CTF) laws/measures; for this reason, only an underwhelming $170 million has been blocked. This doesn’t mean that the Treasury and State Department have poor execution of their current plan; it simply means that it is not the most effective and efficient strategy.
The only way this current plan could potentially succeed is if every country in the world developed ideal AML and CTF programs and legislation, but that is wishful thinking. The current programs in place in both departments largely include collaboration and coordination with the private sector, other countries, and organizations like the Financial Action Task Force. That is beneficial to an extent, but in practice hasn’t proved to be significantly sound. The U.S. needs a comprehensive and balanced strategy to counter terrorist finance that includes the current measures through the formal financial sector, but also ones that attack the illegal fundraisings of terrorist organizations. The current strategy mainly focuses on targeting money laundering, but it needs to also include targeting the methods which raise the money that is being laundered.
Illegal fundraising methods such as extortion, human and narcotics trafficking, and kidnap and ransom all are traditional means of fundraising that most terrorist organizations still rely on. (More modern methods, such as cyber-crimes, are not usually the more preferred ways to fundraise.) These illegal means are carried out on the territories of Iraq, Afghanistan, Syria, Pakistan, and Somalia. American troops are currently training and providing weapons to local fighters who are currently engaging in warfare against groups such as the Islamic State. ISIL has been losing ground and their territorial claims, which if maximized, should significantly weaken it. The Center for Analysis of Terrorism claims that territorial claims are the number one way ISIL receives its funding. Through these holdings, ISIL commits extortion, which includes fees, taxes, confiscations, and fines. The organization has been losing territory since 2014, and the RAND Corporation predicts the group is on the decline. With this success in mind, the mission to attack illicit terrorist fundraising methods should be emphasized in the U.S. strategy to combat terrorist financing.
Each terrorist organization has its favored ways to finance its activities. The U.S. CTF approach should to be tailored to each of these groups, as opposed to targeting them all the same way. Heavily relying on sanctions, the freezing of assets, and the blocking of transactions may benefit the fight against Hezbollah, which relies heavily on the support from Iran. However, it will not benefit significantly in the fight against the Taliban, which relies mainly on narcotics revenue. Once each group is assessed and their main financing methods are identified, they can be targeted effectively.
Some scholars have recognized that current CTF measures are not adequate and have called for action. In an article released in the July/August 2017 issue of Foreign Affairs, Peter Neumann, professor of Security Studies at King’s College London, argues that terrorists’ legal fundraising methods are insignificant compared to their illegal fundraising activities. Neumann goes on to say that instead of broadly attacking through the financial sector, the U.S. needs to zoom in on each individual terrorist group and then target the specific ways they finance their organizations.
The U.S. needs a more balanced plan to combat the financing of terrorism. Continuing efforts in the formal financial sector by targeting money laundering through sanctions, asset freezes and transaction blocks is important. However, it is essential to target the illegal financing actions respective to each terrorist organization. Actions to succeed in this effort include creating U.S. programs that target such illicit activities, such as the Terrorist Interdiction Program, which is a recent step in the right direction. Perhaps more important, though, is convincing other countries that harbor these terrorist organizations to address and solve the situations themselves. This will most likely prove to be a difficult task. A potential catalyst could be providing trade incentives to other countries if they make significant strides in combatting any major terrorist financing activity.
With a new and balanced U.S. counter-terrorist financing strategy that targets terrorists’ legal and illegal financing actions and incentivizes foreign countries to improve their anti-money laundering and counterterrorist financing programs, success in the fight against terrorist financing and terrorism overall will be more visible.