Islamic State’s Business Model Must Be Disrupted: Bloomberg Editorial

November 18, 2015

What it means for a European nation and member of NATO to declare war against a stateless band of terrorists is an interesting and important question, made urgent by Islamic State’s brutal attack on Paris last Friday. As Europe and the West weigh their military and political responses, however, they should also avail themselves of a simpler strategy: Follow the money.

Raising cash, it turns out, is something Islamic State excels at. It pulls in up to $10 million a month from oil smuggling. It has profitable side businesses in ransoming hostages, selling sex slaves and looting antiquities. And it specializes in shaking down locals for protection money and taxes.

This plunder gives the group a lot of advantages. It can typically pay fighters more than rival terrorist factions, and — unlike their former colleagues in al-Qaeda — the terrorists of Islamic State don’t have to rely much on foreign benefactors or the international financial system. The group can also fund the rudiments of a civil service, with some totalitarian flourishes, to cement its authority in areas it controls.

All of which means that defeating Islamic State will require applying financial pressure as well as military might.

There are some hopeful signs. The U.S. military is bombing the group’s oil fields in eastern Syria and belatedly demolishing its smuggling trucks, which will hurt its bottom line. Many of Islamic State’s financial supporters have been hit with sanctions. International efforts to investigate and cut off its cash — such as the Counter-ISIL Finance Group — are also making some progress.

But a few other steps would help. Countries should stop paying ransoms to Islamic State, for one thing, and encourage insurers to do the same. Intelligence agencies should better coordinate their investigations of the middlemen who facilitate its oil sales. Banks and auction houses must be more alert to cutting off trade in pilfered antiquities. Neighboring countries — notably Turkey — still need to do more to stop the flow of illicit money and goods through Iraq and Syria. And Iraq’s central bank must crack down on financial firms that funnel U.S. dollars to Islamic State and its associates.

The group’s expansive extortion apparatus presents a much more complicated problem. Dismantling it will require weakening its grip on local populations through airstrikes, diminishing its support among disaffected Sunnis and stabilizing the surrounding region after years of brutal warfare. In other words, it will require a comprehensive military and political solution — and comprehensive solutions are not abundant in Syria these days.

The good news is that, while it is still capable of great harm, Islamic State almost certainly cannot sustain its fundraising. It is waging a multi-front war and attempting a global jihad while also trying to pick up the trash, fill the potholes and keep the electricity on for millions of people. Its dominion is economically devastated. As other countries get more aggressive in squeezing its funding, a day of reckoning is visible on the horizon.

–Editors: Timothy Lavin, Michael Newman.

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