The so-called Islamic State's financial fortunes are bound to the amount of territory it controls.
And the group's dramatic loss of ground in its strongholds in Syria and Iraq is putting pressure on its finances, according to a new report from the International Centre for the Study of Radicalisation.
Though exact figures are murky, the researchers assessed information, including leaked documents, about ISIS finances. They found that the group took in $870 million last year, which is approximately 50 percent less income than in 2014.
That's because its most significant income sources — taxes and fees, oil, and looting — are linked to territory, as ICSR Director Peter Neumann tells All Things Considered.
"In fact what made them so rich in 2014, the fact that they were tied to territory, territory that they could exploit — that also explains why their income has declined so dramatically," he says. Neumann adds that losing control of key cities "means fewer businesses to tax, fewer people to tax, less oil fields to be exploited."
This stands in contrast to financing patterns of most terrorist groups, as the report explains, which tend to be reliant on "foreign donors, charities, or conducting its 'business' of the international banking system."
Iraqi forces, backed by U.S.-led coalition air support and advisers, are currently attempting to wrest Mosul from ISIS control. It's the group's last major population center in Iraq. The operation began in October and is now focused on the western part of the key city.
The apparent decline in the group's finances, the report states, is a product of the coalition's broader military campaign rather than efforts specifically aimed at their finances.
But as Neumann explains, a decline in territory and finances for ISIS "will not have an immediate effect on terrorist operations abroad." Here's why:
"We know that in Europe for example, terrorists have been told to self-finance their attacks, even the Paris attacks, which were fairly complex in November 2015. According to the French government, they cost less than 20,000 euros and that money was raised through petty criminality — people were taking out fake loans, they were selling consumer goods, they were even dealing with drugs.
"So this is quite independent of Syria, of ISIS the central organization as it exists in its core territory in Syria and Iraq. And as ISIS says itself, one of the responses of the declining territory in its core territory will be to increase, or to call for the increase, of terrorist operations abroad. So in the short term, I don't think it will have any effect. If anything, it may actually have a negative effect. It may mean actually more effort to carry out terrorist operations abroad."
At the same time, the extremist group does not appear to be finding new sources of revenue. Neumann says this may mean a shift in strategy: "They are going underground. They are becoming essentially a criminal network again that is involved in smuggling, in extortion, that is involved in common criminality."
The findings corroborate recent reports from the region that suggest financial strain.
"Having built up loyalty among militants with good salaries and honeymoon and baby bonuses," The Associated Press reports, "the group has stopped providing even the smaller perks: free energy drinks and Snickers bars."
The wire service adds that Mosul residents in ISIS-controlled areas are now being punished for dress code breaches with fines, rather than floggings, as they had done previously.
AUDIE CORNISH, HOST:
ISIS is losing cash and fast. At its peak, the Islamic State controlled large stretches of northern Syria and Iraq. That's land the group loots, taxes and takes oil from. And that made it one of the richest terror organizations around. But ISIS has lost a lot of ground, and it's very close to losing the Iraqi city of Mosul now.
As this happens, Peter Neumann says ISIS is losing money as well. Neumann is the director of the International Centre for the Study of Radicalisation and Political Violence. He joins us now. Welcome to the program.
PETER NEUMANN: Hello.
CORNISH: So in your report, you also write about ISIS selling the region's antiquities, also using kidnapping ransom as a source of revenue. But how rich are they I mean compared to al-Qaida or some other kind of terror group?
NEUMANN: So we estimated that at the peak of their success when they declared their caliphate, they had income or revenues of up to $2 billion. The important point, though, is, number one, it has dramatically declined. Last year, they only took in a maximum of $1 billion. That's 50 percent less.
And the second point is of course that ISIS is not a conventional terrorist organization, and compared to conventional terrorist organizations, ISIS had territory. It had territory. It had a population that generates a lot of income. But they also of course had a lot more expenses. They had to fix roads. They had to pay for teachers and all the other things that, quote, unquote, "states" do.
CORNISH: With these campaigns against ISIS in Syria and in Iraq, how much territory have they lost overall, and what has that meant for their financing?
NEUMANN: Well, that's the key point really. ISIS has lost territory, and because almost all of their money comes from within their territory, that explains the dramatic decline in their income because in fact the international campaign led by the United States over the past three years against the Islamic State has actually been fairly successful.
On the Iraqi side, ISIS has lost 60 percent of the territory they used to have in 2014. And even on the Syrian side where it's a lot more complicated to fight, ISIS has lost 30 percent of the territory they used to have. And that means fewer businesses and people to tax, fewer oil fields that can be extracted and fewer places that can be looted.
CORNISH: So how do they adapt? I mean how do they make up the difference in that loss of funds?
NEUMANN: So that's the big question because we haven't seen them producing new significant sources of revenue. And our guess would be that they are actually returning to what their predecessor organization used to do in the late-2000s. They are going underground. They are becoming essentially a criminal network again that is involved in smuggling and extortion that is involved in common criminality. That's how they survived when suddenly the opportunity opened up to actually capture territory. I think that's what they will go back to.
CORNISH: Looking forward, we know ISIS has inspired a lot of fear in Western countries because of terror attacks that they inspired or helped direct abroad. But these attacks don't always take a lot of resources, so what does it mean for their activities overseas?
NEUMANN: That's right. This will not have - the dramatic decline of finances will not have an immediate effect on terrorist operations abroad. We know that in Europe, for example, terrorists are being told to self-finance their attacks. Even the Paris attacks, which were fairly complex in November 2015 - according to French government, they cost less than 20,000 euros. And that money was raised through petty criminality.
People were taking out fake loans. They were selling consumer goods. They were even dealing with drugs. So this is quite independent of ISIS, the central organization as it exists in its core territory in Syria and Iraq. So in the short term, I don't think it will have any effect, and if anything, it may mean actually more effort to carry out terrorist operations abroad.
CORNISH: Peter Neumann is the director of the International Centre for the Study of Radicalisation and Political Violence. That's at King's College in London. Thank you for speaking with ALL THINGS CONSIDERED.
NEUMANN: Thank you.
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