The economics of ISIS A case of theft or money laundering?

Founded in 2004, the terrorist organization Islamic State of Iraq and Syria (ISIS) has striven to set up what they call an Islamic state within what is currently Syria and Iraq (Mirror, 2014).
Since its inception, ISIS has prospered and expanded. According to CIA estimates, it has recruited 20-30,000 fighters, conquered a large swath of land and makes as much as two million US dollars a day.(1) Observers have already suggested that ISIS is probably one of largestand wealthiest terrorist organizations in the world.

For scholars, this raises a number of interesting questions. From a business perspective, ISIS poses a striking organizational and operational case, whereas for legal scholars the goals of ISIS, in terms of setting up a new state, also present noteworthy subjects. When looking at the organization from an economic angle, however, probably one of the most important issues to raise is: How does ISIS make its money? Does it simply steal it or does ISIS participate in the international economy and operate in the money laundering market?

The ISIS Business Model
ISIS has created a number of revenue streams. Firstly, ISIS acquires a large part of its revenues through plundering. The looting of banks in Mosul in 2014, for example, caught the public’s attention, and boosted the organization’s coffers to about two billion US dollars.(2)
Secondly, ISIS has acquired a number of assets that allow it to generate revenues. In 2012, for example, it commandeered the oil fields in Eastern Syria, and since then has managed these resources as a source of income.(3)
Thirdly, ISIS is known to be engaged in activities such as smuggling (people, drugs, and archaeological artifacts), racketeering and tax levying. In certain areas such as those densely populated, this can lead to significant revenue generation.

Finally, it is known that many rich individuals, particularly from the Gulf States, have made sizable donations to ISIS. For example, Tariq Bin-Al-Tahar Bin Al Falih Al-‘Awni Al-Harziwas known as a high-profile ISIL member, he worked to raise funds, recruit and facilitate the travel of fighters for the terrorist organization.(4) He donated two million (US) dollars to ISIS, using normal financial transfers.(5)
Of the four financial streams, donations are the least significant source of income in terms of scale.(6) The majority of ISIS’ income, therefore, is generated illegally. For most criminal organizations – such as the drug cartels in South America – generating a large share of the organizations’ revenues by illegal means creates problems. Legally generated cash, or ‘clean’ money, can be consumed,converted and invested, while illegally generated money can only be consumed.(7) The so-called ‘dirty’ money, thus, has fewer uses, and it is therefore worth less. To maximize the value of its revenues, most criminal organizations, therefore, have to ‘wash’ their money, using money laundering services, aimed at “conceal[ing] or disguise[ing] the nature, location, source, ownership or control” of money.(8) And of course such services cost: research suggests money launderers charge commissions of 5-50%.

However, a significant difference between ISIS and other terrorist organizations is that ISIS has managed to establish its own economy that is mostly cash-based. This makes it impossible to track down the occurring money flows. In accordance with their operating pattern, ISIS has been described as a “half-mafia-style commercial enterprise, half pious international charity”(10), meaning that ISIS openly employs illegal practices to acquire funds, such as theft and extortion, but at the same time is working economically when selling oil, even at discount prices. As such, ISIS is a new type of terrorist organization; one “grounded in territorial control, annexation and declarations of sovereignty”.(11)

So does ISIS launder money?
If ISIS establishes its own cash-based economy, and limits its activity to that economy then no, the terrorist organization has no incentive to engage in money laundering. If, however, ISIS aims to become active outside its current economy – because, for example, it needs to buy supplies on a legitimate market – then yes, it will need to disguise the origin of any illegally generated money. In order to disguise the origin of its funds, ISIS needs to lodge them into the financial system. Local banks in the countries they operate or have connections are likely to be the first target for this. Having done so, ISIS will be able to access financial institutions and markets in Europe, the USA and Asia. It has already been observed, however, that ISIS has been sending people to other countries, beyond the region, with large sums of money. In other words, we can presume that ISIS is making use of money laundering practices.(12)

But who would help ISIS?
Unfortunately, some of the world’s best known and most respected financial institutions have been involved in the financing of criminal and terrorist organizations. Many multinational financial organizations, including Western-based institutions have been convicted for having being involved in money laundering, financing of terrorism and organized crime. The Financial Action Task Force (FATF) has established standards to combat money laundering and financing of terrorism. FAFT assess countries’ level of compliance with and progresses achieved in the implementation of these standards, address recommendations and publish the list of high-risk and non-cooperative jurisdictions.(13)
At the top of the list FAFT high-risk and non-cooperative jurisdictions there areIran, Democratic People’s Republic of Korea (DPRK, Algeria, Ecuador and Myanmar. The financial system, as it stands, is generally quite vulnerable to terrorist organizations. One of the major concerns, especially in regards to the financing of terrorism, is the fact that a vast amount of circulating cash complicates the tracking of financial transfers and therefore also diminishes the opportunity of impeding these flows.(9) Another obstacle is characterized by the variety of financial systems and their regarding institutional contexts. Overall, a common approach needs to be established, which is difficult to achieve, though, as the implementation of such is dependent on the laws and regulations prevailing in the country. Additionally, the fact that terrorism financing and the role of financial institutions and systems is a rather new one, points towards a lack regarding the establishment of proper measures and indicators what terrorism financing actually encompasses. The United Nations has already taken action in this domain by issuing the International Convention for the Suppression of the Financing of Terrorism.(14) Article 2 of this Convention considers committing an offence any person who by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in acts of terrorist.(15) In this framework, also donations from wealthy individuals can be regarded as illegal. Due to the interdependence between the political and financial systems, it is difficult to obtain information about the destination of the transaction as these individuals are likely to be politically influential or the country is lacking sustained political commitment to execute anti-money laundering measures.(16) Apart from the aforementioned Convention, the Counter-Terrorism Implementation Task Force (CTITF) represents an efficient UN body dealing with the problem of terrorism financing and how to mitigate it. Progress can be seen in the report issued by the CTITF in 2009, whose findings and recommendations have built the base for an Action Plan developed by the International Monetary Fund (IFM) in order to facilitate the implementation of these recommendations.(17)

We argue that, while ISIS has a number of ways of funding its operations in a domestic setting, if the organization is to operate outside of this sphere, it is also likely to be involved in the money laundering market. The problems that European and US banks face in terms of detecting money laundering, and the complexity of ISIS’ cases – in which a fledgling state is actively attempting to undermine the systems’ detection mechanisms – means that ISIS is very likely using the same banks that we do to fund its murderous campaigns in Syria and Iraq. This emphasizes the pressing urgency to further work on developing a common approach for all banking systems in order to disclose such streams or at least establish a platform of collaboration between banks from different institutional contexts in order to identify possible niches ISIS is making use of. The fact that ISIS is equally employing the same banks as we do plus the inability to expose these streams presents a sobering thought, and one which we hope that regulators and academics will dedicate attention to in future.

The authors

Killian J. McCarthy is an Assistant Professor of economics at the University of Groningen (the Netherlands). He did his Bachelors studies in Cork (Ireland), and completed Masters in Utrecht (Netherland) and Vienna (Austria), before writing his PhD at the University of Groningen. His research focuses on explaining merger performance; he has written two books on the subject. He has also published, however, on the topics of tax competition, money laundering and criminal finance, as well as on the influence of media power on consumer and business sentiment.

Svenja Berg completed her Bachelor studies in International Business at the University of Groningen (the Netherlands). She is planning on pursuing a Research Master and a PhD in the field of money laundering and its connection with terrorism.
University of Groningen, the Netherlands, Faculty of Economics and Business

1 Shane Croucher, “Western Banks, Terrorism and Isis: The Nihilism of Dark Finance Fuelling Global Insecurity,” International Business Times, November 13, 2014,

2 Ian Black, Rania Abouzeid, Mark Tran, Shiraz Maher, Roger Tooth and Martin Chulov, “The terrifying rise of ISIS: $2bn in loot, online killings and an army on the run,” The Guardian, June 16, 2014,

3 Martin Chulov, “How an arrest in Iraq revealed Isis’s $2bn jihadist network,” The Guardian, June 15, 2014,

4 U.S. Department of Treasury Treasury Designates Twelve Foreign Terrorist Fighter Facilitators,

5 Christine Duhaime, “White Paper on Islamic State Funding: Terrorist Financing and the Islamic State,” Duhaime Law, April 2015,

6 Charles Lister, “Cutting off ISIS’ Cash Flow,” Brookings, October 24, 2014,

7 McCarthy, K.J., P.van Santen, and I. Fiedler, “Modeling the money launderer: Microtheoretical arguments on anti-money laundering policy,” International Review of Law and Economics, 2014.

8 McCarthy et al., 2014.

9 Shane Chroucher, 2014.

10 RT, “All you need to know about ISIS and what is happening in Iraq,” June 20, 2014,

11 Mario Abou Zeid, “ISIS: Terrorism Upgrade”, The National Interest, July 8, 2014,

12 Christine Duhaime, “White Paper on Islamic State Funding”, 2015.

13 The FATF Recommendations:

14 International Convention for the Suppression of the Financing of Terrorism,

15 International Convention for the Suppression of the Financing of Terrorism. Adopted by the General Assembly of the United Nations in resolution 54/109 of 9 December 1999

16 Counter-Terrorism Implementation Task Force, “CTITF Working Group Report: Tackling the Financing of Terrorism,” 2009, New York,

17 Counter-Terrorism Implementation Task Force, “Working Group on Tackling Financing of Terrorism: Overview,”