The Money Changers

Gaziantep Turkey, image from wikipedia

More than a year of U.S.-led airstrikes and financial sanctions haven’t stopped Islamic State from ordering supplies for its fighters, importing food for its subjects or making quick profits in currency arbitrage.  This is because of men such as Abu Omar, one of the militant group’s de facto bankers. The Iraqi businessman is part of a network of financiers stretching across northern and central Iraq who for decades have provided money transfers and trade finance for the many local merchants who shun conventional banks….

U.S. Assistant Secretary for Terrorist Financing Daniel Glaser said these businesses—there are more than 1,600 in Iraq alone—serve as a worrisome portal for Islamic State, also known as ISIS or ISIL, to connect with the world outside its declared caliphate…..People pay cash in one office and a recipient draws the equivalent funds at a distant locale, a Middle Eastern practice known as hawala that predates the modern banking system.  Three Iraqi money-exchange operators say they pay Shiite militias, who are at war with Islamic State, to guard cash shipments that travel the road from Baghdad across their front lines to militant-controlled territory in Anbar province. Iraqi Kurdish fighters, also at war with Islamic State, are bribed to grant passage of cash shipments across their front lines into militant-held areas around Mosul. Both Shiite and Kurdish commanders negotiate flat fees from $1,000 to $10,000, the money changers said.

Islamic State imposes a 2% tax on cash shipments entering its territory, which buys the smuggler protection on the final leg to the exchange houses….

The Cash Routes:  One begins in the narrow streets behind Istanbul’s Grand Bazaar and, via Iraqi Kurdish towns, reaches Mosul, the largest city under Islamic State control. Another connects Jordan’s capital of Amman with Baghdad and Islamic State-controlled parts of Iraq’s Anbar province. A third links the city of Gaziantep in southern Turkey with Syrian regions around Raqqa, the administrative capital of Islamic State…

The US financial containment effort is one element of a campaign that includes U.S. airstrikes against Islamic State oil wells. There have also been strikes on vaults in downtown Mosul, which U.S. officials suspect store cash to pay fighters….The Central Bank of Iraq named 142 currency-exchange houses in December that the U.S. suspected of moving funds for Islamic State. The central bank banned them from its twice-monthly dollar auctions, hoping to keep U.S. bank notes from the terror group, which, like much of Iraq, operates as a cash economy….

Before Islamic State seized Mosul, the city of nearly two million people had 40 banks and around 120 licensed money changers and remittance facilities, according to Iraq’s central bank and money changers.Only banks and remittance facilities are licensed to transfer money domestically or abroad. But money changers have long flouted these rules and provided such services in Mosul, the economic powerhouse of northern Iraq.  Islamic State’s takeover of Mosul in June 2014, followed by other cities in Iraq and eastern Syria, swiftly shut down local banks. The terror group looted bank vaults of hundreds of millions of dollars, according to U.S. estimates.  The U.S. and regional governments took immediate steps to sever bank branches in Islamic State territory from the international banking network, declaring off-limits transactions with the identification code of seized branches.That left money changers as the sole providers for a region covering several million people. A currency office owner from Anbar province said in late summer of 2014 his offices were handling $500,000 a week in money transfers in and out of Islamic State. Fees for such services were 10%, he said. Before the Islamic State takeover, fees were between 3% and 5%….

ISIS  in 2015 banned exchange houses from approving the transfer of funds outside of Islamic State without a receipt showing the client had paid a 10% religious tax, known as “zakat.”..

For years, participants in the twice-monthly dollar auction by the central bank included money-exchange houses that would buy dollars at the official rate and sell them for a profit on the street. The rate difference in the past year was as much as 7 percentage points….

The Central Bank of Iraq has an account at the Fed, funded largely by oil reserves, and regularly withdraws large shipments of new $100 bills from a Fed facility in Rutherford, N.J. They travel by chartered plane to Baghdad.The Fed last summer (2015) temporarily shut off deliveries over concerns the notes were going to Islamic State through the exchange houses. A cash crisis loomed until shipments resumed in August, 2015 when Iraq agreed to turn over more records.

Many exchange companies based in Islamic State territory—or their correspondent offices elsewhere in Iraq—participated in the auctions until mid-December 2015, when the U.S. pressured Iraq to ban dozens of companies believed to be working with the terror group.Money changers who still participate in the currency auction doubt the effectiveness of the black list. Iraq has no mechanism to ensure that the owners of banned companies don’t get around the restrictions by simply opening new firms or by hidden ownership stakes in other exchange firms.“Iraq doesn’t have investigators or auditors,” said Abu Omar, the money-exchange owner. “Iraq has officials who expect bribes.”

Excerpts from Local Cash Network Fuels Islamic State Finances, Wall Street Journal , Feb. 25, 2016

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s