Islamic State bleeds its citizens

Heavy taxes create funding source that is difficult to block

Three times a month, Mohammad al-Kirayfawai hands $300 to fighters from the Islamic State for the privilege of driving his refrigerated truck full of ice cream and other perishables from Jordan to a part of Iraq where the militants are firmly in charge.

The fighters who man the border post treat the payment as an import duty, not a bribe. They even provide a stamped receipt with the logo and seal of the Islamic State, which al-Kirayfawai, 38, needs for passing through other checkpoints on his delivery route.

Refuse to pay and the facade of normality quickly falls away. “If I do not,” al-Kirayfawai explained, “they either arrest me or burn my truck.”

Across wide swaths of Syria and Iraq, the Islamic State, with the goal of building a credible government, has set up a predatory and violent bureaucracy that wrings every last U.S. dollar, Iraqi dinar and Syrian pound it can from those who live under its control, or pass through its territory.

Interviews with more than a dozen people living inside or recently escaped from the Islamic State, and Western and Middle Eastern officials who track the finances of the militants, describe the group as exacting tolls and traffic tickets; rent for government buildings; utility bills for water and electricity; taxes on income, crops and cattle; fines for smoking or wearing the wrong clothes.

The earnings from these practices that mimic a traditional state total tens of millions of dollars a month, approaching $1 billion a year, according to some estimates by U.S. and European officials. And that is a revenue stream that has so far proved largely impervious to sanctions and air raids.

“They fight in the morning and they tax in the afternoon,” said Louise Shelley, director of the Terrorism, Transnational Crime and Corruption Center at George Mason University.

The better known of the Islamic State’s revenue sources — smuggling oil, plundering bank vaults, looting antiquities, ransoming kidnapped foreigners and drumming up donations from wealthy supporters in the Persian Gulf — have all helped to make the group arguably the world’s richest militant organization. But as Western and Middle Eastern officials have gained a better understanding of the Islamic State’s finances over the past year, a broad consensus has emerged that the militants’ biggest source of cash appears to be the people it rules, and the businesses it controls.

In the aftermath of this month’s attacks in Paris, the United States has more aggressively targeted the militants’ oil production and smuggling operations, which it had held off from going after for fear of inflicting long-term damage to Iraq and Syria’s economies. U.S. aircraft earlier this month struck a convoy of oil tanker trucks in eastern Syria, destroying 116 vehicles.

Ultimately, though, many officials and experts said that the Islamic State will be able to cover its costs even without oil revenue, and that bankrupting the group will take a lot more than blowing up oil tankers so long as it controls large stretches of Iraq and Syria, including major cities.

“These are all going to be little pin pricks into Islamic State financing unless you can take their revenue bases away from them, and that means the territory they control,” said Seth Jones, a terrorism expert at the RAND Corp.

Inside that territory, the Islamic State, also known as ISIS or ISIL, has taken over the legitimate revenue collection operations of the governments it has usurped. And it has used the ever-present threat of violence to extract as much as it can from the people, businesses and property it now controls.

In the Bab al-Tob neighborhood of Mosul, Iraq, for instance, the militants turned a police station that dated to the 19th-century Ottoman era into a market with 60 shops selling fruits and vegetables. The annual rent for a market stall is 2.8 million Iraqi dinars (roughly $2,500).

In Raqqa, the Syrian city that is now the de facto capital of the Islamic State, a department called Diwan al-Khadamat, or the Office of Services, sends officials through the city markets to collect a cleaning tax — 2,500 to 5,000 Syrian pounds (about $7 to $14) per month depending on the size of the shop. Residents go to collection points to pay their monthly electricity and water bills, 800 Syrian pounds (roughly $2.50) for electricity and 400 pounds (about $1.20) for water.

Another Islamic State department, the Diwan al-Rikaz, or the Office of Resources, oversees oil production and smuggling, the looting of antiquities and a long list of other businesses now controlled by the militants. It operates water-bottling and soft-drink plants, textile and furniture workshops, and mobile phone companies, as well as tile, cement and chemical factories, skimming revenues from all of them.

The Islamic State also demands a cut of the revenues earned by small businesses. “We either pay in olive oil or cash, it depends on the production,” said Tarek, a Syrian in Beirut who supports the government of President Bashar Assad. He asked to be identified by only his first name because his parents are still living and working on the family farm in Al Bab, an area controlled by the Islamic State outside the city of Aleppo, Syria.

Officials of the so-called caliphate dislike the term “tax,” preferring the Islamic term “zakat” for the percentage of income they collect from individuals. Although the norm would be 2.5 percent under typical interpretations of Islamic law, the militants are taking 10 percent, justifying the high rate by saying they are a “nation in a time of war,” according to a citizen journalist in Raqqa who asked for his safety to be identified only as Abu Mouaz.

The group has taken over the collection of car-registration fees and made students pay for textbooks. It has even fined people for driving with broken taillights, a practice that is nearly unheard of on the unruly roads of the Middle East.