Crushing ISIL Finance

A version of this article first appeared on The Huffington Post on 12/11/2015 - the following has been modestly updated.

United States Treasury Secretary Jacob Lew chaired an unprecedented session of the United Nations Security Council on December 17. For the first time, it was finance ministers - not diplomats or ministers of foreign affairs - using the Security Council to drive international policy. Their target was terrorism, specifically the Islamic state (sometimes called ISIL, or ISIS, or Daesh).

An agreement was reached at the UN session, but what will be crucial is enforcement. It remains a major question whether the most powerful nations can move ahead to cut off all sources of ISIL finance and block all ISIL efforts to launder its cash through the international financial system. At stake is global security.

Success will require exceptional cooperation between a host of governments (including Russia, Turkey, China and Switzerland, alongside the U.S. and its major Western allies), as well as the full cooperation of banks and other business institutions engaged in global finance.

On announcing the UN meeting in early December, U.S. Ambassador to the United Nations, Samantha Power, stated: "The United States is focused on using every tool in the toolbox to defeat ISIL, including at the Security Council, and this historic Security Council Summit of Finance Ministers will help energize international efforts to choke off ISIL's ability to sustain itself and its deadly terror."

I stressed in a recent article that a comprehensive assault on all forms of money laundering needs to be pursued if anti-terrorist financing is to be destroyed.

U.S. Treasury Secretary Lew noted ahead of the meeting in New York  that: "Cutting ISIL off from the international financial system and disrupting its financing are critical to effectively combatting this violent terrorist group. A united international front is vital to achieve that goal, and this meeting marks an important step in coordinating our efforts."

 

The Scale of the Challenge

ISIL obtains hundreds of millions of dollars from the black market sales of oil, from extorting funds from the citizens of the territories that it occupies, from the foreign sales of stolen antiquities, and from other crimes. It is difficult to distinguish its income from that of other terrorist groups, which, for example, are engaged in the international narcotics trade (for example, Taliban operations in the opium trade out of Afghanistan).

A considerable amount of the black market dealings pursued by ISIL are believed to be undertaken along the Turkish-Syrian border and so Turkey has a key role in stepping up efforts to police this. Cash raised by terrorist organizations may well be used in part to purchase weapons, possibly from Russia and China, and so the governments of these countries have important roles to play to halt such activities. ISIL and other terrorist groups may need to use cash to acquire new technology for their sophisticated social media and cyber operations, which they can only obtain through the West and that requires having international bank accounts that can move money anywhere at great speed. Cooperation by the Swiss, U.K. and U.S. financial authorities to halt such flows of illicit finance are imperative.

The scale of the challenge to destroy terrorist financing is formidable. It is desperately difficult to trace ownership of funds among the huge flows of illicit finance that cross national borders - a new report by Global Financial Integrity places the annual volume in excess of $1.1 trillion.

The U.S. has sophisticated anti-money laundering systems in place, yet the U.S. Treasury admits that tens of billions of dollars of illicit funds cross into the U.S. and well under the radar every year. This is the case despite the fact every day the Treasury's Financial Crimes Enforcement Network is analyzing data from more than 80,000 financial institutions and over 500,000 individual bank accounts.

Part of the difficulty is that many different government authorities and business supervisory authorities are engaged in anti-money laundering and they do not coordinate well. This is documented in detail with regard to the U.K. in a new report by Transparency International - UK, which concluded that a: "Radical overhaul of the UK's anti-money laundering system is needed, if the UK is to close the door to the billions of pounds in corrupt money coming into the country every year."

The U.N. meeting concluded with a resolution agreed by all 15 countries in the Security Council -- a rare agreement between the Russian and the U.S. that, as anticipated is ambitious. But will it be enforced?

The task is daunting as is evident from the resolution's wording. It was decided to "freeze without delay the funds and other financial assets or economic resources of these individual groups, undertaking and entities, including funds derived from property owned or controlled directly or indirectly, by them or by persons acting on their behalf or at their direction, and ensure that neither these nor other funds, financial assets or economic resources are made available, directly or indirectly for such persons' benefit, by their nationals or by persons within their territory."