Thank you, Mr. Chairman, and members of the committee for inviting me to testify today.
As terrorist organizations have marshalled unprecedented funding for their activities recently, the need to address counterterrorist finance policy is clear. Accordingly, my remarks today will focus on the Islamic State, also known as ISIS or ISIL, a group that I've been studying extensively since 2012.
Over the last year ISIS has risen to become the richest and most threatening terrorist organization in the world, and ISIS' recruitment of hundreds of Canadian and U.S. citizens makes it a special threat to North America.
I'm going to divide my testimony into three main parts. The first will look at how ISIS raises and spends its money; the second will examine the impact of current coalition efforts against iSIS' finances; and the third will offer steps that Canada, the U.S., and coalition partners could consider to enhance the effectiveness of these efforts.
Disrupting ISIS' financing presents a special challenge for western countries because its funding sources differ from most other terrorist groups of interest to Canada and the United States since 2001. Unlike groups like al Qaeda and Hezbollah, for example, ISIS finances its operations by raising the vast majority of its revenue internally from territory that it controls. It doesn't rely on deep-pocketed donors, Islamic charities, or state sponsors, which are vulnerable to traditional counterterrorism finance instruments such as targeted sanctions. This makes ISIS both unique and a very resilient financial adversary.
How exactly does ISIS make its money? It's established a diverse set of revenue streams that include extortion, oil sales, looting of rare antiquities and other stolen goods, and tax collection. It's also raised smaller amounts of money from kidnapping for ransom, foreign donations, and money smuggled into Syria and Iraq by foreign fighters.
The coalition's biggest success so far in disrupting ISIS' finances has been in terms of its oil revenues. Last summer the group was making between $1 million to $3 million U.S. per day, and this is just on top of all of its other revenue streams, as well as approximately $1.2 billion that it accumulated in existing assets.
After the coalition began a counterterrorist campaign against ISIS in September, air strikes on its oil infrastructure have helped to disrupt these revenues. The air strikes reduced ISIS' oil extraction capabilities to as little as 5% of what they were at last summer's peak rate. These production decreases coincided with the sharp decline in oil prices worldwide, so ISIS' oil revenues are now reported to have dropped from approximately $1 million to $3 million per day to about $2 million per week.
This represents a significant decrease in what was previously ISIS' main revenue source, but it hasn't been enough to meaningfully degrade ISIS' ability to operate and to fund these operations. The reason why is simple: ISIS isn't a petrostate. It retains lucrative internal revenue streams from which it continues to make an estimated $2 million to $3 million each day.
Compared to recognized nation states, ISIS' economy is small. It would be in the bottom 10% to 15% of all countries in terms of GDP, falling somewhere between Belize and the Gambia. But as a terrorist organization ISIS remains extremely rich.
The self-proclaimed Islamic State does have grand ambitions but its operating costs are relatively modest given these ambitions. It minimizes investments in service provision, infrastructure, and materiel, and most of ISIS' spending actually goes into one or two areas, which are wages and personnel costs, and running a Sharia-governed police state essentially on the cheap.
However, ISIS has managed to increase its manpower on the cheap by attracting recruits who are more interested in its extremist ideology than the size of their paycheque. The reports on ISIS' salaries vary, but even if the high-end estimates are correct—which are about $500 per month—ISIS' personnel costs would still be less than one-quarter of its estimated revenues, leaving ample resources for it to fund its various religious, media, and military operations.
I have a few recommendations. The first is to support new and ongoing efforts to disrupt terrorist organizations' internal revenue-generating capacity. ISIS' wealth is inextricably linked to the territory that it controls. Building a local and regional security force capacity is going to be necessary in order to reclaim the territory that ISIS uses to fund itself.
The second is to find and to seize existing ISIS financial reserves and cash stores. ISIS' war chest is large enough right now that failing to seize it may enable the group to weather the storm of what otherwise might be successful efforts to target its finances.
Third and finally is for counterterrorism operations against ISIS to prioritize not only the group's high-level leadership, but also its administrators and financial facilitators who account for and distribute the group's money. Targeting these nodes, whether kinetically or non-kinetically, can disrupt the group's financial operations and provide valuable intelligence for further unravelling its financial networks.
Thank you very much.