Daesh and Taxes: Extortion and kidnapping in the Islamic State

Since its fighters overran Iraqi security forces in mid-2014 and seized large swathes of territory in northern and western Iraq, Islamic State (IS) has evaded conventional labelling and comparisons with other militant organisations. IS is not a beleaguered and under-resourced rebel movement, but rather acts simultaneously as a nominally functional state, criminal enterprise, and religious enforcer. The territories under IS control generally feature an established system of governance, judicial institutions, and a military force that continues to surprise in both in its effectiveness and adaptability – causing no small amount of consternation to the group’s opponents in Baghdad, Damascus and Washington. Moreover, through a combination of extortion, kidnap and ransom, and taxation, IS has exploited the population in areas under its control to attain an estimated income of approximately USD one million per day.

IS’s success has been fuelled in large part by this ability to generate massive revenues independently from external funding, in contrast to other militant organisations such as IS’s precursor group, Al Qaeda in Iraq (AQI). Initially, it was thought that IS derived most of its revenue from illicit oil sales after the group captured numerous oil production facilities in 2014. As a result, from the start of the international military campaign in September 2014, US and allied war planes targeted oil infrastructure controlled by IS, while neighbouring countries sought to crack down on oil smuggling networks. 

Following nine months of air strikes on IS and ongoing conflict around the major oil-producing areas of Baiji and Kirkuk, Pentagon spokesmen announced in February 2015 that IS’s illegal oil sales had declined to the point where they no longer provided the main source of revenue for the group. Despite this, IS has managed to sustain its hold on territory and has even made fresh gains since May, suggesting that the focus on natural resources may have been misplaced. Instead, it has become apparent that IS’s most significant resource is derived from the population. With over eight million inhabitants in IS-controlled areas, by late 2014, an estimated 60 percent of IS’s daily revenue was accounted for via extortion, taxation, and kidnap for ransom. 

As early as 2005, AQI began laying the foundation for IS’s current extortion networks throughout a number of Iraq’s Sunni-majority provinces. In the wake of the US invasion, AQI exploited the weak security presence in cities such as Mosul and demanded protection fees from both small and large businesses, with threats of bombing, murder, and abduction as penalties for non-payment. By the time AQI had changed its name to the ‘Islamic State of Iraq and the Levant’ and was preparing to overrun Mosul in mid-2014, the group’s underground extortion ring in the city was already generating an estimated USD 12 million a month. After IS seized these areas from Iraqi forces in mid-2014 and established its own system of governance, these extortion networks were formalised, and protection fees were employed more overtly, framed by IS as a legitimate form of taxation.  

According to US intelligence sources, IS demands a five to 20 percent cut of the salaries of all residents; any remaining registered employees of the Iraqi government face a tax as high as 50 percent. IS also imposes fees on all forms of economic activity occurring in the regions it governs. For example, IS has set up a taxation network on the main highway between Jordan and Baghdad in the western Anbar province of Iraq, replacing the government import tax on the transport of goods by long-haul truckers. The system of tax collection also extends to illegal enterprises; for instance, IS reportedly receives payments from smugglers operating along the border.  IS’s imposition of taxes in urban centres is supposedly undertaken in exchange for the provision of basic services and utilities. To help legitimise its status as a governing entity, IS claims that a significant amount of its income is allocated towards paying official salaries, providing sanitation, building medical facilities, and distributing food supplies. However, there are mixed reports regarding the effectiveness of IS’s service delivery, with some former residents of IS areas contradicting the group’s propaganda, describing uncollected garbage and critical shortages of both doctors and medical supplies. Moreover, accounts from those who have fled IS territory suggest that fear of reprisal is the primary motivation to pay taxes, further blurring the lines between taxation and extortion. 

In addition to regular taxes, IS has instituted the Islamic concept of ‘Jizya’ in areas under its control. During the early Islamic empire, the Jizya was a form of protection tax demanded from non-Muslims living under Islamic rule. The concept has been incorporated into IS’s ideology, and religious minorities living in a territory administered by IS who are unwilling to convert to Islam are required to pay a fee, or face eviction or even execution. When IS seized Mosul in June 2014, all Christians were subjected to the Jizya and their homes marked to designate them as non- Muslims. The fees demanded have reportedly ranged from USD 170 to USD 660, depending on household income, to be paid twice a year. However, with IS’s record of atrocities against minority groups, most have chosen to flee rather than pay, and it is unlikely that IS currently derives significant income from Jizya.

Religious minorities that remain in IS territory also risk being targeted in kidnap for ransom operations. While the most publicised accounts of IS hostage-taking have typically involved Western victims and end with footage of brutal executions posted online, the ransoming of local hostages serves as a valuable source of income for the group. In territories controlled by IS, minority religious and ethnic groups are regularly targeted in mass kidnappings, the most recent instance being the abduction of approximately 220 Assyrian Christians in north-east Syria in February 2015. Indeed, only a small number of European hostages have reportedly been exchanged for large sums of cash, as it is much more common for local hostages to be ransomed off to family members for smaller amounts of money, typically a few thousand US dollars. 

Although the US-led air campaign has been relatively successful in weakening IS’s control over Iraq’s oil infrastructure, breaking the group’s hold over the population, its most valuable asset, will be a much more complex and costly endeavour. Physically removing IS from the areas it controls is a task for which both the Iraqi army and Syrian regime forces are ill-equipped. While the retaking of Tikrit earlier in the year was heralded as a victory for Iraqi forces, the prospects for success are much lower in larger cities such as Mosul, where IS is more firmly entrenched and far less willing to give up the income that the urban population provides. Until IS’s opponents demonstrate their ability to significantly roll back the group’s territorial gains, IS will continue to be able to rely on a steady revenue stream to fund its operations.