Islamic State's financial independence poses quandary for its foes

Islamic State's financial independence poses quandary for its foes

BAGHDAD/DUBAI - Sometimes they came pretending to buy things. Sometimes they texted, sometimes they called, but the message was always the same: "Give us money."

Months before they took control of the Iraqi city of Mosul in June, Islamic State militants were already busy collecting money to finance their campaign of setting up a 7th century-style caliphate.

The owner of a Mosul grocery store recounted how, when he hesitated to pay, militants exploded a bomb outside his shop as a warning. "If a person still refused, they kidnapped him and asked his family to pay ransom," he said.

The shopkeeper, who declined to be identified out of concern for his safety, said he had paid the militants $100 a month six or seven times this year.

In return, he was given a receipt that says: "Received from Mr. ...., the amount of ...., as support to the Mujahideen."

The shop keeper's tale illustrates how Islamic State has long been systematically collecting funds for a land grab that already includes a stretch of northern Iraq and Syria. Another Mosul worker corroborated the account of IS tactics.

"The tax system was well-organised. They took money from small merchants, petrol station owners, generator owners, small factories, big companies, even pharmacists and doctors," said the shop owner who, out of frustration and fear, closed his store and is now trying to make a living as a taxi driver.

Learning from their previous incarnation as the Islamic State of Iraq, when they received money from foreign fighters, Islamic State has almost weaned itself off private funds from sympathetic individual donors in the Gulf. Such money flows have come under increased scrutiny from the US Treasury.

Instead the group has formalized a system of internal financing that includes an Islamic form of taxation, looting and most significantly, oil sales, to run their 'state' effectively.

This suggests it will be harder to cut the group's access to the local funding that is fuelling its control of territory and strengthening its threat to the Middle East and the West.

Nevertheless, financing from Gulf donors may prove more critical in months to come, if US President Barack Obama's mission to "degrade and destroy" the group succeeds and the group loses territory and finds itself looking abroad for funds.

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