Terror Funding

Germany's Toothless Fight Against IS Financing

Gun on an SUV
How to pull the plug on IS financing?
  • Why it matters

    Why it matters

    Islamic State is considered the world’s richest terrorist organization and its capabilities could be significantly curtailed through effective international measures to reduce its funding.

  • Facts

    Facts

    • IS derives much of its estimated $80 million in monthly income from the sale of oil.
    • U.S. forces have begun targeting tanker trucks whose drivers are also believed to be acting as money couriers.
    • Critics say a new E.U. money laundering directive is not effective enough.
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    Audio

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While German Interior Minister Thomas de Maizière lacks talent for portraying political vigor, his fellow cabinet member, Wolfgang Schäuble has it in spades. After the Paris attacks, the finance minister demanded tougher measures to combat terrorist financing and, in doing so, essentially wrenched control over the so-called Financial Action Task Force on Money Laundering from the interior minister. The task force, previously assigned to the Federal Criminal Police Office, BKA, is being moved to the customs administration, which reports directly to Mr. Schäuble.

This is how Mr. Schäuble demonstrated his toughness and determination in the fight against terror. But beyond verbal feats, this fight, even in Mr. Schäuble’s ministry, is not being conducted energetically or particularly efficiently. The minister is calling for yet another European Union money laundering directive, which would be the fifth directive of its kind. In truth, however, the fourth directive, approved in 2014, hasn’t even been implemented yet.

“The Federal Ministry of Finance plans to submit a draft bill before the 2016 summer recess,” Mr. Schäuble’s officials said in response to an inquiry from Wirtschaftswoche. Why so late? Apparently Justice Minister Heiko Maas, a member of the center-left Social Democratic Party, has concerns about data privacy.

This is symptomatic of Germany’s haphazard approach to fighting terrorism at a time when combating the funding of Islamic State is of paramount importance. The Islamist group has a sophisticated financial system and is now considered the world’s richest terrorist organization, ever since IS militants captured the oil-rich region around the Iraqi city of Mosul in 2014.

“If we hit IS where the money is, we can very effectively weaken its firepower.”

Alexander Radwan, Financial expert with the conservative Christian Social Union party

Their sources of income include the sale of oil and gas but also of antiquities. Extortion and collecting protection money round out IS’s business model. The organization also receives generous donations from wealthy sympathizers in the Gulf States. “If we hit IS where the money is,” said Alexander Radwan, a financial expert with the conservative Christian Social Union, “we can very effectively weaken its firepower.”

But Berlin has long paid little attention to the issue. Senior Finance Ministry officials only traveled to Washington a few weeks ago to gather information about terrorist groups’ sources of funding and cash, and prepare scenarios for countermeasures their minister can take.

The Americans are much farther along. They began scrutinizing IS finances more than two years ago. Thanks in part to the U.S. National Security Agency, they now have a fairly clear idea of which middlemen and organizations the terrorists use. In the oil trade, for example, tanker truck drivers apparently also serve as money couriers. This makes the trucks doubly attractive as a target for the Americans, who have mounted a concerted campaign to locate the oil trucks, issue a brief warning (“You have 20 minutes to leave your vehicle”) and then destroy them.

The Germans, on the other hand, prefer to fight terrorist funding on their own territory. The BKA’s Financial Intelligence Unit (FIU), has observed suspicious flows of money for years. In 2014, the FIU received a total of 323 reports of suspected terrorist financing from banks and other organizations. In the end, however, the authorities only discovered three “list matches,” that is, activities where the reported suspicions proved to be valid. Two cases involved Islamists who had been released from prison and tried to open a bank account and obtain car insurance. In the third suspicious case, “the suspect could not be clearly matched with the person on the list, due to the lack of parameters such as date and place of birth,” said FIU officials.

Even when the fourth E.U. money laundering directive is implemented in Germany, it is unlikely to produce significantly better results. One of its key measures is to identify backers of companies and transactions in individual member countries. This is a good approach in principle, said economist Ingo Fiedler of the University of Hamburg, who analyzes hidden flows of money. But according to his findings, most money launderers use third-party territories like Costa Rica and the Isle of Man. “The money laundering directive falls short,” Mr. Fiedler said. “What we face in terror financing is principally a foreign policy problem.”

This is because no one wants to openly tangle with NATO partner Turkey at the moment, even though IS is forced to process most of its commercial transactions through Turkey, which has also become an important partner for the German government in the current refugee crisis.

But Christian Social Union expert Radwan said countries found to support terrorist financing should as a last resort be excluded from SWIFT, the system that regulates international payment transactions among banks. That would be tantamount to disconnecting the country from international financial markets.

But the German government prefers to do battle in another, secondary, war zone. Culture Minister Monika Grütters has long been working on a law to protect cultural assets, and she now cites the desire to stop the illegal trade in antiquities from IS-controlled territory as justification for the law. It is “high time for Europe, in the name of its values and its security, to proceed more effectively against (…) the trade (by IS terrorists) in cultural assets,” Ms. Grütters wrote to the European Commission in a joint letter with her counterparts from France and Italy.

In Germany, Ms. Grütters aims to achieve this through import restrictions. Under her proposal, countries of origin would have to issue export permits for cultural assets. Given the levels of corruption in many Middle Eastern countries, the effectiveness of her idea is debatable.

Besides, it is far from clear whether all of these efforts are even worthwhile. In response to an inquiry from WirtschaftsWoche, the Finance Ministry wrote: “The customs administration has no information about illegal imports of cultural assets to Germany or other E.U. member states, which originate in (government) museums, private collections or illicit excavations in areas controlled by the so-called Islamic State, especially in Syria and Iraq.”

In other words, the planned cultural assets law won’t have much impact beyond potentially inflicting collateral damage in terms of declining revenues for art dealers and a drop in the flow of museum exhibits. Even paleontologists would be affected. “In the future, we will no longer be allowed to change, that is, prepare, dinosaur finds,” said Oliver Hampe of the Berlin Museum of Natural History, where a Tyrannosaurus rex is currently on display. If Ms. Grütters had her way, the exhibit would consist of nothing but a pile of bone fragments.

In other words, the T. Rex would be a victim once again – this time in the fight against terror.

 

This article originally appeared in the business magazine WirtschaftsWoche. To contact the author: christian.ramthun@wiwo.de

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