How Iraq Subsidizes Islamic State

The Islamic State generates all sorts of funds to power its terrorist empire — by smuggling oil, imposing taxes from the locals, plundering archaeological treasures and ransoming hostages. But there’s one major source of revenue that often goes unmentioned: funds earmarked for Iraqi civil servants.

At least five million people are employed by the Iraqi government, and it is reasonable to assume that a significant portion of Iraq’s $102 billion budget for 2015 will be committed to the salaries and pensions of these civil servants. And tens of thousands of government workers still collect salaries from Baghdad even though they live and work in cities controlled by the Islamic State, also known as ISIS or ISIL. These include doctors, teachers, nurses, pharmacists and the whole spectrum of municipal workers.

Despite the de facto partition of the country, a majority of these Iraqi government employees report for work just as they did before. According to the London-based Arabic newspaper Asharq Al-Awsat, workers from the electrical and water departments in the Islamic State-controlled city of Falluja go about their regular jobs unmolested by their new rulers.

And government employees still need to be paid. For example, Baghdad provides about $130 million every month to pay all its workers in Mosul, according to the head of the Nineveh provincial council’s finance committee, who was forced to flee when the Islamic State took over. We can estimate that the Iraqi treasury has paid over $1 billion to these workers since the city fell last June.

The official financial system has been down since the jihadist militia seized control of the banks, so department emissaries are sent into Iraqi or Kurdish territory. They collect the salary money and return to disburse it.

This regular shuttle for trusted individuals has become routine in some places, even on the front lines. Referring to such practices, one Iraqi officer controlling a military checkpoint outside of Falluja recently noted, “There is a kind of strange coexistence between ISIS and the government authorities.”

Evidently, the Islamic State generates significant income by skimming off the top of this cash trafficking. According to one researcher’s estimate, the Islamic State confiscates up to 50 percent of the civil servants’ salaries. Naturally, the organization monitors the distributions: In a neighborhood of Mosul, for example, a jihadist guard is assigned to wait for the trusted individual to return with the money. His job is to appropriate any unclaimed cash “for those who did not show up.”

Why does Baghdad persist with this system? After all, most of the Shiite or other non-Sunni government workers in Islamic State-held territory have either been murdered or forced to flee, leaving behind Sunni employees, some of whom may in fact have sympathies with the militants.

There is a humanitarian justification, since these salaries help people survive the winter, but Iraq also claims that it needs to show it has not forsaken its civil servants. But this argument falls flat, considering that Kurdish employees have gone without pay for a year because of oil disputes that for a time led Baghdad to freeze funding to the Kurdistan Regional Government.

There might also be a deeper cultural explanation embedded in the Iraqi state. Despite the turmoil over the last generation, the Baath Party socialist mentality that a government job is a protected job for life is still deeply ingrained in Iraqi society. To cut all its workers off is anathema to this ethos. Bureaucratic inertia is a powerful force.

Baghdad is nevertheless spending a fair portion of its budget to keep afloat a rickety system that benefits its most fearsome enemy. Besides providing the Islamic State with cash, this policy also enables hospitals in occupied areas to remain open (if starved of medical supplies), even though they now primarily serve the jihadist fighters.

There are a number of steps Baghdad could take to choke off these funds. To cut off these thousands of civilians immediately would cause great hardship, especially now when fuel for heating is in short supply. But one action the Iraqi government can take is to place these salaries in an escrow account, to be paid out when the employee permanently flees Islamic State territory.

Another measure would be to oblige each individual to collect his or her income personally from the Iraqi government. This would play havoc with the Islamic State’s revenue streams. Another tactic would be to persuade the Sunni tribes to demand ISIS reduce its cut, causing dissent within Islamic State territory.

All of these policies risk causing grave hardship among mostly innocent people caught in an already terrible situation. The real solution, of course, is to wrest those towns and cities from Islamic State control.

Smothering the Islamic State’s financial resources is one of the ways this group can be degraded and ultimately destroyed. The jihadist organization is already contending with lower oil prices, and there is only so much money the group can extort from struggling local people. This makes it even more important to stop the river of money flowing from Baghdad to its Islamic State-controlled civil service. It’s a politically unsustainable situation that must be stopped in one way or another.

Aki Peritz is a former C.I.A. counterterrorism analyst and the co-author of Find, Fix, Finish: Inside the Counterterrorism Campaigns that Killed bin Laden and Devastated Al Qaeda.

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