While the group no longer has the billions it earned through extortion and smuggling, it has salvaged enough to remain a serious threat.
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Islamic State (IS) has amassed a war chest of as much as several hundred million pounds and continues to exploit a string of revenue streams that are likely to enable the group to finance a covert network in Iraq, Syria and further afield despite the complete physical collapse of its so-called caliphate.
IS's reserves of cash are a fraction of what they were at the height of its power in 2015, when the jihadists' control of almost half of Iraq and Syria enabled them to accrue around $6 billion, according to the International Institute for Strategic Studies. Other sources have said their money was derived through taxation, extortion, theft and oil smuggling. Yet the sums now believed to be at the group's disposal mean it will remain a well-funded terrorist organisation for some time to come.
Following the fall of IS's last stronghold in eastern Syria, international efforts to squeeze its sources of finance will be stepped up in order to thwart any attempt by the group to support and mobilise cells in the region - where it can reportedly call on 14,000 to 18,000 militants, according to a report from VOA citing U.N. counterterrorism chief Vladimir Voronkov.
Some of these loyalists are suspected of being behind recent lethal attacks that left 10 dead in the vicinity of Mosul and Kirkuk. In February, the Pentagon's internal watchdog agency warned that IS was already regrouping in Iraq, and was capable of mounting a resurgence in Syria within 6 to 12 months, unless it came under sustained pressure.
A UN Security Council report in February said that some member states reported that IS has access to financial reserves of between $50 million and $300 million and that, though it has lost some sources of revenue through battlefield defeats, it now has fewer liabilities: the collapse of its self-proclaimed state has freed up funds that would otherwise be spent on officials' salaries and public services.
The UN believes the group has "bulk-stored cash" in its former strongholds and smuggled some into neighbouring countries for safekeeping, with a proportion invested in legitimate businesses. These are reported to include hotels, real estate companies, farms and car dealerships in the Middle East region.
Nearly two years ago, Alaco learned from European and American diplomats that IS was channelling funds to jurisdictions beyond Iraq and Syria. The process was likely conducted through small financial services companies - such as money transfer operations and boutique banks - which receive little regulatory scrutiny and do not have in place the kind of safeguards that mainstream banks have. In effect, it has been employing methods typically used by organised crime groups to launder assets through relatively small enterprises from which money can be retrieved without arousing suspicion.
The UN report said that while IS no longer has reliable access to oil-producing areas in eastern Syria for direct extraction, it "earns more revenue by extorting oil cargoes extracted by others", with unregistered money-service businesses remaining the primary means of transferring its funds.
IS cells, the report continues, are expected to be self-financing through a variety of activities, including extortion, kidnapping for ransom or other criminal activity. Indeed, the UN said there are reports that the group retains intelligence on local communities that could be used in future to "extort or otherwise extract financing from areas previously under its control".
As reconstruction gets under way in Syria and gains momentum in Iraq, the RAND Corporation's Colin P. Clarke, writing in Foreign Policy recently, suggested IS may seek to extort money from officials linked to projects and insert their own operatives into supply chains, pocketing money at each stage of the process.
Indeed, the UN report said a document obtained by one member state described IS' post-caliphate objectives as undermining stabilisation and reconstruction activities, targeting infrastructure rebuilding efforts and generally thwarting economic progress.
A US Treasury national terrorist finance risk assessment for 2018 said IS financiers and supporters are seeking to access US and international financial systems, both directly and indirectly, to move funds in support of the group and its regional affiliates around the world.
Throughout 2018, the Department of Treasury and State targeted IS branches, facilitators and networks in Bangladesh, Iraq, Somalia, the Philippines and across West and North Africa. In a major recent sting in October, a joint operation by Iraqi and Kurdish forces, supported by US-led Coalition Forces, broke up what was seen as a key IS financial network based in Baghdad and Erbil.
Citing US law enforcement, the risk assessment report said that while some terrorists (especially core Al-Qaeda operatives) have avoided regulated financial institutions - as they believe transactional information could be used to track their activities - some IS-inspired supporters have displayed less concern over operational security and are more willing to use such institutions.
The UN report said member states in or neighbouring the conflict zones of the Middle East continue to take steps to counter the two-way flow of funds controlled by, or linked, to IS, but many lack expertise in countering terrorism financing, preventing them from "fully investigating and prosecuting terrorism-financing offences".
The findings are supported by the watchdog Financial Action Task Force, which seeks to curb money laundering and terrorism finance. It said in February that nearly two-thirds of countries it has assessed are still not taking effective action to investigate and prosecute terrorist financing. A Security Council resolution late last month ordering UN member states to introduce laws criminalising the funding of terror groups may prompt action, as the measure can be enforced through sanctions.
Despite its comprehensive military defeat, IS remains a threat in the Middle East and internationally with the capacity to sow mayhem as an underground terrorist organisation, due in large part to its monetary reserves. The focus of efforts to stem the group now looks set to switch from a military struggle to a hunt for its funds and financiers. The US is once again taking the lead but evidence suggests that not everyone is onside.