Isil is making millions of dollars for its war chest by playing foreign currency markets under the noses of bank chiefs, it was revealed today.
The terror group is earning up to $20m (£14.29m) a month by funnelling dollars looted from banks during its takeover of the Iraqi city of Mosul into legitimate currency markets in the Middle East.
It then makes huge returns on currency speculation, which are then wired back via unsuspecting financial authorities in Iraq and Jordan, a parliamentary committee was told on Wednesday.
Islamic State of Iraq and the Levant's (Isil) extraordinary venture into white collar crime is now a major source of income, along with oil smuggling and extortion from people living in Isil-controlled areas.
"The cash that Isil has looted is routed into Jordanian banks"
Details of the scam emerged during a hearing of a specially-convened Foreign Affairs sub-committee set up to examine Britain's role in Isil financing.
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The hearing was told that Isil finance chiefs would play the international stock markets using cash looted during their 2014 take over of Mosul, in which the group got its hands on an estimated $429m from the city's central bank.
They also used money "siphoned off" from pension payments that are still being made by the Iraqi government to civil servants living in the city.
The details were revealed to the hearing by John Baron, the sub-committee's chair, who demanded to know whether the British government – which has pledged to help cut off Isil's finance networks – was taking proper action against it.
"The cash that Isil has looted, along with siphoned off pension payments, is routed into Jordanian banks and brought back into the system via Baghdad," he said. "That allows the system to be exploited by Isil, in that they take a turn (profit) on the foreign currency actions and siphon that cash back."
The profits were channeled back into Isil coffers by "hawala" transfers, an unregulated system of money transfer whereby cash payments are made via agents in one country after a similar amount is presented as collateral in another.
Tobias Ellwood, a junior Foreign Office minister, admitted to the committee that there was a "porousness" in the local financial system but said that work was now underway to shut it down. It had been done without the active connivance of bank staff, he added.
In December, the Central Bank of Iraq named 142 currency-exchange houses in Iraq that the US suspected of moving funds for Islamic State. It banned them from its twice-monthly dollar auctions in a bid to stop the terror group getting its hands on the cash – a main source of exchange in war-torn Iraq.
But Mr Ellwood conceded: "Iraq could have moved faster on this". Asked if the similar moves had been made in Jordan, he said he was unable to give an answer.
"Jordan plays an important role in the (anti-Isis) coalition," he added. "Work is being done to close it down, I don't think there is anything near as much from that source of revenue as before."
The committee heard claims that Isil's "rake off" from foreign currency speculation was a "significant part of their income stream", although Mr Ellwood said he thought that estimates of $20m were excessive.