Crime pays for Iraq's insurgents

BAGHDAD, Iraq — The insurgency in Iraq is now self-sustaining financially, raising tens of millions of dollars a year from oil smuggling, kidnapping, counterfeiting, corrupt charities and other crimes that the Iraqi government and its American patrons have been largely unable to prevent, a classified U.S. government report has concluded.

The report estimates that armed groups responsible for many of the insurgent and terrorist attacks across Iraq are raising between $70 million and $200 million a year from illegal activities. It says between $25 million and $100 million of the total comes from oil smuggling and other criminal activity involving the state-owned oil industry that is aided by "corrupt and complicit" Iraqi government officials.

As much as $36 million a year comes from ransoms paid to save hundreds of kidnap victims in Iraq, the report said. It estimates that unnamed foreign governments — previously identified by senior American officials in Iraq as including France and Italy — paid Iraqi kidnappers an estimated $30 million in ransom last year.

A copy of the report was made available to The Times by American officials in Iraq.

In the dark

The report offers little hope that much can be done, at least anytime soon, to choke off insurgent revenues. For one thing, it acknowledges how little the U.S. authorities in Iraq know — 3 ½ years after the invasion that toppled Saddam Hussein — about key aspects of insurgent operations. For another, it paints an almost despairing picture of the Iraqi government's ability, or willingness, to take measures the report says will be necessary to tamp down the insurgent financing.

"If accurate," the report says, its estimates also indicate that "terrorist and insurgent groups in Iraq may have surplus funds with which to support other terrorist organizations outside of Iraq."

Some terrorism experts outside the government who were given an outline of the report by The Times criticized it for a lack of precision and a reliance on speculation.

Completed in June, the report was compiled by a working group in Iraq that operates under the leadership of the National Security Council (NSC).

A Bush administration official confirmed the group's existence, saying it has probed sources of insurgent financing in Iraq and studied how money is moved into and around the country. He said the group's members are drawn from the CIA, the FBI, the Defense Intelligence Agency, the State Department, the Treasury Department and the Army's Central Command, which oversees the war in Iraq.

Even taking the higher figure of $200 million, the group's estimate of the financing for the insurgency underscores the David-and-Goliath nature of the war here, with American, Iraqi and other coalition forces fighting a shadowy array of Sunni and Shiite groups that can draw on huge armories of weapons and ammunition left over from Saddam's days, and the willingness of many insurgent fighters to go with little or no pay. If the $200 million a year estimate is close to the mark, it amounts to less than what it costs the Pentagon, with an $8 billion monthly budget for Iraq, to sustain the American war effort here for a single day.

New money

For Washington, the report's most dismaying finding may be that the insurgency no longer depends on the sums Saddam and his associates seized as his government collapsed. As U.S. troops entered Baghdad, officials said at the time, Saddam's oldest son, Qusai, took more than $1 billion in cash from the Central Bank of Iraq and stashed it in steel trunks aboard a flatbed truck. Large sums were found in Saddam's briefcase when he was captured in December 2003.

But the report says Saddam's loyalists "are no longer a major source of funding for terrorist or insurgent groups in Iraq." Part of the reason, the report says, is that an American-led effort has frozen $3.6 billion in "former regime assets."

The Saddam loyalists — some leading insurgent groups in Iraq, many others fugitives — retain control of "tens or hundreds of million dollars," the report says.

The trail to these assets "has grown cold," the report adds.

In any case, the document says, the pattern of insurgent financing changed after the first 18 months of the war, so that by 2005 the main source of funds was no longer foreign fighters and couriers smuggling cash but rather widespread crime inside Iraq.

"Currently, we assess that these groups garner most of their funding from petroleum-related criminal activity, kidnapping and other criminal pursuits within Iraq," the report concludes.

Terrorist haven?

The possibility that Iraq-based terrorist groups could finance attacks outside Iraq appeared to echo Bush administration assertions that prevailing in the war here is essential to prevent Iraq from becoming a terrorist haven like Afghanistan became under the Taliban. But that suggestion was one of several aspects of the report that drew criticism in interviews with Western terrorism experts.

While noting that the report appeared to go beyond any previous investigation of the subject, the experts said the seven-page document appeared to be speculative, at least in its estimates of funds available to the militants. They noted the wide spread of the estimates, particularly the $70 million to $200 million figure for overall financing; the report's failure to specify which groups the estimates covered; and the absence of documentation.

While data may have been omitted to protect sources and methods — the document has a warning that it is not to be shared with foreign governments — several security and intelligence consultants said the vagueness of the estimates reflected how little U.S. intelligence agencies know about the complex militant groups.

Skeptics

"They're just guessing," said W. Patrick Lang, a former chief of Middle East intelligence at the Defense Intelligence Agency. He added: "They've been very unsuccessful in penetrating these organizations."

He was equally skeptical about the report's assertion that the insurgent and militant groups may have surpluses to finance terrorism outside Iraq.

"That's another guess," he said.

"A judgment like that, coming from a NSC-generated document," is not an analytical assessment as much as it is a political statement to support the administration's contention that Iraq is a central front in the war on terrorism. "It's a statement put in there to support a policy judgment," he said.

Several analysts said that, except for the possibility that al-Qaida in Iraq might be transferring money to al-Qaida factions elsewhere, the assertion that insurgent money might be flowing out of the country was doubtful, considering the single-minded regional focus of most of the militants.

"There's very little evidence that they're preparing to export terrorism from Iraq to the West," said Magnus Ranstorp of the Swedish National Defense College, an author of extensive studies of the Iraqi insurgency. "I think it's much too early for that."

Investigators have had little success in penetrating or choking off terrorist-financing networks of "rejectionist" Sunni insurgents seeking to restore minority rule as well as those linked to al-Qaida. Shiite terror groups, too, many with Iran's backing, have proven hard to penetrate, the Americans say.

Blind spots

The report says American efforts to follow the financing trails have been hamstrung by a weak Iraqi government and its nascent intelligence agencies; a lack of communication between American agencies, and between the Americans and the Iraqis; and the nature of the insurgent economy itself, primarily sustained by manual transfers of money rather than more easily traceable means.

"Efforts to identify key financial facilitators, funding sources and transfer mechanisms are yielding some results, but we need to improve our understanding of how terrorist and insurgent cells interact, how their financial networks vary from province to province or city to city and how they use their funds," the report says.

It also says the U.S. must help the Iraqi government "to excise corrupt officials from its law-enforcement and security services and its ministries" and "to prevent smuggled Iraqi oil from being sold within their borders."

"Stop paying ransoms"

Another challenge, the report says, is to persuade foreign governments to "stop paying ransoms."

"You have to look at what the insurgency is doing," said Lang, formerly with the Defense Intelligence Agency "Are they hampered by a lack of funds? I see no evidence that they are."

"We've had some tactical successes where we've picked off a financier or whatever, but we haven't been able to unravel a major component of the system," said Jeffrey White, a defense fellow with the Washington Institute for Near East Policy, also a former Middle East analyst with the Defense Intelligence Agency.

"I've never seen any indication that they're strapped for cash," he said.

He said the insurgency has demonstrated tremendous regenerative properties. He pointed to the success of al-Qaida in Iraq to withstand the loss of hundreds of combatants and dozens of major leaders. "They keep coming back," he said, "and I think the same thing has happened to the financial system."