BAGHDAD • Three times a month, Mr Mohammad al-Kirayfawai hands US$300 (S$420) to fighters from the Islamic State in Iraq and Syria (ISIS) for the privilege of driving his refrigerated truck full of ice cream and other perishables from Jordan to a part of Iraq where the militants are firmly in charge.
The fighters who man the border post treat the payment as an import duty, not a bribe. They even provide a stamped receipt with the logo and seal "ISIS, State", which Mr al-Kirayfawai, 38, needs for passing through other checkpoints on his delivery route.
Refuse to pay, and the facade of normality quickly falls away. "If I do not," Mr al-Kirayfawai said, "they either arrest me or burn my truck."
Across Syria and Iraq, ISIS has set up a predatory and violent bureaucracy that wrings every cent it can from those who live under its control or pass through its territory.
Interviews with more than a dozen people living inside or who have recently escaped, and Western and Middle Eastern officials who track the finances of the militants, describe the group as exacting tolls and traffic tickets; rent for government buildings; utility bills for water and electricity; taxes on income, crops and cattle; and fines for smoking or wearing the wrong clothes.
OLD COUNTERMEASURES INEFFECTIVE
They derive so much of their resources internally that more traditional counterterror finance tools we would apply - say, in the case of Al-Qaeda - to cut off a terror organisation from its income sources are not applicable.
MR DANIEL GLASER, United States Assistant Secretary of Treasury for terrorist financing
The earnings from these practices approach US$1 billion a year, according to some estimates by US and European officials. And that is revenue that has proved largely impervious to sanctions and air raids.
"They fight in the morning and they tax in the afternoon," said Ms Louise Shelley, director of the Terrorism, Transnational Crime and Corruption Centre at George Mason University.
The better-known of ISIS' revenue sources - smuggling oil, plundering bank vaults, looting antiquities, ransoming kidnapped foreigners and obtaining donations from wealthy supporters - have helped to make the group arguably the world's richest militant organisation. But as experts gained a better understanding of the group's finances over the past year, a broad consensus has emerged that the militants' biggest source of cash appears to be the people it rules, and the businesses it controls.
Since last month's Paris attacks, the United States has more aggressively targeted the militants' oil production and smuggling operations, which it had held off from going after for fear of inflicting long-term damage on Iraq's and Syria's economies. But last month, the US struck a convoy of oil tanker trucks in eastern Syria, destroying 116 vehicles.
Ultimately, though, many officials and experts said ISIS will be able to cover its costs even without oil revenue, and that bankrupting the group will take a lot more than blowing up oil tankers so long as it controls large stretches of Iraq and Syria, including major cities.
"These are all going to be little pinpricks into (ISIS) financing unless you can take their revenue bases away from them, and that means the territory they control," said Mr Seth Jones, a terrorism expert at the Rand Corp.
ISIS has taken over the revenue collection operations and uses the threat of violence to extract as much as it can from the people, businesses and property it controls.
In the Bab al-Tob neighbourhood of Mosul, Iraq, for instance, the militants turned a police station that dated to the 19th-century Ottoman era into a market. The annual rent for a market stall is 2.8 million Iraqi dinars (S$3,500).
In Raqqa, the Syrian city that is now the de facto capital of ISIS, officials collect a cleaning tax - 2,500 to 5,000 Syrian pounds (S$16 to S$32) a month. Residents pay monthly utility bills, including 800 Syrian pounds for electricity and 400 pounds for water. The Office of Resources oversees oil production and smuggling, the looting of antiquities and a long list of other businesses, including water-bottling, soft-drink and mobile phone companies.
ISIS also demands a cut of the revenues earned by small businesses. "We either pay in olive oil or cash; it depends on the production," said Tarek, a farmer who wanted to be identified by only his first name.
ISIS officials dislike the term "tax", preferring the Islamic term "zakat", for what they collect from individuals. Although the norm would be 2.5 per cent under most interpretations of Islamic law, the militants are taking 10 per cent, justifying the high rate by saying they are a "nation in a time of war", said a citizen journalist in Raqqa who wanted to be identified only as Abu Mouaz.
Fines are also included in the punishments meted out for breaking the strict living rules. Smoking is strictly forbidden, for example, and Mr Mohammad Hamid, 29, said that when he was caught smoking a cigar, "ISIS not only whipped me 15 times in public but also forced me to pay a fine of 50,000 dinars".
On top of the estimated US$1 billion extracted from residents, oil smuggling brings in US$500 million in revenues. The group also looted roughly US$1 billion from banks in towns and cities it took over.
In the short term, US and European officials are struggling to cut the group's revenues. But the old strategy, largely centred on cutting militants off from donors in the Persian Gulf upon which they depend, does not apply to ISIS.
"They derive so much of their resources internally that more traditional counterterror finance tools we would apply - say, in the case of al-Qaeda - to cut off a terror organisation from its income sources are not applicable in this case," said Mr Daniel Glaser, US Assistant Secretary of Treasury for terrorist financing. "They don't rely on donors."
In the long run, US officials say, the way to significantly restrict the group's finances will be to retake territory it controls, something that has proved painstakingly slow so far despite thousands of air strikes.
"The only one sure way to take away their wealth, their revenue base", one senior administration official said, speaking on condition of anonymity to discuss security matters, "is going (to) be through military force".
NEW YORK TIMES