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 In finding their targets, U.S. military planners have relied in
part on an unconventional source of intelligence: access to banking
records that provide insight into which refineries and oil pumps are
generating cash for the extremist group, current and former
officials say.
The intent is to choke off the Islamic State's funding by tracking
its remaining ties to the global financial system. By identifying
money flowing to and from the group, U.S. officials have been able
to get a glimpse into how its black-market economy operates, people
with knowledge of the effort have said.
That in turn has influenced decisions about targeting for air
strikes in an effort that began before Islamic State's Nov. 13
attacks on Paris and has intensified since, they said. While Islamic
State's access to formal banking has been restricted, it retains
some ties that U.S. military and financial officials can use against
it, the current and former officials said.
"We have done a really good job of largely keeping the Islamic State
out of the formal financial system," said Matthew Levitt, who served
as deputy assistant secretary for intelligence at the U.S. Treasury
in the George W. Bush administration. "But we haven't been entirely
successful, and that may not be a bad thing."
 Reuters was unable to verify key aspects of the campaign, including
when it started or exactly which facilities have been destroyed as a
result. Two current officials who confirmed the operations in
outline declined to comment on their details.
It was unclear how U.S. intelligence, Treasury, and military
officials working on what the government calls "counter threat
finance" operations have used banking records to identify lucrative
Islamic State oil-related targets in Syria and whether that involved
local banks.
A report this year by the intergovernmental Financial Action Task
Force found there were more than 20 Syrian financial institutions
with operations in Islamic State territory. In Iraq, Treasury has
worked with government officials to cut off bank branches in the
group's territory from the Iraqi and international financial
systems.
Gerald Roberts, section chief of the FBI's terrorist financing
operations section, said that Islamic State's recruits from outside
Syria often come with financial trails that officials tracking them
can "exploit."
"We are seeing them using traditional banking systems," he said at a
banking conference last week in Washington, adding that young,
tech-savvy Islamic State members are also familiar with virtual
currencies such as Bitcoin.
Islamic State, also known as IS, ISIS or ISIL, is sometimes forced
to use commercial banks because the amounts involved are too large
to move using other means, said Levitt.
The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN)
uses a set of "business rules" to screen the roughly 55,000 reports
it receives daily from financial institutions for signs of activity
involving Islamic State, a spokesman said. He declined to describe
the rules, but law enforcement sources say names, IP addresses,
email addresses, and phone numbers are among the data that
intelligence authorities try to match.
 The matches allow FinCEN "to connect the dots between seemingly
unrelated individuals and entities," the FinCEN spokesman said. At
present, FinCEN finds about 1,200 matches suggesting possible
Islamic State-linked financial activity each month, up from 800 in
April, the spokesman said.
Bank of America <BAC.N>, JP Morgan <JPM.N> and Wells Fargo <WFC.N>
declined to comment on whether they provided financial reports to
the U.S. government. Such reports are supplied confidentially.
Citigroup <C.N>, HSBC <HSBA.L>, and Standard Chartered <STAN.L> did
not immediately respond to requests for comment.
"TIDAL WAVE II"
The use of financial records linked to Islamic State is only one
part of the intelligence-gathering exercise for air strikes in Syria
that also includes methods such as aerial surveillance by drones,
officials said.
One former military official familiar with the process said that any
financial intelligence collected by FinCEN would require
"significant vetting" before the military acted on it.
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Earlier this month, U.S.-led coalition planes struck 116 fuel trucks
used to smuggle Islamic State oil 45 minutes after dropping leaflets
warning drivers to flee, a Pentagon spokesman said. Coalition
strikes destroyed another 283 Islamic State fuel trucks on Saturday,
the Pentagon said.
On Nov. 8, a coalition air strike destroyed three oil refineries in
Syria near the border with Turkey.
U.S. defense officials estimate that Islamic State, an adversary the
United States calls the wealthiest terrorist group of its kind in
history, was earning about $47 million per month from oil sales
prior to October.
That month, the U.S. military launched an intensified effort to go
after oil infrastructure, dubbed "Tidal Wave II," named after the
bombing campaign targeting Romanian oil fields in World War Two.
The Pentagon estimates the strikes have reduced the Islamic State's
income from oil sales by about 30 percent, one U.S. defense official
with knowledge of the previously unreported estimate said. Reuters
was unable to confirm this.
The use of financial records in helping to pick U.S. targets was
first disclosed last week at the banking conference in Washington.
At the conference, Kurt Gredzinski, the Counter Threat Finance Team
Chief at U.S. Special Operations Command, cited the importance of
information provided by banks in the war against Islamic State.
"That to me is the first time in my recollection that we
strategically targeted based on threat finance information," he said
at the conference. He declined to comment further on which strike he
had been referring to.
"RESILIENT FINANCIAL PORTFOLIO"
U.S. officials believe that diminished funding could gradually
undermine Islamic State's grip on the area it controls in Iraq and
Syria, because it needs revenue to pay salaries and keep public
infrastructure operating, said two former officials with knowledge
of the Obama administration's thinking.
Experts caution that Islamic State, which rules an area the size of
Austria, has surprisingly deep pockets due to the various revenue
streams it controls. It has built up what amounts to a "durable and
resilient financial portfolio," funded by oil sales, extortion, and
sales of antiquities, said Thomas Sanderson, an expert on terrorism
at the Center for Strategic and International Studies.
"Money can be strapped to the backs of mules," Sanderson said. "It's
easy to move things across a border during a time of deprivation and
chaos."
Despite some initial success, cutting off its funding will require
deeper cooperation from governments from Turkey to Russia, experts
say. The group has shown the ability to bounce back from previous
U.S. strikes on its oil facilities.
Counter-terrorism experts say that Islamic State appears to have
learned from U.S. successes in cracking down on funding for
al-Qaeda, which relied heavily on support from wealthy donors in the
Gulf region.
"IS has learned that you don't want to be reliant on too many
outside sources," said Sanderson. "Donors are fickle and subject to
pressure and (IS) wants to be in control."
(Reporting by Yeganeh Torbati in Washington and Brett Wolf of
Thomson Reuters Regulatory Intelligence. Additional reporting by
Joel Schectman, Warren Strobel, and Jonathan Landay in Washington.;
Editing by Kevin Krolicki and Stuart Grudgings)
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