This is not a journalistic investigation. I am just sharing concerns that are circulating in Baghdad about the caliphate’s financing.

An Iraqi banking source has told me that the Islamic State (IS) is making a minimum of 25 million USD per month by participating in the Central Bank of Iraq’s (CBI) ‘dollar auction’. This adds up to approximately 300 million dollars a year, far outpacing how much IS is making off oil smuggling, according to some estimates.

How did it happen?

The US Treasury and the Federal Reserve launched an investigation into the CBI’s dollar auction, which prompted a temporary hold on sending dollars to Baghdad in the summer, according to a Nov. 3 front-page story that appeared in the Wall Street Journal. The investigation looked into whether IS was somehow benefiting from the flow of these large sums of money through the auction, that in the year 2015 amounted to over 42 billion dollars.

The CBI took steps a few months ago to put an end to the mechanism that seemed suspect to the US Treasury, which involved, according to an Iraqi banking source, the process by which salaries and pensions of public sector employees in IS-controlled territories were transferred to the accounts of Iraqi state banks in Kirkuk, Samarra, and Ramadi (before it fell). This was called, at least on the Iraqi side of the investigation, the ‘key card’ investigative channel, in reference to the electronic cards by which employees and pensioners withdraw money. The investigation centered on 11 suspect entities (exchange houses) that handled the bulk of the sums, which amounted in the month of January 2015 alone, for example, to about 1.3 billion dollars in salaries and pensions. IS figured out how to put this money in circulation by participating in the CBI’s dollar auction. The jihadist financiers did so by funneling the monies through these 11 entities and several Turkish banks. It is estimated by a parliamentary source familiar with the investigation that IS may have made as much as 175 million dollars from this avenue over a period of six months before it was closed to them.

However, a new private sector investigation in Iraq is uncovering troubling signs that IS is continuing to use the dollar auction to generate money. “They learned how to do it in the ‘key card’ channel, and they brought in cash in Iraqi dinars to continue doing it even after that channel was shut down,” an Iraqi banking source who is familiar with the investigation told me.

For the sake of expediency, I’m going to call this new channel the ‘Mosul Dinars investigation’.

According to this source, IS moved large sums of Iraqi Dinars out of Mosul banks to Jordan in December 2014, and then brought them overland to Iraq via Ramadi. From then on, these Iraqi Dinars were put to use with various exchange houses, and through them to various private Iraqi banks, for the purposes of participating in the CBI’s dollar auction directly. The banking source estimates that these ‘Mosul dinars’ account for twenty percent of the volume of trade in the monthly auction. The number given is approximately equivalent to 1 billion dollars. “This is the caliphate’s sovereign wealth fund. They invested it in the dollar auction. The monthly revenues, at minimum, add up to 25 million dollars, and can go up to 40 or 50 million dollars depending on many factors, such as the difference in the exchange rate, and how much pay offs there are at any given time,” the source said.

There has been much said about exactly how much money (in dinars and in hard currency) was there in the vaults of Iraqi state banks in Mosul at the time of the jihadist takeover. There had been press reports, as well as statements from the state banks, suggesting that there was little cash there. The source maintains that estimates placing those funds at anywhere between 1.8 to 2.6 trillion Iraqi dinars are the ones closest to reality. “The terrorists didn’t pay salaries to public sector employees. So what did they do with the cash? Iraqi dinars are a burden for them, so they sent some of them to Baghdad after figuring out that they can keep generating money from the auction,” he added.

IS doesn’t have theological qualms about making money off of the Iraqi state. There are credible intelligence reports, as well as captured documents, that demonstrate that ISIS, the forerunner of IS, participated either directly or as a silent partner in bidding on contracts awarded by the provincial council of Mosul and various Iraqi ministries prior to June 2014, in order to fund its activities. The jihadists, clearly, have the know-how to manage complicated financial transactions. “Abu Salah” who was killed in an airstrike in November was one such financial talent according to Hisham al-Hashimi, an Iraqi expert on IS. Al-Hashimi wrote on his Facebook page that Abu Salah is one and the same as Ayad Abdel-Rahman al-Ubeidi, a former mukhaberat (intelligence) officer during Saddam’s time who was delegated with constructing much of the IS financial network. Al-Hashimi described al-Ubeidi to me as a “Khwarazmi-like genius” who turned to religion in the late 1990s, and had been working in the cultural department of the mukhaberat prior to the regime’s fall.

An anti-IS dissident from Mosul recently transplanted to Istanbul after having lived for a year under the caliph’s reign told me that he saw two exchange house owners from his hometown–known to him to be in bed with jihadists–casually strolling down Istanbul’s Istiklal Caddesi last September. This is one anecdote that suggests that the caliphate’s financial talent can still travel around the Middle East undetected.

What is the “dollar auction”?

It is a fishy affair.

The simplest way money is made lies in the margin of difference between the rate at which the CBI sells dollars in exchange for Iraqi dinars to the private banks, and that of the market. For example, the CBI sells at 1,187 dinars to a dollar, but the market exchange hovers between 1,205 to 1,230 dinars to a dollar (this would be the rate the private banks would sell at). The CBI takes a cut, and so do the private banks, and then the money flows in a largely unregulated and opaque process through hundreds of exchange houses.

Over the last five years, the CBI sold about 320 billion US dollars to some 23 private Iraqi banks. The CBI is only allowed to sell dollars to the private banks if the private sector needs dollars for an import transaction. It was estimated by the parliament’s Finance Committee that the sale of 200 billion dollars involved in the auction was suspect, and did not reflect actual mercantile activity. Private banks colluded with exchange houses to create a fake paperwork trail of invoices for private sector companies that don’t exist, or are not registered. The Finance Committee uncovered hundreds of such examples over many months of investigation, and the issue has been the subject of public debate in Iraq for a while. The private banks and the exchange houses (in many cases owned by the same owners of the banks) work with several regional banks in Jordan, Lebanon, Turkey and the United Arab Emirates.

According to an Iraqi intelligence source, there were companies in Dubai with tens of employees creating such fake invoices over the last few years. In the last few months, this counterfeiting operation has largely moved to Baghdad. The imported goods never get to Iraq, but there is no reliable mechanism to match up the paperwork submitted to buy dollars with customs invoices at Iraq’s borders. Anyways, the customs offices in Iraq are notoriously difficult to regulate.

The Iraqi banking source quoted above tells me that only 20 percent of the invoices are legitimate, that is, that they are actually connected to merchandise that the private sector plans to import.

All sorts of international crime syndicates (drugs, fake brand goods, illicit arms, sex trade, etc.) around the world discovered the usefulness of these unregulated and unsupervised channels for money laundering and moving large sums of money around, according to a parliamentary source. In many cases (such as that of Latin American drug cartels) they were introduced to the large money flow of the dollar auction through Lebanese intermediaries.

The dollar auction is primarily controlled by five banks and several exchange houses. One of the exchange houses is owned by a Palestinian who holds Syrian, Iraqi, Jordanian, and Turkish citizenship. He used to be a partner of Uday Saddam Hussein’s in the cigarette trade. Two of the prime movers on the private banking side are Iraqis in their early thirties, having made fortunes amounting to hundreds of millions of dollars within the span of a few years. One of them now resides in Los Angeles, CA.

Several influential Iraqi politicians are tied into the dollar auction through relationships with these banks and exchange houses. At least two political parties have their own ‘sovereign wealth funds’—just like that of IS—that amount to tens of millions of dollars that they circulate through the dollar auction. The problem of complicity is not confined to Iraq; influential nationals of Jordan, Lebanon, Turkey and the UAE are also involved.

Can it be fixed?

“No. IS has inserted its money into the whole matrix, which is corrupt and opaque to start with. You can’t unravel their money without unraveling everyone else’s money. Ernst and Young can’t do anything to follow the trail into the private banks and the exchange houses. The central bank says that what happens outside its doors is none of its concern,” the banking source answered. “The central bank must put an end to the dollar auction in order to put a stop to the IS money, but the whole thing is a political minefield,” he added.

It seems that the private investigation was instigated by current participants in the dollar auction who are worried that the IS money taints the whole structure, and may hold them liable on charges of aiding and funding terrorism down the road.

The CBI has responded to criticisms of its dollar auction by fining some of the private banks. These fines are subsequently negotiated down through political pressure. However, the CBI continues selling to the same banks. Other than shutting down the ‘key card channel’ over the summer, the CBI has not addressed concerns about other IS money participating in the auction.

Spooling out the IS money trail in and out of the dollar auction seems impossible at this junction. But it is critical. It seems to me that IS makes more money out of the dollar auction on a monthly basis than from oil smuggling. I trust Luay al-Khateeb, over at Brookings Doha, and his methodology, when he tells me that “ISIS makes 15-18 million dollars per month from oil sales”—contradicting many of the estimates that put the size of the trade much higher. The Coalition just bombed 280 oil tanker trucks. Russia is accusing Turkey of colluding with IS in oil smuggling. The Obama administration says that Asad buys most of IS’s oil. But if al-Khateeb’s numbers are right (and I believe they are), then it means that IS probably makes double what it makes from oil by participating in the dollar auction of the Central Bank of Iraq.

How opaque is the Iraqi banking sector?

Here’s an example of how non-transparent the system is: in one transaction in May 2014, an Iraqi company withdrew around 243 million dollars in cash from the Green Zone branch of a major Iraqi bank. The transaction was conducted by cashing in 23 checks. This company is a front for Iran’s Revolutionary Guard. It had shown up earlier on the radar in 2013 by acting as an intermediary in selling satellite jamming equipment to the Iraqi Ministry of Defense. The jamming equipment was manufactured by Iran Electronics Industries, which had been designated for sanctions by the US Treasury in 2008. The sale was made in a no-bid process. Whistle blowers from Iraq’s Defense Ministry tried to tell the US Embassy about what was happening back then.

Despite the company’s past, it could still withdraw hundreds of millions of dollars last year from an Iraqi bank that is underwritten by several large US banks. One of those US banks had even hired the daughter of the Iraqi bank’s manager to work for them in Dubai, much in the same way that the children of Chinese officials were hired into cushy jobs by US banks.

The transactions the Iraqi company undertook in 2014 eventually amounted to several more hundreds of millions of dollars. Ostensibly, these were Iraqi Ministry of Defense payments rendered in cash in return for Iranian arms. The cash payments were necessary in order to circumvent sanctions. The US Treasury didn’t go around asking any questions about such payments (begun surreptitiously under the auspices of Iraq’s Foreign Ministry to pay for things like imported Iranian electricity and gasoline), even though in this particular case the same company was active in 2013 on behalf of an Iranian state enterprise sanctioned by the Treasury. What makes the case even more interesting is that Iraq seems to have been overpaid by several magnitudes for the arms that Iran had shipped. “The rest of the money left over is Qassim Suleimani’s to fund the wars in Syria and Iraq, as well as Hezbollah,” a source told me at the time.

This example highlights how difficult it would be to shine a light onto the inner workings of the Iraqi banking sector, both governmental and private.

Trying to parse through the local corruption, and Iran’s money, while going after the IS ‘sovereign wealth fund’ is going to be exceedingly difficult, not to mention it may take a long time to figure out.

In the meantime, IS is potentially raking-in a minimum of 300 million dollars a year from the CBI’s dollar auction, according to the private investigation.