Joseph V. Micallef is a best-selling military history and world affairs author, and keynote speaker. Follow him on Twitter@JosephVMicallef.
Ever since being deposed in November 2001, by a combination of Northern Alliance Militias and U.S. Special Forces, the Taliban has been conducting an insurgency aimed at overthrowing the U.S. and NATO-backed Afghan government. Officially, the NATO-led International Security and Assistance Force, also known as Operation Enduring Freedom, was designed to topple the Taliban Government, root out al-Qaida's leadership and establish a democratic government in Kabul. It ended on December 28, 2014. It was replaced by a new NATO-led mission called Resolute Support (RSM), designed to train, advise and assist the Afghan military forces. In the meantime, the insurgency has continued unabated and Taliban militants have steadily increased both the scope and intensity of their attacks, as well as the areas they can either directly control or extend their influence over.
Parallel with the growth of the Taliban insurgency has been an equally dramatic growth in the range of criminal activities that the Taliban uses to fund its operations. Such practices are nothing new. European subversive organizations have often engaged in kidnappings for ransom or bank robberies to obtain funds to finance their activities. Such practices have been true from contemporary groups like Baader Meinhof or the Brigate Rosse to Lenin's Bolsheviks a century ago. In the United States, the Symbionese Liberation Army famously kidnapped heiress Patty Hearst and staged a bank robbery. In Colombia, the Revolutionary Armed Forces of Colombia (FARC) evolved from a Marxist-Leninist inspired guerilla movement that trafficked in cocaine to fund its operations to a full-fledged criminal narcotics organization that paid only nominal attention to its ideological roots.
Officially, it's believed that the Taliban has a yearly budget of around $500 million. In private, however, Western and Afghani intelligence agencies admit that the real Taliban budget is closer to between $1 billion and $2 billion, with most opting for the higher number. Intelligence sources at the RSM place the number even higher -- at more than $2 billion. Moreover, it is widely believed that the Taliban has stockpiled cash amounting to several billion additional dollars in preparation of a major campaign to seize control of Afghanistan at some point in the future.
Where exactly does the Taliban get all this cash? The sources are many and varied. Narcotics are one of the principal sources of the Taliban's financing. Over the last two decades, Afghanistan has emerged as the principal source of the world's heroin -- producing around 90 percent of the world's supply. Afghanistan sits at the heart of a region called the "Golden Crescent," a rugged mountainous region incorporating northeastern Iran, Afghanistan and northwestern Pakistan, which is the center of the world's heroin production. Afghanistan is a "vertically integrated" heroin producer in that the entire process, from the cultivation of the opium poppy to the production of morphine and its subsequent conversion into heroin, all takes place within the country.
It does not appear that the Taliban is involved in the physical production of heroin or its antecedents. The Taliban's principal function in the drug trade is to organize the smuggling of heroin out of Afghanistan; smuggle in chemicals, principally acetic anhydride, which are necessary for the manufacture of heroin; ensure that government officials, either through bribery or intimidation, don't interfere with the heroin trade; and provide protection to the heroin factories. Because of its use for the synthesis of heroin by the diacetylation of morphine, acetic anhydride is a key ingredient in the manufacture of heroin and it is listed as a U.S. DEA List II precursor, and restricted in many other countries including, at least officially, Afghanistan.
Most of the heroin is smuggled through Pakistan, and smaller quantities through Iran. There have been persistent reports, although they have never been confirmed, that the Iranian Revolutionary Guard (IRG) has helped to facilitate the smuggling. It's unclear what the full extent of the IRG's role is, however, and to what extent, if any, it benefits financially from the drug trade. In addition, the Taliban levies taxes on opium farmers, as well as charges tolls and provides protection to other, nonaffiliated, heroin smugglers.
Afghan government sources estimate that the Afghan heroin trade generates approximately $2 billion in turnover within Afghanistan, with roughly one-third of the proceeds going to the heroin producers, one-third going to the Taliban and the balance going to expenses, including paying poppy farmers and bribes to government officials and security personnel. Per the UN Office on Drugs and Crime (UNODC), the average Afghan poppy farm yields approximately 17 pounds of opium per acre, with a local market value of 90 dollars per pound or 1,530 dollars per acre. The average per capita income in Afghanistan, by comparison, is roughly 500 dollars. In rural areas it is even lower.
The Taliban has been paying particular attention to Helmand, Afghanistan's largest province at roughly 20,000 square miles, in the last several years and is now believed to control approximately half of the region's rural areas. The province's inhabitants are predominantly Pashtun and it has always been a hotbed of Taliban support. The Taliban started in the adjacent province of Kandahar. Helmand is also the world's largest opium producing region. It is responsible for around 45 percent of the world's opium and more than half of the opium produced in Afghanistan. Not surprisingly, the province also plays a critical role in the Taliban's finances.
The production of hashish is also a significant source of funding for the Taliban. The UNODC estimates that Afghanistan is also the world's largest producer of hashish, supplying approximately 4,000 tons. Utilizing the same smuggling networks as those for heroin, hashish adds another 100 million to 150 million dollars to the Taliban's coffers. Currently there are approximately 50,000 acres devoted to the production of hashish in roughly 17 provinces. For farmers, the cultivation of hashish is more profitable than that of opium poppies, yielding revenue of around 4,000 dollars per acre.
Smuggling, in general, is also a major source of funding for the Taliban. The same networks that can be used to smuggle in arms and munitions or smuggle out drugs can be used to smuggle a broad range of goods. Cigarettes, after drugs, are the second most significant item smuggled. Afghanistan imports approximately two billion dollars of Western cigarettes a year, an amount that seems disproportionately high given that only about 20 percent of Afghans smoke. In addition, local cigarettes sell for around 30 cents a pack, one-third of the price of Western cigarettes. Western cigarettes cost less than a dollar a pack in Afghanistan.
Historically, the Afghan government levied an excise tax of 20 percent on imported cigarettes. In June 2015, that tax was increased to 100 percent. In addition, cigarettes sold in Afghanistan are required to bear a government stamp showing that the excise tax has been paid. It appears that the excise tax, and its required documentation, is largely ignored. Kabul street markets are full of vendors selling Western cigarettes all clearly marked "South Asia Duty Free Sales Only" and absent any government excise tax stamp.
There are only a handful of Duty Free Stores in Afghanistan, about a half dozen at major airports and border crossings, and a few that cater to RSM personnel and diplomatic staff. It's hard to imagine that these stores, perhaps a dozen or two, are responsible for sales of two billion dollars of foreign cigarettes. More plausible is the assumption that many of these duty free cigarettes are being diverted elsewhere. Those same cigarettes, when smuggled into India or Pakistan, will fetch four to five times the average Afghan street price. It's unclear how much cigarette smuggling adds to the Taliban's coffers. It could be in the range of 100 to 200 million dollars a year.
In addition, the Taliban operates a range of commercial businesses, which it has expropriated; including emerald mines in Pakistan's Swat Valley, timber concessions, some legal some illegal, and marble quarries. The Taliban also levies taxes on citizens and businesses in areas they control. The extent of the contribution from these operations is unclear.
Kidnappings are also an important source of revenue. Although the United States remains resolute in not paying ransoms for kidnapped Americans, other European countries have been willing to ransom their citizens. France and Italy have both paid multi-million dollar ransoms to free their citizens. Even Great Britain, which ostensibly agrees with the United States in not paying ransoms, has, it is rumored, on at least one occasion, paid a ransom to free a kidnapped Briton. In addition, extortion against nongovernmental organizations (NGOs), in the form of protection money or payments for "security services," is also common. Additionally, kidnappings or extortion of Afghan citizens, in both Afghanistan and Pakistan, also add to the Taliban's funds. In total, kidnappings and extortion of Westerners, NGOs and others probably contributes around 50 million dollars yearly.
Two other major sources of Taliban funding are Pakistan's Inter-Services Intelligence Agency (ISI) and, ironically, indirectly, the United States itself. Pakistan has supplied the Taliban with a broad range of arms, supplies and financial help. The extent of this help is unclear, but is believed to amount to several hundred million dollars a year. In addition, the ISI has also assisted the Taliban's smuggling operations, indirectly adding to their financing. There have been persistent rumors, although no hard evidence, that the ISI receives a cut of the Taliban's smuggling revenue in return for facilitating the trade in contraband, especially in cigarettes, throughout south Asia.
A significant portion of the Taliban's Pakistani financing came, ironically, from American sources. Pakistan has been a major recipient of U.S. military and financial aid over the course of the past 15 years. Direct U.S. military and economic assistance to Pakistan has amounted to over 20 billion dollars since 2001. Moreover, a significant amount of additional U.S. aid to Pakistan, it's unclear how much, was channeled through third-party contractors by a variety of U.S. government agencies. Pakistan was also reimbursed by ISAF for various services that it provided to American and coalition troops.
It's impossible to know exactly how much aid the Pakistani government received, directly and indirectly, from the United States, but it is probably upward of 40 billion dollars. A significant amount of that aid went to the ISI, and from there some portion was likely diverted to finance the Taliban. There is no way to determine what is the actual amount of financial support that the ISI has given the Taliban since much of it is in the form of various services and supplies, but the Afghan government estimates that the value of the ISI's assistance to the Taliban has been in the range of 200 million to 400 million dollars yearly.
Ironically, another major source of funding for the Taliban has been the construction projects undertaken under the auspices of ISAF and the bilateral aid programs of the U.S. and other European countries. After three decades of warfare, much of Afghan's infrastructure had been destroyed. Large portions of its major cities had been reduced to rubble. Power transmission grids, roads, rail networks had all suffered extensive damage. Over 100 billion dollars was spent on a broad range of construction projects. Many contractors will now readily admit that they routinely added 10 percent to as much as 40 percent to the cost of such projects to kick back to the Taliban as protection money.
On a recent trip to Afghanistan one contractor recounted to me a story of a bridge in Helmand province that was built and destroyed a total of six times. The contractor admitted he agreed to add 20 percent to the budget for the project and to kickback that amount to the Taliban as protection money on condition that the Taliban would not blow up the bridge until he had been paid for the construction job. Once the funds had been received he promptly paid the Taliban their cut and they proceeded to blow up the bridge.
Per the contractor, the bridge was built and destroyed a total of six times, each time the Taliban getting their 20 percent of the construction budget. While in Afghanistan I tried to confirm if the story was true. Off the record, all the contractors I spoke with did confirm that it was standard practice to build in a kick back to the Taliban to ensure that militants did not attack or disrupt a construction project and that there were numerous examples of projects that were rebuilt multiple times.
I do not know if the story of the Helmand Bridge is true. I doubt we will ever know, but it is nonetheless a fitting metaphor for what happened in Afghanistan during the construction boom that followed the American intervention. Afghan intelligence sources estimate that the Taliban skimmed off between 10 percent and 20 percent of the funds that were earmarked for construction over a roughly 15-year period. That would put the Taliban's take at somewhere between ten and twenty billion dollars over this period, or roughly an average of 700 million to a billion dollars a year. It's likely that the true number is substantially higher. The US and its allies continue to spend upwards of five billion dollars a year on Afghan reconstruction efforts. No doubt, the Taliban continues to get its cut!
The one refrain I heard while I was in Afghanistan, from everyone, government sources, RSM personnel and the proverbial Afghan man in the street, was that "the Taliban has plenty of money" and that "for the Taliban money is no problem." Considering that the Taliban leadership is largely uneducated and inexperienced in matters of finance, it is remarkable that they could administer a multi-revenue stream financial empire that is spitting out yearly several billion dollars in income or that they could do this while in hiding in Afghanistan's and Pakistan's remote mountain wilderness.
It stands to reason that managing sums of money of this magnitude, collecting them, moving them around and spending them, would require a sophisticated financial network and experienced money managers. Here again, all signs point to the ISI. They already have a track record managing and moving around sums of this magnitude having done it once before for the CIA while funding the mujahedeen fighters in Afghanistan during the 1980s. No doubt, the reputation of ISI personnel for having sticky fingers gives them a powerful incentive to manage the Taliban's cash.
In fact, the Taliban's most significant weapon is not its arms or its ability to mobilize jihadists but the vast sums of money that it seems to have at its disposal. The Taliban has billions with which to buy influence, corrupt government officials and suborn even the most resistant opponent. Money can buy guns and recruit soldiers, but its insidious effects in undermining opposition and corrupting government security forces is far more deadly and a far more formidable challenge.
The most effective strategy for destroying the Taliban once and for all is to uncover the financial networks that it uses to move money around, to cutoff its funding sources, and shut down the smuggling networks and illicit activities that it uses to fund its operations. Ending the role of the ISI in facilitating the management of the Taliban's cash hoard would also make a significant dent in the group's finances. It may well be that in time the Taliban may drop any pretense of jihadism and simply revert to a criminal enterprise, a common enough evolution among political-terrorist organizations. For now, the most effective strategy the U.S. can use to weaken the Taliban is simply to "follow the money."
