Islamic State, which holds large parts of Iraq and Syria, largely funds itself through the sale of oil, as well as kidnap-and-ransom, theft and resale of commodities and antiquities, and extortion of local businesses and residents, U.S. officials say.
A smaller part of the group’s cash comes from donations from abroad, a traditional means of terrorist financing that is easier to combat via cooperation from banks and governments, officials said.
U.S. officials lauded the cooperation from wealthy Persian Gulf countries such as Saudi Arabia and the United Arab Emirates in efforts to stop donations to Islamic State and allied groups and help enforce U.S. and United Nations sanctions. But Qatar and Kuwait are still “permissive jurisdictions for terrorist financing,” said David Cohen , Treasury undersecretary for terrorism and financial intelligence.
“Both countries have more work to do,” Mr. Cohen said on Thursday at the Carnegie Endowment for International Peace, a Washington think tank.
Mr. Cohen characterized recent meetings with Saudi officials as “very, very good” and said the U.A.E. is “steadfastly committed” to stopping the flow of illicit finance.
Middle Eastern states with Islamist-leaning governments have come under scrutiny in the U.S. and other countries seeking to battle Islamic State for uneven efforts to stop the group’s rise.
One of them, Turkey, recently agreed under U.S. pressure to allow Iraqi Kurds to cross its territory to reinforce fellow Kurds in the Syrian city of Kobani, besieged by Islamic State. The U.S.-led coalition is relying more and more on Kurdish ground forces, but Turkey has worried about strengthening a Kurdish militant group it fought for decades in its own country.
In the Gulf region, Kuwait has set up a financial intelligence unit, and Qatar has passed a law regulating charities blamed for funneling cash to extremists. Kuwait arrested one of its citizens on the list as he returned from Qatar in August, as well as at least two other financiers, Kuwaiti officials have said.
But Mr. Cohen said the countries are still enabling financiers designated by U.S. and United Nations sanctions. One is believed to use a Twitter account to attract donors for militants, including from within oil-rich Saudi Arabia, he said.
Officials in Kuwait’s embassy in Washington didn’t immediately respond to a request to comment. Qatar’s ambassador to the U.S., Mohammed al-Kuwari, said on Thursday that there have been problems with some Qatari nationals providing funds to extremist groups. But he said the government has never been involved, and is committed to working with the U.S. to cut off the funding.
“We are willing to work more with the U.S. on the issue of counterterrorism and the financing of terrorism,” Mr. Kuwari said. “We think this issue is important for Qatar before anyone else.”
Gen. John Allen, the U.S. envoy in the international campaign against Islamic State, will be among U.S. officials traveling to Kuwait for a meeting of coalition countries next week.
The U.S. and allied countries are hoping local support for Islamic State will slip if the group’s revenue and spending decline or if it is unable to provide basic government services in conquered areas. Iraq’s budget for the regions under Islamic State control is $2 billion, representing far more than the militant group can muster, Mr. Cohen said.
Islamic State, also known as ISIS or ISIL, is believed to have revenue of tens of millions of dollars a month, Mr. Cohen said.
Besides clamping down on illicit financiers, U.S. partners can also do more to stop the payment of ransoms on behalf of foreigners kidnapped by Islamic State, Mr. Cohen said.
“Not everybody is as committed to the no-ransom policy as we are and the British are,” he said. Recent resolutions from the Group of 8 leading industrialized nations and the UN Security Council are expected to help reduce ransom payments.
—Jay Solomon contributed to this article.
