The Islamic State, also known as ISIL or ISIS, has been described by senior U.S. officials as one of the best-funded terrorist organizations. Its wealth has contributed to the group's ability to finance sophisticated military operations across parts of Iraq and Syria. It also seeks to use its revenue to administratively control and govern the territory it has seized. In several respects, the Islamic State presents a unique policy challenge to combating terrorist financing. Its financial strength lies in its ability to secure large amounts of funding from primarily internal sources, its lack of reliance on international sources of funds, and its exploitation of ungoverned spaces and porous borders to move funds with impunity. These characteristics often place the organization's finances beyond the reach of some of the most common counterterrorist financing policy tools. The Islamic State controls a variety of public resources and infrastructure in parts of Iraq and Syria, enabling it to assemble a "diverse financial portfolio." Some of these resources, such as oil and antiquities, can be smuggled and sold for considerable profit. Others—agriculture and energy and water utilities—generate limited revenue and require a significant investment in inputs or technical expertise, but help the group portray itself as exercising the functions of a legitimate government. Activities such as kidnapping for ransom or the looting of state banks in Iraq are profitable in the near-term but not necessarily sustainable. In other cases, IS control over a set of resources is notable not solely for the revenue the group derives from it, but also for the extent to which it limits the ability of the Iraqi and Syrian governments to conduct trade, provide utility services, or feed its citizens. Targeting the Islamic State's finances is one of five core lines of effort to degrade and defeat the terrorist organization. General John Allen, the U.S. Special Presidential Envoy for the Global Coalition to Counter ISIL, stated in early 2015 that the United States cannot defeat ISIL through military efforts alone, and highlighted the need to deprive the group of access to financial resources. U.S. policy to counteract IS financing has concentrated on three primary areas: disrupting the group's main sources of funding, restricting its access to the international financial system, and imposing sanctions on its senior leadership and financial facilitators. The United States also has sought to collaborate with international partners, including through cooperation on financial intelligence collection and analysis. Although military airstrikes on IS-linked oil infrastructure and supply networks have already altered the organization's financial profile, counterterrorist financing policy responses remain nascent. Policymakers continue to grapple with how to develop quick and effective responses to combat IS financing. Some caution that counter-finance tactics may need to be balanced with consideration of the economic harm such actions may inflict on civilian populations in IS-controlled territory. In the absence of alternatives, particularly for key resources such as oil, utilities, and agriculture, efforts to counter IS-financing could damage local economies and services and contribute to an expanding humanitarian crisis in the region. Early international efforts to address IS financing have focused on gathering information and generating a common understanding of the organization's financial capabilities. As part of the international Counter-ISIL Coalition, the United States, Italy, and Saudi Arabia are co-leading the Counter-ISIL Finance Group (CIFG), which met for the first time in March 2015. Several United Nations Security Council Resolutions have authorized international action against IS financing, most recently in resolution 2199 (2015), and, in an initiative co-led by the United States and Turkey, the Financial Action Task Force issued a report in February 2015 that describes IS financing typologies. U.S. officials have sought to reduce expectations regarding the pace of efforts to combat the sources of IS revenue, emphasizing that counter-IS financing is a work in progress, requires further refinement, and is unlikely to result in immediate success. To date, the Obama Administration has not requested new authorities from Congress specifically to counter IS financing. As part of broader efforts to evaluate the Administration's counter-IS response, Congress also has an interest specifically in evaluating U.S. efforts to target IS financing and to combat terrorist financing generally. In November 2014, the U.S. House Committee on Financial Services held a hearing on "Terrorist Financing and the Islamic State." More recently, in March 2015, the Committee on Financial Services established a six-month bipartisan "Task Force to Investigate Terrorism Financing" in order to conduct hearings and investigations related to U.S. responses to terrorist financing issues. The Islamic State organization is the successor to Al Qaeda in Iraq (AQI). Established in 2004, AQI pledged loyalty to Al Qaeda and targeted U.S. and coalition forces in Iraq. In 2006, AQI changed its name to the Islamic State of Iraq (ISI). Following the outbreak of unrest in Syria in 2011, ISI leader Abu Bakr al Baghdadi tasked Muhammad al Jawlani with establishing Al Nusrah Front (ANF) in Syria to fight the Asad government. ISI provided Jawlani with funding, manpower, and guidance, although ANF did not publicly acknowledge its ties to Al Qaeda. In April 2013, Baghdadi unilaterally announced a merger of ISI and ANF, under the name Islamic State in Iraq and the Levant (ISIL or ISIS). ANF and Al Qaeda leadership both rejected the merger, and Al Qaeda leader Ayman al Zawahiri ordered Baghdadi to confine his operations to Iraq. Baghdadi refused, and ISI began fighting in Syria under the name ISIL, eventually coming into direct confrontation with ANF and other Syrian opposition forces. In February 2014, Zawahiri publicly severed ties with ISIL, citing the group's brutal tactics, infighting with other Sunni groups, and refusal to cede Syria operations to ANF. In June 2014 Baghdadi declared the establishment of an Islamic caliphate and changed ISIL's name to the Islamic State. Headquartered in the eastern Syrian city of Raqqah, the Islamic State operates primarily in northeastern Syria and northwestern Iraq. Through an extended military campaign against both government and opposition forces, the group gradually gained control over a roughly contiguous area along the Tigris and Euphrates rivers spanning hundreds of miles. In February 2015 congressional testimony, U.S. Director for National Intelligence James Clapper reconfirmed the intelligence community's estimate that the Islamic State can muster "somewhere in the range between 20 and 32,000 fighters" but noted that there has been "substantial attrition" and the group has been turning to conscription in some areas. IS militants in 2014 beheaded three Americans captured in Syria; a fourth U.S. citizen was also killed while held by the group. The Islamic State has encouraged followers to conduct lone-wolf attacks in Europe and the United States. For additional information on the Islamic State and the U.S. response, see CRS Report R43612, The "Islamic State" Crisis and U.S. Policy , by [author name scrubbed] et al. The Islamic State's system of financing is likely shaped by the experiences of the group's predecessor organizations, the Islamic State of Iraq (ISI) and Al Qaeda in Iraq (AQI). Captured battlefield documents and media reports provide the basis for what researchers know about how precursors to the Islamic State were funded. For example, documents describing ISI operations in Sinjar reveal a group that was reliant on incoming foreign fighters for funds, internal transfers from other areas under ISI's control, local donations, and conflict loot. Other areas under ISI's control were reportedly funded through oil revenue, agricultural production, ransom payments, and external donors. Based on other captured financial records, a RAND study analyzed the finances of AQI in Anbar province during the group's peak power and influence in 2005 and 2006. The RAND study concluded that regional financial managers wielded significant autonomy in budgetary decisionmaking. This was due partly to the preponderance of locally sourced revenue streams, including the theft and resale of local high-value goods, such as construction equipment, generators, electrical cables, and cars, as well as extortion. Notably absent from the financial records analyzed by RAND was data to suggest that the group profited primarily from oil smuggling or relied on wealthy foreign donors. The RAND study found that transfers of funds were conducted primarily through cash couriers, rather than the formal financial sector, and that the group was sufficiently profitable to redistribute some its wealth to other provinces and to other countries, including possibly to senior Al Qaeda leadership in Pakistan. Yet, the study also found the group to lack substantial cash reserves and thus to be dependent on consistent cash flows in order to keep pace with outlays for daily operations, particularly salaries. Another battlefield document captured in 2008 appears to highlight the centrality of effective financial management for AQI's operations. In this document, ISI fighters compiled a list of lessons learned, based on what they perceived as Al Qaeda's failures in Iraq. Among them was a critique of its use of financial resources, describing a failure to distribute funding among local cells effectively and the lack of a regular funding source, particularly a foreign state sponsor. U.S. and Iraqi forces to date have captured a limited number of internal Islamic State documents, which have not been publicly released. In June 2014, Iraqi special forces recovered a trove of documents on memory sticks and hard drives during a raid that killed Abdul Rahman al Bilawi, the Islamic State's military chief of staff for Iraqi territory. Some media outlets were permitted to review a selection of the material, which reportedly included details of the group's leadership structure as well as expenditure lists. According to congressional testimony by Patrick Johnston of the RAND Corporation in late 2014, the key difference between the financial activities of the Islamic State's predecessors and its current financial profile is not the types of revenue sources, but the scale of activities.