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Islamic State militants are skimming tens of millions of dollars a month from salaries paid to Iraqi government employees in occupied areas such as Mosul, but Baghdad continues to send the cash to maintain local support, the Wall Street Journal reported Monday.

The group is using the money to fund operations, underlining the delicate balancing act U.S. and Iraqi governments face in what they know is a hearts-and-minds campaign against Islamic State ahead of a military operation to retake Mosul, for which U.S. officials are training Iraqi troops.

The U.S. provides Iraq with hundreds of millions of dollars in assistance each year, with some of those funds earmarked for local security forces and counterterrorism operations. It is unclear whether any of those contributions go toward government payrolls, the paper noted.

The Iraqi and U.S. governments have mounted a joint campaign to cut off the group’s revenue sources, including targeting oil fields it has commandeered.

U.S. officials face two bad options, according to the report: If they intervene and try to direct the Iraqi government to stop paying certain employees so as to prevent Islamic State from stealing a portion of the money, they could prevent hundreds of thousands of innocent Iraqis in Mosul from receiving any pay and potentially trigger a humanitarian crisis. But if they don’t intervene, Islamic State could use the revenue to buy weapons and fortify the city against the expected siege by the U.S. and Iraqi militaries this spring.

“No decision has been made one way or another as to how the U.S. should engage on [the seized funds],” a senior administration official told the Journal. “This is something we are concerned about and continue to look into, but this is a matter that the Iraqi government ultimately controls.”

Money couriers leave places like Mosul and go to Kurdistan or other areas to collect government payments for a large group of Iraqi employees who work in such Islamic State-controlled areas, U.S. officials told the Journal.

The courier system is necessary because the Iraqi government has banned money transfers to banks inside Islamic State-controlled territory.

Before Islamic State seized Mosul in June, the city had roughly 2 million people; just half are believed to remain, according to the report. A large number of Mosul residents work in government jobs, including hospitals, schools and state-owned banks.

Islamic State militants ordered many people to continue going to work to prevent the economy from collapsing.

Iraqi officials told officials with the International Monetary Fund at a recent meeting that they were aware Islamic State was skimming funds, but had little choice but to keep paying government employees.

“The general consensus [in the Obama administration] was people can’t starve,” another senior administration official told the Journal. “If people don’t get paid, they won’t be able to buy food and it will be even worse. The alternative is a lot worse.”

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