Terror Funding or Terrorism Finance (TF) is the life blood of terrorism. Financing is required not just to fund specific terrorist operations, but to meet the broader organisational costs of developing and maintaining a terrorist organisation and to create an enabling environment necessary to sustain their activities. Various sources are:
A major part of funding for terrorism from external sources comes through counterfeit currency, drug trafficking, charities, NGOs, and, finally, as a result of state sponsorship by Pakistan. The sourcing of funds for terrorism has also been accompanied by the emergence of religious appeals, coercion, and fears of victimization of Islam.
- NGOs, Charities and Donations: Traditional societies in countries like Saudi Arabia have been supporting traditions and customs which encourage donations. In Pakistan, the government has limited control over charities and NGOs. A similar challenge is faced in countries like Saudi Arabia. TF is generated from NGOs and charities within Pakistan and through its coordinating role in West Asia. Charities, through acts of omission or commission, become a part of this funding effort and money is transferred through international channels to terrorist groups. Funding of charities like Jamaat-ud-Dawa (JuD) in Pakistan is a case in point. Funds from NGOs and charities flow into India through hawala, cash, legal financial routes and trade.
- Zakat: The primary source of traditional funding in Islam is based on zakat. This is an accepted and legal system of almsgiving. A percentage of this element of zakat, finds its way into TF in countries like India.
- Charities and Diaspora: Charities have mushroomed in a number of countries which have a very strong radical component. Some of the charities, despite being banned internationally, continued with their campaign after the 2005 earthquake in Pakistan Occupied Kashmir (POK). These include the Jamaat ud-Dawa (JuD), LeT and Hizbul Mujahideen (HM) in Pakistan. The funding received through charity and NGOs also interlinks with the support for some of the movements amongst the diaspora. The outbreak of the insurgency in J&K , especially during the early 1990s, saw the Jammu and Kashmir Liberation Front (JKLF) receive substantial support from Kashmiri diaspora, from both sides of the LoC. Terrorist groups in the Indian hinterland have also been supported by a large diaspora in West Asian countries, Europe and the US.
- Remittances: Links of former Students Islamic Movement of India (SIMI) and Indian Mujahideen (IM) cadres in India have also been established with financiers in the Gulf. The large flow of foreign remittances into Kerala has also become a source of concern for agencies.
- Counterfeiting of Currency: Counterfeiting of Indian currency not only funds terrorism, but, more importantly, it is used as a tool by Pakistan to destabilize the Indian economy. Fake Indian Currency Notes (FICN) are produced in Pakistan and to a much smaller extent locally in India. FICN is used to fund groups like LeT, Al-Badr, Harkat-ulJihad al-lslami (HuJI), Khalistan Commando Force (KCF), and Dawood Ibrahim-run operations. Highquality FICN are printed in Pakistan and brought to Bangladesh by air. Thereafter, these are smuggled into India, with bundles of notes being thrown into villages across the border. The same are collected and distributed across the country.
- Narco Finance: Drugs are a major source for TF. This involves 3 stages: production, transfer of drugs or its financial proceeds into the country, and its circulation to terrorist groups. Afghanistan has emerged as the hub for the global production of opiates. There is evidence of terrorist groups in Pakistan gaining access to the proceeds of drug trafficking. This has been used by the ISI to spread terrorism and fight Pakistan’s proxy war against India. This threat has been exploited in the Indian context as a result of porous borders with states like Nepal. It is further aggravated since many bordering countries, for example, Myanmar, have limited writ on their border areas. Criminal and terrorist groups from Bangladesh have also exploited drug trade to fund terrorism. In the case of Pakistan, besides criminals, state sponsorship of terrorism leads to exploitation of the lucrative drug trafficking business.
- State Sponsorship: Pakistan has employed its intelligence agency, the ISI to directly fund terrorist activities in India. This is not only employed as part of the proxy war in J&K, as is widely known, but also in the North-East. The NIA’s interrogation report of David Coleman Headley provides detailed account of state funding by the ISI for the 26/11 terrorist attacks. The ISI uses various sources for funding terrorism to include charities, NGOs, drug trafficking, zakat donations, counterfeit and trading amongst others.
The internal sources of TF have a history of illegal finance that is older than external funding. Internal sources have funded the earliest militant uprisings in the country. Extortion and illegal taxation continues to remain the most important source for TF.
- Extortion and illegal Taxation: The biggest source of internal funding for terrorist groups in India remains extortion and illegal taxation. This is especially relevant for groups in the NorthEast and the Maoist-effected areas. It includes extortion from industries in the region and levying taxes on the people, which vary from 20-25 percent in most terrorist effected areas of the NorthEast. Every commercial vehicle pays a fixed amount. Contracts are given to sympathizers of the terrorists to ensure a steady flow of funds from the government departments. The funds so collected are used to make payment to cadres, purchase of weapons and ammunition, and running camps and welfare programmes to retain the support of local people. Some terrorist groups have also moved large sums of money outside India. This has further been invested in businesses, which provide a constant source of revenue. This source is used almost by all terror groups including Maoists, North-East groups, and militants from J&K.
- Crime: The sequence of actions associated with crime used to raise funds for terrorism go through a process similar to extortion to include committing the criminal act, moving the proceeds and finally using it for terrorism. Some crimes like drug and human trafficking, smuggling, and the arms trade are especially vulnerable in this regard.
- NGOs: NGOs sympathetic to particular groups or causes have been under surveillance in the past for assisting terror groups in raising funds. Methods employed by NGOs include:
- (i) By posing as legitimate entities.
- (ii) Exploiting legitimate entities as conduits for TF funds.
- (iii) Conceal or obscure legitimate diversion of funds meant for legal purposes. The lack of effective monitoring of NGOs further enhances the problem. Example: Greenpeace India’s registration was cancelled.
- Designated Non-Financial Businesses and Professions (DNFBPs): DNFBPs according to the Eurasian Group on Combating Money Laundering and the Financing of Terrorism, implies casinos (which also includes internet casinos), real estate agents, dealers in precious stones and metals, lawyers, notaries, other independent legal professionals, and accountants. For example, the real estate sector, unless regulated, can be involved in TF. Transactions in property, through repeated buying and selling, can assist in successfully layering tainted money, which may have an illegal source like terrorism or other criminal activity. The lack of regulation can also lead to benami deals. Government of India enacted The Benami Transactions Prohibition Amendment Act 2016 so as to effectively prohibit the benami deals.
Response to Terror Financing
- Prevention of Money-Laundering Act, 2002 (PMLA):
- The PML act seeks to prevent and control money laundering in India and confiscate and seize property obtained from the laundered money .
- All suspicious transactions are reported in a prescribed format to Financial Intelligence Unit (FIU-IND).
- Enforcement directorate (ED) is empowered to carry out investigation in offences of money laundering.
- It also seeks to coordinate with other countries to curb the menace of money laundering.
- A special Combating Financing of Terrorism (CFT) Cell has been created in the Ministry of Home Affairs in 2011, to coordinate with the Central Intelligence/Enforcement Agencies and the State Law Enforcement Agencies for an integrated approach to tackle the problem of terror funding.
- A Terror Funding and Fake Currency Cell has been set up in the National Investigation Agency to investigate Terror Funding cases.
- Unlawful Activities (Prevention) Act, 1967 has been strengthened by amendments in 2013 which includes enlarging the scope of proceeds of terrorism, any property intended to be used for terrorism, raising of funds both from legitimate or illegitimate sources by a terrorist organization, terrorist gang or by an individual terrorist, and includes within its scope offences by companies, societies or trusts.
- India is a Member of Financial Action Task Force (FATF), an inter-Governmental Body, which makes recommendations relating to Combating of Financing of Terrorism, Money Laundering, etc.
- India is also member of the Eurasian Group on Combating Money Laundering and Financing of terrorism (EAG) and Asia Pacific Group on Money Laundering (APG) which are FATF styled regional bodies.
- India also participates actively in the BIMSTEC Subgroup on Combating the Financing of Terrorism.
- Demonetisation is an important measure and possibly one which can potentially create the necessary conditions for combating the finance of terrorism. However, demonetisation is not a complete and all-encompassing end in itself. It is part of a process which must be taken forward through additional allied and subsidiary policies.
Thus, all the efforts at stopping terror financing aim at preventing terrorists from raising, moving, and using funds, targeted financial sanctions, protecting vulnerable sectors, suspicious transaction reporting, collecting financial information etc.