Terror Financing - Rau's IAS

Terrorism needs financing for recruitment, planning and executing their vicious activities. Countering flow of resources towards terror groups is essential to control terrorism.

External Sources:A major part of funding for terrorism from external sources comes through counterfeit currency, drug trafficking, charities, NGOs, and, finally, because of state sponsorship by Pakistan. Sourcing of funds for terrorism has been accompanied by 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, government has limited control over charities and NGOs. 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.
Religious donations:Primary source of traditional funding in Islam is based on zakat. This is an accepted & legal system of almsgiving. A part of this zakat, finds its way into TF in countries like India.
Charities and Diaspora: Charities have mushroomed in many countries which have a strong radical bent. Some charities, despite being banned internationally, continued with their campaign after 2005 earthquake in POK. These include Jamaat ul-Dawa (JuD), LeT and Hizbul Mujahideen (HM) in Pakistan.
Remittances:Links of former Students Islamic Movement of India (SIMI) & Indian Mujahideen (IM) cadres in India have been established with financiers in the Gulf. Large flow of foreign remittances into Kerala has become a source of concern for agencies.
Counterfeiting of Currency:Counterfeiting of Indian currency not only funds terrorism it is used as a tool by Pakistan to destabilize 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-ul-Jihad al-Islami (HuJI), Khalistan Commando Force (KCF), and Dawood Ibrahim-run operations. High-quality FICN are printed in Pakistan and brought to Bangladesh by air. Thereafter, these were smuggled into India, with bundles of notes being thrown into villages across the border. The same were collected and distributed across the country.
Narco-Finance: Drugs are a major source for TF. Afghanistan has emerged as the hub for global production of opiates. There is evidence of terrorist groups in Pakistan gaining access to proceeds of drug trafficking.
ISI has used this to spread terrorism and fight Pakistan’s proxy war against India. This threat has been exploited in Indian context because of porous borders with states like Nepal. It is further aggravated since many bordering countries, ex. Myanmar, have limited writ on their border areas.
State Sponsorship:Pakistan has employed its intelligence agency, ISI to directly fund terrorist activities in India. This is not only employed as part of proxy war in J&K, as is widely known, but also in North-East. NIA’s interrogation report of David Coleman Headley provides detailed account of state funding by ISI for 26/11 terrorist attacks. ISI uses various sources for funding terrorism to include charities, NGOs, drug trafficking, zakat donations, counterfeit and trading amongst others.
Internal Sources of Terror Funding: Internal sources of TF have a history of illegal finance that is older than external funding. Internal sources have funded earliest militant uprisings. Extortion and illegal taxation continue to remain most important source.
Extortion and Taxation:This is especially relevant for groups in North-East and Maoist-effected areas. It includes extortion from industries and levying taxes on people. Every commercial vehicle pays a fixed amount. Contracts are given to sympathizers of terrorists to ensure a steady flow of funds from government departments.
Funds so collected are used to make payment to cadres, purchase of weapons and ammunition, and running camps and welfare programs to retain support of local people. Terrorist groups have moved large sums of money outside India. This has further been invested in businesses, providing a constant source of revenue. This source is used almost all terror groups including Maoists, Northeast groups, and militants from J&K.
Crime:Sequence of actions associated with crime used to raise funds for terrorism go through a process like extortion to include committing criminal act, moving proceeds and finally using it for terrorism. Some crimes like drug & human trafficking, smuggling, and arms trade are vulnerable in this regard.

Methods employed by NGOs Include

By posing as legitimate entities.
Exploiting legitimate entities as conduits for TF funds.
Conceal or obscure legitimate diversion of funds meant for legal purposes.
Designated Non-Financial Businesses and Professions (DNFBPs):According to Eurasian Group, 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. Lack of regulation can lead to benami deals.

Response to Terror Financing in India

Prevention of Money laundering Act, 2002: PMLA seeks to prevent & control money laundering, confiscate and seize property obtained from 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 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 a member of 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.
Demonetisation is important measure and possibly one which can potentially create necessary conditions for combating the finance of terrorism. However, demonetisation is not a complete and all-encompassing end.

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.