111 510 510 libonline@riphah.edu.pk Contact

Combating financing of terrorism – II

Appraisal of global and domestic initiatives: Since the tragic event of September 11, 2001, the United States and its allies have been engaged in what they call ‘war on terror’ (sic) – pointlessly and unsuccessfully. After nearly 13 years of military warfare, spending trillions of dollars, they are now seeking “political settlement” with the Taliban and exit from war as quickly as possible. It is paradoxical that after making tall claims of uprooting the causes of terrorism, United States and its allies are finally bowing before forces of “terrorism and obscurantism” that want to impose their way of life and ideology on others by using force rather than through democratic and legal means.

All the States are obliged – under international and domestic laws – to counter terrorism and protect the people from militants who forcefully want to impose their ideology on them. In view of this, the political dialogue and settlement with the terrorists should be within the four corners of law.

In the aftermath of 9/11, United States and its allies’ military actions against innocent civilians are as condemnable as are the terrorists’ unabated shameful attacks all over the world – both violating international laws and posing serious threat to the world peace. Critics say that war against al Qaeda and the Taliban – (enjoying networking with many criminal groups) having hubs in Afghanistan, Pakistan and elsewhere – by the United States and its allies, is tainted with geo-political motives and no serious effort has been made till today to attack their financial lifeline. These networks in the name of religion are minting enormous money, even if it comes from organised crime. This aspect remains inadequately investigated by domestic and international intelligence agencies. Since terrorist groups have not been uprooted financially, they are wining more and more ‘sympathisers’ all over the world with money power. Strangely, their main targets are not only the United States and Western countries – for their obvious participation in ‘war on terror’ – but also Pakistan, India and Iran – even financially and militarily strong China.

The fundamental questions in fight against terrorism and its financing are:

—- Where do these terrorists get so much money from?

—- Why are the governments not serious in cracking down on unlawful transfer of funds?

—- If banking channels are used, then why the remitters and recipients cannot be traced?

—- If hawala and hundi systems are used for unlawful cross border transfer of funds, why persons engaged in these unlawful activities are not arrested and punished?

—- Who are financing these terrorist networks?

—- Who provides these terrorists with sophisticated arms and military training?

It is a well-established fact that the terrorist networks get millions of dollars every year from various sources using cover up entities, and millions are transferred outside. Professor James Petras in Enormous by Any Measure reveals that “Washington and the mass media have portrayed the US as being in the forefront of the struggle against narco trafficking, drug laundering and political corruption: the image is of clean white hands fighting dirty money. The truth is exactly the opposite. US banks have developed a highly elaborate set of policies for transferring illicit funds to the US, investing those funds in legitimate businesses or US government bonds and legitimating them. The US Congress has held numerous hearings, provided detailed exposés of the illicit practices of the banks, passed several laws and called for stiffer enforcement by any number of public regulators and private bankers. Yet the biggest banks continue their practices, the sum of dirty money grows exponentially, because both the State and the banks have neither the will nor the interest to put an end to the practices that provide high profits and buttress an otherwise fragile empire”.

The stance of the US government is just the opposite. It claims to be committed to taking strict action against illicit money and terrorists. The President of USA signed Executive Order 13224 on September 23, 2001 which gives the US Government a tool to impede terrorist funding. The official website of United States says “it is a part of our national commitment to lead the international effort to bring a halt to the evil of terrorist activity”. The website further claims: “In general terms, the Order provides a means by which to disrupt the financial support network for terrorists and terrorist organisations by authorising the US government to designate and block the assets of foreign individuals and entities that commit, or pose a significant risk of committing acts of terrorism. In addition, because of the pervasiveness and expansiveness of the financial foundations of foreign terrorists, the Order authorises the US government to block the assets of individuals and entities that provide support, services, or assistance to, or otherwise associated with, terrorists and terrorist organisations designated under the Order, as well as their subsidiaries, front organisations, agents, and associates.”

The United Nations Office on Drugs and Crime in its report has claimed that terrorists and criminals have laundered around $2.6 trillion or 3% of global GDP in 2011 alone. The UN report warns that “once illegal money has entered the global and financial markets, it becomes much harder to trace its origins, and the laundering of ill-gotten gains may perpetuate a cycle of crime.

The United Nations, from the very start in the fight against money laundering at the international level, has played an active role to promote the harmonisation of countermeasures and the strengthening of international co-operation. It has taken multiple initiatives to counter money laundering and financing of terrorism.

These initiatives can be summarised below:

1. The United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, adopted in December 1988 in Vienna, was the first international instrument to address the issue of proceeds of crime, and to require States to establish money laundering as a criminal offence.

2. The United Nations Convention against Transnational Organised Crime was opened for signature in December 2000. The scope of money laundering under the terms of the Convention includes proceeds derived from all serious crimes. The Convention urges State Parties to cooperate with one another in the detection, investigation and prosecution of money laundering. Parties are obliged to reinforce requirements for customer identification, record-keeping and the reporting of suspicious transaction. Parties are also recommended to set up financial intelligence units to collect, analyse and disseminate information. Further to the events of September 11, 2001, UN member States underlined the links between terrorism, transnational organised crime, the international drug trade and money laundering, and called on the States that had not done so to become parties to the relevant international conventions, including the 1999 International Convention for the Suppression of the Financing of Terrorism.

3. The UN Security Council adopted resolution 1373 (2001) through which it established the Counter-Terrorism Committee (CTC); which is mandated to monitor the implementation of the resolution urging States to prevent and suppress the financing of terrorist acts. In order to comply with the terms of the resolution, many States have been using preventive and criminal anti-money laundering measures to combat the financing of terrorism.

It is an admitted fact that despite the above initiatives by the United States, United Nations and many other countries, terrorist networks and their financial support is increasing. This calls for a critical review to identify the factors behind this failure. Laws, both domestic and international, are in vogue but the issue is that of enforcement, and co-ordination between governments and law enforcement agencies. The political and economic interests of various states make it difficult for laws to be implemented in letter and spirit. Western economies are thriving on flight of capital from the developing countries – especially money transferred by corrupt rulers and businessmen. Off-shore centres are hubs of dirty money. In the face of these realities, the governments in the West and their media present one side of the story shifting the entire blame of money laundering and financing terrorism to Afghanistan and Pakistan. Since the rulers in these two countries lack transparency in governance, they cannot stand up and tell the truth to the wagers of ‘war on terror’.

PAKISTANI SCENARIO Pakistan is one the worst hit countries by terrorism and money laundering. There is sufficient evidence that militant groups working against the security and stability of the State generate huge funds through organised criminal activities and also get huge “donations” from “sympathisers” in and outside Pakistan. It is an irrefutable fact that certain laws protect illegal money, for example section 5 and 9 of Protection of Economic Reforms Act, 1992 and section 111(4) of the Income Tax Ordinance, 2001. These laws ensure unlimited flow of remittances and dealings in foreign currencies.

A study by State Bank of Pakistan titled ‘The Size of Informal Economy in Pakistan’ estimates that total size of informal economy is around 30% of total economy. It means that annually some 800-900 billion rupees are generated in Pakistan by the parallel (untaxed) economy (informal, though not illegal). Black money, generated through organised criminal activities eg kidnapping for ransom, rent-seeking, smuggling in goods and narcotics trade etc is about Rs 1300 billion that does not appear in the study of SBP but documented in Pakistan: Enigma of Taxation. Another study – Pakistan: Drug-trap to Debt-trap – estimates the total figure of informal economy at US $95 billion.

In the presence of so-called “protective” (sic) economic laws cited above, the provisions of Anti-Money Laundering Act of 2010 have rarely been invoked. In fact, this has become a dormant law. The banks are not reporting any suspicious transactions under section 7 of Anti-Money Laundering Act, 2010 or section 67 of Control of Narcotics Substance Act of 1997. This shows the slackness of institutions and agencies responsible for implementing these laws.

It baffles the people that when the presence of monstrous black money is so apparent, why its criminal accumulation and generation is not countered and the offenders remain unpunished? They ask whether it is on account of lack of political will, rampant corruption, ineffectiveness of law enforcement agencies, or defective laws. Terrorists and money launderers not only use hawala and hundi but exploit legal sanction available under section 111(4) of the Income Tax Ordinance which says that if anybody brings money through normal banking channels, tax authorities cannot pose any question about the “source.” The banks also take cover under section 5 and section 9 of the Protection of Economic Reform Act, 1992 to withhold information from tax authorities.

Besides legal weaknesses pointed out above, during the last 30 years, the National Accountability Bureau (NAB), Federal Investigation Agency (FIA), Anti Narcotics Force (ANF) and Federal Board of Revenue (FBR) have not been able to establish a joint task force to book and prosecute the men and networks involved in money laundering. The NAB, in fact, has been accepting ‘plea bargains’ offered by the corrupt, thereby minting a lot of money as ‘share’ in recovery. This is how we run State agencies on taxpayers’ money – the institutions established for punishing tax cheats, criminals, rent-seekers, drug traffickers and terrorists allow them to get exonerated by paying a few bucks as plea bargain. In the presence of numerous departments and law enforcement agencies, the terrorist networks get on daily basis, millions through hundis and hawalas in addition to extortion money and proceeds of drug-arms deals. Many of them are even getting funds through normal banking channels in benami accounts. The inadequate reporting of such transactions by banks to Financial Monitoring Unit (FMU) established under section 6 of the Anti Money Laundering Act, 2010 is a serious cause for concern. State Bank of Pakistan as a regulator has failed to enforce this law – there should be monetary limit for banks to report all cash transactions as the expression “suspicious transactions” is vague and subjective.

Although Pakistan, under tremendous pressure from outside world, passed Anti Money Laundering Act, 2010, sections 5 and 9 of the Protection of Economic Reforms Act, 1992 and section 111(4) of Income Tax Ordinance, 2001 give free hand to money launderers. It assures them that no question would be asked if they remitted their ill-gotten funds into Pakistan through normal banking channels and surrendered foreign currency to the State Bank in exchange for rupees. The money can then be fearlessly invested in any legal business. For money laundering, one has just to pay a small premium to a money exchanger to fax a remittance. One wonders how such schemes are sponsored when the country is faced with a perpetual challenge of terrorism and money laundering. Besides giving a free hand to terrorist networks, the provisions of Protection of Economic Reforms Act, 1992 and Income Tax Ordinance, 2001, discussed above, are playing havoc with the economy. People keep undeclared and untaxed funds in foreign currency accounts (or in bank lockers) or even at home, but the FBR officials have no jurisdiction to hold an enquiry in respect of the foreign currency accounts. This is the real dilemma faced by Pakistan due to contradictory laws and policies – frequent amnesty schemes – in its fight against terrorism and its funding.

Funds generated through organised crime and money laundering is the real power of terrorists who easily buy weapons, exploit and train the poor for their nefarious activities, corrupt State actors and ultimately undermine the very legitimacy of the government. Pakistan presents a classic study of ‘state within state’ – terrorists and mafias crippling institutions and the society. Pakistan suffered a lot and paid a heavy price in men and material while fighting against terrorism. It has lost thousands of security personnel in the fight against terrorists and militants since 2001. The campaign has also wounded some 10,000 regular and paramilitary troops.

CONCLUSIONS AND RECOMMENDATIONS Militant groups in Afghanistan, Pakistan and elsewhere in the garb of “ideology” are engaged in criminal activities; from smuggling to kidnappings, narco trade to arms deals. They are also fascist in their outlook aspiring to control the entire world by the power of violence – religion is just a ploy to achieve nefarious designs. Terrorism is their main tool to achieve monetary gains. Terrorism, like fascism is a self-destructive ideology. To fight terrorism, it is necessary to understand it. Wishful thinking about military might and invincible air-strike-power will not help to win the war against terrorists – they use religion to conceal their lust for money and social control, otherwise what is the justification for destroying educational institutions? Use of ill-directed force against a few groups without eliminating the main causes leading to “terrorism,” is merely proving to be a self-defeating exercise.

Determined and practical efforts are needed to destroy the financial supply lines of terrorist networks. The strategy to fight terrorism has ignored this most vital aspect and, therefore, the powerful states, with all their military might and economic resources, have failed to win the war started by them in 2001 – they are now yielding before forces of obscurantism – enemies of humanity who take away innocent lives in the name of religion and faith (sic). The so-called powerful nations are also guilty of not providing justice and conforming to the international laws – the use of power by them without any restraint and respect for peace gives an excuse to the terrorists to launch attacks and engage in anti-State activities.

A. DOMESTIC CHALLENGES ON THE LEGAL FRONT Pakistan, like many other countries, faces the dilemma of dealing effectively with informal and formal means of terrorist funding. As discussed above, justice system cannot deliver unless laws are effective and prosecution by the state is prompt and professionally handled. In recent years, the apex court dealt with many cases involving non-production of people booked on charges of terrorism before any court of law. The apex court took serious note of violation of constitutional provisions and directed the concerned agencies to file detailed report about these persons. Similarly, families of victims of terrorist attacks also voice their dissatisfaction that those responsible for killing their dear ones were not brought to justice. Not a single case of busting of financial network financing the terrorists was filed by the government. It shows the level of state’s response in eliminating this menace. The recently-dissolved Parliament during its 5-year tenure did not show seriousness in reviewing the existing anti-terrorism laws. However, just a few days before dissolution, it passed two new laws, The Investigation for Fair Trial Act of 2013 and National Counter Terrorism Authority Act, 2013, aimed at collecting evidence and information against terrorist networks using modern techniques. The Parliament also passed in March and February 2013, the Anti-terrorism (Second Amendment) Act, 2013 and Anti-terrorism (Amendment) Act, 2013 to remove shortcomings pointed out by the Financial Action Task Force (FATF), the global standard setting body for anti-money laundering and combating the financing of terrorism (AML/CFT).

It is worthwhile to mention that many countries passed special laws way back in 2001 to counter terrorist financing. The case in point is Anti-Terrorism Act of 2001 passed on October 17, 2001 by the US Congress. The need for a law relating to espionage, surveillance, wire-tapping, eavesdropping and acquisition of information through modern techniques under judicial and non-judicial oversight and prior sanction for countering money laundering and terrorism was realised way back in 2001 whereas our governments and parliaments delayed it till 2013. This confirms the apathy on the part of our political leadership and administrative bodies in countering financing of terrorism. Enforcement is also a critical issue in Pakistan. In 2011, terrorism charges in 96 out of a total of 609 FIRs registered in 2011 under the Anti Terrorism Act (ATA), 1997, were dropped during investigation for wrongful implication and crimes not fit for prosecution under the ATA.

Pakistan needs to harmonise all commercial laws, especially reconsidering statutes relating to “protection of economic reforms” and bank secrecy. There is an urgent need to establish inter-ministerial task force for fighting terrorism and money laundering and repeal or amend all provisions that are in conflict with achieving this objective.

B. PARADIGM SHIFT IN INTERNATIONAL COOPERATION Laws at the international level and initiatives of the USA and UN in blocking accounts of some outlawed organisations have failed to produce the desired results. More concerted efforts are required to forge effective international co-operation arguing and convincing all states that fighting terrorism and money laundering should be a matter of international morality. Fighting this twin menace, which is a global phenomenon, requires firm rules reflecting a message of unwavering determination, not a matter of accommodation to threats, foreign policy concerns, ideological sympathies, or domestic politics.

At the international level, besides law enforcement and better co-operation amongst member states of UN, humanisation of world societies is essential. This can be an effective tool to eliminate terrorism. Use of force and denial of peoples’ legitimate rights on the contrary is bound to provoke more terrorist acts around the world. The violent incidents in Pakistan, Egypt, Libya, Syria, Bahrain, Iran, India, Afghanistan, Spain, England, Ireland, Iraq, Palestine, Chechnya and elsewhere are self-evident. The use of force or right of pre-emptive strikes is only a short-term solution. In the long run, the governments of the world will have to sit down and chalk out a comprehensive strategy to ensure that miscreants and militants challenging world peace, security and tranquility are dealt with a strong hand – the best way to defeat them is to sever their money and arms supplies.


(The writer, Advocate Supreme Court and member Visiting Faculty at Lahore University of Management Sciences (LUMS), is author of many books

Dr. Ikramul Haq, "Combating financing of terrorism – II," Business recorder. 2013-04-27.
Keywords: Domestic laws , Military actions , War on terror , Narcotic Drugs , Economic interests , Economic laws , Political corruption , Taliban , Terrorism , United States , United Nations , NAB , FBR , FIA , ANF , FMU , ATA