The Economy Of Terror Financing

The ever-expanding size of the black economy, which is said to have outpaced the sluggish growth of our white economy by a significant margin, serves as the safest and securest sanctuary for terror funds thriving largely on billions in tax evaded resources, Hawala transactions, ransom for kidnappings and drug money and generous contributions from religious charitable activities as well as the incomes from clandestine trading in timber and precious stones. In order to facilitate money transfers from donors, many businesses and banks are used as ‘fronts’, enabling militant organisations to receive money in the name of income transfers.

It is a rare Karachiite who has not suffered a street hold-up. And no businessman, big or small has escaped ‘bhatta’ (extortion). It is a form of protection money that all business enterprises in the city, including hotels, hospitals, construction companies, pay regularly to terror organisations. Agriculturists are legally exempt from paying tax on their incomes despite the fact that the agriculture sector contributes as much as 21% to our white GDP. Many captains of manufacturing sector have also bought barren lands to book their profits from their manufacturing activity as agricultural income to evade taxes on their actual incomes. Most professionals including lawyers, doctors, engineers as well as high end private educational institutions, hotels and hospitals, consultancies and construction activities, etc, also indulge in regular tax evasion with impunity.

Since only about five million or a mere 8.7 per cent of our adult population of 55 million are known to hold bank accounts in Pakistan the financial exclusion of a large majority of our adult population and the expanding sea of black economy have turned into a deadly combination giving rise to a number of avoidable financial crimes, including terror financing.

Terrorism requires huge amounts of finances for sustenance and training of cadres. Moreover, because of rampant poverty in the country the uninitiated are also known to take up militant activity as a full-time job on regular salary. Money is also needed to purchase state of the art communication gadgetries as well as sophisticated weapon systems much superior to what are issued to the police.

Hawala facilitates money laundering with a lot of ease. Under this informal system money is transferred without actually moving it. No banking system or any paperwork is involved in these transactions. Terrorist groups are said to have infiltrated the Hawala system in order to transfer funds for their activities, especially from the Middle East to Pakistan. Militant groups collect “donations” from overseas Pakistani communities in the Persian Gulf and in countries such as the United Kingdom and transfer these to their counterparts in Pakistan through Hawala. Reportedly, Osama bin Laden had turned to an established Hawala network operating in Pakistan and Dubai and throughout the Middle East to transfer funds efficiently. An estimated $2 billion to $7 billion are said to be entering Pakistan annually through this system.

Pakistan, along with Iran and Afghanistan, make up what is known as the Golden Crescent of drugs. Afghanistan produces 90 percent of the global supply of opium, from which heroin is processed, and roughly 40 percent of Afghan opium is smuggled through Pakistan and a large part of its sales proceeds is funnelled to terror financing.

Kidnapping for ransom has been used by terror groups increasingly to generate resources. Between 2001and 2010 incidents of kidnapping reportedly increased by 153 per cent. The ransom demand would reportedly range between $500,000 and over $2 million.

Terror groups are also known to have exploited the virtue of charity to the hilt for their purposes misleading the general public into generously donating for cooked up causes. During disasters like earthquakes and floods, these groups become even more active opening up donation stalls in the name of charity all over the country. Messages are sent through Twitter and Facebook asking Muslims across the world to donate zakat and fitra during Ramazan.

The alleged private Saudi involvement in clandestine transfer of money is borne out by the open connection between Al-Haramain Foundation (Pakistan), and the Saudi Arabia-based Al-Haramain Islamic Foundation. This “charitable organisation,” is said to be also associated with Maktab al-Khidamat, an organisation that was financed by Osama bin Laden.

The Taliban were also reportedly generating money from the timber trade and gem mining during their occupation of the Swat area. There are also reports that archaeological sites in the area had been looted, with the Taliban likely taking a cut of the proceeds.

A US Treasury Department report – Terrorist Financing Risk Assessment, 2015, – notes that the Haqqani Network generates funds by a wide range of sources including businesses and proceeds derived from criminal activities such as smuggling, extortion, and kidnapping for ransom in Afghanistan and Pakistan.

The report further claims that the banned Lashkar-e-Taiba receives the majority of its funds from within Pakistan, including by using its charitable front organisations, Jamaat-ud-Dawa (JUD) and Falah-i-Insaniyat Foundation (FIF), to solicit donations.

LeT generates additional funds from private donations and commercial ventures. The report notes that the group’s two largest financial hauls come from private donations during Ramazan and profits associated with the collection and sale of animal hides during the Eid-ul-Azha, each of which nets the group millions of dollars. However, both JUD and FIF have consistently rejected the allegation that they front for any terror organisation.

In a March 2012 report, the US Department of Treasury designated owners of two Hawala companies working in the border region as Specially Designated Global Terrorists. Both the companies have been used by the Taliban to facilitate money transfers. In 2011, a senior Taliban member withdrew hundreds of thousands of dollars from one branch of one of these companies in the Afghanistan-Pakistan border region to distribute to shadow Taliban provincial governors.

Official efforts on the part of the government to snuff the menace of terror financing have so far been very feeble, mostly adhoc and seemingly tentative. What is more disturbing is that despite it being one of the major points in the National Action Plan, no appropriate internationally developed economic measures have been introduced to curb terror financing which is rooted in what is called white collar crimes.