Pakistan: Money for Terror
By: Dr. Sanchita Bhattacharya, Institute of Conflict Management
The World Bank and International Monetary Fund (IMF) broadly defined the term financing of terrorism as "the financial support, in any form, of terrorism or of those who encourage, plan or engage in it.1 The need to track the sources of funding for terrorism was realized as far back as 1986, when the United Nations' General Assembly drafted the first UN Convention against Recruitment, Use, Finance, and Training of Mercenaries. This convention was adopted on 4 December 1989. Furthermore, in 1994 the UN General Assembly called attention to the growing connection between drug traffickers and mercenaries. In light of these resolutions, the International Convention for the Suppression of the Financing of Terrorism was adopted by the UN General Assembly on 9 December 1999. 2
The state of Pakistan has, unfortunately, been at the vortex of various forms of terrorism and insurgent activities for several decades. The country is internally crippled by terrorism and the vast flows of funds to violent extremist groups that operate within its borders, even as the danger from this domestic infrastructure of terrorism percolates to other parts of the region and the world. Pakistan-based terrorist groups use a range of instrumentalities to raise finances, which include, among other things the manipulation of hawala (an informal system of money transfer), abuse of the charitable sector, narco-finance, and abduction for ransom. Raising money from criminal activities has long been a forte of militant organizations in Pakistan, and the Taliban are not loath to utilize these same methods. Ostensibly, such activities in a dar-ul-harb 3 (a war zone) are perceived to be legal under Qur'anic law.4 Worse, Pakistan's state institutions are deeply complicit in a wide range of terror finance operations, prominently including the printing and distribution of counterfeit Indian rupees, as well as long-term involvement in drug running to facilitate the operations of the Taliban in Afghanistan.5 The attitude of Pakistan's government toward terror groups could be described as dualistic. On the one hand, terrorists are criminalized by law; on the other hand, the Pakistani government provides them with both logistical and financial support.6
A River Is Made of Many Small Streams
Terrorism is a syndicate-based activity, requiring huge amounts of financial support. The sustenance and training of cadres in various militant outfits and insurgent groups depend on a steady flow of funding. Moreover, in Pakistan, like in other developing countries, people often take up militant activities as a full-time profession, one that includes a salary structure.
The following section describes in more detail five of the primary means that terrorist groups have of generating funding: hawala, narcotics trafficking, abduction for ransom, charity, and resource exploitation.
The word hawala comes from the Arabic root h-w-l, which has the basic meanings "to change" or "to transform," and is defined as a bill of exchange or a promissory note.7 Hawala is an efficient value transfer system that has endured across unstable regions and throughout many civilizations.8 It is widely believed that the hawala system emerged during the twelfth and thirteenth centuries to facilitate trade along the famous Silk Road.9 Alongside its perfectly legitimate function as an efficient means of remittance, hawala facilitates money laundering in three stages: (1) discreetly introducing criminals' funds into the financial system, (2) manipulating those funds so that they cannot easily be traced and thus appear legitimate, and (3) making the "clean" funds available for further use.73
People have used this traditional informal and often unregulated money transfer system not only in Pakistan, but throughout South Asia. A similar form of money transfer is also associated with ethnic groups from Africa and the rest of Asia.10 According to the Securities and Exchange Commission of Pakistan's website, hawala is an alternative system that operates parallel to traditional banking channels.11 It is distinguished from other remittance systems by the level of trust it entails, and its extensive use of connections such as family relationships or regional affiliations. Transfers of money take place based on communications between members of a network of hawaladars, who function as intermediaries.12 Hawala works by transferring money without actually moving it, requires no bank accounts, and is consummated without leaving a paper trail.
Terrorist groups and criminal gangs have thoroughly infiltrated the hawala system in order to transfer funds for their activities, especially from the Middle East to Pakistan, and to other parts of the Indian subcontinent. Militant organizations in Pakistan have tended to depend heavily on the informal hawala system, thus bypassing governmental scrutiny or accountability.13 One of the most well-established terror cohorts, Lashkar-e-Taiba (LeT) and its front group Jamaat-ud-Dawa (JuD), are infamous for siphoning terror money. The group collects "donations" from overseas Pakistani communities in the Persian Gulf and in countries such as the United Kingdom. Following a post-9/11 crackdown by President Pervez Musharraf to eliminate terror groups, a move the Indian press dismissed as mere "eyewash," the LeT-JuD black money continued to move via the hawala network of Pakistan. Unfortunately, the state's actions in dealing with terror funding remained inadequate.14
Because the banking system is not widespread in Pakistan, hawala fills the gap for both licit and illicit transactions. There are only 26 million bank account holders in Pakistan out of a population of 170 million. Banks are not readily available, particularly in rural areas where most of the population resides, so this population uses hawala for its ease and ubiquity. Hawala is also used for the payment of smuggled goods and for merchants to pay below invoice for imported goods. These transactions evade custom duty, thus depriving the government of revenue from duties and taxes.15
Hawala networks typically do not maintain a large central business office for settling transactions. Instead, a loose association of hawaladars conducts business with each other, typically without any formal or legally binding agreements. Hawaladars often keep few formal records; those that do exist are usually handwritten in idiosyncratic shorthand and are typically destroyed once the transaction is completed. Hawala became particularly important for al Qaeda after the August 1998 East Africa bombings increased worldwide scrutiny of the formal financial system.16 Reportedly, Osama bin Laden turned to an established hawala network operating in Pakistan and Dubai and throughout the Middle East to transfer funds efficiently.17
The Pakistan-Afghanistan border area, especially Pakistan's border provinces of Khyber Pakhtunkhwa (KP) and the Federally Administered Tribal Areas (FATA), is ethnically contiguous and highly porous, which is to the advantage of the various militant groups that channel funds using hawala networks. The money market at Chowk Yadgar in Peshawar, the capital city of KP, is heavily populated by Afghan hawaladars. Furthermore, the autonomous nature of the region makes it even easier to transfer goods and money with impunity.18
In a March 2012 report citing Executive Order 13,224, the US Department of the Treasury designated two hawala companies working in the border region as Specially Designated Global Terrorists: Haji Khairullah Haji Satar Money Exchange (HKHS) and the Roshan Money Exchange (RMX).19 Both HKHS and RMX have been used by the Taliban to facilitate money transfers. Abdul Satar Abdul Manan and Khairullah Barakzai Khudai Nazar co-own and jointly operate the HKHS throughout Afghanistan, Pakistan, and Dubai, and manage an HKHS branch in the Afghanistan-Pakistan border region. In 2011, a senior Taliban member withdrew hundreds of thousands of dollars from an RMX branch in the Afghanistan-Pakistan border region to distribute to Taliban shadow provincial governors.20
More recently, on 21 August 2014, the United States targeted the financial and leadership networks of the Taliban by officially designating one entity and two individuals as terrorists. The Pakistan-based hawala group Haji Basir and Zarjmil Company (aka Basir Zarjmil Hawala) and its owner Haji Abdul Basir were given this designation for providing financial services or other support to the Taliban in Afghanistan, according to the US Department of the Treasury. The Treasury Department also designated Taliban commander Qari Rahmat for acting for or on behalf of the Taliban, and claimed that the Quetta-based branch of Basir Zarjmil Hawala distributes money to Taliban members in Afghanistan as well.21
Following 9/11, then-Finance Minister of Pakistan Shaukut Aziz, a former executive vice president of Citibank in New York, said that $2 billion to $5 billion moved through the hawala system annually in Pakistan, more than the amount of foreign transfers through the country's banking system.22 Moreover, a 2002 report on financial terrorism noted that government officials in Pakistan also estimated that $7 billion entered the country each year through hawala; the actual volume is likely to be significantly higher.23 In June 2004, the State Bank of Pakistan required all hawaladars to register as authorized foreign exchange dealers and to meet minimum capital requirements.24 Despite the initiative, unlicensed hawaladars still operate illegally in parts of the country (particularly in Peshawar and Karachi), and authorities have taken little action to identify non-registered hawaladars or enforce the regulations prohibiting them. On 22 November 2012, the US Department of the Treasury designated a hawala firm, Rahat Ltd., along with its owner Mohammed Qasim and the manager of its branch in Quetta (the provincial capital of Balochistan), Musa Kalim, as financers and money launderers for the Taliban. The firm has branches in Afghanistan, Pakistan, and Iran, which "have been used by the Taliban to facilitate their illicit financial activities," the Treasury Department disclosed.25 The press release also mentioned, "This includes facilitating millions of dollars of transactions to support the Taliban shadow governor for Helmand Province, UN Security Council 1988-Listed Naim Barich, who was also designated November 15, 2012, pursuant to the Foreign Narcotics Kingpin Designation Act for his extensive narcotics production and distribution activities." 26
The "trust factor" that is such a vital aspect of the hawala system is well exploited by those hawala agents who deal in illicit money transfers. The easy availability and accessibility of these dealers have made Pakistan's hawala network stable and resilient. The situation is further complicated because common people without any links to terrorists also prefer hawala to banks; hawala is quick and avoids the difficult, tedious, and more expensive process of legal remittance.
Narco-finance has been another vital element of terrorist funding. Pakistan, along with Iran and Afghanistan, constitute the Golden Crescent, one of the world's biggest drug-producing regions. 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.27 Because the opium trade remains a major source of financing for the jihad led by the Taliban and al Qaeda in the Afghanistan-Pakistan region, and also for the "holy" cause of defeating the Western "crusaders" and returning Afghanistan to an Islamic government, the struggle itself has been characterized as "narco-jihad." 28
The so-called "golden route" that runs from Afghanistan through Pakistan and into Iran, from where the Golden Crescent's narcotics reach Western markets, has become established as one of the world's most lucrative illicit drug thoroughfares.29 According to the United Nations Office on Drugs and Crime (UNODC) 2013 Report, global trafficking routes and seizure data in Pakistan indicate that the major trafficking routes run from Afghanistan through the western Pakistani provinces of KP and Balochistan into Iran in the west, and south to Pakistan's coastal cities, including the ports of Karachi and Qasim in Sindh Province.30 The Iranian route passes through Balochistan into the northwestern region of Iran, which is inhabited by Kurds (al Qaeda financier Yasin al-Suri is Kurdish), and finally into laboratories in Turkey, where the opium is processed into heroin.31 Of the 11 Afghan provinces bordering Pakistan, only four (Khost, Paktika, Nuristan, and Paktiya) were either declared poppy-free or estimated to have cultivated less than 100 hectares of poppy in 2012. In November 2013, Rehman Malik, Pakistan's former Interior Minister, also confirmed that Pakistan is a major transit route for Afghan opiates: according to him, nearly 160 metric tons of heroin, or 44 percent of total Afghan heroin production, transits through Pakistan's territory. "It is estimated that in 2010, the total number of drug users in Pakistan reached about 8.1 million; they are abusing opium and heroin, including intravenously, and hashish, among other things," Malik said on 12 November 2013.32
Moreover, according to the UNODC, Pakistan itself has over 1,000 hectares of poppy cultivation, concentrated in the restive FATA on the border with Afghanistan. Most Pakistani poppy cultivation apparently takes place in FATA, including its Khyber Agency, Dir, and Bannu, and in non-traditional areas including Orakzai, Kurram, and the North and South Waziristan Agencies, along with KP and Balochistan. Cannabis is also produced in large quantities in the border provinces, although most of the cannabis trafficked in the region originates from Afghanistan and is then processed for distribution in the inaccessible areas of Pakistan's FATA region.33
It has been reported that the opium that goes through Pakistan is carried in from Afghanistan on trucks that are owned by the Pakistani Army's Fauji Foundation, which means the trucks are never checked at the border by customs officers.34
The narcotics trade through Pakistan has principally been used for funding terrorism. General Muhammad Zia-ul-Haq, who ruled Pakistan under a military junta from 1978 to 1988, encouraged the cultivation of poppy and cannabis during his regime to finance terrorist activities in India. General Zia's support for the cultivation of narcotic crops gave a new dimension to both international drug trafficking and terrorism in India, but in the process he failed to anticipate its repercussions on Pakistan. Heroin addiction spread like an epidemic during his martial administration, while drug traffickers operated freely and within a short span of time, had organized themselves into syndicates along the same lines as the Latin American drug cartels. Pakistani political figures such as Lieutenant General Fazle Haque, Haji Iqbal Beg, Sohail But, Shaukat Ali Bhatti, and Malik Waris Khan Afridi, among others, gained notoriety and political importance thanks to funds generated by narcotics trafficking.35 Eventually, drug mafias established contacts within the government at both the political and administrative levels.36
The Regional Ministerial Conference on Counter-Narcotics, held in Islamabad in November 2012, noted that the government needed to do more to explore and address the link between illicit drug production, trafficking and terrorist financing. The Conference participants also agreed on the need to strengthen international cooperation concerning possible links between illicit drug trafficking, illicit production of narcotic drugs, and drug-related financing of terrorism.
In a way, Pakistan serves as the nerve center of the Afghan heroin networks, a key node in the trafficking of opiates from production to markets in Europe, Asia, and the Americas. For strategic reasons, Pakistan has long considered Afghanistan to be its "backyard," a regressive mindset that has caused harm to Pakistan itself as it becomes both the primary transit route and a destination for Afghan narcotics. Crafting a workable response to Afghan heroin requires significant counter-narcotics and governance capacity-building within Pakistan, as well as in Afghanistan.37
Abduction for Ransom
Abduction for ransom is an important tactic used by various terrorist groups for the dual purposes of generating money and spreading terror. In the volatile atmosphere of contemporary Pakistan, abduction for ransom has achieved a significant level of notoriety and is affecting not only common people but also the country's elites. The actual abductions are often outsourced to criminal gangs that supply arms and money to terrorist groups in both Pakistan and Afghanistan. Prominent terror groups like the Haqqani network, Quetta Shura Taliban, Tehreek-e-Taliban Pakistan (TTP), Tawheedul Islam (a pro-government militia), and Baloch insurgents and other armed gangs are very much involved in abduction and ransom to fund their activities.
Between 2000 and 2010, official data showed a 153 percent increase in kidnaping/abduction. Police in Balochistan reported that kidnapping for ransom (many incidents of which are never reported to the police) was a growing problem in the province. The cause is a complex mix of profit-seeking, rivalry between groups engaged in smuggling, and fundraising for terrorist activities. Reports indicate that all of Pakistan's provinces are now under attack from armed abductors, with women and children being the easiest targets, along with foreigners and members of the Shi'a minority. Data collated from Criminal Statistics of Sindh Province suggest that, between 2003 and 2012, a total of 12,311 cases of "kidnapping for abduction" and 933 cases of "kidnapping for ransom" were recorded in the province.38 The lack of official sincerity about dealing with the problem is evident in the fact that, apart from Sindh, no chronological data regarding abduction in other Pakistani provinces are available on the official websites of the respective provincial police.39
Pakistani police estimate that kidnaping is now the single largest source of revenue for the Taliban factions located in Pakistan. The Taliban's main targets are wealthy businessmen, aid workers, and journalists.40 A report from the Canadian-based insurance brokerage Burns and Wilcox titled Kidnap and Ransom: Global Overview suggests that the risk is high for businessmen, corporate executives, wealthy people (and their families), foreigners, aid workers (especially in health services), and diplomats. Moreover, cases of extortion have spread, mainly in Karachi, Lahore, Islamabad, and other major cities of Punjab and Sindh Provinces, but also in high-risk areas with militant activity such as Peshawar in KP, Quetta in Balochistan, and the FATA.41
Apart from the above-mentioned high-risk groups, certain religious minorities—especially Shi'as and Ahmadis—also face the brunt of abduction. In one such incident, in November 2013, TTP's local militants in Faisalabad had allegedly been assigned the task of kidnapping members of the Shi'a and Ahmadi communities to ransom for fundraising. The five alleged TTP terrorists—Usman Ghani alias Talha of Jameel Town, Ghulam Mohammadabad, Ali Azam alias Farooq of Razabad, Mubashar Nadeem alias Bao of Chak Jhumra, Usman of Lahore, and Shahzad Ali of Gurunanakpura—were captured by police and presented to the media at a press conference on 5 November 2013. Media sources said the plan to kidnap members of the two communities was approved after an "edict" in favor of such kidnappings for ransom was issued by an unidentified cleric. According to the sources, the militants told their investigators that they would raise funds for terrorist activities by looting the houses of Shi'a community members and stealing phone company cables. They also confessed that they would send a part of their ill-gotten money to their group leader, Qari Imran, in Miranshah, North Waziristan.42
Kidnapping is a centuries-old scourge in parts of Pakistan, from the tribesmen who snatched British colonists in the nineteenth century to the slum gangs that have preyed on Karachi business families since the 1980s. Moreover, the Pakistani Taliban are unapologetic. "We are targeting foreigners in reaction to government demands that we expel the foreign mujahedeen," said the deputy leader of the Pakistani Taliban, Waliur-Rehman, during an interview at his North Waziristan stronghold. Ransom demands typically range between $500,000 and $2.2 million, although the final price is often one-tenth of the initial asking amount. The kidnappers' methods are sophisticated: surveillance of targets that can last for months; sedative injections to subdue victims after abduction; video demands via Skype; and the use of different gangs, who often operate with little knowledge of one another, for different tasks.43
In a country where the government itself has not been successful in dealing with terrorist organizations and their illegal activities, abduction seems to be the easiest way to generate "fast money." In the atypical domestic atmosphere of Pakistan, militants enjoy legal impunity to a large extent. Moreover, abduction threats or actual abduction do not leave much scope for the victims but to pay the ransom amount, out of either fear or compulsion.
Zakat, Ushr, Fitrana, and Charitable Organizations
Islam as a religion emphasizes charity, community, and a humane element through various activities. The egalitarian outlook of the religion also encourages prosperous members of society to donate a portion of their riches for the benefit of the deprived. Unfortunately, like other tenets of Islam, however, the virtue of charity has been widely exploited, and the common people of Pakistan are often misled into donating to militant organizations like LeT and JuD that hide behind religious piety. Terrorist groups in Pakistan even use Eid (religious festivals) to connect with people and take advantage of their religious sentiment. Government authorities make little or no effort to stop such transactions, despite the fact that donations to terrorists are officially banned.44
Harkat-ul-Mujahedeen, led by Maulana Fazlur Rehman Khalil, and Jammat-ul-Furqan, led by Maulana Abdullah Shah Mazhar, two banned militant outfits linked to the TTP and al Qaeda, have set themselves up as charities under the new names Ansar-ul-Umma and Tehreek-e-Ghalba Islam, as an easy way to get more funds.45 These organizations take advantage of the generosity of Pakistani Muslims, who annually contribute billions of rupees as part of zakat (an Islamic tithe) and fitrana/fitra, a gift of food or money paid on Eid-al-Fitr, the festival that marks the end of Ramadan.46 The funds are utilized for dawa (preaching), khidmat-e-khalq (provision of social services), and jihad, including recruitment and training, and the procurement of equipment and weapons.
Like al Qaeda and the Taliban, JuD has used social media to collect funds.47 In June 2012, for instance, JuD sent messages on Twitter and Facebook asking Muslims across the world to donate zakat and fitra during Ramadan. JuD also harvests significant revenues from gathering and selling the hides of animals slaughtered during the holy festival of Eid al-Adha. In November 2010, Yahya Mujahid, the spokesperson for JuD, conceded that, under the banner of the LeT-affiliated NGO Falah-i-Insaniat Foundation (FIF), JuD had set up seven camps for collecting the hides of sacrificial animals in Islamabad and ten such camps in the adjacent city of Rawalpindi (both in Punjab Province).
The problem with Pakistan's counterterrorism practices lies in the fact that Pakistan's government can appear duplicitous when it comes to controlling terrorists. The Pakistan Muslim League–led Punjab state government continues to provide financial support to JuD for "welfare" activities; the state budget for the fiscal year (FY) 2013–14 included a grant-in-aid of 61.35 million Pakistani rupees (PKR) (a little over $600,000) for the administration of the group's training camp, Markaz-e-Taiba. The budget also included an allocation of PKR 350 million for a students' knowledge park at Muridkey and various other development initiatives across Punjab.48 Earlier, in FY 2009–10, the Pakistani federal government provided more than PKR 80.2 million for the administration of JuD facilities. In FY 2010–11, two separate grants of PKR 79.8 million were given to six organizations at Markaz-e-Taiba, and a special grant-in-aid of PKR 3 million was awarded to JuD's Al-Dawa School system in seven districts of Punjab. In addition to these funding streams, JuD's "Farmers and Labor" wing is responsible for the collection of ushr (an Islamic land tax).49
While the state collects zakat under the 1980 Zakat and Ushr Ordinance, and other benign charities are working in the field, there is strong evidence to suggest that proscribed militant outfits set up religious charities and manipulate information about their true identity to collect zakat throughout Pakistan. The realization that there is a potential for terror financing via zakat is the main reason that, in 2012, the Interior Ministry of Pakistan began requiring social welfare organizations collecting zakat to formally apply for state permission before beginning any fund-raising activity.50
Moreover, militants do not seem loath to exploit natural calamities to generate funds for themselves. Militant-linked charities often enjoy a spike in donations after natural disasters. Following the 2005 earthquake in Kashmir and KP, the Taliban-linked Al-Rasheed Trust (ART) reportedly raised $10.1 million in five months, while Al-Rehmat Trust, a charity associated with Jaish-e-Mohammed (JeM), raised $6.4 million according to a 2009 report on funding of Pakistani militant organizations published by the Islamabad-based Pak Institute for Peace Studies.51
Fundraising in the garb of charitable trusts is another principal source of money for terror outfits. For instance, one notorious trust, Al Akhtar, an offshoot of the terrorist group JeM, has been designated by the US Treasury Department as a Foreign Terrorist Organization (FTO) since 2003 and by the UN since 2005. Moreover, Al Akhtar Trust has been operating under a multiplicity of other identities, including the Pakistan Relief Foundation, Pakistani Relief Foundation, Azmat-e-Pakistan Trust, and Azmat Pakistan Trust. Saud Memon, a financier of Al Akhtar Trust, was found to be involved in the kidnaping and murder of Wall Street Journal reporter Daniel Pearl.52 Al Rasheed Trust (ART) also deserves mention in this context; it was listed by the US Treasury Department as an FTO on 23 September 2001 and by the UN on 6 October 2001. ART was known to be supporting jihadi activities in Chechnya, Kosovo, Afghanistan, and the Indian state of Jammu and Kashmir under the leadership of Mufti Mohammad Rashid. It also worked under the identities of Al Amin Welfare Trust, Al Amin Trust, Al Ameen Trust, and Al Madina Trust. ART was further linked to LeT, JeM, al Qaeda, and Lashkar-e-Jhangvi, among others. Later, by the end of 2001, it had merged with Al Akhtar Trust.53
The Saudi angle to such underhanded activities is manifest in the example of Al-Haramain Foundation (Pakistan), a branch of the Saudi Arabia–based Al-Haramain Islamic Foundation founded by Aqeel Abdulaziz Aqeel al-Aqeel. This "charitable organization," which is also associated with Maktab al-Khidamat, an organization financed by Osama bin Laden, was listed by the UN on 26 January 2004 "as being associated with Al-Qaida or the Taliban for ‘participating in financing, planning, facilitating, preparing or perpetrating of acts or activities by, in conjunction with, under the name of, on behalf or in support of' Al-Qaida."54
Other Fundraising Channels
The Taliban are also generating money from the timber trade and gem mining in the Swat area. Large-scale illegal cutting of the region's pine forests began simultaneously with the 2007 Taliban offensive in the area. In addition, Taliban militants have been involved in the widespread logging of the thick pine forests and apple orchards of Malam Jabba, Fatehpur, Miandam, and Lalko, often in collusion with criminal syndicates. Emerald mining and the international sale of gemstones such as pink topaz, peridot, aquamarine, and tourmaline through various channels provide much-needed capital for the Taliban to capture other natural resources in the region. There are also reports that archaeological sites in the area are being looted, with the Taliban likely taking a cut of the proceeds.55
The Pakistani intelligence agency, Inter-Services Intelligence (ISI), runs an Indian currency counterfeiting network that is another source of finance for Pakistan's terrorist networks, and unconfirmed reports suggest ISI operatives are involved in heroin smuggling from Afghanistan through Pakistani seaports.56 The ISI Directorate, which was formed at independence in 1947,received backing from the US Central Intelligence Agency during its anti-Soviet campaigns in Afghanistan following the 1979 invasion.
As a result, the ISI came to control enormous—often unaccounted—financial resources, which it used to execute a range of sustained covert operations, including the creation and support of terrorist groups, across the South Asian neighborhood. Media reports indicate that ISI consists of four "wings": A-Wing directs analysis and is the bureaucratic department; T-Wing is the technical section and provides assistance to the other wings; C-Wing conducts counterintelligence; and S-Wing reportedly oversees "external security" and is responsible for the state's sponsorship of various terrorist formations, including al Qaeda, the Taliban, and a number of jihadi groups that specifically target India.57
Legal Measures to Control Terror Financing
Within a short span of three weeks prior to winding up their term in March 2013, both the Senate (upper house) and National Assembly (lower house) of Pakistan's parliament passed Anti-Terrorism (Amendment) Bill 2013, which deals in particular with offenses related to the financing of terrorism. The bill, which the National Assembly passed unanimously on 20 February and a majority in the Senate passed on 5 March, empowers government authorities to take action against elements involved in financing terrorism in the country, and provides for, among other things, the confiscation of properties owned by those involved in such activities. This latest bill is an update of the earlier Anti-Terrorism (Amendment) Bill 2010 introduced in the Senate, which proposed amendments to the existing Anti-Terrorism Act (ATA) 1997. The 2010 bill, however, stayed in the Senate Standing Committee on the Interior, and was reportedly withdrawn in 2012 for reasons that remain unknown.
Clearly, there is an urgent need for a strong law to check terror-finance in Pakistan. ATA 1997 had been engineered against the backdrop of the political situation of the 1990s. After 9/11, however, the situation changed dramatically for the worse. Accordingly, there is a much more urgent need to provide augmented powers to the police and other investigating agencies for the monitoring and surveillance of persons, financial transactions, and money flows in connection with terrorism. The objective of the 2013 bill is to "strengthen the provision concerning the offences of terrorism financing and to provide more effective enforcement measures against such offences."58 It also expands the scope of the definition of money in the context of terrorist finance to include "coins or notes in any currency, postal orders, money orders, bank credits, bank accounts, letter of credit, travellers cheques, bank cheques, bankers' draft in any form, electronic, digital or otherwise and such other kinds of monetary instruments or documents as the Federal Government may by order specify." The definition of property includes "corporal or incorporeal, moveable or immoveable, tangible or intangible and includes shares, securities, bonds and deeds or interest in property of any kind or money." These are all worthwhile measures. In light of the strong anecdotal evidence concerning Pakistan's many financial channels to support terrorism, an empirical investigation has potentially significant and widespread policy implications.59 But so far the bill stays on paper—due to strong opposition, it had not been signed as of this writing and thus isn't being enforced.
The Pakistani state's enduring legacy of harboring and supporting terrorism, however, casts doubt on the efficacy of Anti-Terrorism (Amendment) Bill 2013, even if or when it receives presidential approval. Pakistan's covert policy of sponsoring terrorist formations as instruments of state policy can never be reconciled with any legislation that seeks to curb terrorism. The 2013 bill is, at best, a face-saving device to counter mounting pressure from the international community. Pakistan's geostrategic ambitions will play a decisive role in undermining the efficacy of the provisions of the bill with respect to the control of terrorism financing.
External Pressure on Pakistan
The possibility of UN sanctions on Pakistan for failing to comply with the standards of the Financial Action Task Force (FATF) is likely to have fueled the development of Anti-Terrorism (Amendment) Bill 2013.60 The first concrete step on terrorist financing taken by the UN, in October 1999, was the adoption of UNSCR 1267.61 In this resolution, the UN Security Council called on Afghanistan's Taliban regime to turn over Osama bin Laden without further delay because of his indictment in the United States for the bombings of the US embassies in Kenya and Tanzania in 1998. It also called on all member states to freeze the funds and other financial resources of the Taliban and al Qaeda, and any associated entities and individuals.62
It is apparent that the world's awareness regarding terror finance was amplified as one result of 9/11. At that time, the US government undertook tactical actions to disrupt individual nodes in the terrorist financial network and strategic initiatives to change the environment within which terrorists raise and move their funds.63 Pakistan was first publicly identified by the FATF in February 2008 for deficiencies in its anti–money laundering/counterterrorist financing (AML/CTF) regime.64 In October 2011, the FATF pressed Islamabad to amend ATA 1997 to include the freezing of assets and other stern action on charges of terrorist financing by 12 February 2012. When it missed the deadline, Pakistan was immediately blacklisted by the FATF. Later, in June 2012, the FATF reiterated that laws on terrorism financing and anti–money laundering in Pakistan either did not exist or were ineffective. Furthermore, in October 2012, the FATF included Pakistan in its official Public Statement, underlining continuing deficiencies in Pakistan's AML/CTF regime.65
What Islamabad Has Accomplished
Media reports in October 2012 suggested that a few token steps were taken by the State Bank of Pakistan (SBP) to check possible financing of terrorist activities, and that it had frozen 128 bank accounts and seized over PKR 750 million. Earlier, in 2010, the SBP had developed the Anti-Money Laundering Act,66 which also established a Financial Monitoring Unit to monitor suspicious financial transactions.67 In keeping with the trend of recent years, on 22 July 2012, authorities imposed a nationwide ban on zakat and fitrana collections by banned organizations during Ramadan. "Any social and welfare organisation willing to collect zakat and fitrana has to apply and acquire permission from the government; otherwise, no one will be allowed to indulge in these activities," Rehman Malik, senior advisor to Prime Minister Raja Pervaiz Ashraf for internal affairs, said on the day the ban was announced.68
To provide an ownership structure in Pakistan for remittance facilitation, SBP, the Ministry of Finance, and the Ministry of Overseas Pakistanis launched a joint initiative called the Pakistan Remittance Initiative (PRI) in April 2009. The goal of this initiative was to both facilitate and support the efficient flow of remittances and help to provide investment opportunities in Pakistan for overseas Pakistanis.69 So far, unfortunately, the initiative has not been very effective at undercutting informal financial networks. Earlier, according to the International Narcotics Control Strategy Report, Vol. 2, SBP and Pakistan's customs agency had set up jointly staffed counters at international airports to monitor the transportation of foreign currency.70 In furtherance of the "official commitment" of 2007, Pakistani authorities made a number of significant cash seizures at the international airports in Karachi (the provincial capital of Sindh), Lahore (the provincial capital of Punjab), and Peshawar (the provincial capital of KP), as well as at various land border crossings.
The latest UN Human Development Index puts Pakistan in the Low Human Development range, with a ranking of 146 out of 187 countries.71 This should come as no surprise given the situation in Pakistan, where the majority of resources and finances go to either the accounts of the country's elites or the coffers of terror groups. As a result, the rest of the country languishes in a vicious cycle of never-ending poverty and deprivation, while the vast resources at the disposal of insurgents and militants are used against the people themselves. In the end, the country is suffering from a man-made epidemic of violence and hatred, fueled by the various channels of illegal finance.
What is more, Pakistan's inability to control terrorist activities within its borders damages its international reputation. The world's leading financial standards body, the FATF, declared in June 2013 that Pakistan and 11 other countries have failed to make sufficient progress in preventing money laundering and terrorist financing.72 This complex web of illegal financial transactions needs to be taken seriously. Pakistan must restrict and disown regional terror activities—the country itself is internally crippled, and its people are among the worst victims of terrorist violence. It may be that, in terms of regulating terror, Pakistan has reached a point of no return where violent extremists can simply outshout the few remaining voices of reason.
About the Author(s): Dr. Sanchita Bhattacharya is a research associate with the Institute for Conflict Management in New Delhi, India.
Copyright 2014, Sanchita Bhattacharya. The US federal government is granted for itself and others acting on its behalf in perpetuity a paid-up, nonexclusive, irrevocable worldwide license in this work to reproduce, prepare derivative works, distribute copies to the public, and perform publicly and display publicly, by or on behalf of the US federal government. All other rights are reserved by the copyright owner(s). Foreign copyrights may apply.
- Sener Dalyan, "Combating the Financing of Terrorism: Rethinking Strategies for Success," Defence Against Terrorism Review 1, no. 1 (2008): 137–53.
- Kshitij Praba, "Narco-Terrorism and India's Security," n.d.: http://www.idsa-india.org/an-jan-6-01html.html
- Sheikh Wahbeh al-Zuhili, "Islam and International Law," International Review of the Red Cross 87, no. 858 (June 2005): 269–83: http://www.icrc.org/eng/assets/files/other/irrc_858_zuhili.pdf . It is common among Muslim legal scholars to divide the world into two abodes: the abode of Islam (dar al-islam) and that of war (dar al-harb); some scholars add a third one, the abode of covenant (dar al-`ahd or dar as-sulh).
- Syed Manzar Abbas Zaidi, "Understanding the Appeal of the Taliban in Pakistan," Journal of Strategic Security 3, no. 3 (Fall 2010): 1–14.
- Sanchita Bhattacharya, "Pakistan: Terror-Finance Inc.," South Asia Intelligence Review 11, no. 38 (25 March 2013): http://www.satp.org/satporgtp/sair/Archives/sair11/11_38.htm#assessment2
- Sanchita Bhattacharya, "Can Pakistan Stop Its People Funding Terrorism?" East Asia Forum, 16 November 2013: http://www.eastasiaforum.org/2013/11/16/can-pakistan-stop-its-people-funding-terrorism/
- Patrick M. Jost and Harjit Singh Sandhu, The Hawala Alternative Remittance System and Its Role in Money Laundering (Vienna, Va.: US Department of the Treasury, Financial Crimes Enforcement Network, n.d.): http://www.treasury.gov/resource-center/terrorist-illicit-finance/documents/fincen-hawala-rpt.pdf
- Abdulrahman Al-Khalifa, "The Use of Hawala as a Remittance System," n.d.: http://traccc.gmu.edu/pdfs/student_research/Hawala_AR.pdf . This system has developed and spread among different cultures: fei-ch'ien in China, padala in the Philippines, hui kuan in Hong Kong, and hundi in India.
- "Unambiguous: What is Hawala/Hundi," Express Tribune, 24 October 2012: http://tribune.com.pk/story/456079/unambiguous-what-is-hawalahundi/
- See the Securities and Exchange Commission of Pakistan's website: http://www.secp.gov.pk
- In its most basic form, hawala works thusly: A Pakistani migrant worker wants to remit money to his family at home as cheaply and quickly as possible. He goes to a hawaladar (A) and gives him $500 and a password of some kind, or other instructions according to how well they know one another. Hawaladar A contacts hawaladar B in Pakistan and gives him the password. The worker's family goes to B as quickly as that same day and gets $500 worth of rupees. The worker and/or his family pays a small fee for the transaction but no bank or currency exchange fees. The hinge of the transaction is that B must trust A to reimburse him for the money B gave to the family. Thus personal associations and networks are vital to the hawala system. The hawaladars rarely keep any record of transactions, or they destroy them when the transfer is complete. See US Department of State, International Narcotics Control Strategy Report, Vol. 2 (Washington, D.C.: US Department of State): http://www.state.gov/documents/organization/100922.pdf ; and Robert Looney, "Hawala: The Terrorist's Informal Financial Mechanism," Middle East Policy 10, no. 1 (2003): 164–67.
- Zaidi, "Understanding the Appeal of the Taliban."
- Ryan Clarke, Crime-Terror Nexus in South Asia: States, Security, and Non-State Actors (New York: Routledge, 2011), 80.
- Syed Shabib-ul-Hasan and Hina Naz, "Branchless Banking: ‘A Substitute for Hawala System in Pakistan,' " International Journal of Scientific & Engineering Research 3, no. 10 (October 2012): 1–6.
- On 7 August 1998, the American embassies in Nairobi, Kenya, and Dar-es-Salaam, Tanzania, were attacked. In Nairobi, 224 people were killed, including 12 Americans, while approximately 4,650 more were wounded. Ten people were killed in Tanzania, all of whom were Tanzanians employed by the embassy. "Fast Facts: The Embassy Bombings in Kenya and Tanzania," CNN, 6 October 2013: http://edition.cnn.com/2013/10/06/world/africa/africa-embassy-bombings-fast-facts/
- John Roth, Douglas Greenburg, and Serena Wille, Monograph on Terrorist Financing: Staff Report to the Commission (Washington, D.C.: National Commission on Terrorist Attacks Upon the United States, 2004): http://counterterrorismblog.org/upload/2008/09/911_TerrFin_Monograph.pdf
- Edwina A. Thompson, "The Nexus of Drug Trafficking and Hawala in Afghanistan," in Afghanistan's Drug Industry: Structure, Functioning, Dynamics, and Implications for Counter-Narcotics Policy, ed. Doris Buddenberg and William A. Byrd (Vienna: UN Office on Drugs and Crime, 2006): http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/Publications/448813-1164651372704/UNDC_Ch6.pdf
- Exec. Order 13,224, 3 C.F.R. 1,358 (23 September 2001). For a regularly updated list of designees, see the US Department of the Treasury Specially Designated Nationals List: http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx
- "Haji Khairullah Haji Sattar," Afghan Biographies, Who Is Who in Afghanistan, n.d.: http://www.afghan-bios.info/index.php?option=com_afghanbios&id=2644&task=view&total=2896&start=923&Itemid=2
- "U.S. Moves Against Hawala Group," Dawn, 22 August 2014: http://www.dawn.com/news/1126902
- Douglas Frantz, "A Nation Challenged: The Financing; Ancient Secret System Moves Money Globally," New York Times 3 October 2001: http://www.nytimes.com/2001/10/03/world/a-nation-challenged-the-financing-ancient-secret-system-moves-money-globally.html
- Contributions by the Department of the Treasury to the Financial War on Terrorism Fact Sheet (Washington, D.C.: Treasury Department, September 2002): http://www.treasury.gov/press-center/press-releases/Documents/2002910184556291211.pdf
- US Department of State, International Narcotics Control Strategy Report, Vol. 2.
- Bhattacharya, "Pakistan: Terror-Finance Inc."
- Huma Imtiaz, "Countering Terrorism: U.S. Slaps Sanctions on Hawala Company," Express Tribune, 21 November 2012: http://tribune.com.pk/story/469094/countering-terrorism-us-slaps-sanctions-on-hawala-company/
- "Heroin in Pakistan is More Affordable than Food," RT, 16 July 2013: http://rt.com/news/pakistan-afghanistan-drugs-heroin-186/
- Vanda Felbab-Brown, "The Drug Economy in Afghanistan and Pakistan, and Military Conflict in the Region," in Narco-Jihad: Drug Trafficking and Security in Afghanistan and Pakistan, (Seattle: National Bureau of Asian Research, December 2009): http://www.nbr.org/publications/specialreport/pdf/Preview/SR20_preview.pdf
- Bhattacharya, "Pakistan: Terror-Finance Inc."
- Drug Use in Pakistan 2013 Technical Summary Report, (Vienna: UN Office on Drugs and Crime, 2013): http://www.unodc.org/documents/pakistan/2013.03.01ab_Summary_Report_Drug_Use_in_Pakistan_SvdV_v1.pdf
- Syed Saleem Shahzad, "Opium Gold Unites U.S. Friends and Foes," Asia Times, 3 September 2005: http://www.atimes.com/atimes/Central_Asia/GI03Ag01.html
- "Around 70 Pc of Taliban's Income Comes from Drugs: Malik," Dawn, 13 November 2012: http://www.dawn.com/news/763762/around-70-pc-of-talibans-income-comes-from-drugs-malik . In 2010, Pakistan's population was estimated to be 180 million.
- UNODC, Drug Use in Pakistan 2013.
- According to an official record obtained by the author in March 2013 from the Ministry of Narcotics Control, an estimated 551,257 kilograms of heroin were seized in Pakistan over a period of nine years (2003 to 2011), with the obvious caveat that the actual quantities traded through the country are many times that of the volume seized. Currently, however, there are no official government data available to confirm or update these figures.
- Kshitij Prabha, "Narco-Terrorism and Indian's Security," n.d.: http://www.idsa-india.org/an-jan-6-01html.html
- Sanchita Bhattacharya, "Narco Terror: A Thriving Industry of Pakistan," Journal of Counterterrorism & Homeland Security International 20, no. 2 (2014): 26–30.
- Katherine Petrich, "The Drug Trade in Afghanistan and Pakistan: A Confluence of Criminality and Terror," Freedom Observatory, 12 August 2013: http://www.freedomobservatory.org/the-drug-trade-in-afghanistan-and-pakistan-a-confluence-of-criminality-and-terror/
- Bhattacharya, "Pakistan: Terror-Finance Inc."
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- Kidnap and Ransom: Global Overview (Toronto: Burns & Wilcox Canada, n.d.): http://www.burnsandwilcox.ca/uploadedFiles/Channels/Solutions/Products/Kidnap%20and%20Ransom%20Global%20Overview.pdf
- Robert Spencer, "Pakistan: Islamic Jihad Group Planned Kidnap of Shias and Ahmadis for Ransom," Jihad Watch, 15 November 2013: http://www.jihadwatch.org/2013/11/pakistan-islamic-jihad-group-planned-kidnap-of-shias-and-ahmadis-for-ransom
- Declan Walsh, "Taliban Gaining More Resources From Kidnapping," New York Times, 19 February 2012: http://www.nytimes.com/2012/02/20/world/asia/pakistani-taliban-turn-to-kidnapping-to-finance-operations.html?pagewanted=all&_r=0
- "Beginning in the late 1970s, Saudi Arabia and other Gulf countries settled a banking system aimed at promoting and propagation (Dawa) of Islam around the world. In 1974 the OIC summit in Lahore voted to create the inter-governmental Islamic Development Bank (IDB). Based in Jeddah, it became the cornerstone of a new banking system inspired by religious principles. In 1975 the Dubai Islamic Bank—the first modern, non-governmental Islamic bank—was opened. In 1979 Pakistan became the first country to embark on a full Islamization of its banking sector." Jean-Charles Brisard, Terrorism Financing: Roots and Trends of Saudi Terrorism Financing (Paris: JCB Consulting, 2002): http://www.investigativeproject.org/documents/testimony/22.pdf
- "Unlike other terrorist leaders, Osama bin Laden is not a military hero, a religious authority, or an obvious representative of the downtrodden and disillusioned. He is a rich financer. He built al Qaeda's financial network from the foundation of a system originally designed to channel resources to the mujahideen fighting the Soviets. When it was headquartered in Sudan and then Afghanistan, the al-Qaeda terrorist organization provided important financial support to its host state—instead of the other way around." Terrorist Financing (New York: Council on Foreign Relations Press, 2002): http://www.cfr.org/terrorist-financing/terrorist-financing/p5080
- Zia Ur Rehman, "During Ramadan, Pakistani Militants Collect Money for Terrorism," Central Asia Online, 20 July 2012: http://centralasiaonline.com/en_GB/articles/caii/features/pakistan/main/2012/07/20/feature-01
- For more on terrorist groups' use of social media, see "Social Media in Jihad and Counterterrorism," CTX 2, no. 4 (November 2012); and Ali Fisher and Nico Prucha, "The Call-up: The Roots of a Resilient and Persistent Jihadist Presence on Twitter," CTX 4, no. 3 (August 2014): 73–88.
- M. Zulqernain, " Pakistan Defends Allocation of Funds to Jamaat-ud-Dawa," NITI Central, 20 June 2013: http://www.niticentral.com/2013/06/20/pakistan-defends-allocation-of-funds-to-jud-92670.html
- Ushr is enshrined in Shariat and is levied on the "landed" class of a community. In the context of Pakistan, the 1980 Zakat and Ushr Ordinance means that ushr is both a national and a religious tithe.
- Shah Aman Rana, The Economic Causes of Terror: Evidence from Rainfall Variation and Terrorist Attacks in Pakistan, 10 September 2013: http://www.iza.org/conference_files/YSP2013/aman_rana_s9081.pdf . It is too early to say whether the new regulation is having an effect or remains "on paper" only; these organizations continued to collect taxes as recently as 2013.
- Zia Ur Rehman, "Pakistani Policies Cripple Militant Fund-raising," Central Asia Online, 20 August 2012: http://centralasiaonline.com/en_GB/articles/caii/features/pakistan/main/2012/08/20/feature-01 . How much of the funds collected by militant groups actually goes to help victims is unclear.
- Daniel Pearl was kidnapped by an al Qaeda cell in early 2002 while he was living in Pakistan. A videotape of him being beheaded by Khalid Sheikh Mohammed a few weeks later was publicized by the cell. See "Reporter Daniel Pearl is Dead, Killed by His Captors in Pakistan," Wall Street Journal, 24 February 2002: http://online.wsj.com/news/articles/SB1014311357552611480
- Bhattacharya, "Pakistan: Terror-Finance Inc."
- "QE.A.104.04. Al-Haramain Foundation (Pakistan)," UN, n.d.: http://www.un.org/sc/committees/1267/NSQE10404E.shtml
- Animesh Roul, "Gems, Timber and Jiziya: Pakistan's Taliban Harness Resources to Fund Jihad," Terrorism Monitor 7, no. 11 (30 April 2009): 9–11.
- Sanchita Bhattacharya, "JuD: The Dependable Terrorist," South Asia Intelligence Review 13, no. 2 (14 July 2014): http://www.satp.org/satporgtp/sair/Archives/sair13/13_2.htm#assessment1
- Sanchita Bhattacharya, "ISI: Twisted Shadows," South Asia Intelligence Review 11, no. 16 (22 October 2012): http://www.satp.org/satporgtp/sair/Archives/sair11/11_16.htm#assessment1
- The quotes in this paragraph are from "Pakistan: Amendments to Anti-Terrorism Laws," US Library of Congress, n.d.: http://www.loc.gov/lawweb/servlet/lloc_news?disp3_l205403554_text
- Rana, "The Economic Causes of Terror."
- Dalyan, "Combating the Financing of Terrorism." FATF, created by the G-7 in 1989 and comprising 33 member states, aimed to examine the money laundering techniques and trends, review the action which had already been taken at a national or international level, and set out the measures that still needed to be taken to combat money laundering.
- "United Nations Security Council, Security Council Committee Pursuant to Resolutions 1267 (1999) and 1989 (2011) Concerning Al-Qaida and Associated Individuals and Entities," UN, n.d.: http://www.un.org/sc/committees/1267/
- Dalyan, "Combating the Financing of Terrorism."
- "Terrorist Financing."
- Bhattacharya, "Pakistan: Terror-Finance Inc."
- "FATF Public Statement–19 October 2012," Financial Action Task Force (FATF), n.d.: http://www.fatf-gafi.org/countries/n-r/pakistan/documents/fatfpublicstatement-19october2012.html
- "Anti-Money Laundering Act," Boston University Center for Finance, Law, & Policy, n.d.: http://www.bu.edu/bucflp/laws/anti-money-laundering-act/ . Among other provisions, the Act (1) establishes a National Executive Committee to make high-level decisions on anti-money laundering/counterterrorist financing (AML/CTF) matters; (2) establishes a Financial Monitoring Unit to receive and analyze reports of suspicious transactions, assist in investigations, recommend changes to regulations, and generally exercise responsibility for AML/CTF; and (3) provides directions on the investigation, search, and seizure of property.
- FATF Report: The Role of Hawala and Other Similar Service Providers in Money Laundering and Terrorist Financing (Paris: FATF, 2013): http://www.fatf-gafi.org/media/fatf/documents/reports/Role-of-hawala-and-similar-in-ml-tf.pdf
- Rehman, "Pakistani Policies Cripple Militant Fund-raising."
- FATF Report: The Role of Hawala.
- US Department of State, International Narcotics Control Strategy Report, Vol. 2.
- The Rise of the South: Human Progress in a Diverse World (New York: UN Development Programme, 2013): http://hdr.undp.org/sites/default/files/Country-Profiles/PAK.pdf
- "Pakistan scrambles to get off FATF's gray list," Money Jihad, 16 September 2013: http://moneyjihad.wordpress.com/2013/09/16/pakistan-scrambles-to-get-off-fatfs-gray-list/
- Joseph Weatley, "Ancient Banking, Modern Crimes: How Hawala Secretly Transfers the Finances of Criminals and Thwarts Existing Laws," Journal of International Law 26, no. 2 (2005): 347–78.