Demonetization is a body blow, not a death knell for terror funding

The sudden and surprise currency reforms announced early this month to demonetize high value denomination notes of Rs 500 and Rs 1,000 targeted at the hoarding of black money and eliminate the fake notes in circulation is most likely to have a wide reaching impact on the criminal-terrorism nexus. Demonetization will deal a severe body blow to the bad money generated by the underworld, black marketers, criminals, dealers and terrorists, temporarily. But it is not a permanent death knell for terror groups, intelligence officials and counter-terrorism, experts warn.

The top brass of government, from Defense Minister Manohar Parrikar to Minister of Home Affairs Rajnath Singh has been vocal in linking demonetization to hitting the core of financing of terrorism. In his statement to the Lok Sabha, Minister of State for Home Affairs Kiren Rijiju said that insurgent groups in North East, Maoists and terror groups in Kashmir have suffered loses of around Rs 800 crore. The money amassed by the armed groups mostly in cash through extortion, taxation and illicit hawala transfers to sustain their operations, logistics and support their manpower, is now as good as scrap paper. While choking the financial artery of terrorists groups will weaken their capability to some extent, this single step of currency reforms will not eradicate terrorism entirely—which emerges in several complex and ambiguous social, ethnic and national interactions, experts on counter-terrorism say.

"Demonetization has definitely dealt a blow to terrorist groups as their cash reserves stored in bulk is now redundant,'' said Col Vivek Chaddha, author of Lifeblood of Terrorism while adding that one needs to look at the source of funding and not the means. "The move of demonetization will not impact all sources of terror funding. This is not a permanent death blow to terrorism,'' he said.

India is among the top ten countries—it currently ranks eighth in the 2016 Global Terrorism Index -- impacted by terrorism. The report prepared by the Institute for Economics and Peace that ranks countries most affected by terrorism in the world also observes that the nature of terrorism in India is different than in countries like Iraq, Syria, Afghanistan and Pakistan as the groups have `very local goals'. `` Many of the groups are seeking political recognition, with attacks not aimed at killing people.'' The analysis of the terror attacks in India in the report shows no fatalities in 75 per cent of attacks. Terror and insurgent groups are active largely in three theaters of conflict; characterized by Islamist groups in the militancy and the separatist movement in Kashmir, insurgent groups in the northeastern states and Maoist groups. Under section 35 of Unlawful Activities (Prevention) Act, 1967, the government has banned 37 terrorists' groups including global organizations like Islamic State and al Qaeda.

Terror funding sources

The local nature of terrorism in India means financing of terrorism is not on exorbitant scale. It is reported that terror groups use 0.05 per cent roughly accounting to Rs 800 crore of the total money in circulation in India for funding activities. Money generated or sourced by terror groups in India emanate through sources like hawala, fake currency notes from Pakistan for the militant groups and separatist movement in Kashmir, extortion in the North East and taxation in the Maoist infested areas. Terrorists groups like the Dawood Ibrahim network, LeT, Hizbul Mujaheedin, Indian Mujaheedin and the IS inspired modules have also used investment in real estate, NGOs as a front and self-funding to sponsor its activities. According to a November 2015 report on terrorist financing to the G20 leaders on actions taken by the Financial Action Task Force—the inter-governmental body for combating money laundering and terrorist financing-- India has frozen funds amounting to Rs 2.18 crore of banned terror groups.

Despite being a victim of terrorism for decades, India enacted anti-terrorist financing legislations only in 2010 by amending the Prevention of Money Laundering rules. In 2013, Fake Indian Currency Note (FICN) was included in the ambit of UAPA making counterfeiting and its circulation a terrorism related offence. This has allowed National Investigation Agency--set up in 2008 in the aftermath of the brazen 26/11 terror attack and siege in Mumbai—which acts as a Counter Terrorism Law Enforcement Agency to investigate offences related to financing of terrorism.

Since 2009, NIA has investigated 11 cases related to terror funding. Prominent among them include cases against Babar Khalsa International operatives in Canada transferring funds to their counterparts in Punjab through front organizations for distribution to sleeper cells, jailed terrorists and the families of the terrorists, Assam based Dima Halem Daogah (Jewel) for procurement of arms and ammunition with cash involving Rs 1 crore, Ningthoujam Tomba alias N Rajen Singh, the self-styled Finance Secretary and Commander in chief of Manipur based Kanglei Yaol Kanba Lup (KYKL). ``We were able to trace the funding in these cases directly with the leaders and members of the banned terrorist groups. Our investigations led us to evidence in the form of banking transactions, suspicious bank accounts, purchase of property, tax rate sheets for extortion,'' an NIA official who worked in the financial intelligence unit said.

``Terror groups need ready cash for various back operations and logistics support in their day to day use. Hawala transactions are a favored channel as it is prompt and works on trust quotient within a small network. Large funds are transferred without actual movement of money through codes. Similarly, money collected through taxes and extortion is stored in cash. The demonetization move has now majorly affected this operation,'' the officer added.

Terror Funding Operations

Kashmir: The network for funding of the militancy and separatist movement in Kashmir exists and originates from Pakistan, J&K police officials said. In the initial years of militancy, intelligence officials recalled local population who supported the armed movement against India would help with funding. Separatist groups used militancy to garner further support from local population and used the money coming through hawala to recruit cadres and expand their area of influence throughout the valley. In addition to infiltrating militants carrying cash on them, wire transfers, investment in real estate, use of cross-border trade, FICN and financing through front NGOs are the other popular channels of funding in the nearly three decades of conflict in the valley.

Hawala: The hawala network is in place in valley since 1989. It originates from Pakistan via Gulf areas and ends up in Kashmir. Some of the well known cases of hawala transaction include the 1993 case of Ikhwan-ul-Muslimeen where over Rs 30 lakhs were allegedly sent to the chief of the armed group, and a seizure of an estimated Rs 40 lakh in 1997. "Hizbul Mujahideen (HM) used their channels through a carpet company in Dubai to send the money," said a senior J&K police official.

A big sum of cash transactions is reserved for the over ground workers—prized assets of both the militant groups and the security agencies-- support the militants and help them sustain in the valley. "The OGW's provide safe havens for the local and Pakistani militants to stay, food, logistics and strategic information vital for infiltration or cross-border travel of the militants and in planning of terror attacks,'' said an intelligence official elaborating on the expenses made through hawala.

FICN: Officials say in recent years as militancy began to wane down, militants in the Valley don't have much use for cash. Police officials have recovered small amounts of around Rs 20,000-30,000 from dead or arrested militants. Documents accessed by dna reveal cash in hand recovered from militants killed by security forces since the last three years and FICN confiscated to be of in small sums, well under Rs 10 lakhs (see box). FICN is also pumped in the Indian territory through Nepal and Bengal borders. High quality FICN with close visual replication of the original currency is printed in Pakistan, according to a NIA charge sheet. Annually, an estimated Rs 70 crore of FICN is infiltrated by Pakistan as a strategy of economic warfare against India. NIA officials said roughly one third of the FICN in circulation gets seized; the rest gets absorbed in the official banking channels.

According to the annual report of RBI released in August this year, evaluation of currency monitoring indicates that FICN comprises 0.071 per cent of the total currency in circulation: of the total 18 lakh crore currency in circulation, FICN accounts to a mere Rs 400 crore. Demonetization has been successful in winding counterfeiting business of Rs 500 and Rs 1,000 notes. However, networks in Pakistan still have the capability of counterfeiting Rs 100 denomination currency. Of the total FICN detected by the banks in 2015-16, 35 per cent was accounted to Rs 100, according to the Ministry of Finance data.

Maoists: Left Wing Extremism (LWE) spread across 106 districts in ten states is the most active and lethal insurgency in the internal security. Maoist factions and groups have territorial control in tribal and forest areas called as `liberated zones'. These zones have an illegal system of taxation (see box) imposed on organizations, companies, civil contractors and tribals.

Taxation: The illegal taxes collected in cash forms backbone of the funding of Maoist groups, said intelligence officials. ``There is a fixed percentage levied on contractors, mine owners, coal mafia, brick kilns annually or project basis by the Maoists. This cut is received in cash and stored in bulk and is used within the LWE affected areas,'' said a CRPF senior official posted in Chhattisgarh. Intelligence officials estimate the economy for Maoists activity in Chhattisgarh, the worst affected from LWE violence to be approximately Rs 150-Rs 200 crore. ``Maoists are now forcing tribals and big businessmen to get the old high currency notes exchanged and pay the taxes in new Rs 2,000 or Rs 100 notes. There is a flurry of activity to save whatever they can from the old notes,'' a CRPF official said. On November 14, BSF seized unaccounted cash over Rs 5 lakhs in Rs 500 and Rs 1,000 denominations from a man travelling in a bus in Kanker district of Chhattisgarh. Officials believe this money was being taken to exchange in new notes at the behest of Maoist leaders. ``To recover from the blow of demonetization, Maoist groups will put the onus of providing legal currency tender from the tax payers.''

North East: Maximum number of armed insurgent groups is active in the north east region fighting against the Indian state for various ethnic-political demands including secession. Extortion and money from real estate is a bulk of primary funding source of these groups. The porous border to Myanmar and Bangladesh has also facilitated organized crimes of drug trafficking and FICN involving insurgent groups.

Members of scheduled tribe residing in specified areas are exempted under Section 10(26) of the Income Tax Act, 1995, from declaring their income or revenue earned in the areas. ``The insurgent groups are likely to use bank accounts of tribal and proxies for channelizing their bad money,'' said a former police officer from Manipur adding that intelligence, police and IT officials need to be vigilant on suspicious transactions. ``Demonetization can be an opportunity to keep a close watch on the financial activities of armed groups and clampdown at the right time. This can paralyze them for a long time.''

Extortion: Similar to the Maoist groups, insurgent groups in the NE extort a fixed sum from the general public, businessmen, contractors, commercial establishments, shopkeepers and also make kidnappings for ransom. NIA charge sheet on the Assam based Dima Halam Daogah (J) notes that the insurgent group was siphoning through government funds with the help of elected members of council, government officials and contractors to finance their activities. It also found that funds earmarked for the North Cachar Hills Autonomous District Council (NCHAC) were forcefully channeled to fund DHD (J) activities and buying funds, with the later indulging in death threats, intimidation and murder of elected representatives. NIA has also seized documents from terror group KYKL that show tax rates for different organizations confirming extorting in the name of its leader Ninghoujam Tomba.

Banking channels and NGOs: Contrary to the perception that terrorist groups only deal in black money, their leaders have misused banking channels to transfer funds in pursuance of criminal offences. Before his arrest in 2010, leader of banned group KYKL, N Tomba used his bank account in ICICI Guwahati branch to receive funds collected through extortion. NIA chargesheet claims that Tomba used funds from his bank account to purchase a house and vehicle, even issuing demand drafts for purchase of land. Kashmir based militant group Hizbul Mujaheedin too has received Rs 80 crore from a front organization, Jammu Kashmir Affectees Relief Trust (JKART) based in Pakistan. The funds were transferred from Pakistan to the HM cadres and families of dead militants in Kashmir, extensively through banking channels.

(inputs from Azaan Javaid)

Terror funding cases investigated by NIA

Cases: 11
Cash seized: Rs 1.13 crore
Assets seized: 7.5 acres of land, a flat, vehicle and motor bike
Convicted: 19 accused

Cash and FICN recovered from militants in Kashmir

Cash recovered

2014
2015
2016

Indian currency

Rs 2,63,180
Rs 5,20,260
Rs 3,66,000

Pakistan currency

Rs 10
Nil
Rs 4,540

Fake Indian currency

Rs 2,75,500
Rs 1,81,500

Nil

Maoist Taxation

Graphics: Can show a map of India with Kashmir, North East and Maoist areas as active conflict zones. The above boxes can be linked with arrows to these zones.