The murky world of terror financing

The Geneva Centre for Security Policy defined ‘Financial Terrorism’ in 2005: “Contrary to ‘economic warfare’ which is undertaken by states against other states, ‘economic terrorism’ would be undertaken by transnational or non-state actors. This could entail varied, co-ordinated and sophisticated or massive destabilising actions in order to disrupt the economic and financial stability of a state, a group of states or a society (such as market oriented western societies) for ideological or religious motives. These actions, if undertaken, may be violent or not. They could have either immediate effects or carry psychological effects which in turn have economic consequences.”

Economic terrorism may be defined to indicate an attempt at destabilization by a rogue state or a terrorist group. The subversion of a state through financial terrorism is sought to be achieved through ‘destruction, disruption, diversion, waste and portfolio replacement’. Some of the rogue states and terrorist groups have subtly developed and adopted ‘financial terrorism’ as a strategy to subvert nations with the least amount of resources resulting in economic collapse and bleeding of nations and no loss of life to themselves.

Through ‘destruction’ important and strategic assets, including destroying of buildings, bridges, communication links, military assets, human capital (killing people), etc., are destroyed. This results in diversion of available resources of a state, which otherwise can be utilised for developmental projects. In other words resources are diverted from productive to non-productive sectors (for example, increase in expenditure on security forces, on intelligence agencies, etc). The effect of disruption refers to negative effects of terrorism, due to public distrust, including fear of investment in affected areas, like it has happened, in Jammu and Kashmir and in some of the North-Eastern States. Terrorism also has a psychological impact on people in not only discouraging them from investing available funds but may also result in flight of capital.

Some of the recent events including piracy on the high seas by Somali pirates who have been implicated in more than 30 buccaneering incidents since November 2023 in the Gulf of Aden, Guardafui Channel, and Somali Sea have disrupted free movement of ships carrying commercial cargo. In the first three months of 2024, a total of 33 incidents of piracy and armed robbery against ships were recorded in which 24 vessels were boarded, six had attempted attacks, two were hijacked and one was fired upon. Houthi rebels have launched more than 40 attacks on commercial ships in the Red Sea and Gulf of Aden since November. The Houthis are an Iranian-backed rebel group which considers Israel an enemy. They have since launched dozens of missile and drone attacks on commercial ships. Of these, 34 have resulted in reported damage to vessels. Major shipping companies have stopped using the Red Sea - through which almost 15% of global seaborne trade usually passes and are using a much longer route around Southern Africa instead. This has resulted in delays and extra freight costs and increase in the cost of importing or exporting goods, disrupting normal international trade.

K Subrahmanyam, in the Chapter on ‘External security’ in ‘India: Vision 2025’ (Planning Commission, 2003) wrote that the flow of fake currency into India where cash transactions dominate at ground level and black money constitutes significant portion of the economy, the infusion of fake currency enables the adversary to obtain the services of individuals and groups to act against our security interests at a very low cost to itself. Once such conduits are established they are used to push drugs, explosives, weapons and trained terrorists. Fake Indian Currency Notes (FICN) printed in Pakistan are smuggled to India through couriers via Bangkok, Kathmandu and Dhaka Airport. According to reports of Indian Intelligence Agencies, organized criminal syndicates push FICN through China, Malaysia, the UAE, Denmark, Netherlands, Singapore and Sri Lanka.

The Research and Analysis Wing (RA&W), the Intelligence Bureau (IB), and the Directorate of Revenue Intelligence (DRI) informed Parliament Standing Committee on Finance that fake bank notes of mostly Rs 500 and Rs 1,000 (now Rs 2,000) denominations are printed in Pakistan and circulated in India by the ISI through the underworld and terrorist operatives. The Committee was informed the involvement of Pakistan in the manufacture and supply of FICN for financing terrorist activity in India. They were further informed that several terrorists owning allegiance to groups such as Lakshkar-e-Tayyeba (LeT), Al Badr, HuJi, Hizbul Muzahuddin (HM) and the crime syndicate of Dawood Ibrahim, were found carrying fake rupee notes at the time of their arrest.

Some terrorists have confirmed that the Kashmir-based militant groups have been running FICN operations with Pakistan’s connivance. This was revealed by Abdul Karim Tunda, a LeT operative who stated that Pakistan Intelligence Agency, (ISI) runs the entire supply chain of FICNs and gave the names of other persons involved in these operations (The Hindu, August, 21, 2013). He further confessed that he has been moving FICN to fund terrorism in India through his contacts. The Indian Mujahuddin (IM) also raises funds through hawala transactions and circulation of FICNs in the country. IMs India Operations Chief Yasin Bhatkal was arrested by the STF in KolKata in 2009 for carrying fake Indian currency notes (A news report, Aug. 29, 2013).

Conventional warfare involves land, naval and air warfare at different locations across urban areas, industrial hubs, strategic assets, including and not limiting to choking supply chains. Strategies in warfare include using inter-continental ballistic missiles with nuclear war heads as a deterrent. Conventional warfare implies destruction of the enemy’s military and industrial capability, loss of human life, strategic assets, destruction of property and attrition of opposing countries over long periods. It would take years of planning and full mobilisation of a country’s resources in a destructive war using resources which otherwise would be judiciously used for development.

Economic warfare implies adopting economic policies to deprive the enemy’s forces of those resources so that they cannot fight the war properly. In a total war apart from the armed forces of a nation it is necessary to mobilise a nation’s economy towards the war effort. When the economy of an enemy is subverted then it directly damages the enemy’s ability to fight the war.

Some of the rogue states and terrorist groups have subtly developed and adopted ‘financial terrorism’ as a strategy to subvert nations with the least amount of resources resulting in economic collapse and bleeding of nations and no loss of life to themselves. While dealing with such rouge states India has to adopt counter strategies as are required not only to neutralise their plans but hit them hard where it hurts them most.

(Writer is a former DG, DRI, DG-NCB, and

Member, CBIC)