Terrorism Finance Has Aptly Been Termed As the Lifeblood of Terrorism
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Colonel Vivek Chadha (Retd), The lifeblood of terrorism is perhaps the first comprehensive book describing Terrorism finance has aptly served in the army for over 22 how terrorism gets oxygen. It is perceptive and has a wide canvas. It is also been termed as the lifeblood of years, before taking premature an area where the government needs to focus more attention. terrorism. Yet, this remains one of release to pursue research. He – Gopal Pillai the most under researched facets is a Research Fellow at the Former Home Secretary and Distinguished Fellow IDSA of terrorism. This limitation is Institute for Defence Studies even more apparent in the Indian and Analyses (IDSA), New India faces formidable challenges in countering terror finance. Few books context, despite the fact that the Delhi. He has written extensively have been written on India’s efforts in this area. Vivek Chadha’s painstaking, country has faced the scrouge on counterterrorism and systematic and comprehensive book on India’s counter terrorism financing of terrorism and insurgency for counterinsurgency in the Indian efforts has the potential of becoming a reference resource for students, over five decades.Lifeblood of context. His single author books professionals and the strategic community. Terrorism: Countering Terrorism on the subject of terrorism – Dr. Arvind Gupta Finance, is the first book on the include, Low Intensity Conflicts in Deputy NSA and Secretary NSCS subject in an Indian context. India – An Analysis and Company The book contextualises the Commander in Low Intensity concept of terrorism finance to Conflicts. In addition, he has local realities based on distinct contributed a number of chapters peculiarities as related to India. It in edited books, papers in journals documents the sources, transfer and articles for newspapers. He is mechanisms and employment of the co-editor of the annual Asian funds for supporting organisational Strategic Review and is on the structures and acts of terrorism. editorial board of the Journal of The book also analyses two case Defence Studies at IDSA. studies to highlight in detail the methods employed for external and internal funding. The challenges associated with terrorism finance are further related to contributing factors which have aggravated the threat. A SWOT analysis of existing sources, challenges and approach to terrorism finance is employed to suggest a strategy for countering the financing of terrorism. The strategy recommends measures at the policy planning level to curb the threat at the source of terror funding, transfer stage and during distribution of finances. The book further suggests organisational changes to improve the approach to terrorism finance without undertaking major restructuring of the existing setup. INSTITUTE FOR DEFENCE STUDIES & ANALYSES LIFEB LOOD OF TERRORISM LIFEB LOOD OF TERRORISM COUN TERING TERRORISM FINANCE Vivek Chadha © Institute for Defence Studies and Analyses, 2015 First Published, 2015 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the copyright holder. No responsibility for loss caused to any individual or organization acting on or refraining from action as a result of the material in this publication can be accepted by Bloomsbury India or the authors/editors. BLOOMSBURY PUBLISHING INDIA PVT. LTD. London New Delhi New York Sydney ISBN: 978-93-84052-18-8 10 9 8 7 6 5 4 3 2 1 Published by Bloomsbury Publishing India Pvt. Ltd. Vishrut Building, DDA Complex, Building No. 3 Pocket C-6 & 7, Vasant Kunj New Delhi 110 070 Printed at ANVI COMPOSERS, Paschim Vihar, New Delhi Disclaimer: The views expressed in the book are those of the author and do not reflect the views of the Institute, those of the Ministry of Defence or any other organization, unless specifically stated as such. The publisher believes that the contents of this book do not violate any existing copyright/intellectual property of others in any manner whatsoever. However, in case any source has not been duly attributed, the publisher may be notified in writing for necessary action. Contents Acknowledgements ix Introduction 1 Countering the Challenge 3 Relevance of Countering the Financing of Terrorism 7 Contextualising the Argument 10 Shaping the Approach 15 SECTION I: SOURCES AND CHALLENGES OF TERRORISM FINANCE 1. Existing Assessment of the Sources and Linkages Between Terrorism Finance, Money Laundering and Crime 21 Identification 21 Assessment 22 Crime, Money Laundering and Terrorism Finance Nexus 25 2. External Sources of Terrorism Finance 37 NGOs, Charities and Donations 37 Counterfeiting of Currency 44 Narco Finance 50 State Sponsorship 56 Means of Transfer 58 Case Study: Fake Indian Currency Notes 70 Origin of Fake Indian Currency Notes 71 Creation of a National Network 74 Modus Operandi 74 Routes Employed for Transfer of Fake Indian Currency Notes 74 Implications of Conviction 75 3. Internal Sources of Terrorism Finance 76 Extortion and Taxation 76 Crime 82 Non-Governmental Organizations 84 Designated Non Financial Businesses and Professions 87 vi Contents M eans of Transfer 89 Case Study of the United National Liberation Front 91 4. Contributing Factors 96 Identification andE valuation of Threat 96 Corruption 98 Shortage of Manpower 103 Capacities 104 Coordination 105 Forensic Training 106 Prosecution and Conviction 107 Speed of Trial 107 5. Funding Patterns and Trends 108 Generational Funding 108 Diversity of Sources 109 Narco Terrorism 113 Trans Border Mobility 115 Counterfeiting 116 Conclusion 117 SECTION II: INTERNATIONAL GUIDELINES and CASE STUDIES 6. International Guidelines for Countering the Financing of Terrorism 121 UN Guidelines 121 Financial Action Task Force 123 7. Assessment of the US and EU CFT Initiatives 131 US Strategy 131 European Union Strategy 136 Assessment of US the and European Union Models 139 SECTION III: STRATEGY for COUNTERING the FINANCING of TERRORISM 8. Existing Countering the Financing of Terrorism Framework and Purpose of a Strategy 145 Existing Framework 146 Purpose of Strategy 150 Long Term Vision 151 9. Strategy for Countering the Financing of Terrorism 152 10. External Sources 159 Counterfeit Currency 159 Contents vii D rug Trafficking 161 Non-Governmental Organizations/Charities 162 State Funding 164 Means of Transfer 164 11. Internal Sources 170 Extortion 170 Charities and Non-Governmental Organizations 171 Crime 175 Designated Non Financial Businesses and Professions 176 Means of Transfer 177 12. Contributing Factors 179 Identification andE valuation of Threat 179 Corruption 180 Need for a Unified Mechanism 181 Coordination 182 Legislative Support 184 International Co-operation 184 Border Management 186 Building Strength of Forces 188 Freezing Financial Assets 189 Private Sector 190 Capacity Building and Training 190 Prosecution and Speed of Trail 192 Conclusion 193 13. Countering the Financing of Terrorism Organisation: Assessment and Options 194 Countering the Financing of Terrorism Agencies 194 Policy Agencies 196 Criminal Justice and Operational Agencies 200 Evaluation of the Organisational Structure 205 Recommendations 208 Annexures 211 Annexure 1: SWOT Analysis 211 Annexure 2: Statement of Manjunath J. 227 Annexure 3: Seizures Made by DRI 230 Annexure 4: The FATF Recommendations: February 2012 238 Index 241 List of Figures, Tables and Maps FIGURES Figure 1 : Terrorism Finance Cycle 23 Figure 2 : Linkage between Terrorism Finance, Money Laundering and Crime 31 TABLES Table 1 : Counterfeit Currency Reports 46 Table 2 : Composite Seizures of Explosives, Arms, Ammunition and Narcotic Drugs 2000 – March 2012 54 Table 3 : Suspicious Transaction Reports (STR) 62 Table 4 : Actions Initiated by RBI for KYC Violations 66 Table 5 : Cases of Looting in J&K 80 Table 6 : Department of Finance: United National Liberation F Oront (R ) Annual Balance Sheet from January 01, 2008 to December 31, 2008 (Credits) 93 Table 7 : Department of Finance: United National Liberation F Oront (R ) Annual Balance Sheet from January 01, 2008 to December 31, 2008 (Debits) 94 Table 8 : Identification of Terrorism/Terrorism Finance in Organisational Charter and Corresponding Laws 97 Table 9 : Funding Patterns – Generation of Terrorism Finance 102 Table 10 : Source and Transfer of Funds 112 Table 11 : Nine Strategic Gaps and Phases of Action 172 MAPS Map 1 : Drug Trafficking Routes from Pakistan 51 Map 2 : Flow of FICN into India 72 Acknowledgements A t the outset, I would like to acknowledge the support and guidance of the former Director General IDSA, Dr Arvind Gupta and the Deputy Director General, Brig Rumel Dahiya (Retd). I would also like to thank Shri G.K. Pillai, Distinguished Fellow IDSA, for his inputs and guidance for the project. I would like to thank members of the Military and Internal Security Centres for providing valuable inputs and suggestions, which were very useful for refining the book.M ay I also thank Colonel Rajeev Agarwal for his diligent review of the manuscript and suggestions. I am grateful to Shri Balesh Kumar for having evaluated the papers that were the building blocks for this book and providing invaluable guidelines on a number of issues. I am also grateful to Maj Gen Umong Sethi (Retd) and Shri Sanjeev Kumar Singh for their valuable comments and suggestions on my fellow paper. I would like to acknowledge the exceptional support of a senior Intelligence