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The flow of funds

February 13, 2011

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PAKISTAN is yet to develop a comprehensive counter-terrorism strategy. This would entail focus on better coordination among intelligence agencies, capacity-building of law-enforcement agencies, adequate measures to prevent banned militant groups from operating across the country and, most importantly, curbs on militants financing.

The militant landscape of Pakistan is a complex one, with numerous groups with different backgrounds pursuing multiple agendas. The militants have diverse financial sources, both formal and informal. They receive public donations like other religious organisations, seminaries and charities in Pakistan, and at the same time generate financial resources through informal ways such as criminal activities and illegal financial channels.

Tracking the sources of their financing is a critical challenge. Although the state has taken some initiatives — including banning militant organisations, freezing their bank accounts and enforcing an anti-money laundering law — these have not proved effective. The main reason for that has been the fact that militant groups do not rely on the formal financial sector or avenues as well as the state’s failure to implement its decisions in any meaningful manner because of the absence of an appropriate mechanism.

In the absence of state monitoring and substantial measures to cut the flow of finances to the militants, the latter not only continue to launch fund-raising campaigns regularly, especially on religious occasions such as Ramazan and the two Eid festivals, but also receive support from individuals abroad, including expatriate Pakistanis.

The state’s efforts to curb the flow of finances to militants focus mainly on banned militant organisations, even though Pakistan faces threats of terrorism from other quarters as well, such as from Al Qaeda, the Taliban and terrorist cells that have recently emerged in Punjab and Sindh and are referred to as the ‘Punjabi Taliban’. Different militant groups rely on different sources to finance their activities. Four main trends are discernible though some overlapping is found.

— Militant groups that have a detailed organisational structure, came into being in the 1980s and 1990s and faced government restrictions after 9/11 have devised new ways to survive and keep their financial channels intact. Most of these groups were proscribed by the state in 2002 and 2003 and included Jaish-i-Mohammad, Harkatul Jihad-i-Islami, Harkatul Mujahideen, Sipah-i-Sahaba Pakistan, Lashkar-i-Taiba, Jamaatud Dawa, Hizbul Mujahideen, Jamiatul Mujahideen and Al Badar Mujahideen.

These militant groups have established what most of them call public welfare wings as a front for their activities or resurfaced after the ban as charity organisations to boost their image among the masses as well as to find a way around government restrictions.

This ploy has not only helped them gain social acceptance but also enabled them to expand their support base, ultimately adding to their financial resources. Some militant groups have tried to diversify their assets and have set up commercial ventures such as English-medium schools, healthcare centres, transportation companies, residential projects and media groups or acquired farmland on a large scale.

Reports say that while the militant groups have kept the supply line for their financing in the country intact, many militant groups have also found ways to cultivate and consolidate financial resources abroad. They are not only using bank transactions but also informal hawala channels and other illegal means to bring funds into Pakistan. Some groups have established their own currency exchange networks, while others use smugglers’ networks to bring in funds raised abroad.

— The Pakistani Taliban groups can call upon multiple financial sources. They raise money through levying fines, or ‘toll tax’ as they call it, in some parts of the country; they receive zakat and some groups are also involved in criminal activities such as kidnapping for ransom. Evidence of that is visible in the non-traditional and undocumented tribal economy, which is considered an important factor in the rise of insurgency in Pakistan’s tribal areas bordering Afghanistan. The undocumented tribal economy, which accounts for more than half the total tribal economy, is mainly comprised of the smuggling of electronic goods, sophisticated weapons, luxury vehicles, timber, minerals and drugs.

— Al Qaeda and foreign militants based in Pakistani tribal areas rely on funds from abroad, mainly from Arab countries and cyber crimes there and elsewhere.

— Small terrorist cells generate their revenue through criminal activities, such as bank robberies and kidnapping for ransom.

There is little doubt that finances remain available to militant groups in Pakistan despite years of government curbs. There have been diverse efforts by the government to choke the financial resources of militant groups, targeting both traditional and non-traditional sources of finance, but most of these efforts are confined only to banned militant groups.

The government has not yet paid attention to terrorist cells, the Taliban and Al Qaeda’s sources of finances. Their involvement in crime, especially in kidnapping for ransom and robberies is increasing. The Taliban have also emerged as one of the major beneficiaries of the traditional tribal economy, by charging various ‘taxes’ from local businessmen. Weapons and narcotics smuggling is also taking place at a greater pace.

The government needs to devise a more comprehensive counter-terror financing policy. Experts suggest that in the formal financial sector, the State Bank of Pakistan can be empowered to revitalise its intelligence unit, and the capacity of law-enforcement agencies should be enhanced to conduct financial investigations.

The writer is editor of the quarterly research journal Conflict and Peace Studies. mamirrana@yahoo.com