Lifelines of Terror in Pakistan-
-Katyayinee Richhariya
They say money is a terrible master, but an excellent servant and it has been effectively put to service of certain terror groups which continued to proliferate even after the stringent forms of regulations of multilateral bodies in Pakistan. The Financial Action task force (FATF) mandated a 27 point action plan which it was unable to adhere to. The Mutual Evaluation Report of Asia Pacific Group has unequivocally stated that Pakistan failed miserably as far as the matters of curtailing money laundering and terror financing is concerned, but despite this, the 2018 elections saw many fundamentalists contesting elections with impunity. Out of the 12000 candidates, 1500 belonged to some of the other extremist groups. One of the striking examples was of the Milli Muslim League – an organisation banned by the United Nations contesting elections in 2015 and 2018, under different names like Allah-o-Akbar Tehreek Party [1]. Once they can usurp political power, they manipulate the policies in their favour, leading to lackadaisical action on Terror finance. [2] [3]
FROM WHERE DOES THE FUNDING COME?
1) Cosmetic Measures
After the 2012 revision in the parameters of the FATF scrutiny, there were 11 points exclusively pertaining to implementation, while the other 40 related to the existing laws.[4] [5]In the recent reports it observed that while there existed robust legal mechanisms like the Anti Money laundering act of 2010, Amendments in the Anti-Terror law of 1997, there were serious shortcomings in the implementation. In 2010 only the Financial Intelligence Unit regulated border control under the new act and in one of the cases of investigation, the whole staff of national airlines was involved in the case of money laundering. [6]
The second allegation pertains to the selective targeting of the terrorists. It was found out that all the cases filed against the terrorists under the scrutiny of FATF pertained to Jaish E Muhammad and none against the groups like the Haqqani network and Lashkar e Taiba, which are designated as groups inflicting terrorism outside Pakistan in the US Department of State’s latest report. Furthermore, each of the cases pertained to domestic terror act and no case mentioned acts of cross border terrorism. [6]
The lack of genuine will on the part of the Pakistani Authorities to act in Terror can be construed from the series of incidents. Immediately before the meetings of FATF, there is an eerie fastidiousness in the actions against terror groups in Pakistan. For example, before the meeting of January 2018, Hafiz Saeed was arrested from a mosque where he was offering prayers. Similarly, before this year’s January Plenary session, there were amendments done to make the anti terror law robust. Just before the June session, Hafiz Saeed was again attested. Recently, Hafiz Saeed was indicted by the Supreme Court of Pakistan in case of terror funding.[7]
2) Underground Economy and digitalisation
Underground economy/Undocumented economy is defined as the economy which either comprises of the non-market economic activities or the illegal market economic activities [8]. This is another source of a lease for these groups. The FATF recognised certain volatile sectors and designated them as non-financial businesses and professions which include professions like real estate, jewellery business and lawyers, in which these groups pump in money and later extract their profits which are unaccounted for[9]. The Altaf khanani money laundering organisation which was blacklisted by the United States in 2015 was primarily involved in the money laundering through drug trade and real estate[10]. One of its offshoots named Al Zarooni Foundation was also blacklisted by US Office of foreign assets control. The Khanani MLO engages in third-party money laundering by transferring funds to financial institutions on behalf of drug traffickers and international criminal organisations. In the answers to the question of FATF regarding the scrutiny action of these sectors last week, Pakistan confirmed that it failed to form a coherent system to regulate the real estate and jewellery businesses [11].
The FATF trends also show the rise in the usage of cryptocurrency for the exchange of monetary transactions. In 2015 Pakistan banned cryptocurrency however even after burning they were 5,000 underground dealers which tell them with coins and other forms of digital transactions. In across hundred cities of Pakistan, there was a 400% growth in the usage of cryptocurrency. In December 2017, a woman was caught transferring $62000 to the ISIS through Bitcoin. After she failed to join the ISIS herself in 2016, she used multiple fake ID’s to take loans which she converted in digital currency, before sending it to fund terror groups via Pakistan, China and Turkey. Last year, Pakistani Authorities had banned cryptocurrency, but in April this year, the Pakistani Authorities legalised the cryptocurrency with some regulatory guidelines which can prove to be beneficial for the terror groups. [12] [13] [14]
Hawala and Hundi transactions also form a part of the underground economy. Of the domestic scrutiny done by Pakistani agencies, it has been found out that only 23000 corporate firms, out of the existing 65000 firms are filing the tax returns.
3) Temptations of a Rehab Economy
An economy in a rehabilitation mode is ideally defined as an economy with high interest rates, low valued currency and cheap stocks, all of which are available in Pakistan. An indication of this is that the Karachi stock index has gone up by 25% since October this year, recovering 45% of the losses in July- August 2019. Even though IMF considered the probability that it’s Pakistan Program will fail as “Particularly High”, IMF sanctioned the 13th Bailout of $6 Billion for Pakistan, with the assumption that hard cash will act as a catalyst for further capital generation. But the same hard cash is also more vulnerable to illicit laundering. This factor acts as an incentive for the foreign investor’s domestic investors to invest because of the high return on interest. Recently also, foreign investors were net sellers of shares during the last week, accumulating positions worth $5.8 million. The seeds of this were sown way back in 2015 when along with the continuous rise in petroleum prices and a failing IMF program, a Balance of Payments crisis was engendered, which forced the Pakistani establishments to look upon to China as their major financer. In the initial year, their trade deficit burgeoned and reached $9.7 billion last year. However, with the completion of CPEC, it has shrunk by $ 3.2 Billion in April this year.[15]
In its initial days of national building, Pakistan traded its geo-strategic location instead of building robust economic institutions. The 2011 Woodrow Wilson centre report described the relationship of IMF and Pakistan is a stormy rollercoaster affairs. After 1980 Nuclear test by Pakistan, all the foreign credit of Pakistan dried up due to sanctions by the United States, it adopted a strategy of defaulting Payments. As a result, IMF had to do indulge in defensive payments for few years leading to rapid credit expansion ultimately paving the way for inflation. Plans like the Tax administrative Reform plan (TARP) which were invested with $ 135 million initially failed since 2005-2006, 2013 [16]. This led to an alarming situation and deficit crisis which could only be dealt with by currency devaluation and higher interest rates which attracted a lot of foreign Investors, pumping in cash into drying up the economy.[17]
3) The fatal Mix of Religion and Economy
The FATF has categorically stated about the various charitable organisations existing all around Pakistan operating closely in nexus with the terror organisations. This includes organisations like jamaat-ud-Dawa (banned this year in May) and Falah-e-insaniyat which are supposed to provide the ideological backing to the finances attained by the terror groups. The two groups were found to be linked with LeT. Interestingly, every terrorist organisation has some of the other accompanying religious organisation, like the Al Rashid trust, Al Rehmat trust, khummudul Islam etc which are suspected to give charity to JeM. [18]
Another phenomenon pertaining to the same, which is not that widely discussed but will eventually bolster the economic incentives in Pakistan is Halal Tax. This tax encompasses a whole range of multinational companies dealing with a myriad of products from Garments to Chocolates, apart from the meat industry which should ideally be the only point of focus, as mentioned in the divine law of Sunnah in Quran. The Halal economy is currently reported to be at $3.2 Trillion, with 7% of growth expected each year. Pakistan’s share in that is however negligible and amounts to around $23 Million, which is 0.5% of the total Halal Economy. To hone more benefits out of this, the National Assembly of Pakistan has also passed a bill in 2015 which pertains to expansion of Halal industry. $400 million of investments have been undertaken regarding this sector and the Punjab government of Pakistan has also created Punjab Halal Development Agency. The only point of contention with the introduction of these regulatory bodies and Halal Tax is that there is an absolute lack of transparency. The Australian government appointed a Parliamentary Commission to look into where the funding of these tax was ultimately routed to and it found out that several Maulanas of Malaysia and Indonesia indulged in certification for Halal companies making huge profits with companies like Cadbury also applying for Halal Certification. The committee reported concerns that this money was used to fund the extremist groups elsewhere. [19] [20] [21]
4) GEOGRAPHY
The US department of State’s report on money laundering (2018) specifically mentioned the unregulated and protracted border of Pakistan and Afghanistan as the major source of financing the terror groups. Interestingly out of the 4 “international terror” groups – The Haqqani network, JeM, LeT and Afghan Taliban mentioned in the same report, the Haqqani network and Afghan Taliban operates in and around the Afpak Border – Mirmasha, Quetta and Peshawar. The other two also operate on the Indo Pak border – Bahawalpur and Muridke.
The report on drug control raises contention on the Golden crescent and it’s continuous misuse, while at the same time there has been a domestic increase in the production of popey seeds as it unregulated border also adds on to the drug trade which is a source of undocumented income.
Therefore, there are a wide range of factors contributing to these groups sustaining themselves. The Institutional nexus of the army, courts and the elite also prevent terrorists getting charged under anti-terror laws. Pakistan permitted trial of civilians in the Military Courts made especially for terror cases and recently 104 people have been sentenced to death, under extreme lack of transparency, as noted by the US Department of State’s report of 2018. The most important factor is the Geopolitical interests of a few powerful nations. It has been repeatedly argued that US-Pakistan relations on terrorism revolve around Hafiz Saeed. Before the FATF session in June, Pakistan met Saudi and Russian leaders and the joint working group of Russia and Pakistan on countering terrorism also concluded with Russia being satisfied with actions of Pakistan against terror groups, indicating the efforts towards garnering international support.
Recently, Pakistan amended it’s anti-terror laws to include Financial crimes. It also has submitted it’s answers to 22 questions posed by the FATF, in which it claimed making progress in curtailing terror financing and evolving Institutions for the same, which are subject to the scrutiny of FATF. In order to curb money laundering, the FATF will have to evolve faster than the terror groups, which continuously surpass legal mechanisms in order to thrive, while at the same time, not letting the geopolitical interests of few countries hamper the Global interest.
References –
[1] Daud Khattak and Frud Bezhan, ‘Terrorist’ Turned Candidate: Pakistani Extremists Contest National Elections, Radio Free Europe Radio liberty, 24 July 2018
https://www.google.com/amp/s/www.rferl.org/amp/29388270.html
[2] Maria Abi-Habib, Shah Meer Baloch and Zia ur-Rehman, Violent Extremist or Political Candidate? In Pakistan Election, You Can Be Both, New York Times, 17 July 2018
https://www.google.com/amp/s/www.nytimes.com/2018/07/17/world/asia/pakistan-election-extremists.amp.html
[3] Asif Shahzad and Saad Sayeed, Pakistan election roiled with big names banned, radicals cleared, Reuters, June 2018
https://www.google.com/amp/s/mobile.reuters.com/article/amp/idUSKBN1JO15M
[4] Financial Action Task Force, Emerging terrorist financing risks, October 2015
[5] Prabuddha Ghosh, All you need to know about FATF, Pakistan’s latest headache, 03rd July 2019
https://www.google.com/amp/s/www.newindianexpress.com/world/2019/jul/03/all-you-need-to-know-about-fatf-pakistans-latest-headache-1998463.amp
[6] Asia Pacific Group (APG), Mutual Evaluation Report – Anti Money laundering and counter-terror financing measures in Pakistan, October 2019
[7] Kunwar Khuldune Shahid, Pakistan’s FATF grey-listing hinges around Hafiz Saeed’s status, ORF Online, 20 October 2018
https://www.orfonline.org/expert-speak/pakistans-fatf-grey-listing-hinges-around-hafiz-saeeds-status-45073/?amp
[8] Underground Economy – causes and size, World Bank, sitesources.worldbank.org
[9] United States Department of States, International Narcotics Control Strategy Report Volume 2 – Money Laundering, March 2019
[10] US department of treasury, Press Release – Treasury Sanctions The Khanani Money Laundering Organization, 11 December 2015
https://www.treasury.gov/press-center/press-releases/Pages/jl0265.aspx
[11] Press Trust of India, Pakistan submits to FATF report on steps it has taken to curb terror, business standard, December 6 2019
https://www.google.com/amp/s/wap.business-standard.com/article-amp/pti-stories/pak-submits-report-comprising-answers-to-fatf-s-remaining-22-action-plans-report-119120601384_1.html
[12]Nikita Malik, How criminals and terrorists use cryptocurrency and how to stop it, Forbes, 31 August 2018
https://www.google.com/amp/s/www.forbes.com/sites/nikitamalik/2018/08/31/how-criminals-and-terrorists-use-cryptocurrency-and-how-to-stop-it/amp/
[13] Hira Saeed, Pakistan to Legalize Cryptocurrency Trade by Dec 2019. Maybe?, Pakwired.com, 19 March 2019
https://www.google.com/amp/s/pakwired.com/pakistan-to-legalize-cryptocurrency-trade-by-dec-2019-maybe/amp/
[14] Yogita Khatri, Pakistan is putting in place regulations for the cryptocurrency industry , 2 April 2019, coindesk.com
https://www.coindesk.com/pakistan-introducing-regulations-licensing-scheme-for-crypto-firms
[15] Pakistan Stock Exchange, Bulls return to Pakistan Stock Exchange as KSE-100 climbs 740 points, Dunya news, 16 December 2019
https://www.google.com/amp/s/dunyanews.tv/amp/english/523425.php
[16] Aparna Pande (edited), Routledge Handbook of Contemporary Pakistan, Part 3 – Economy and development, Routledge Handbooks, 23 August 2019
[17] Udit Mishra What Ails Pakistan’s Economy, Indian Express, 30 August 2019
https://www.google.com/amp/s/indianexpress.com/article/explained/simply-put-pakistan-economy-a-reality-check-5949176/lite/
[18]Col. Vivek Chadha, FATF as an Instrument of CFT Compliance in Pakistan, Institute of Defence Study and Analysis (issue brief), 26 February 2018
[19] Caroline Zielinski, A Four Corners investigation looks into halal certification and its impact on Australian consumers, news.com.au, 9 September 2015
https://amp.news.com.au/entertainment/tv/a-four-corners-investigation-looks-into-halal-certification-and-its-impact-on-australian-consumers/news-story/2771fd1adea197a56aef05793a379c81
[20] Naveed Ahmad, Pakistan failing to make money from halal goods trade, Tribune, 30 May 2017
https://www.google.com/amp/s/tribune.com.pk/story/1404007/pakistan-failing-make-money-halal-goods-trade/%3famp=1
[21] Syeda Hameeda Batool Gillani, Farrukh Ijaz and Muhammad Mahmood Shah Khan, Islamic Banking and Finance Review, Role of Islamic Financial Institutions in Promotion of Pakistan Halal Food Industry, 2016
