Daily Times

Terming the National Action
Plan (NAP) a “big joke”, the Supreme Court’s (SC’s) Justice Jawad Khawaja has recently once again lambasted the government for its inaction over the NAP during the past six months. The honourable justice remarked that the NAP had been devised to deceive the masses, adding that not a single bit of work was being done on the plan despite the passage of six months since its inception. This was especially in the context of NGOs and foreign funding to the same, which has implications especially for money laundering and terrorism financing, both very poorly understood phenomena in Pakistan.
There are several defining characteristics that need to be explored in order to put these issues in perspective. First of all, extremists and terrorists have attempted to win the sympathies of target populations by exploiting the lacunae in distributive social justice, thereby bypassing the governance framework with improvised, local, economic ‘pumps’ catering to the masses, particularly the landless poor. Secondly, they have utilised an ingenious blend of utilisation of natural resources supplementing or perhaps equalling ‘donor’ funding. Thirdly, they have managed to augment their income with funds generated form organised criminal activities. Last, but not least, the informal money exchange systems in Pakistan and various Islamist trusts still seem to be quite active in Pakistan, notwithstanding state enforced bans and crackdowns.
There are commonalities shared by the systems of money laundering and terrorist financing. Both criminals and terrorists try to exploit loopholes in a legitimate financial system to gain their ends, underlying which is the need to hide their activities. These activities are usually carried out in permissive environments with lax supervisory financial oversight from relevant banking authorities, poor due diligence processes to ‘know the customers’ and absence or poor comprehension of warning flags that should raise suspicions of illicit activity. Terrorist financing is also often referred to as reverse money laundering as it focuses on utilising legal assets to carry out terrorist activities, which are often in the form of clean sources such as charitable organisations and legitimate business organisations. Since terrorist organisations are now loosely decentralised, they are evolving in their ability to source, store, move, as well as use funds in innovative ways. Irrespective of the evolving means of sourcing, storing, moving and using funds, a substantial portion of terrorist funds still needs to go through the formal banking system.
However, such a picture is not at all complete without the interpolation of Taliban funding generated by utilising charities, covert ‘feeder’ fronts, the drug trade, taxation, crime and natural resources like gemstones, timber and marble. In order to facilitate money transfers from donors, many businesses and banks are used as ‘fronts’, enabling militant organisations to receive money in the name of income transfers. Militant organisations are extremely careful about their financial matters; in its famous military manual, Declaration of Jihad Against the Country’s Tyrants,’ al Qaeda instructs its cadres about handling money; the same principles have ostensibly been used by militant organisations in Pakistan, including the Taliban. The group follows five financial security principles: funds should be divided between those invested for financial return and the balance — operational funds — that should be saved and spent only on operations, operational funds should not all be put in one place, only a few of the organisation’s members should know the location of its funds, while carrying large amounts of money precautions should be taken and money should be left with non-members, spent only when needed.
Militant organisations in Pakistan have tended to depend heavily on the hawala, informal banking system whereby funds are transferred on a personal guarantee of the sender, therefore bypassing governmental scrutiny or accountability. Pakistani bankers have estimated that the hawala system accounted for $ 2.5 billion to three billion dollars entering the country each year till 2002, compared to only one billion dollars via the formal banking system. For instance, in Pakistan alone there were over 1,000 hawaladars in 2002, some dealing in amounts as large as $ 10 million. Even though the hawala system has tended to decrease in importance in the wake of the Pakistani government’s crackdown on this informal money transfer industry, it cannot be ruled out as a source of income transfer, particularly in the context of charity money raised overseas by expatriate Pakistanis and sent home on the personal guarantee of a hawaladar. Trust funds and charities become all important in this context.
At least two major funds have been utilised by al Qaeda and its affiliates in Pakistan: al Rasheed and al Akhtar trusts. When Pakistani intelligence agencies retrieved al Akhtar’s trust deeds from at least two banks where the group had accounts, they found that between 1999 and 2002 al Akhtar received about $ 100 million in its two bank accounts at a local bank’s foreign exchange branch in Karachi. This amount was transferred in 38 transactions from all over the western hemisphere, from places like New York, Switzerland and the UK. In 2002, the State Bank of Pakistan (SBP) froze the accounts of al Akhtar and al Rasheed trusts under an al Qaeda-specific resolution (1333) of the UN General Assembly.
In 2003, the US treasury outlawed both al Akhtar and al Rasheed. Even after their accounts were frozen, al Akhtar and al Rasheed trusts received $ 10 million dollars each in 2006. This was ostensibly collected from sacrificial skins by a UK-based organisation, which also reportedly transferred $ 20 million to its own account at a Quetta branch of a local bank; half of the sum was sent to various accounts belonging to each of the two trusts. Reportedly, from 2004 onwards, al Rasheed trustees changed their tactics and started transferring funds to some individuals and to two sub-organisations, al Ameen Trust and Islam Welfare Foundation, which are actually nom de guerres for the al Rasheed trust. Al Akhtar also invested heavily in real estate by purchasing property. This method of investment was also followed by several militant organisations.
Pakistan’s anti-money laundering regime is still inadequate since it does not cover terrorism financing properly, despite there being a Financial Monitoring Unit (FMU) established within the State Bank. Terrorist money laundering is now a crime under the Anti-Terrorism Act 1997. However, the fact remains: no one, not even the government, really knows how many charities or trusts there are acting under which intention or direction. Unless this is rectified, the anti-terrorism financing stipulations of the NAP will continue being ‘toothless’ and judges will continue to take notice. Lame excuses may not work in the longer term and resolve has to be shown in tackling this menace.

The author is an ex-inspector general of police and ex-head of NACTA