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Dark Side Last Updated: Jun 25, 2008 - 10:12:38 AM

Jammu & Kashmir: Financing the Terror
By Kanchan Lakshman, SAIR 23/6/08
Jun 25, 2008 - 10:09:04 AM

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Despite the increased global scrutiny on the flow of funds for Islamist militants across the world, sufficient finances continue to flow to maintain the infrastructure for the jihad in J&K. This includes funding for recruitment, arming the militants, funds for training and camps, paying for their survival on the ground, maintenance of their families (both in J&K and Pakistan), and all associated operational needs.


Security sources informed South Asia Intelligence Review that an estimated INR 250 to 300 million was being disbursed to terrorist and secessionist groups in J&K each month, from Pakistan. However, this does constitutes a 30 to 50 per cent decrease in what was being paid out earlier. This diminution has been gradual and is primarily linked to the ongoing peace process between India and Pakistan and the decimation of the militant leadership and cadres within J&K, as well as factors such as the US monitoring of militancy funding from Pakistan.

Disbursement made to militants in J&K (in Indian Rupees)

Type of Disbursement

Foreign Militants

Local Militants

Money disbursed at the time of recruitment

Up to 50,000

10,000 to 25,000

Monthly Remuneration


3,000 to 10,000

End of tenure payment



Reward for a spectacular terrorist act



Remuneration given to a militant group’s chief

Up to 50,000 per month

Up to 50,000 per month

Relief for family of deceased militant


Ex gratia 20,000 plus a monthly amount of 1,500-3,000

Each fidayeen (suicide cadre) selected for suicide attacks is assured by his handlers and the militant leadership that his entire family will be taken care of for years. Sources, however, disclose that relief money is paid to any deceased militant’s family for at least six months and there are accusations that some leaders of the secessionist group, the All Parties Hurriyat Conference ( APHC), swindle this money.

Except for a small percentage of funds raised through collections and donations made in the Kashmir Valley, virtually the entire funding for militancy comes from other countries, including Pakistan, and various international Islamic organisations. However, the major contributor remains Pakistan through its external intelligence agency, the Inter-Services Intelligence ( ISI).

The various methods employed for raising finances for terrorism in J&K include"

  • Fake Currency printed in Pakistan
  • Collection of donations in some Middle Eastern and European countries under the name of ‘ Jihad Funds’.
  • Extortion from traders, contractors and affluent people in J&K.
  • Money sent from Pakistan to militant and secessionist groups operating in J&K mainly through Hawala (parallel remittance system) and drug dealers.
  • Some Kashmiri businessmen dealing in the trade of carpets, handicrafts, etc in Dubai.
  • Hawala dealers in Mumbai and Delhi.
  • Zakat (an Islamic tax) and donations.

Militant groups operating in J&K have, however, lately been affected by a shortage of weaponry and funds following Islamabad’s decision to momentarily de-escalate the Kashmir jihad due to the pressure arising from the increasing militancy and internal conflicts within Pakistan, pressure from the United States, a constant scrutiny of the large militancy-linked monetary transactions from Pakistan and the successful operation of the Indian counter-insurgency grid. Terrorists operating in J&K have consequently been forced to make distress calls to their mentors in Pakistan. Security agencies have intercepted numerous conversations between militant cadres based in the State and their leaders and handlers in Pakistan and Pakistan occupied Kashmir (PoK) over the past months, which also indicated that the groups were under enormous pressure due to the neutralization of top level terrorists by Security Forces (SFs) in the State. "Colleagues require stores and faloose (funds)", was one of the distress messages sent by the Lashkar-e-Toiba ( LeT) cadres in the State to the outfit’s leaders in Pakistan some time in January 2008.

One of the major sources of funding for militancy in J&K is the fake Indian currency notes (FICN) being pumped into the State by the ISI and sections of the Pakistan Army. While the amount of FICN currently in circulation is not available, sources indicate that of these are being printed in the security press at Malir Cantonment in Karachi and three other printing presses in Pakistan. According to disclosures by some militants and their over ground workers arrested along with currency (reported in April 2008), besides Karachi, the fake currency is also being printed in Lahore, Quetta and Peshawar. The currency notes printed at the Malir Cantonment security printing press are high quality notes and closely resemble genuine Indian currency. According to sources, "Pakistan authorities have adopted a unique modus operandi to smuggle the currency to J&K. The notes are first planted in the ‘banks’ at Dubai, Kathmandu, Bangkok, Dhaka and Singapore from where they are physically smuggled by the smugglers working for Dawood (D) Company through Qatar Airways, Royal Nepal Airlines and Pakistan International Airlines. Unaccounted baggage and containers in planes and ships are also being used for smuggling." Besides airports, coastal areas and border areas are also used for smuggling of FICN, sources added.

Since militants and their guides are being arrested interdicted by the SFs in "view of fencing and sophisticated gadgetry installed on the Line of Control (LoC) and International Border, Pakistan Army and ISI have started taking the services of D Company [the mafia group of Dawood Ibrahim] to push fake currency into J&K." Dawood Ibrahim’s criminal network, which is currently headquartered somewhere in Pakistan, has close links with the LeT. Besides militants in J&K, a part of the FICN sourced from Pakistan is also "distributed among criminals and smugglers in different parts of the country mostly New Delhi, Mumbai, Hyderabad, Lucknow etc., as the ISI also used services of these criminals occasionally to transport weaponry and explosive devices."

According to sources, till 2006, FICN worth INR 50 to 80 million was pumped into the country from Pakistan per annum. From 2007, however, the amount has increased to INR 120 to 130 million. A special cell is reported to have been set up by the ISI in Islamabad to regularly monitor the changes in Indian currency notes. This cell is assigned the task of studying the notes and changing the features accordingly, so that the fake currency is not detected. Further, sources indicated, the "militants revealed that Pakistan Army and ISI know that they can’t disturb the Indian economy by pumping INR 130 million worth of notes a year. Their objective was only to finance militants and keep the ‘Kashmir budget’ out of the purview of the Pakistan Army."

Forensic examination of seized FICN indicates uniformity of replication of security features from which it can be inferred that the notes originate from the same source and there is a strong likelihood that this lies in Pakistan, according to a presentation made by a security agency in October 2007 at New Delhi. Apart from shipping in the FICN, the fake currency notes were also reportedly being smuggled from land routes through Nepal, Bangladesh and J&K, train routes through Atari and Munabao-Khakrapar and also by air.

According to the annual report (2005-06) of the Directorate of Revenue Intelligence (DRI),

…the smuggling of fake Indian Currency notes has acquired a greater geographical spread. While, in the past, such smuggling was largely confined to the Indo-Pakistan and Indo-Nepal borders, the India-Bangladesh border is now becoming increasingly vulnerable. Intelligence inputs indicate that counterfeit Indian Currency printed in Pakistan is moved to Bangladesh either directly or through Dubai and then brought across the porous Indo-Bangladesh border. Intelligence also indicates the smuggling of FICN to destinations in South India such as Bangalore, Hyderabad and Kerala.

Transactions in counterfeit currency are fairly profitable. The DRI notes, "The rate (per Rs. 100) on the India-Pakistan border is around Rs. 35, which goes up to around Rs. 40 in Delhi and Rs. 45-50 in the district and mofussil areas, where chances of detection are perhaps lower. These rates are however flexible and depend upon quality, availability and negotiating strengths at particular points of time."

Intelligence reports indicate that the Samjhauta Express, a train service which facilitates people-to-people contact between India and Pakistan, is being used by the ISI to circulate FICN and arms in India. According to intelligence sources in Punjab, the Samjhauta Express, which currently runs between Attari in India and Wagah in Pakistan, has "always been used by the ISI for smuggling weapons, currency, narcotics and spies into India." In recent times, a May 23, 2008, report indicated, there has been a big network of ISI-sponsored 'sawari' (courier) operators who lure poor people to smuggle their 'stuff' into India. These people are 'soft targets' for the ISI "which uses them for carrying out disruptive activities and providing logistic support to their existing terrorist modules in India, besides weakening the Indian economy by pushing in fake currency." "This train is the easiest way to enter India with legal documents and disappear here," said an intelligence source, adding that smuggling of FICN and Pakistani SIM cards by 'swaris' cannot be de-linked from terrorist activities in India. Following the terrorist attack on Parliament in December 2001, services of the Samjhauta Express were terminated in January 2002. However, the services were resumed again in January 2004.

Karvan-e-Aman, the Srinagar-Muzaffarabad bus service, another channel which enhances the emotional enlistment between India and Pakistan, is also a conduit for the transfer of funds for militants in J&K. While the utility of this channel for funds transfer is relatively low, since Police scrutiny is fairly intense, there have been some attempts. For instance, troops of 19 Infantry Division seized INR 150,000 on May 13, 2008, from Mufad Ali, a passenger who came from PoK on the Srinagar-Muzaffarabad bus. The money was reportedly seized when Ali, a resident of Pahl village in PoK, was handing it over to a contact person identified as Hafizullah, who had been deputed to collect the funds by a militant operating in Sopore.

Police sources told SAIR that narcotics money originating in Pakistan is also being pumped into J&K. Apart from pushing in drug money, narcotics are also sent directly into J&K from Pakistan through infiltrators who subsequently sell them in the local markets. More than 100 kilograms of narcotics, including heroin and brown sugar, was seized in the State during 2007.

The intricate hawala network, according to officials, profits every conceivable terrorist and secessionist group in J&K. Indeed, senior police officials claim that militancy in J&K has emerged as a highly lucrative 'industry' for several thousand families. Apart from the major groups, cadres of a number of lesser known organisations that have mushroomed in the extremist milieu that is J&K today, have also cornered shares in the substantial illicit financial flows. Many J&K-based doctors, engineers, technicians and certain business houses working in the Gulf and engaged in the provision of various services, or export of goods, such as carpets and handicrafts, have diverted funds through hawala operators to finance militants and secessionist leaders. Among one of the popular modes of hawala transfer is the movement of money through small-scale businessmen, such as shawl vendors. Although individual amounts involved in these transactions are small, very large numbers of such transactions result in transfers of great magnitude.

With their handlers in Islamabad having de-escalated violence in J&K, militants currently lying low and awaiting instructions to intensify violence on the eve of the Legislative Assembly elections later in 2008, are beginning to complain about lack of finances to maintain their infrastructure within the State. In fact, there have been isolated incidents during 2007 and 2008 when some militants have resorted to looting and extortion of local contractors and businessmen in the Poonch, Ramban, Kishtwar and Doda Districts.

According to an Intelligence Bureau report, the ISI is planning to substantially enhance the financial support to militant groups operating in J&K, to augment subversion in the run-up to the Legislative Assembly elections. The ISI is reported to have recently briefed the Pakistani political establishment on the militants' activities. The report said the "freedom movement" in J&K was weakening as the jihadi groups were facing financial constraints and the security forces had cornered the militants, The report stated further that the ISI proposed to double financial support to militants so that they would be able to disrupt the elections, adding that the ISI had assured the extremist leadership that it would make every effort to see that no pro-Pakistan individual or group participated in the elections.

With the financial system for sustaining militancy in Jammu and Kashmir intact, it is easy for Pakistan and the jihadi groups to maintain a threshold level of violence in the conflict wracked State or to calibrate it to transient perceptions of Pakistan’s interests and strategy over time.


Source:Ocnus.net 2008

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