This article examines the relationship between terrorism and its financing by criminal methods and means like weapons smuggling, narcotics trafficking and fake currency circulation. What motivates and necessitates terrorists to use these modes of criminal finance and the benefits thereby that accrue to terrorist organisations is also examined. The article also explores the comparative scale and scope of these criminal activities and their relative importance to terrorists, using various examples of terrorist enterprises and their use of these methods.

First, money, fake currency, narcotics, and weapons all have monetary value and are used to finance terrorism.The proceeds of illicit arms sales, narcotics smuggling, and the proceeds of the circulation of fake currency are used to fund terrorist operations, set up and administer terrorist organisations, and for recruitment and radicalisation of terrorists. For example, the Taliban has relied on drug-trafficking, the Irish Republican Army has used weapons smuggling, and the Lashkar-e-Taiba has used fake Indian currency to finance their operations.

Second, due to the squeeze on licit sources of funding, loss of state support, post-Cold-War collapse of Soviet Union and Warsaw Pact countries and the subsequent lacunae in governance structures, the need for plausible deniability on the part of the terrorists to dissociate themselves from criminal methods, and the proliferation of terrorist affiliates and cells that require local sources of income to survive, terrorists tend to rely on criminal sources of income and criminal methods to obtain that income to finance their activities. Terrorists and criminals both need weapons. Narcotics can be exchanged for money and weapons by criminals and terrorists. Criminals possess expertise to print and circulate fake currency, and terrorists use fake currency generated by criminals to finance their operations. The relationship between terrorists and criminals becomes so neatly intertwined that often it is difficult to distinguish a criminal organisation from a terrorist group and vice versa.

Third, due to attractiveness of proceeds of crime, terrorists switch to criminal methods either partially or fully. Arms’ trafficking is lucrative; trafficking in narcotics is the most lucrative criminal enterprise; fake currency is a classic criminal/terrorist tactic employed to subvert economies of states in addition to financing terrorism as mentioned though in comparison to weapons smuggling as well as narcotics trafficking, it may be the least lucrative monetarily.

Fourth, terrorists use criminal routes to traffic arms, narcotics, and fake currency. Fake currency smugglers use the same routes as those used by arms traffickers and narcotics traffickers. In fact, criminals and terrorists use the same routes, thus very clearly and distinctly showing how and why the criminal-terrorism nexus is so widespread and strong.

Fifth, there are certain factors that facilitate terrorism and its reliance on weapon, narcotics, and fake currency smuggling. These include porous and poorly policed borders; and lack of governance in border regions which makes it easier to smuggle weapons, narcotics, fake currency, criminal, terrorists etc. alike through border regions.

Sixth, the choices of revenue streams for terrorists depends on the core competencies of the criminal/terrorist group in question as well as the expertise of their criminal/terrorist partners in weapons trafficking, narcotics trafficking, and fake currency circulation. It also depends on the geographical locations of their criminal partners. A typical example is the reliance of the Taliban on the DCompany for drug trafficking out of Afghanistan; the dependence of the FARC on IRA for weapons supply and training; and the support of the DCompany in helping Lashkar-e-Taiba transport fake Indian currency across the Indian borders with Pakistan, Nepal, Bangladesh, Myanmar etc.

Seventh, the need to launder funds on the part of the terrorists is also an important variable that factors into the terrorist financing-criminal nexus calculus. Like criminals, terrorists have to disguise the sources of their criminal income from the final destination that such income is headed for, i.e. to financeterrorist infrastructure and operations. This laundering exercise serves one allimportant purpose – it makes it difficult to trace terrorist funds since these are comingled with the proceeds of crime. The proceeds of weapons trafficking are huge; the proceeds of narcotics trafficking the largest in absolute amounts; and the proceeds of fake currency trafficking are the least in absolute amounts. This difference in magnitude is also reflected in the total amounts laundered by these criminal methods and activities. Since laundering is a profitable income generating exercise in itself, criminal organisations that possess core competency in laundering, end up laundering funds for themselves as well as for terrorist outfits. A notable case in point is the Los Zetas drug cartel in Mexico laundering funds for Hezbollah, itself a terrorist organisation as well as a global criminal syndicate.

Eighth, terrorist funds are laundered eventually through banks, and terrorist organisations typically rely on criminals to launder funds. Proceeds of weapons trafficking laundered through banks or used to buy drugs; laundering provides extra income to criminals;Proceeds of narcotic trafficking laundered through banks or used to buy weapons; laundering provides extra income to criminals;Proceeds of weapons trafficking and narcotic smuggling used to manufacture and transport fake currency which is then laundered through banks; laundering provides extra income to criminals.

Ninth, money laundering follows three stages – Placement, Layering and Integration. In terrorist financing, the funds are channelised to finance terrorism after the Placement and Layering stages itself and Integration is not required.

Tenth, since money laundering is more widespread and in much greater amounts, it is easier to gain convictions for money laundering crimes. The investigating authorities may then scratch the surface, go back, and stumble across terrorist financing activity as a predicate activity to money laundering activity. This investigatory strategy is helpful since terrorist financing takes place in much smaller amounts and is more difficult to trace and detect on its own.

Eleventh, terrorist groups can and do rely on the misuse of charities/offer social services to fund their activities. Criminals engaged in the smuggling of drugs, weapons, and fake currencies rely solely on crime for financing their operations.

Twelfth, given the intersection of terrorist financing and money laundering discussed in the preceding paragraphs, combating terrorist financing and money laundering both require sanctions, investigations and enforcement, regulation, and outreach to banks and international partners and anti-money laundering/ countering the financing (AML/CFT) controls in banks. Finally, of special relevance to India and its neighbourhood, Lashkar-e-Taiba is a terrorist organisation that relies on DCompany for financing and laundering activity. D-Company is a criminal organisation that relies on smuggling of drugs, weapons and fake currency. Members of D-Company have also been designated as terrorists; hence it also can be counted as a terrorist organisation.

Dr Amit Kumar is Center of National Policy’s Fellow for Homeland Security and Counter-terrorism. His key areas of expertise include the financing, organisation, and evolution of transnational terrorist and criminal networks, both global and South Asian, and development and implementation of international, multilateral, regional, bilateral, and national regulatory Anti- Money Laundering/ Countering the Financing of Terrorism (AML/ CFT) and counterterrorism compliance measures against such networks through AML/ CFT capacity building, and through appropriate legal, policy, and organisational responses; international inspection and oversight; organisational theory; public-private partnerships in critical infrastructure protection; and homeland security. He is also Adjunct Associate Professor in the Security Studies Program at the Edmund A Walsh School of Foreign Service at Georgetown University where he teaches the Graduate Course in Terrorist Financing. He has also taught at the John Jay College of Criminal Justice for several years. Dr. Kumar has a number of years experience working with the Al-Qaida Taliban Sanctions regime at the United Nations. This article has been published in the book, “TERRORISM TODAY: Aspects, Challenges and Responses” and is reproduced here with the permission of India Foundation.

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