Strategic Analysis

Strategic Analysis:
A Monthly Journal of the IDSA

Jan-Mar 2002 (Vol. XXVI No. 1)


Terrorist Financing and Support Structures in Jammu and Kashmir
N.S. Jamwal * , Research Fellow, IDSA



The events of September 11 have brought into focus the need to find effective ways to tackle terrorism. A consensus is now emerging that a concerted global effort at choking the sources of terrorist finance could be the answer. This paper investigates the structure of terrorist financing in the Kashmir valley. It gives some pointers to the magnitude of funds available to terrorist outfits, traces their sources of funding including the transnational linkages, outlines their methods of financing and identifies the support structures that sustain and aid terrorism. It also discusses the difficulties involved in fashioning a concerted global response to terrorism.



The September 11 attacks have focused international attention on, among other things, the terrorist support structures that had hitherto received scant attention from policy-makers and academics. It has since spurred renewed national and international efforts to trace the sources of terrorist financing in order to effectively choke them. However, information on terrorist support structures is not easy to come by and even when it does, it is sketchy and mostly anecdotal. Perhaps, it is only the intelligence and security agencies, which have a fairly definite idea of the sources and magnitude of terrorist funding. For instance, investigators in the US believe that terrorists had spent about US $5,00,000 to carry out their September 11 attacks although it is likely to cost the US at least $100 billion to repair the damage. 1 And this does not even include the cost of the war against terrorism that the Americans have embarked upon in our own backyard. Other countries like Britain attempt to quantify terrorist finances through the number and magnitude of suspect transactions put through their financial system. In Britain alone, 19,500 suspect transactions were detected last year, of which more than 4,000 was post-September 11. 2


Estimate of Terrorist Financing

So far, there seem to be no estimates on the extent of financing available to terrorist outfits operating in different parts of India. This paper attempts to piece together a rough estimate of the extent of terrorist financing in one region, namely, Jammu & Kashmir (J&K), from information available from a variety of sources. According to one estimate, Pakistan spends around US $5 million annually (Rs 24 crore) to sustain militancy in Kashmir while India’s expenditure on counter insurgency operations (CI-OPS) is around US $1.46 billion annually (Rs. 730 crore). 3 These figures are an indication of how every dollar spent on terrorist activities necessitates a financial commitment several orders of magnitude on counter-intelligence and physical expenditures in the target country.

We are of the view that financing terrorism in J&K costs no more than US $70-80 million annually i.e. Rs 400-500 crore. This estimate has been made on the basis of the observation that even a large terrorist outfit like Hijb-ul-Mujahideen(HM) needs no more than US $6 to 8 million annually (Rs.30 to 40 crore). There are no more than 10-15 such outfits in the valley. 4

The All Party Huriyat Conference (APHC) is the largest beneficiary of foreign funds in the region. Local Kashmiri newspapers have reported recently that Al Barq, a terrorist organisation accused and threatened Mr. Abdul Gani Lone, a senior leader of the APHC, for misappropriating money given by the Inter Services Intelligence (ISI) and Pakistani authorities for terrorist activities in the Valley. These reports also said that another functionary of the APHC in Jammu had also made a similar accusation against his own colleagues in Kashmir and specified the amount misappropriated as US $16 million (Rupees 80 crore). 5 A senior Huriyat leader, it is learnt, receives a sum of Rs. 3,00,000 a month. In the Kashmir Valley, about Rs. 5 lakh are collected every month as voluntary donations. It is learnt that Rs. 2.36 lakh were collected from Srinagar-Sopore alone on the eve of Id. 6 Some of the transactions, (mentioned below in Table-1), received by the tanzeems are an indicative of the quantum of funds being received and the magnitude of the malaise. 7

Table-1: Details of Funding (in Indian Rs)

Name of the secessionist organisation 1997 1998 1999
Shoura-e-Jehad 66 Lakh    
Peoples League (all factions) 1.40 Crore 15 Lakh 18 Lakhs
Jamait-e-Islami (JeI) 3.5 Crore 25 Crore 1 Crore
Muslim Conference 1 Crore 2.5 Crore through A G Lone  
Harkat-ul-Ansar 3 Crore    
Al Barq 1 Crore    
KJHC (Kul Zamait Huriyat Conference) 6 Crore   18 Crore (for ops purpose). 27 Crore (to be disturbed among the families of victims @Rs 12,000 p.a.)
Nezhat-e 22 Lakhs    
Al fateh   3.5 Lakhs  
Farooq Kathwari, US based NRI associated with Kashmir Study Group     50 Lakh

Besides the figures quoted above, in its reports submitted to Shoura-e-Jehad, while giving account of money received since 1992, Jamait-e-Islami (JeI) disclosed that it had received Rs 49 crore up to April 1997 meant for the victims of atrocities allegedly committed by the Security Forces. Out of this amount, Rs. 42 crore were distributed and Rs 7 crore were shown as expenses of JeI.7

Compensation paid to terrorists/their families for carrying out their activities in J&K might provide an indication of the extent of terrorist funding. 8 See Table-2 below:

Table-2: Payments Made to Terrorists Operating in J&K [in Indian Rupees]

S.No. Type of Payment Foreigners Locals (including Pakistanis)
1 Upfront money given at the time of recruitment Up to 50,000 Up to 25,000
2 Monthly Payment 10,000-12,000 8,000-10,000
3 End of Tenure payment 2,00.000-2,50,000
4 For a spectacular act of terrorism 1 lakh-2 lakhs
5 Payment given to a supreme leader Up to 50,000 per month


Miscellaneous Estimated Costs in Terrorist Activities [In Indian Rupees]

S.No. Nature of Cost Amount
1 Cost of training of a terrorist 25,000
2 Cost of clothing and equipment 25,000-30,000
3 Relief for family of deceased militants in Pakistan Ex gratia 2,00,000
4 Relief for family of deceased Kashmiri in J&K Ex gratia 20,000-plus some monthly subsistence allowance ranging from 3,000-5,000. They also get some extra money on festivals like Id.
5 Payment to each guide 10,000-20,000
6 Payment for motivating a youth to join militancy 5,000-10,000

From the data cited above, it is evident that the cost of training and financing each terrorist is quite modest. However, cumulatively, these figures could add up to a tidy sum. For every transaction that has come to the notice of the Government of India, it is very likely that many others have been missed.


Transnational linkages

The militancy in J&K which originally started as a domestic movement, has acquired transnational linkages since 1992-93. Initially, the spearheads were the Jammu and Kashmir Liberation Front (JKLF) and Hizb-ul-Mujahideen (HM). But these two have been overshadowed by Lashker-e-Taiba (LeT), Jaish-e-Mohammed (JeM), Al Badr etc. Each of these terrorist outfits is affiliated to various over ground political factions in India and Pakistan. Thus, the political wing of the HM is the Jammat-e-Islami and that of the LeT is the Markaz-ud-Dawa-Wal-Ishad of Pakistan. These political wings make most of the collections and financial transactions for their militant wings. Over 60 per cent of militants currently active in J&K are believed to be of foreign origin, a proportion that has increased from a mere six per cent in 1989. 9 Up to 90 per cent of the foreign militants are from Pakistan. Save a small percentage of funds made through collections and donations made in the Valley, 90 per cent of the funding is from other countries/Islamic organisations like, World Association of Muslim Youth, Rabit-e-Alam Islami, World Kashmir Freedom Movement, Kashmir American Council, Kashmir Study Group, and Friends of Kashmir, UK, etc. However, the major contributor remains Pakistan through ISI and its High Commission in India and Nepal. 10 The author’s interview with senior security forces officials has yielded the following proportions in terrorist funding, source wise as;

Table-3: Sources of Terrorist Funding in J&K

Source Percentage
Direct from Pakistan 25
From narcotics 15
From illegal sale of arms 10
Through counterfeit currency 10
Through Zakat (an Islamic tax) & donations 10
From international Islamic organisations & Organisation of Islamic Countries 20
Through extortion/bank robberies 10


There are two main sources of terrorist financing-the diaspora and domestic. The latter includes co-ethnic, co-religionist groups which finance organised crime. The former includes the Pakistani State as well as Pakistani Kashmiris who are known to contribute to Kashmiri militant outfits operating on Indian soil.

It has been recorded that external funding is of a much higher magnitude than funding coming from domestic sources. Estimates indicate that between US $1,00,000-200,000 has been raised by JKLF, the diaspora and other Kashmiri groups. 11 It is instructive to note that funding picks up in response to certain domestic events. For instance, the demolition of the Babri Masjid in 1992 led to large contributions to the kitty of terrorists operating against India.


Sources Of Terrorist Finance


Kashmiri militants obtain financial support from dozens of Islamic charities and radical Islamic organisations that channel funds to terrorist groups. The Al Rasheed Trust based in Karachi is run by Maulana Masood Azhar. It was originally set up as a welfare organisation. In the 1980s it was co-opted by the ISI to channel Saudi Arabian funds to the Afghan Mujahideen. 12 After the Taliban took over in Afghanistan, the ISI shifted the Trust’s focus to Kashmir and used it to finance insurgency in Kashmir. 12 It publishes advertisements in the Pakistani press asking for funds for “welfare work in Kashmir, Chechnya, Kosovo etc.” But it clearly informs donors that it will decide how to spend the money. For instance, it says, if there is a “dire need of the Mujahideen” the money will be used for their needs. 12

The Pakistan based Markaz-ul-Dawa-Ishad, the parent outfit of LeT and a religious organisation puts out regular advertisements in its in-house monthly magazine, Al Dawa. It urges Muslims to donate money for Kashmir ‘Jehad Fund’ and deposit it in bank accounts. 12 At its annual congregation in November 1998 at Muridke, near Lahore, the Markaz decided to raise Rs 5 crore including 3 crore to supply weapons to the Kashmiri ‘Jehad’, 1 crore for training and 1 crore to rehabilitate Kashmir refugees in POK. 13

Several First Information Reports (FIRs) filed by the Jammu & Kashmir Police in 1997 indicate that the senior leaders of the APHC receive donations from abroad. In October 1995 one of its leaders (Syed Ali Shah Geelani) received Rs 10 crore as an office bearer of Jammat-e-Islami. Incidentally, the Jammat website canvasses for donations to aid the cause of Kashmir. The site asks people to donate ‘sadaqat’ directly in Account Numbers 01121306 (for Pakistan Rupees) and 01800319 (for US Dollars) at Lahore’s Bank Al-Falah. 13 In UK and some other European countries the collection of funds is made for welfare activities in J&K. These are then sent to Dubai for transfer to Kashmir for terrorist activities. The donor in the UK is under the impression that he has donated for a good cause.

The mushrooming growth of madrassas on the Indo-Pak border and in the interior provides an indication of the channels into which these funds flow. A visible aspect can be seen on Jammu-Srinagar National Highway where unaccounted open collections are made in front of mosques.


The nexus between narcotics and terrorism had led to a new term-Narco-Terrorism. It is recognised as one of the oldest and most dependable sources of terrorist financing, primarily because of the magnitudes of finance involved in both the activities. Arun Kumar, in his book on Black Economy in India says drug profits have been used to finance terrorism in the South, the North-East, Punjab and Kashmir. 14

Pakistan’s involvement in Narco-Terrorism dates back to the era of Soviet intervention in Afghanistan. President Zia’s involvement in narcotics trade is an open secret and he diverted some proceeds of this income towards funding the Kashmir ‘Jehad’ which continued even after his death. Narcotic smugglerrs based in Pakistan and controlled by ISI are reported to have earnings in excess of US $ 2.5 billion. According to a UNDP report, Pakistan’s heroin industry is estimated to have a turnover of US $ 74 billion. 15 In early 1991, Pakistani Prime Minister Nawaz Sharief, is learnt to have said that, Pakistani Army Chief and the ISI Chief proposed a detailed ‘blueprint’ for selling heroin to pay for the country’s covert military operations. It is likely that narcotics money is used by ISI, to:

The extent of drug smuggling being carried out by militants in Kashmir can be judged from the fact that 19,450 kg of narcotics (heroin, charas, brown sugar, etc) valued at Rs 20 crore was recovered from Kashmir during 1997-1998. 16 The Golden Crescent (Pakistan, Afghanistan and Iran) takes care of the deficits in the militants’ budget. In December 2000, Frank Cilluffo, Director of the Global Organised Crime Project for the Washington-based Center for Strategic and International Studies, told a US House Committee that the Afghanistan Government imposes a 12 per cent tax on opium cultivation, charges a levy of US $70 per kg on heroin production and collects US $ 250 per kg from transporters. Revenue estimates vary widely, but there is an indicator: Afghanistan is the world’s largest producer of opium and it harvested 4,600 tonnes in 1999 and 3,200 tonnes in 2000. 17


Extortion has emerged as a major source of terrorist funding. Police and Intelligence agencies believe that most of the businessmen, shopkeepers, government employees, contractors, especially those dealing in timber and persons with sound financial background are easy targets. They have bought peace by coughing up, as and when extortion demands are made. During 1990-95, Rs. 7.30 crore was looted by terrorists to fund their activities. 18 Needless to say estimates of extortion funds are impossible, but could run into several crores of rupees per year.

Fake Currency

A perceptible increase in the circulation of fake Indian currency notes (FICNs) has been recorded in the recent past in the Kashmir Valley. Against seizure of FICNs worth Rs 8,45,000 in 1995, the seizure in 2001 was Rs 3.56 crore 19 (FICNs are being sold at a discount of 60-70 per cent). Actual circulation would easily be several times this figure.

Seizures of FICNs specifically on the Indo-Pak and Indo-Nepal borders combined with the disclosures made by ‘carriers’ reveal indisputably that the ISI is behind this racket. It is easy to infer that counterfeiting confers double benefits: sabotaging the Indian economy and generating funds for terrorists activities. Table-4 below summarises the involvement of ISI in FICNs. 20

Table-4: FICNs seized in India

Date Place Amount Seized (Rs) Remarks
March, 1990 Ferozpur (Punjab) 12 Lakhs and 4 lakhs Smuggled from Pakistan
July, 1999 Mumbai (Maharashtra) 16 Lakhs Smuggled from Karachi and routed through Kathmandu
September, 1999 Calcutta (W-Bengal) 30 Lakhs Routed through Bangkok from Pakistan
October, 1999 Patna (Bihar) 4.5 Lakhs and 90,000 Gang had links with Pak Embassy in Kathmandu
January, 2000 Delhi 8 Lakhs Links with ISI
January, 2000 Kathmandu (Nepal) 50,000 Pak Embassy employee arrested
July, 2000 Mumbai (Maharashtra) 1.22 Crore Money sent by Pak ISI through Dubai
July, 2000 Gujarat 8.25 lakhs Currency supplied via Dubai
January, 2001 Mumbai (Maharashtra) 50 lakhs Amount came from Dubai
March, 2001 Mumbai (Maharashtra) 10 lakhs and 90, 01, 500 Amount sent by ISI through Dubai
March, 2001 Attari-Wagah (Punjab) 900 and 20,700 Money exchanged at Lahore


Modes Of Financing Terrorism

Front Companies

Osama bin Laden’s Al Qaeda has refined the art of illegal financial flows of transmitting funds through its numerous front companies. These include, a Holding company (Wadi al Aqiq), a construction company (Al Hijra), agri business companies (Al Themar, Al Mubarka), two investment companies, (Laden International and Taba Investments), a leather company (Khartoum Tannery) and a transport company (Quadrant Transport) 21 which are suspected to have provided funds to terrorist outfits in Kashmir. 22

M/s Iqbal and Kohinoor Dythene Pesticides, Srinagar had been receiving large sums of money disguised as export proceeds from abroad in fake accounts. One such transaction amounting to Rs. 80 lakhs has been traced. 22

Kashmir Medical Trust, Jhelum Valley Medical College, Islamic Welfare Society, Iqbal Memorial Trust, etc., have acted as conduits for mobilising funds from across the border. 22


This system has been in existence for a long time in India and other Asian countries. In India it is known as hawala, in Pakistan as hundi, in China fei qian (flying money), in Philippines as black market peso exchange. 23 It is one of the important methods of terrorist funding in Kashmir, and is known as the underground or parallel-banking channel.

Hawala is a system wherein with nothing more than a telephone and a fax machine, money can be transferred anywhere with no questions asked, no names used and no trail left for law enforcement. The Hawala route is used by the ISI and several other fundamentalist outfits in countries grouped under the Organisations of Islamic Countries (OIC) to send money to terrorist groups in J&K. Hawala funding is done through a network of dealers which extends all the way from the OIC countries to Delhi, Mumbai and other places in India. Many of these Hawala dealers have begun wholesale/retail businesses as fronts to divert money to the J&K militant groups. Pakistani Finance Minister Shaukat Aziz, a former executive vice president of Citibank in New York said that US $2-5 billion moves through the Hawala system annually in Pakistan. This is higher than the amount of regular foreign transfers through the country’s banking system.

It has been reported that Kashmiri carpet dealers throughout the country under-invoice their exports to Islamic countries and the balance of the under-invoiced value is diverted to terrorist groups through the Hawala route. 24

A US Treasury Department study identified Hawala as the preferred means of laundering monies from drug trafficking and other crimes in Pakistan. The report said Pakistan, India and Dubai on the Persian Gulf form the Hawala Triangle to move money secretly worldwide. 25 One Abdul Rehman was arrested on December 6, 2001 with Rs 15.5 lakh in Delhi. This money was coming from Dubai for HM. Further, on the same day, Rs 40 lakh coming through Hawala channels was recovered from a Kashmiri militant which was received by him through Hawala channels. The Delhi Police arrested four Kashmiri militants on January 15, 2002 from the capital and seized Rs. 35 lakh from them. This money was received by militants from Pakistan through a Hawala operator in Chandni Chowk. 26


Global Action Against Terrorist Funding

The world became more alive to all facets of terrorism including funding, post-September 11, although money-laundering per se has been a global concern for some years now. To strike at the financial roots of terrorism, several countries like UAE, Philippines, Kuwait, Germany, Japan, South Korea, Saudi Arabia, the UK and the USA have taken various measures, including legislative measures to counter money laundering. 27 In India, the Prevention of Money Laundering Bill which addresses terrorist funding and arms trade among other crimes, is stuck in the Parliament for three years for want of a consensus on some of its controversial provisions. The Foreign Exchange Regulation Act (FERA) has been replaced by the weaker Foreign Exchange Maintenance Act (FEMA) that does not address Hawala at all and makes Invoice Manipulation only a compoundable civil offence. 28



This paper concludes that terrorism in J&K is financed by a variety of sources, both national and transnational. While it costs the terrorists only a modest sum of money to destabilise the region and spread terror, the Indian Government has to set aside huge outlays to tackle the problem. A more effective method of fighting terrorism would be to launch a multidimensional offensive against all the sources-narcotic trade, extortion, counterfeiting, fake charities-as well as methods of financing, namely, hawala and front companies.



The author is grateful to Shri. K. Santhanam, Director, IDSA for his motivation and guidance in writing this article, to Shri Sreedhar Rao, SRA, IDSA, for providing his valuable inputs, to Smt. Sudha Mahalingam, Senior Fellow, IDSA for editing and adding her own valuable insights, to Shri VK Joshi, senior police officer for his professional inputs, to Shri Kulbir Krishan IPS, Senior Fellow, IDSA for guidance and to Shri Raj Kumar Tripathi for his assistance in manuscript preparation.



Note *:   N.S. Jamwal is a Research Fellow with the Institute specialising in Border Management. He is a Commandant in Border Security Force (BSF), and has seen action in Jammu and Kashmir, Punjab and North-East. He has also served as Instructor with BSF and NSG. Back.

Note 1:   Chris Baker, “Putting a price tag on terror”, The Washington Times, 18 November, 2001. Back.

Note 2:   Sanjay Suri, “Lockout at Dhobi Ghats” Outlook, December 31, 2001, p. 21. Back.

Note 3:   Rahul Bedi “Clashes in Kashmiri Stretches Indian CI OPS”, Janes Intelligence Review, August 1999, p. 30. Back.

Note 4:   As told to the author in an interview with senior officials of Security Forces, Govt of India, January 2000. Back.

Note 5:   http// Back.

Note 6:   As told to author in an interview with officials of Intelligence Agencies, Ministry of Home Affairs, New Delhi, November 2001. Back.

Note 7:   As told to the author in an interview with senior officials of Intelligence Agencies, Ministry Of Home Affairs, New Delhi on 11 February, 2002. Back.

Note 8:   As told to author in an interview with senior officials of Security Forces, Govt of India, January 2002. Back.

Note 9:   Ibid. Back.

Note 10:   Ibid. Back.

Note 11:   Rohan Gunaratna, “Transnational Terrorism-Support networks and Trends” Faultlines, vol. 7, 2000, p-7. Back.

Note 12:   Al Rasheed: a welfare trust to terrorist empire” Hindustan Times, dated 27th September, 2001. Back.

Note 13:   Alam Srinivas, “Financing Terror”, Business World dated 15th October, 2001. Back.

Note 14:   Arun Kumar in “The Black Economy in India” p. 27. Back.

Note 15:   Kshitij Prabha “Narco-Terrorism and National Security“ Strategic Analysis, January 2001. Back.

Note 16: Back.

Note 17:   Alam Srinivas “Financing Terror” Business World, 15th October 2001. Back.

Note 18:   As told to the author in an interview with Senior Officials of Intelligence Agencies, Ministry of Home Affairs, on 11 February 2002 and observation of the author based on his personnel experience on CI-OPS and interaction with the people (1998-2001). Back.

Note 19:   As told to the author in an interview with Senior Officials of Intelligence Agencies, Ministry Of Home Officials, New Delhi, 29th January 2001. Back.

Note 20:   Ibid. Back.

Note 21:   Trifin J Roule, “Investigators seek to break up Al-Qaeda’s financial structures”, Janes Intelligence Weekly, November 2001. Back.

Note 22:   As told to the author in an interview with Senior Officials of Intelligence Agencies, Ministry of Home Affairs, New Delhi, on 11 February 2002. Back.

Note 23:   M.N. Verma, “Heaven for Terrorism-Strike against Global Tax Evasion”, The Times of India, dated 10 January, 2002. Back.

Note 24:   Jyoti Trehan “Violence in Kashmir; complexities and Pathways”, Faultline, Vol. 7, 2000. Back.

Note 25:   Douglas Frantz, “The Financing-Ancient Secret System Moves Money Globally,” New York Times, 3rd October 2000. Back.

Note 26:   Doordarshan news dated 15th January 2000. Back.

Note 27:   Trifin J Roule, “Investigators seek to break up Al-Qaeda’s financial structures”, Janes Intelligence Weekly, November 2001. Back.

Note 28:   Sudha Mahalingam, “Money Laundering” Frontline, 11 September, 1998. Back.