Terror Funding – Sources, Challenges & India’s Response

Stopping terror funding is a complex and persistent challenge due to a combination of structural, technological, legal, and international hurdles. These challenges make it a “cat-and-mouse” game for security and financial agencies.

Structural & Operational Challenges

• The Hawala System:
  • Informal and Record-Less: As an informal, trust-based system, it leaves virtually no paper trail or digital footprint for investigators to follow.
  • Speed and Efficiency: Transactions are settled quickly, often before law enforcement can even initiate an investigation.
  • Deep-Rooted Networks: These networks are old, well-established, and deeply embedded in the informal economy, making them difficult to infiltrate.
• Vast Informal Economy:
  • India’s large, cash-dependent informal economy provides a perfect camouflage for mixing illicit funds with legitimate business cash flows. Differentiating between legal and illegal cash is a monumental task.
• Decentralized & Fragmented Ecosystems:
  • As per the FATF report, terror financing is now conducted by local actors in fragmented cells. This decentralization means there is no single, large financial pipeline to disrupt, making investigations more resource-intensive and less effective.

Technological & Modern Challenges

• Misuse of Emerging Technologies:
  • Cryptocurrencies and Virtual Assets: These offer pseudo-anonymity, cross-border fluidity, and operate in a regulatory grey area. Tracing transactions through mixers and across international wallets requires specialized expertise that is still scarce.
  • Encrypted Communications: Apps like Signal, etc., are used to share funding instructions and wallet addresses, preventing agencies from intercepting crucial intelligence.
• Misuse of Legitimate Online Platforms:
  • Social Media & Crowdfunding: It is difficult to distinguish between legitimate charitable crowdfunding and campaigns designed to funnel money to terrorists.
  • E-commerce & Gaming Platforms: The use of these platforms for procuring materials or generating small streams of revenue creates a high volume of low-value transactions that are hard to monitor.
    • Global terror financing watchdog, the Financial Action Task Force (FATF), has said that e-commerce platforms have been used in the procurement of materials for a terrorist attack in India. This was revealed in the terrorist attack in Pulwama in Jammu and Kashmir and the Gorakhnath Temple in Uttar Pradesh. 
    • FATF in a report on a Comprehensive update on terrorist financing risks said that digital platforms such as social media, messaging applications and crowdfunding sites are increasingly being abused for terror financing. Several forms of support have been reported, including direct financial support, logistical and material support, or the provision of training.
    • In the Pulwama attack in 2019, a suicide bombing targeted a convoy of Indian Security forces, resulting in the deaths of forty soldiers. India’s authorities concluded that the attack was orchestrated by Jaish-e-Mohammed. The investigations revealed the cross-border movement of a large quantity of explosives into India, and a key component of the explosive device used in the attack was procured through the e-commerce platform.
• The “Lone Actor” Micro-Financing Problem:
  • The most difficult challenge to detect is when a lone actor uses small, legitimate sources of income (salary, savings, small online gigs) to fund an attack. These transactions do not trigger any red flags in the financial system, making pre-emption nearly impossible.

Legal & Jurisdictional Challenges

• Cross-Border Nature and Jurisdictional Hurdles:
  • Terror funding is a transnational crime. A hawala transaction may originate in the Middle East, be routed through Pakistan, and end in Jammu & Kashmir. This requires complex international cooperation, which is often hampered by geopolitical tensions, sovereignty issues, and uncooperative states (like Pakistan).
• Delays in Prosecution and Conviction:
  • While laws like UAPA and PMLA are powerful, gathering evidence that meets the high standards of proof for a court of law is difficult. The complexity of financial trails often leads to prolonged trials and low conviction rates.
• Regulatory Gaps:
  • The regulatory framework for new technologies like cryptocurrencies is still evolving. Social media platforms often operate in a space where financial regulations are unclear or unenforceable.

Institutional & Coordination Challenges

• Inter-Agency Coordination:
  • While agencies like NIA, ED, FIU-IND, and state police forces are involved, seamless real-time intelligence and data sharing can sometimes be hampered by bureaucratic silos and turf wars.
• Capacity Building Gap:
  • The rapid evolution of financial technology outpaces the training of law enforcement personnel. There is a significant need for continuous upskilling in cyber-finance, cryptocurrency tracking, and digital forensics.
• Resource Intensiveness:
  • Investigating terror funding is highly resource-intensive, requiring specialized financial auditors, cyber experts, and prolonged surveillance, which strains the capacities of even the premier agencies.

Socio-Political Challenges

• Misuse of Non-Profit Organizations (NPOs):
  • Distinguishing between genuine charitable work, which is crucial for social development, and front organizations siphoning funds to terrorists is a sensitive and delicate task. Over-regulation can stifle legitimate philanthropy, while under-regulation leaves a gaping loophole.
• Political and Community Will:
  • In some areas, terror groups have deep social roots and enjoy local support, either through coercion or ideology. This makes communities reluctant to cooperate with authorities, protecting the funding networks.