The Convergence of the Narcotics, underworld and Extremist in Afghanistan and Pakistan and it's Global Proliferation

Abdull Kazi

JF-Expert Member
Dec 29, 2012
258
217
Chapter Four

The Terror Racket

Formal / Informal Channels

As we have delved into the increasingly intricate nexus of cooperation between terror groups, tribal warlords, narcotics smugglers, and corrupt politicians, a clear pattern is forming— terror groups are diversifying their revenue streams. Gone are the days when the Taliban were strugling to find donors.

With the growth of the narcotics industry, terror groups are finding new ways to protect their organisations from economic collapse. They are becoming more and more like mafia organisations, with investments in various licit enterprises like real estate, shipping businesses, and construction companies to conceal and protect their illicit profits.

They are also utilising both ancient and cutting-edge methods for obfuscating transactions and moving finances and illicit products around the world. As they have diversified their illicit operations, they have found new, innovative ways to hide those operations. Like many innovations of terrorist financing, money laundering has its roots in the covert support of the mujahidin.

The ISI funnelled money for the mujahidin through the Bank of Credit and Commerce International (BCCI). Founded by Pakistani business mogul Agha Hasan Abedi, BCCI was the main instrument of funnelling money to armed groups abroad.

This was the organisation responsible for transferring the funds and weapons for the now infamous Iran-Contra arms deal. BCCI developed a sophisticated model for transferring illicit goods across the globe, known as the “black network”.

Operating out of Karachi, this network was a full-service trafficking machine: they shipped the illicit goods using their own vessels, insured the goods through the bank, provided security en route to the destination, and paid bribes to officials at border points.

They eventually amassed enough power to take over the entire Karachi port, overseeing all customs operations themselves. This enabled them to easily carry out the transfer of weapons, supplies, and funds to the mujahidin.

When the mujahidin turned to narcotics to fund operations, BCCI was there to offer logistical and financial support to the ISI to ship the drugs to the West.

This coordination between terrorist organisations, front companies, and the financial industry became a blueprint for future endeavours in the narcotics industry.

Not only did BCCI spearhead a terrorist financing nexus in general, but it created the roadmap for obfuscating illicit financial transactions to terrorist organisations.

This started with the bank giving out unsecured loans to wealthy financiers in exchange for access to global markets. Over the course of the 1970s and 1980s, BCCI gave a Saudi financier USD $500 million in unsecured loans so that he could purchase a controlling interest in two American banks on BCCI’s behalf, in violation of international banking regulations.

This plan worked for some time, since BCCI became a household name in the Middle East for offering large unsecured loans to wealthy investors. This enabled BCCI to afford such loans because there were always more investors to cover the cost.

This setup additionally allowed wealthy clients to obfuscate their transactions and circumvent foreign exchange controls by entrusting the bank to make investments on their behalf.

One of those clients was Saddam Hussein, who was able to transfer much of his oil revenue to investments around the world through BCCI.

The bank helped other friendly governments to secretly fund politically volatile operations, like Pakistan’s nuclear weapons programme in the 1980s. BCCI first helped Pakistan set up a tax-free foundation to funnel the money into, which was run by future Pakistani president Ishaq Khan who was then serving as finance minister.

The money was then funnelled to the bank, which donated USD $10 million of its own money to pay for a secret nuclear weapons development laboratory. Even after BCCI closed down upon an investigation into its money laundering operations, it set the stage for several financial institutions to follow the same model, dealing with even more nefarious actors.

414 413 Loretta Napoleoni, Terror Incorporated: Tracing the Dollars behind the Terror Networks (New York, NY: Seven Stories Press, 2005), 83-85. 414 Napoleoni, Terror Incorporated, 121-122.

In the 1980s, two financial institutions rose out of Saudi Arabia to become the main vehicles for laundering money to extremists: Dar al-Maal al-Islami (DMI) and Dallah al-Baraka (DAB). DMI was founded by Mohammed bin Faisal Al Saud, the son of Saudi King Faisal, in 1981 in Geneva, Switzerland.

Since its inception, DMI has been building a wide array of subsidiaries based all around the globe, throughout North America, Europe, Africa, and Asia. DMI’s many subsidiaries include DMI S.A., Islamic Investment Company of the Gulf, the Faisal Islamic Bank of Bahrain, Shamil Bank of Bahrain, Faisal Islamic Bank of Sudan, Tadamon Islamic Bank, Faisal Finance S.A., Faisal Islamic Bank of Egypt, and Al Shamal Islamic Bank.

DMI has been able to conceal many of its transactions through this opaque network of businesses meant to put distance between the Saudi royal family, wealthy Saudi financiers, and their beneficiaries.

The DMI subsidiaries have a complex web of connections intended to obfuscate transactions and maintain plausible deniability if any get accused of aiding terrorist operations.

DMI, which is based in Switzerland, is the holding company for the Islamic Investment Company of the Gulf, which is based in Bahrain. Islamic Investment Company of the Gulf owns the subsidiary Faisal Islamic Bank, based in Cairo, Egypt.

Reinforcing the point that all three are essentially the same business, they are all chaired by Prince Mohammed al Faisal al Saud of the House of Saud.

The Faisal Islamic Bank of Sudan is a shareholder of Tadamon Islamic Bank. Tadamon Islamic Bank provided much of the seed money to open Al Shamal Islamic Bank, and maintained a large interest in the bank.

The other major investor in Al Shamal Islamic Bank’s establishment was Osama bin Laden, who maintained a long relationship with DMI as one of their most prominent and notorious clients.

DMI’s network of subsidiaries further serves the purpose of concealing the illicit transactions of the bank’s clientele.

Bin Laden took advantage of this model by diversifying his wealth between three of those subsidiaries: al-Shamal Islamic Bank, Tadamon Islamic Bank, and Faisal Islamic Bank.

Bin Laden used these banks to transfer funds to al-Qaeda operatives and supporters around the world.

Funds used in the 1998 US Embassy bombings in Nairobi and Kenya were traced back to al-Qaeda accounts at Faisal Islamic Bank.

Not only does this implicate DMI in funding terrorism, but also implicates Dallah al-Baraka (DAB). One of the founders of Faisal Islamic Bank was Saleh Abdullah Kamel, brother-in-law to the King of Saudi Arabia, King Faisal.

In addition to Faisal Islamic Bank, he was the founder of the other major financial institution in Saudi Arabia, DAB. Like DMI, DAB had a hand in markets all around the world, with 23 branches and multiple investment companies throughout 15 countries.

One of DAB’s subsidiaries is Dallah Avco, which is an aviation services company that has worked on several contracts with the Saudi Ministry of Defence and Aviation. The assistant to the Director of Finance at Dallah Avco was Omar al-Bayoumi, who organised the terrorist attack on September 11th.

Al-Bayoumi organised all the logistics in the operation, from finding the hijackers Khalid Almidhar and Nawaf Alhazmi housing in San Diego, to opening bank accounts for them, getting them Social Security cards, and even booking the flight lessons in Florida that enabled them to hijack the planes.

The perceived separation of DMI and DAB is just another layer of obfuscation that allows each bank and their subsidiaries to feign ignorance at the illegal actions undertaken through their facilitation.

Another instance of DMI obfuscation is the creation of Crescent International Ltd., which operated in the United States.

Crescent International Ltd. was registered in Bermuda and owned by Amended RICO Statement Applicable to Dar Al Maal Al Islami Trust and DMI Administrative Services, S.A., Federal Insurance Co. v. al Qaida, Case No. 03 CV 06978 (RCC), (U.S. District Court S.D. New York, Jun. 15, 2004), 7. http://media.philly.com/documents/ Cozen+RICO+Banks+2.pdf 416 Amended RICO Statement, Federal Insurance Co. v. al Qaida, 30. 417 Napoleoni, Terror Incorporated, 124. 418 Lucy Komisar, “Funding Terror:

Investigating the Role of Saudi Banks,” In These Times, Dec. 20, 2002, https://inthesetimes.com/article/ funding-terror. 75 Greenlight SA, based out of Switzerland.

Both Crescent International Ltd. and Greenlight SA were “principal subsidiaries” of DMI Trust, according to their 2001 Annual Report.

Upon investigating their addresses, it becomes very clear that DMI is intentionally diversifying its businesses to conceal its practices.

All three entities, DMI SA Services, Crescent International Ltd., and Greenlight SA, have the exact same business address in Geneva, Switzerland.

This not only allowed DMI Trust to obfuscate their clientele, but enabled them to invest in the global market, unencumbered by international banking regulations.

Through Crescent International Ltd, DMI was able to invest in the American stock exchange, purchasing millions in shares of telecommunications companies and in the real estate market. DMI even set up an international development fund dealing in the hundreds of millions, managed by a private equity firm out of Washington DC.

In addition to building a complex structure of shell companies and subsidiaries, DMI further hid their operations through falsifying tax returns, racketeering, laundering illicit funds, and hiding money in tax havens.

This was all concurrent with their funding terrorist operations in Sudan, Afghanistan, and Jordan. Al-Qaeda was ironically relying on the American stock exchange and American corporations to fund terrorist operations against American security interests.

Examining the way bin Laden and al-Qaeda coordinated with DMI to fund terrorist operations shows a revealing picture at the complex network that has evolved in terrorist financing. One element of this funding was the funnelling of charity money to al-Qaeda.

DMI facilitated the transfer of zakat (charity) account funds to al-Qaeda linked accounts. DMI’s zakat funds originated from a 2% charge on all clientele transactions, said to be going towards an Islamic charity, which is customary with Islamic banking.

What isn’t customary in Islamic banking is that this charity turned out to be a terrorist organisation. Al-Qaeda set up several charity-fronts themselves, the likes of which DMI was happy to house in their institutions.

Faisal Islamic Bank even advertised charities that were knowingly aiding al-Qaeda. In partnership with the National Islamic Front, an Islamist organisation in Sudan that had a controlling interest in Faisal Islamic Bank, Osama bin Laden invested USD $50 million in a series of businesses through his accounts in Al Shamal Islamic Bank.

In 1992, bin Laden opened two accounts through the bank for his new venture, Al-Hijrah for Construction and Development Ltd. This company provided transportation and provisions for the Sudanese military to train in al-Qaeda militant camps.

A year later, bin Laden opened a third account at Al Shamal Islamic Bank under his holding company’s name, Wadi Al Aqiq, which controlled a monopoly over agricultural exports from Sudan.

Bin Laden was able to stay under the radar of investigators by opening accounts under his business’ names instead of his own, conducting his operations with relative ease.

In addition to his own account, six of bin Laden’s most trusted operatives held accounts in Al Shamal Bank from which they would transfer funds to other members to purchase military equipment.

This included large purchases like USD $250,000, transferred through the Bank of New York, for stinger missiles and a plane to transport the missiles from Pakistan to bin Laden in Sudan.

A former financial officer for bin Laden, Jamal Ahmed Al-Fadl, testified that bin Laden paid operatives through the Al Shamal account, including his own salary of USD $1,200 a month. He also attested to a USD $100,000 transfer to an al-Qaeda operative in Jordan.

Through DMI, al-Qaeda was able to pay salaries, fund operations, and purchase weapons and equipment to send across the globe. Without the bank’s complicity, al-Qaeda would have had much more difficulty in growing their network and executing attacks.

Al-Qaeda effectively operated in the global financial market through supposedly legitimate enterprises.

The activities of 419 Amended RICO Statement, Federal Insurance Co. v. al Qaida, 24. 420 Ibid., 31. 421 Ibid., 12-13. 422 Ibid., 12-30. 76 DMI and DAB ushered in a new era of terrorist organisation sophistication.

They offered terrorist groups a means of protecting their illicit enterprises and gave them cover from financial regulators. Without addressing the nexus between terrorist organisations and financial institutions, they will continue to have a means of protecting and growing illicit capital to utilise for destructive aims.

D-Company Another vital piece to the evolution of the terrorism-financing paradigm is the birth of crime-terror hybrid organisations. These are organisations that fund terror operations through criminal enterprise.

Two of the best examples of this are D-Company and the Haqqani network. D-Company was founded by Dawood Ibrahim, who to this day is the only person the United States has labeled as both a “global terrorist supporter” and a “foreign narcotics kingpin.”

As discussed in Chapter 2, the Haqqani network rose out of the Soviet-Afghan War to become a major player in South Asian terror networks. It saw the benefit early on of using criminal activity to fund terror operations.

It has since become one of the most powerful and influential criminal networks in the region.

Through examining the strategy of D-Company and the Haqqani network in expanding and protecting their financial revenue streams, we can gain a sense of the spectrum of tools available to all terrorist organisations to do the same.

Known as The Don, Ibrahim emulated the mafia business model in many ways, fixing sports matches, extorting businesses for money, and even having members assassinated who were disloyal to him.

Dawood is the son of a police constable who took advantage of the protection that was given to him by entering the world of smuggling. He started out smuggling gold, and moved up to higher-level crimes, including extortion and eventually assassinations.

He soon expanded operations to include drug trafficking. Starting in the 1980s, D-Company used their ownership of several shipping and trucking lines to smuggle heroin from Pakistan to India.

Authorities believe they would either hide the drugs inside fruit shipments by truck to India via the Wagah-Attari border, or in jute bags via maritime port and subsequently into Gujarat and Mumbai.

When authorities began pursuing Ibrahim for his burgeoning criminal enterprise, he fled to Dubai. Ibrahim took a liking to the freedom his new environment offered, and was able to evolve his street-level gang into a global crime syndicate.

As John Cassara, Special Agent to the Department of Treasury’s Office of Terrorism Finance and Financial Intelligence (INL) put it, “whether it’s drug smuggling, people trafficking, or money laundering, all roads lead to Dubai.”

Dubai’s then “business-friendly” policies offered D-Company the cover to engage in international smuggling and money laundering quite effectively. Ibrahim used the UAE as D-Company’s base of operations for several years, offering logistical support for his operations abroad, transferring illicit funds through UAE investments, such as real estate, to launder the funds while making capital gains on the investments.

Since their small-time drug smuggling and dealing in the 1980s, D-Company soon grew into a global smuggling empire, with established networks in South Asia, the Middle East, and Africa.

Founder of the Haqqani network, Jalaluddin Haqqani, had a stroke in 2005 and remained bedridden until his death in 2018, relinquishing him to merely the figurehead of his organisation.

Under his leadership, the network relied much less on donations from Gulf backers and the support of the ISI, and more on a growing conglomerate of licit and illicit businesses.

One major revenue stream for D-Company and the Haqqani network is extortion. D-Company operatives extort money from businesses upon threat of violence. Dawood’s brother, Anees, handled the extortion cases, and in one case sent some of his men to threaten a hotelier based in Dubai to pay them 50,000 Dirhams (USD $13,600).

After he paid, he fled to India to try to set up a hotel where he would not be threatened. Anees’ men followed the hotelier, now demanding ₹50 lakh ($68,000 USD).431 D-Company operatives also act as ‘hired muscle’ to collect debts for their clients through force and intimidation, even going after the family members of the debtors for payment.

Pakistani national Jabir Moti, a top lieutenant of D-Company, was arrested in August 2018 in the UK for this very charge.
The Haqqani network turned extortion into a systematic, reliable revenue stream.

They use mafia-like enforcement tactics where every business that operates in the Haqqani network sphere of influence must get approval from the network, and that approval usually comes in the form of regular payments.

They use these enforcement tactics on infrastructure projects implemented in their area as well, intimidating or threatening them into giving the network a portion of their funding if they wish to continue operating without facing violence.

This creates a situation where many well-intentioned international aid projects are inadvertently funding the Haqqani network by launching projects in the Haqqani sphere of influence.

Haqqani network operatives generally extort 10-25% of the value of construction projects, directly benefiting from many of the groups that are attempting to reduce the Haqqani influence.

They use this model to profit off of many industries, including narcotics. They impose the equivalent of a toll or tax on businesses moving through or operating in their sphere of influence. For narcotics smugglers, this means paying the Haqqani network for “protection” if they plan on navigating through their region to transport.

This has been incredibly lucrative for the Haqqani network, which holds domain over much of southeastern Afghanistan and Pakistan’s FATA, where a majority of the smuggling occurs.

Another revenue stream for D-Company and the Haqqani network is kidnapping for ransom. D-Company operatives have kidnapped wealthy businessmen or their family members demanding substantial sums of cash for their safe return.

These funds are then used to finance their terrorist activity. In one prominent case, Chota Shakeel’s aid and notorious D-Company assassin, Abdul Rashid Hussein, attempted to kidnap a wealthy businessman for a ransom of 5 crore (USD $59,000,000) in order to fund the assassination of politicians Varun Gandhi and Pramod Muthalik.

Hussein was thankfully caught before he was able to carry out his plot, but unfortunately this tactic is all-too-common among D-Company operatives.

The Haqqani network has increasingly relied on kidnapping for ransom over the years as a major revenue source. It takes few resources, can have high returns, and there is little risk of capture.

Most families of the abductees would rather pay the ransom than report the kidnapping to authorities and face further threat.

The Haqqani network also focuses kidnappings on wealthy industrialists or politicians, so the ransom amount is usually very affordable for the families.

When it is not, families will often get help from tribal elders, who will also agree not to report the crime to authorities to protect the family.

The network was able to get USD $5 million from kidnapping Afghan diplomat Haji Khaliq Farahi in Pakistan. The Haqqani network has participated in several high-profile kidnappings of Westerners, including US soldier Bowe Bergdahl and New York Times journalist David Rohde.

With Rhode, the Haqqanis sought both financial compensation, demanding USD $25 million, as well as demanding 15 operatives be released from US custody.

Thankfully, Rohde and his translator escaped Haqqani custody after several months of capture.

Extortion and kidnapping for ransom have become common tools for terrorist organisations operating in South Asia to raise funds. In 2007, a coalition of terrorist organisations operating in Pakistan, Tehrik-i-Taliban Pakistan (TTP), the Pakistani-based offshoot of the Taliban, the Haqqani network, and Quetta Shura, agreed to share in the proceeds of kidnapping operations in the regions.

The Haqqani network designated which targets were acceptable, including government officials, security personnel, government bureaucrats, foreigners, NATO contractors, and alleged spies.

From November 2008 to April 2009, TTP adhered to the Haqqani’s directions, engaging in a series of extortion operations on the fuel contractors for the allied coalition in Afghanistan, as well as many kidnappings for ransom.

Over just 5 months, the TTP alone raised at least 250 million rupees (USD $3.1 million) on these operations, using the funds to open new training camps in Pakistan and Afghanistan. Kidnapping, in particular, has seen a meteoric rise from terrorist groups in the past decade.

From 1970-2010, kidnapping made up less than 7% of terrorist attacks. By 2016, kidnappings were almost 16% of all terrorist activity. This is for good reason.

The former leader of al-Qaeda in the Arabian Peninsula (AQAP), Nasser Al-Wuhayshi, commented that kidnapping was «an easy spoil... a profitable trade and a precious treasure.”

Kidnapping for ransom has also become a popular tool for funding terrorist organisations in West Africa.

The commander of the Mali-based al-Qaeda in the Islamic Maghreb (AQIM), Oumar Ould Hamaha, also boasted of the efficacy of this revenue stream, saying «lots of Western countries are paying enormous sums to the jihadists.

The source of our financing is the Western countries. They are paying for jihad.”45 It is likely that terrorist organisations will continue to increasingly exploit this nefarious tool in the years to come.

As mentioned earlier, D-Company was not just a criminal organisation focused solely on wealth.
They have an ideological motivation that has led them to commit and support acts of terrorism. D-Company, under the direction of Ibrahim, his brother, Anees Ibrahim, and his second in command, Tiger Memon, orchestrated what became known as the Bombay bombings on March 12, 1993.446 They used their smuggling network in Dubai, Karachi, and Bombay (now Mumbai) to smuggle several arms, light weapons, and explosives through maritime ports into Bombay from 1992 to 1993.

Anees then organised the distribution of arms to operatives in the region, and arranged a hideout for the attackers to escape to after their attack.

Another operative, Javed Patel, facilitated a series of car bombings throughout the city.

These attacks targeted several locations throughout Bombay, including the Bombay Stock Exchange, the Air India building, Plaza Cinema, 438 Peters, Haqqani Network Financing,
After the attack, Dubai could not overlook Ibrahim’s activity anymore, and he fled to Pakistan, where he lived in Karachi under the protection of the ISI.

While the ISI denied Ibrahim’s presence in Karachi for decades, his residency was finally confirmed in an official Pakistani government Statutory Notifications (S.R.O.) document, declaring the order of an asset freeze, travel ban, and arms embargo on Ibrahim along with several others connected with terrorist groups.

Beyond engaging in their own terrorist activity, D-Company supported and collaborated with multiple terrorist organisations to aid their terrorist activities. In the late 1990s, the Taliban was already well aware of D-Company, given /their attack in India, and helped arrange a meeting between Dawood and al-Qaeda.

The Taliban secured Dawood safe transit from Pakistan to Afghanistan to meet with al-Qaeda to discuss a partnership in smuggling operations. It is believed that Osama bin Laden himself was at the meeting with Ibrahim.

They came to an agreement where al-Qaeda paid D-company for access to their narcotics network in East Africa.454 Al-Qaeda was later able to use this smuggling network to ferry fighters from Afghanistan into Pakistan after the US-led intervention in 2001.

Dawood’s brother, Anees Ibrahim, secured al-Qaeda’s investment by purchasing large shares of the shipping industries in both East Africa and the UAE as insurance against any potential loss incurred via law enforcement seizures.

D-Company also began to launder al-Qaeda’s drug money from the Afghanistan market. A new partnership had formed, and it proved to be an enduring one. Al-Qaeda is not the only terrorist organisation D-Company coordinated with.

After the Bombay bombings, Ibrahim was able to escape to Pakistan because the ISI granted him safe refuge.

In return for the ISI’s protection, D-Company provided financial support for ISI-supported terror groups. The ISI was concerned that there would be international blowback if they provided material support to terrorist groups directly, so D-Company proved to be a suitable intermediary to hide their involvement.

There is plenty of evidence to demonstrate this collusion.

Ibrahim provided financial support for Lashkar e-Taiba (LeT) throughout 2002 for multiple operations in Gujarat.457 Dawood would “donate” funds to charities that were fronts for LeT, which were then extracted for use in several attacks.

In addition to LeT, the ISI directed D-Company to support Kashmiri militant group Jammu and Kashmir Islamic Front (JKIF). Photographs have been unearthed that show D-Company operative Tiger Memon at an ISI safe house with JKIF operatives. D-Company has continued to fund allied terror organisations to this day. Shahadat-e-Al-Hikma, a terrorist organisation based in Bangladesh that launched in February 2002, received its seed money from Ibrahim.

While they were believed to be defunct for several years, Shahadat-e-Al-Hikma popped up on India’s National Investigation Agency’s (NIA) radar in 2016 after a terrorist responsible for a bombing in Khagragarh claimed he was part of this outfit that was training new recruits.
D-Company has been able to evade authorities for decades.

Part of this is of course due to the arrangement Ibrahim made with the ISI, but beyond that, the company has insulated itself from authorities worldwide by hiding in plain sight. It has done this through forming front companies.

449 Clarke, Subservient Proxies and Islamist Terrorism in India, 30. 450 Peters, Seeds of Terror, 165. 451 Ministry of Foreign Affairs, Government of Pakistan, “S.R.O. 741(I)/2020,” Aug. 18, 2020, https://mofa.gov.pk/wp-content/ uploads/2020/08/SRO-741-dated-18-August-2020.pdf 452 Clarke, Crime-Terror Nexus, 30. 453 Ryan Clarke and Stuart Lee, “The PIRA, D-Company, and the Crime-Terror Nexus,” Terrorism and Political Violence 20, no. 3 (2008): 386. 454 Clarke, Crime-Terror Nexus, 30. 455 Clarke and Lee, “Crime-Terror Nexus,” 386. 456 Clarke, Crime-Terror Nexus, 30. 457 Clarke, Subservient Proxies and Islamist Terrorism in India, 33. 458 Sheela Raval and Raj Chengappa, “War on Terror:

Political Victory for India as US Cracks down on Dawood Ibrahim, D Company,” India Today, May 29, 2012. 459 Saibal Gupta, “NIA Lens on ‘Defunct’ Terror Outfit,” The Times of India, Oct. 13, 2016. 80 Since moving to Pakistan, Ibrahim built up his syndicate to unprecedented levels, diversifying and obfuscating D-Company’s revenue by purchasing shopping malls, plazas, and high-end homes throughout Pakistan, the UAE, and Nepal.

He is believed to have invested USD $28 billion in properties in Karachi alone. Just like the banks mentioned prior, Ibrahim diversified his assets in several countries, protecting himself and his company against an audit.

He owns over 50 properties spread across India, Pakistan, the UK, France, Morocco, the UAE, South Africa, Sri Lanka, and countless others. On top of his properties, he has invested over half a billion USD in businesses throughout the UK, Dubai, and India.

He also has huge investments in European markets, such as in Switzerland and Italy, as well as East Asian markets, like Bangkok and Hong Kong.464 Much of his assets are seemingly legitimate enterprises, such as a number of hotels in the UK, from which he collects tens of millions of dollars.

However, these licit businesses sometimes serve the purpose of concealing illicit earnings. While these properties are operating legally, providing licit services with legitimate transactions, there are illegitimate operations happening behind the scenes.

The process is usually as follows: D-Company will register a new company, assigning an operative to pose as a fake director who will get a work visa in the country if they aren’t already a resident. D-Company will then open a bank account in that operative’s name where they will funnel drug money and call it a salary.

That operative can then take that money and invest it into the global market and the capital gains will be “clean”. This is the exact strategy D-Company used with their operative Mohamed Anees Lambu. Lambu is an Indian national who has a work visa in Dubai through the company Al Rafhaa Trading Co LLC, a hardware material business. But his real purpose for operating in Dubai is to oversee the distribution, investment, and donation of D-Company funds.

He supplements this activity with counterfeiting currency, gambling, and hawala, which we will go into more detail on later in this chapter.466 They can also funnel the funds through trade-based money laundering, finding willing vendors to cooperate in the illegitimate transaction.

For instance, D-Company could approach a business that wants to purchase one of their real estate holdings. If the two parties agree to selling the building for USD $100,000, D-Company can send the company USD $25,000 in drug money, plus a percentage cut, and then on paper charge $125,000 for the building.

Now, D-Company has its own $25,000 in drug money back, but it looks legitimate. This strategy is common among narcotics organisations in South Asia. In observing the leadership structure of D-Company, it is clear how they are attempting to obscure their illicit work through various holdings and business ventures.

Dawood has a number of agents that make investments on his behalf in the global marketplace, each through a different legitimate business or holding.

Rasheed Saeed handles the payments and revenue intake from D-Company’s illicit operations under Chota Shakeel, who reports directly to Dawood.

To the casual observer, however, Saeed is the Managing Director of an entertainment company, Essar Events. This company hosts promotional events for Bollywood films, like the 2013 film “Lootera”.

Feroz 460 Clarke, Subservient Proxies and Islamist Terrorism in India, 31. 461 Raval and Chengappa, “War on Terror.” 462 Ibid. 463 Amardeep Bassey and James Rodger, “Who is Dawood Ibrahim? All You Need to Know about World’s Most Wanted Gangster,” Birmingham Live, Sep. 13, 2017, Who is Dawood Ibrahim? World's most wanted gangster owns Midlands hotel. 464 Interview with US Government official, April 2020. 465 Bassey and Rodger,

This company exports steel across the globe, which gives Memon an excuse to travel for his other job: D-Company’s recruiter. Memon visits South Africa and Mozambique frequently, recruiting operatives for D-Company’s illicit activities, which is how they have been able to expand their narcotics trafficking to Africa so effectively.

Umar Farooq Zahoor handles Dawood’s investments in the UAE and several African countries. Zahoor was the chief executive of Africa and Middle East Resources Investment (AMERI) Group, a Dubai-based business group that invests in power plants throughout the world.

It is quite possible that he invested Ibrahim’s money into this group, creating distance between D-Company and their investments. Narco-Terror Convergence The Haqqani network has similarly invested in a number of licit businesses both as a front for their illicit activity and as a way to advance their illicit activity.

The Haqqani network, like D-Company, have their hands in every industry, from import-export, to real estate, construction, and a series of front companies, in order to move their illegitimate operations through licit fronts (Peters, 2012b pg.3).

The most profitable of these illicit operations is importing precursor chemicals for the refining of opium into heroin or morphine. The materials used to transform raw opium into a marketable opiate are lime, hydrochloric acid, and acetic anhydride (AA).

The network invests in hospitals and medical centres in their control zones, ensuring they have sufficient influence and control. They then have the hospitals purchase AA on their behalf, under the guise of using it as a raw material for medicine (AA is used in aspirin, acetaminophen, and other pharmaceutical drugs).

This is made abundantly clear when looking at the quantities of AA imported to hospitals in the Haqqani sphere of influence. These hospitals import enough AA to last a decade in most regions. In one case in November 2010, a Pakistani customs official intercepted 10.5 metric tons of AA imported to Karachi from a company based out of Peshawar.

Upon further investigation, the investigator found that the company did not exist and was fabricated for the purpose of the transaction. This led customs agents to investigate a series of AA shipments, all from a series of shell companies operated by the Haqqani network. When the investigator tried to intercept these shipments, he was blocked by the ISI.

This further elucidates the collusion that continues between the Haqqani network and the ISI, with the ISI aiding their narcotics operations. Just as with D-Company, the Haqqani network utilises their licit operations for laundering illicit funds. They too use trade-based laundering schemes to hide their illegal profits

For instance, the network has used their connections with cloth traders in Paktia’s Zurmat district to launder money to overseas accounts. The Zurmat-based company operates in Afghanistan, Pakistan, Kuwait, and Saudi Arabia.

They use transactions with businesses in these countries as cover for sending funds to Haqqani-tied accounts abroad.
They also smuggle Haqqani network operatives into these countries as employees of their business.

The Haqqani network has their hand in several licit ventures behind the scenes through a series of intermediaries and agents.

Like D-Company, the network relies on trusted agents to run companies on their behalf. Through these agents they have purchased interest or formed a partnership with several companies that normally move large quantities of materials, like lumber, textile, or auto parts, and use their transportation infrastructure for the Haqqani network’s logistical purThey also launder funds through these intermediaries.

Haji Khalil Zadran is one of their agents involved in laundering funds abroad. He purchased large interests in trucking companies as well as others on behalf of the Haqqani network.

Another agent, Haji Hakimullah, owns a 180-tanker and trailer firm, the Afghan-Khost Transportation Company.477 Another way organisations like D-Company and the Haqqani launder their drug money is through real estate.

After the fall of the Taliban government at the end of 2001, property values rose drastically. Some of this can be attributed to a slew of aid workers moving in and driving up prices, but a significant aspect of this relates directly to the growth in the narcotics industry. The same effect was seen in Pakistan, which also saw a massive increase in opiate activity.

Much like real estate investors in North America whose actions contributed to the 2008 global financial crisis, narcotics syndicates invested in house-flipping.

They cleaned their money through renovating facilities and flipping them for profit.478 The Haqqani network bought up dozens of residential and commercial properties throughout Kabul, Gardez, Khost, Peshawar, Karachi, Abu Dhabi, and Dubai.

As with their control of transportation companies, they used trusted agents, such as relatives or operatives not officially connected to the network that were residents of the respective states, in order to keep their name off of any official documentation connected with these properties.

Some of these properties were used as safe houses for operatives, but many were used to launder their money and turn out an even greater profit.479 LeT engaged in this practice as well, investing in several real estate projects to conceal their illicit earnings.

This was one of many ways criminal and terrorist organisations began to grow their earnings and protect their revenue. D-Company’s financial strategies influenced many terrorist organisations to legitimise their illicit earnings, especially LeT.

While LeT gets a lot of its funding from wealthy financiers in the Pakistani diaspora and Islamic NGOs, it has its own network of subsidiaries to conceal its criminal practices.

Like D-Company and the Haqqani network, LeT launders its illicit money by investing in licit endeavours, such as commodity trading, real estate, manufacturing, and construction. In one striking case, LeT took advantage of the October 2005 earthquake in Pakistan by asking for donations through its construction businesses to help the relief effort.

LeT then secretly funnelled over half of the USD $10 million in donations to its parent company, Jamaat-ud-Dawa.

From here, the funds were repurposed for terrorist operations, including funding for a plot to blow up two US-bound airplanes.

Not only are terrorist organisations using their licit organisations to hide their illicit funds in, but they’re siphoning their licit funds towards terrorist operations.

Other terrorist organisations similarly establish front companies to launder illicit funds.

Osama bin Laden utilised several fronts to launder funds towards al-Qaeda’s terrorist activities. Bin Laden used his family’s oil empire to launch several construction companies in Sudan, as well as import/ export companies that shipped sugar, soap, sesame seeds, palm oil, and sunflower seeds. He also owned several farms that he used to harvest corn and peanuts.

He would use the licit proceeds to fund terrorist operations while hiding the illicit proceeds within these licit businesses. He also used the farms to double as spaces to train al-Qaeda militants. Just like with DMI, terrorist organisations like D-Company invest their dirty money in the stock market to grow their capital and clean it.

This is especially true of the Karachi Stock Exchange (KSE). This market, like South Asian real estate, suspiciously grew astronomically following the unseating of the Taliban from power in 2002. nature of the market, with high fluctuation and turnover likely being caused by large infusions of drug money into the marketplace and subsequent short sales to clean the funds.

Over USD $120 billion was traded on the KSE in 2006, when the GDP that same year only totaled USD $130 billion, making it clearly evident that this has become a major laundering vehicle for criminal organisations.

The infusion of drug money into the stock market becomes even more apparent when observing how eleven traders amassed control of nearly 40% of the KSE in half a decade. When Tariq Hassan, the former chairman of Pakistan’s Securities and Exchange Commission (SECP), presented evidence that those traders engaged in “pump and dump” price manipulation causing the market crash in March 2005, he was fired from his position
Hassan believed this was due to top Pakistani officials getting bribed by the traders.

This scandal may have gone all the way to the top, considering President Musharraf placed Hassan under surveillance after accusing him of being responsible for the crash.

Given the correlation with the narcotics market’s rise and a lack of any alternative industry’s major investment in the economic market during this period, it is likely that these traders were involved in narcotics laundering.

It appears they sought to further their gains by flushing the market with dirty funds, artificially inflating the value, short selling those stocks, devaluing the market, and then subsequently buying up the devalued stocks once again.

This is further evidence of the Pakistani government’s collusion with the narcotics industry, and at the very least shows their collusion in the financial scandal that destroyed the Pakistani economy.

Another growing revenue for terrorist organisations is the precious gem and mineral industry. The Haqqani network have been quick to capitalise off of this growing industry in recent years, in particular the chromite industry. Chromite is a mineral used to make stainless steel and to strengthen alloys, and is commonly used in construction. It is a very valuable product in quickly developing states like China and India, and sells for over USD $280/metric ton.

Chromite is extremely abundant in Afghanistan and Pakistan. One geological study estimated Afghanistan alone has USD $1 trillion in untapped chromite deposits. The unregulated nature of mining operations in the region has enabled the Haqqani network to partner with mining companies to excavate the ore throughout Logar and Khost.
.
Haqqani militants guard the dig sites while the miners unearth the chromite.

Not only does the Haqqani network profit off of the sales of the chromite, but the chromite dealers need to pay the network a tax of USD $115-175 per truck each time they pass into and out of the network’s FATA territory.

In the Haqqani’s sphere of influence in North Waziristan, several mining operations have cropped up.

The mining operations will then pay the network 10-15% of their proceeds. Given that Afghan chromite is of higher purity than Pakistani chromite, many Pakistani chromite exporters will blend Pakistani chromite with Afghan chromite to fetch a higher value.

Since this goes against customs regulations, they need to smuggle the ore through the FATA, transiting through Haqqani territory and paying the required tax.488 Afghanistan is home to more profitable gems and minerals than just chromite. Buried under the earth one can find rubies, emeralds, gold, silver, talc, marble, and lapis lazuli strewn throughout the country.

Talc in particular has become a major focus for terrorist organisations.

While talc only fetches about USD $200 per ton in external markets, the unregulated nature and lack of security around mining sites has enabled terrorist groups to take advantage of the trade with relative
Peters, Haqqani Network Financing, 58-61. 489 W.A. Byrd and J. Noorani, Industrial-Scale Looting of Afghanistan’s Mineral Resources, Special Report 404 (Washington, D.C.: United States Institute of Peace, Jun. 2017), 2. 84 ease.490 Talc miners bring their product illegally over the border to Pakistan before shipping it out to the global market.

Pakistan is the largest exporter of Talc to the United States. This mineral is used in US goods such as baby powder, ceramics, paint, paper, plastic, rubber, and insecticide.491 Terrorist organisations profit off of this trade in multiple ways. Some have implemented a similar model to the Haqqani network:

The Taliban requires private mining companies operating in Nangarhar province to pay a tax while they mine for talc. They also profit from the mineral getting shipped over the border to Pakistan in the areas they have influence.

The Taliban requires miners to give regular payments as a kind of “rent” for operating on their territory, in addition to USD $12 per ton of talc.492 In recent years, many of the conflicts between criminal organisations operating in Afghanistan have been over access to minerals.

Struggles over mines in the Kuran wa Munjan district of Badakhshan containing the gemstones lapis lazuli and tourmaline have been going on since 2014. The region has been going back and forth between various strongmen vying for control over the precious minerals.

In 2014, the area was controlled by a former Jamiat-e-Islami commander Zulmai Mujadidi, who had served as a senior intelligence officer in the Karzai government.

A militia operating under strongman Haji Abdul Malek, who had been chief of police in 2001, then seized control of the district to gain control over the mines.

The government attempted to stop the illegal sale of the minerals in 2015 by imposing an embargo, however the militants were able to smuggle the minerals into neighbouring Panjshir valley and sell from there. Despite the rapid turnover, the Taliban were able to make a consistent profit from the region’s minerals.

Given their dominance in Badakhshan, the Taliban were able to levy a ‘tax’ under both Mujadidi’s and Malek’s tenure in control.493 A report by Global Witness, a conflict monitoring organisation, shows that armed militants in two areas of Badakhshan amassed USD $20 million in revenue from lapis lazuli in 2013, with USD $1 million of that going to the Taliban. This ‘tax revenue’ to the Taliban increased to USD $4 million in 2015.494 Terrorist groups are increasingly aware of the revenue potential of having a controlling interest in regions rich in minerals.

This has led to some direct confrontation between terrorist organisations. Another way terrorist organisations profit from talc is by mining it directly. In recent years, residents of Nangarhar have observed the Taliban and Islamic State Khorasan Province (ISKP), the Afghan wing of ISIS, are directly involved with extracting talc. This is indicated by the fact that many conflicts between the two groups happen around mines far from villages.

Taliban operatives have gone on record acknowledging the importance of the mines in funding their operations. According to one operative, “The fight is over the mines, the fight is over the profits.
What can we do — we have expenses, we don’t get much from the Arabs. If we don’t have this source, we will be defeated.”

Global Witness has recommended putting a blockade on talc trade originating from the region. This could perhaps be extended to lapis lazuli and other minerals that fetch a high dollar value in the region.

They also underscored the importance of the Afghan government gaining control of mineral resources to target the funding mechanisms for terrorist outfits in the region. One could not discuss the movement of illicit funds in South Asia without mentioning the hawala system.

The hawala system is a method for making financial transactions that dates back to the 490 Ibid., 8. 491 Murtaza Hussain, “How Buying Baby Powder Helps Fund the Taliban and Islamic State in Afghanistan,”8th century in South Asia.

It grew in popularity throughout the region by its value for traders along the silk road. Traders who feared getting raided while carrying large amounts of cash or gold along their journey would find a merchant in their city to give the funds and in exchange receive a letter of credit which they could hand to a merchant in their destination city, and the merchants would settle their balances through other travelling traders.

It has since become a major financial remittance system in South Asia and among the South Asian diaspora. This unique money transfer system doesn’t physically transfer money at all. The way it works is as follows:

The sender of the funds contacts a hawala agent, known as a hawaladar. The sender would give the hawaladar the money, plus a percent commission. The hawaladar will then contact another hawaladar near the receiver’s location.

The sending hawaladar maintains a secure transaction by providing a confirmation number to the sending client who will then share that number with the receiver.

The sending hawaladar will also share that information with their counterpart agent that is receiving the transfer, and when the client confirms with the receiving hawaladar, they will be given the funds. In modern transactions, the agents usually send a text message with the confirmation number, which the receiving client will then show to the receiving agent to get their cash.

The entire process for a hawala exchange can happen in minutes, and no money is ever physically exchanged between the hawaladars.

They simply keep a record sheet of their transfers and balances for future transactions. The hawala system is used predominantly for legitimate purposes. It is often the preferred remittance system in South Asia, as it doesn’t require a bank account, is usually less expensive than a wire transfer, and is much quicker and efficient than other international transfer methods.

Hawala is the go-to system of money transfer for the impoverished, migrant workers, and those who don’t have access to a bank account. It allows them to send money without involving any institutions for very little cost. One area where a hawala transfer can interact with western banking is setting up a “hawala bank account.”

These are accounts in western-style banks where hawala participants deposit their funds from hawala exchanges. They will often have several cash or check deposits, and will often have outgoing transfers to an institution in the UK, Switzerland, or Dubai.

These are the three largest hubs of hawala banking activity. Many people in South Asia are sceptical of western-style financial institutions because of corruption and the lack of capacity of law enforcement.

Because of this, it is fairly common in the region to deal in cash, even for purchases as major as a new car.

Hawala networks in this region have been in place for hundreds of years and hawaladars are often trusted community members. There is a rigorous, self-regulating aspect to the system where hawaladars who do not honour their agreements will be swiftly excommunicated from the community. Hawala is also useful to the South Asian diaspora as many do not have access to bank accounts in their countries of residence, but there will often be hawaladars amongst the diaspora community.

Hawala is the main means for migrants to send remittances back home. The size of the global hawala market is difficult to measure, but financial experts believe it is at least USD $100 billion per year. This is a giant market and not one that can easily be regulated.

497 Julia Kagan, “How Hawala Works,” Investopedia, Aug. 29, 2020, How Hawala Works. 498 Patrick M. Jost and Harjit Singh Sandhu, The Hawala Alternative Remittance System and Its Role in Money Laundering, (Vienna, VA: Financial Crimes Enforcement Network, U.S. Department of the Treasury; Lyon, FR: INTERPOL/FOPAC [International Criminal Police Organization/Fonds provenant d’activits criminelles], 2003), Front page | U.S. Department of the Treasury Documents/FinCEN-Hawala-rpt.pdf, 5. 499 Scott Baldauf, “The War on Terror’s Money,” The Christian Science Monitor, Jul. 22, 2002, https://www.csmonitor.com/2002/0722/p01s04- wosc.html. 500 Peters, Seeds of Terror, 170. 501 Jost and Sandhu,

“The Hawala Alternative Remittance System,” 13. 502 Peters, Seeds of Terror, 168. 503 Kagan, “How Hawala Works
While the vast majority of hawala transactions are legitimate, it provides fertile ground for criminal enterprise. Because of the unregulated nature of the hawala system, it is the perfect vehicle for money laundering.
Even a simple transfer between two hawaladars can be difficult to trace due to the tendency for hawaladars to not record personal information of their clients for fear of audits and the lack of a universal record-keeping system.

However, nefarious actors can further obfuscate the transaction by using a series of hawaladars in several countries before reaching the final destination, in what’s known as a “layered hawala transfer.”508 This makes hawala the ideal method for both laundering illicit funds and using licit funds to pay for illegal goods/services, like hiring assassins, purchasing illegal weapons, funding a terrorist organisation or purchasing narcotics.
Several narcotics cases have been linked with the hawala system. In one case, a group of Pakistani and Afghan nationals were charged with importing heroin into the US and laundering the proceeds through a US bank. The group deposited several checks into the account and subsequently wired the funds to Dubai and other locations abroad.

In a high-profile case in 1985, a hawaladar, “Mr. Choraria,” was convicted in the UK for “enabl[ing] payment for heroin imported into [the] country illegally to be transferred to India from whence the heroin had been sent.”
Choraria operated a remittance business with a hawala component and set up the transaction between actors in Mumbai and Karachi. Hawala has become the main avenue for funneling funds to terrorist organisations.
The very nature of these organisations makes any funding inherently illegal, so the anonymous and convoluted system of hawala makes for a perfect remittance system for terrorism. One notable use of hawala was in the 1993 Bombay bombings.

The investigation into the attack found that the funds used to buy the explosives and pay the operatives were handled by hawaladars in the UK, Dubai, and India. Those funds were supplied by Dawood Ibrahim. Criminal organisations like D-Company use the hawala system to completely evade authorities while engaging in illegal smuggling.

Since no funds ever technically changed hands (as far as international financial networks were concerned), then there is no avenue through which to charge D-Company. D-Company has used this remittance system to fund everything from terror operations (such as the Bombay bombings), gold smuggling, hiring assassins, to narcotics trafficking.

The Hawala System

D-Company built up a reliable network in Afghanistan, the UAE, India, and Pakistan, both for smuggling and hawala routes. This not only enabled the organisation to engage in its own money laundering efforts, but to facilitate the efforts of partner organisations.

Given the lack of formal financial institutions in Afghanistan outside of Kabul, and the predominance of opiate trafficking in the economy, the hawala network became the main vehicle for laundering funds in the South Asian narcotics industry.

Although difficult to measure the exact amount, according to the UN and the World Bank, as recently as 2009, over USD $1 billion in drug money from Kandahar and Helmand alone moves through the hawala system every year.

The amount from the entire South Asian narcotics industry today likely dwarfs that by several degrees. The narcotics industry hawaladars have become very adept at laundering drug money.

They are able to make trades in the thousands of dollars in a matter of seconds, even in rural areas of Helmand and Kandahar.

Several terrorist organisations took direction from D-Company on using the hawala system to conceal their operations. Al-Qaeda used the hawala system to fund the US Embassy bombings in Kenya and Tanzania in 1998.

After the US-led military operation of Afghanistan in 2001, Al-Qaeda needed to quickly move funds out of the country before it could be confiscated by US forces. They relied on hawala to move funds across borders, often transferring gold and US dollars amounting to millions from Afghanistan to Dubai, from which they were able to launder the funds to accounts around the globe. This was also a common practice for the Taliban.

LeT relies heavily on the hawala system to fund operations in India, transferring funds from donors and operatives in Pakistan and the Middle East. LeT also uses the layered transfer method to send funds through a series of hawaladar intermediaries around the world to muddy the waters of the transactions, further obfuscating the origin of the transfer.

The hawala system is so entrenched in South Asia and the diaspora that it is unlikely to diminish any time soon. The hawala transfers linked to narcotics and terrorism emanate in particular from Afghanistan and Pakistan.
While most of the transfers originate in Helmand and Kandahar, those transfers are made in Pakistani rupees, indicating that a majority of the purchases come from Pakistan. Many Pakistani bankers believe that a third of all money in the hawala system is related to the narcotics industry. There have been efforts in both countries to deal with this issue.

The Afghan and Pakistani governments have taken steps to register hawaladars officially and create a standardised system to identify senders and receivers.517 From the 1980s to 1990s, the Pakistani government sought to entice people away from hawala by issuing tax-exempt bearer bonds.

These bonds gave the same level of anonymity that hawala offered, but required individuals to deal with an authorised agent to exchange the bonds for funds.

Given that the bonds were tied to the Pakistani economy, this strategy became a problem after the government began nuclear weapons testing prompting international condemnation. The Pakistani economy took a nosedive, taking the bonds’ value with it.

In 2002, the Pakistani government began requiring all hawaladars to register with the government and to record all of their transactions. In 2003, they started the Financial Intelligence Bureau which tracked suspicious transactions and worked with domestic and foreign intelligence agencies to report suspicious activity.

Shortly thereafter, the country saw an increase in money circulating official channels, indicating a potential shift from hawala markets to conventional remittances.521 Hawala is still used in India today, despite a country-wide ban since 2000.

India took a similar approach to Pakistan in 2003 with the Prevention of Money-Laundering Act, which regulated hawala transactions, requiring hawaladars to account for all transactions. In 2016, India made another attempt at curtailing the black market, by demonetizing Rs 500 and Rs 1000 notes in circulation.

This was done to address the issue of terrorism and corruption being funded by counterfeit notes moving through the black market.524 This was in part referring to D-Company, which is believed to have moved counterfeit notes printed by the ISI through the Indian marketplace

The move was also seeking to impact the hawala network, which relied heavily on these high-denomination bank notes. Crime syndicates like D-Company would mix in counterfeit notes with real ones for large purchases through a hawala exchange, such as a real estate acquisition. The demonetisation did make an impact on the hawala network for a while, leaving crime syndicates and their hawaladars with large amounts of useless currency that they could not exchange, and impacting their ability to deal in counterfeit currency, as the new bills were more difficult to forge.

However, shortly thereafter, the syndicates used their banking connections to get an influx of cash in the new currency. They were subsequently able to make a huge profit offering note exchange to people who were not able to unload their old notes before the government stopped accepting exchanges. Eventually, counterfeiters were able to imitate many of the security features on the new Rs 2,000 notes, so counterfeiting started back up again through the hawala networks.

In the United States, where a large population of the South Asian diaspora reside, hawala regulations were implemented in 2001, requiring hawaladars to register their operation as a “money transmitting business” and therefore be subject to those regulations. Going a step further than the Indian hawala regulations, Hawaladars in the US are required to file Suspicious Activity Reports (SAR) if they are aware of any illicit activity.

This makes hawaladars liable if their transfers are connected to illicit activity. Not enough has been done to regulate the hawala markets in the UAE, the UK, and Switzerland, where many of the hawaladars and clearinghouses for hawala transactions are located.

The UAE is likely the largest clearinghouse, or designated financial intermediary, in the global hawala network.530 531 As alluded to prior, the UAE has become an attractive location for illicit activity due to its lack of financial regulations, such as banks not being required to report cash deposits.

This is the perfect environment for a hawala operation, which deals primarily in cash. After facing international pressure upon the discovery that the attack on 9/11 was funded in part by bank accounts located in the UAE, the country increased some regulations.

This included requiring banks to disclose cash deposits over USD $550 and placing hawaladars on a central registry.

The regulations in the US, UAE, Pakistan and India suffer from the same limitations: relying on voluntary hawaladar registration, something that has proven difficult to implement for a system that has been self-regulated for hundreds of years.

Although investigations and convictions for money laundering have been stepped up in the past few decades, there is no indication that the network has been significantly dented at all. It is likely impossible to effectively outlaw the hawala system, but governments can improve their investigative framework for assessing suspicious transactions and improve information-sharing with international institutions and other governments to decrease the awareness gap and utilise international best practices.

Further, if governments choose to work with the hawala system, they should find ways to incentivise hawaladars to register with the state.

A part of what makes hawala so prominent is the lack of alternatives for low-income populations in South Asia and the diaspora, so investing in alternative remittance systems that are accessible to people without bank accounts could help diminish the scope of hawala and potentially overtake hawala as an accessible remittance system.

Crypto In the past decade we have seen the rise of a new remittance system that could prove to be the hawala of the digital age: cryptocurrency.

In the 2008 global financial crisis, the banking system that the world trusted and relied on completely had failed. As a result of the malfeasance of some of the world’s largest institutions, people were no longer assured that their money was safe. Many were seeking an alternative way to store and transfer their money that would not be dependent on the reliability of banks.

Thus, bitcoin came into prominence. On October 31, 2008, under the pseudonym Satoshi Nakamoto, an announcement was made about the creation of a digital currency which stated, “I’ve been working on a new electronic cash system that’s peer-to-peer, with no trusted third party.” Nakamoto explained that this new digital currency would operate on a chain of digital information, called a blockchain.

Think of it like a hawala system where the hawaladars share the same record book. These digital hawaladars, called miners, check each transaction made with bitcoin. Like hawaladars, they get a commission for managing the transaction.

Each transaction is kept anonymous through encryption but has a specific signature, or code connected to it. The next transaction goes on the shared digital record book, or blockchain, that a miner will confirm is a new transaction, and add it to the blockchain.

This protects against fraudulent activity, like double-spending, because the amount circulated in the system is verified with each new transaction. This system completely removes the need for trusted third parties, banks, or credit cards.

Moreover, there are no extra fees for international transfers because the currency is not based in any one country. Bitcoin was immediately attractive to the Silicon Valley tech community, especially to those with more libertarian leanings who were enticed by the idea of a decentralised currency that was not monitored by banks or governments.
Within a few years, Bitcoin exploded, rising from being valued at less than a cent at the start of 2010 to USD $1,242 by the end of 2013, which was around the price of an ounce of gold.
The popularity of Bitcoin inspired a slew of new digital currencies through the 2010s, using similar encryption methods and blockchain technology, dubbed cryptocurrencies. The most popular of these, like Monero, Ethereum, and Ripple, share a lot of similarities with bitcoin: they operate on decentralised blockchain technology, they are being accepted as a means of payment on a growing number of platforms, and they allow users to make either pseudo-anonymous or fully anonymous transactions.

That last point is the one that worries security agencies, who are concerned with criminals and terrorist organisations using cryptocurrencies for criminal activity. That concern is not unfounded. Almost as soon as cryptocurrencies came onto the scene, dark web marketplaces followed.

These online marketplaces use cryptocurrencies as mediums of exchange and operate on the dark web. The dark web is the non-indexed (non-searchable) part of the internet that allows users to obfuscate their digital footprint and as a result is widely known to host illicit content.

The first major dark web market, “Silk Road,” was launched in February 2011. Silk Road offered users an eBay-like platform for buying and selling products anonymously. The anonymous nature of this marketplace was immediately attractive to illicit sales, and it became a prominent marketplace for pirated material, forgeries, and a wide variety of narcotics. Silk Road offered users several levels of anonymity.

In addition to Silk Road’s IP address obfuscation, it only accepted bitcoin to purchase products, offering another layer of anonymity. The first iteration of Silk Road operated from 2011-2013, until its founder, Ross Ulbricht (AKA Dread Pirate Roberts) was sentenced to life in prison for conspiracy to commit; money laundering, hacking, trafficking fraudulent identity documents, and trafficking narcotics by means of the internet.

In just two years, almost 4,000 different vendors sold USD $183 million in prohibited products to over 100,000 buyers around the world.543 Although the original Silk Road was shut down after Dread Pirate Roberts’ arrest, new iterations of the site kept popping up for years, with Silk Road 2.0 and then 3.0 taking its place.

Even without Silk Road, other cryptomarkets have cropped up offering similar illicit goods, like Dream Market, Berlusconi, Wall Street Market, Valhalla, and Alphabay, with some offering additional illicit goods, such as guns and stolen or fraudulent identity documents.

Although many of these marketplaces have been taken down by law enforcement agencies around the world, new ones crop up as quickly as old ones are removed.544 545 Whenever a new obfuscation technique becomes available to the world, one can be sure that terrorist organisations will employ it. It appears that cryptocurrency is no exception.

In 2014, a provocative article was posted online titled, “Bitcoin wa Sadaqat al-Jihad.” In the article, the author talks about how Muslims have been “forced to use kafir (un-Islamic/sinful) currencies.

These currencies, simply through usage, assist the kufar by strengthening their economy. . . We must actively look for solutions to avoid bolstering the kufar whilst preparations are made to move to ardh al-khilafah (ISIS territory), which has only recently been established.”

The author of this article is positioning bitcoin as an alternative to Western financial institutions. They are further suggesting that bitcoin should be used to move to the, at-the-time, burgeoning territory of ISIS in Syria and Iraq.
The author is trying to make the ideological case for bitcoin as a means to avoid enriching Western governments, but it is clearly a cover for the real reason, which is that sending money to ISIS or for the purpose of travelling to join ISIS would alert law enforcement. If one uses bitcoin for those purposes, it would be harder to track.

This may have been the inspiration for New Yorker Zoobia Shahnaz, who in December 2017, wired over USD $150,000 in cryptocurrency to ISIS (Islamic State). She first fraudulently obtained a series of credit cards and loans from multiple financial institutions by providing false information.

She then converted the credit and loans into bitcoin and other cryptocurrencies, and sent a series of transfers to shell companies connected to ISIS located in Pakistan, China, and Turkey.547 548 She was caught because of the sheer number of loans and credit cards she took out at once, but someone with more tact or someone who was already independently wealthy could likely send that much in cryptocurrency without raising a single red flag.

It appears that terrorist organisations are aware of this benefit as well. Terrorist groups are not just accepting bitcoins for donations, but they have also started selling illicit products in exchange for bitcoins. ISIS began printing its own currency in 2014, making copper, silver, and gold dinars. After ISIS lost their territorial hold in Syria and Iraq, the coins became useless to them, so they attempted to sell them off as souvenirs.

Of course, it was illegal to buy/ sell ISIS merchandise, and that’s where bitcoin came in. A website purportedly connected with 541 Vigna and Casey, Cryptocurrency, 84-86. 542 USA v. Ulbricht, Case 1:14-cr-00068-KBF, Document 183, Filed Feb. 5, 2015. 543 Larry Neumeister and Jake Pearson, “Silk Road Founder Gets Life for Creating Online Drug Site,” AP News, May 29, 2015, https:// apnews.com/article
/3abad30720c04d19b62232876d5faff4. 544 Jason Murdock, “Dark Web Markets Selling Drugs and Stolen Data Dismantled amid Raids, Arrests,” Newsweek, May 3, 2019, https:// www.newsweek.com/cybercrime-dark-web-tor-wall-street-market-valhalla-market-silkkitie-europol-141389. 545 Interview with Marine Corps Intelligence Officer, Oct. 23, 2020. 546 Eitan Azani and Nadine Liv, Jihadists’ Use of Virtual Currency, International Institute for Counter-Terrorism (ICT), Jan. 30, 2018, 1. 547 Ibid., 6. 548 Office of Public Affairs, U.S. Department of Justice, “Long Island Woman Sentenced to 13 Years’ Imprisonment for Providing Material Support to ISIS” (PR 20-318), Mar. 13, 2020, https://www.justice.gov/opa/pr/long...s-imprisonmentproviding-material-support-isis.

ISIS advertised a set of seven coins for the price of USD $950 to be paid in bitcoin only. They advertised it as “a completely anonymous payment method” and gave instructions on how to send the money to their bitcoin wallet.

The instructions then informed the buyer that they would be given information on the parcel number and how to track the package. This is a reliable model for seeing how terrorist organisations are likely selling other illicit products in exchange for cryptocurrency. One might surmise that the dark web marketplace industry is unaffiliated with South Asian criminal organisations.

A majority of sellers operate out of Europe and North America. Aside from the United States, Germany and the Netherlands are the more prominent locations for narcotics sales on the dark web.550 While there is little data indicating South Asian narcotics syndicates are directly selling their products on dark web marketplaces, there is evidence that they are indirectly involved.

Many dark web marketplaces have offered a strain of cannabis that is indigenous to Afghanistan, called Afghani Kush, even listing the country source as Afghanistan.

This would indicate that Afghan growers are likely selling this product in bulk to European or North American buyers who then post the product on cryptomarkets.

While opioid sales are a relatively small percentage of narcotics sales on the darknet at 7% as of 2016, the presence of opioids in cryptomarkets further indicates that Afghanistan and Pakistan-based narcotics syndicates are likely involved in cryptomarkets as they make up the vast majority of opiate production in the world.

In an interview, a former Marine Corps Intelligence Officer conducting counter-drug operations broke down the scenario of how South Asian narcotics traffickers are connected to cryptomarkets: We know that the drugs, especially opioids, are grown in Afghanistan, pushed over to Pakistan, and in Pakistan they process [the poppies] to make them into drugs.

Then they push those shipments out, most likely going through Turkey and end up somewhere in Europe... likely Amsterdam, [or] some parts of Germany, [then] they get shipped out to other parts of the world.

Even if South Asian narcotics traffickers are not directly selling their products on dark web markets, they are benefitting from their sales. Given the rapid growth of dark web markets in the past decade, it is likely that the connection to the South Asian narcotics industry will continue to grow, giving South Asian traffickers access to a truly global market unlike anything they have seen before.

Terrorists have further adopted cryptocurrencies and cryptomarkets to purchase weapons. A ISIS terrorist cell operating near Durban, South Africa murdered an elderly couple in 2018 and stole their credit cards.
They then used the cards to purchase bitcoin online and used the bitcoin to purchase several weapons, including Kalashnikov rifles, crossbows, and swords. While it is unclear exactly where these weapons were purchased, it can be surmised that it was from one of several dark web markets that offer weapons in exchange for bitcoin.

The operative involved in the bitcoin transaction was also working as a sort of ISIS ‘travel agent’ where he would sort out the logistics of smuggling foreign terrorist fighters into ISIS territory in Syria and Iraq, himself included.
It is possible that he utilised bitcoin in this process as well. Cryptocurrencies have already been used to finance a wide variety of terrorist activity around the world. Bahrun Naim, the Indonesian believed to be responsible for terrorist attacks in Jakarta in Azani and Liv, “Jihadists’ Use of Virtual Currency,” 8-9. 550 Marine Corps Intelligence Officer, interview.

Damien Rhumorbarbe, Ludovic Staehli, Julian Broséus, Quentin Rossy, and Pierre Esseiva, “Buying Drugs on a Darknet Market: A Better Deal? Studying the Online Illicit Drug Market through the Analysis of Digital, Physical and Chemical Data,” Forensic Science International 267 (Oct. 2016): 7. 552 Marine Corps Intelligence Officer, interview. 553 Jacob Dirnhuber, “Funding Hate:

ISIS Fanatics Plundered Bank Accounts of Brit Couple Murdered by Jihadis in South Africa and Used Money to Buy Bitcoin and Fund Jihadi Training Camp,”

The Sun, Aug. 29, 2018, ISIS fanatics plundered bank accounts of Brit couple murdered by jihadis in South Africa and used money to buy Bitcoin and fund jihadi training camp. 92 January 2016, has reportedly used bitcoin to finance terrorist plots in his home country and in Syria.554 In 2018, a Twitter account which has been associated with Hay’at Tahrir al-Sham (HTS) and al-Qaeda, “@AlSadaqah1”, promoted the use of bitcoin ATMs to fund “the mujhideen,” saying “If anyone has a Bitcoin ATM in your area or country, then you can send money to the mujhideen [sic] 100% anonymously with cash. It is really that simple.” They then provided a bitcoin ATM locator website.

They are right about one thing—it really is that simple to fund terrorist groups through cryptocurrencies. While security agencies are scrambling to track cryptocurrency transfers, the crypto community is hard at work developing more advanced ways to obfuscate those transfers.

The way bitcoin and most cryptocurrencies operate already offers a significant level of anonymity. This is through cryptographic private and public keys.

The user will have a private key, which is made up of a series of alphanumeric characters. That private key will connect to a public key, which is where the cryptocurrency transactions occur.

Only the individual user has the details of the private key, while those engaged in the transaction can only see the public key information.

This is like operating a digital P.O. box: people who send money to a P.O. box only need the number of that box, but do not necessarily have any details of the owner of that box. The owner uses their private key to open the digital P.O. box to access the funds.

Cryptocurrency users can further obfuscate their transactions using “ambiguating software,” or software that reduces the amount of information that one could uncover from an individual transaction. Some ambiguating software automatically generates a new public key for each transaction, which means even if investigators were able to connect a transaction to a user, they are unlikely to link other transactions to that user or have any idea of how much in funds that user holds. Another obfuscating software technique is to randomise the structure of transactions, meaning investigators would not know who the sender or receiver is in an individual transaction.

These are being utilised in a growing number of cryptocurrencies. As cryptocurrencies grow in popularity, the crypto community continues to develop innovative ways to further protect user data from surveillance. A particularly strong type of obfuscation software is known as “cooperative obfuscation.”

This is when multiple buyers utilise software to hide the origin and destination of their individual transactions. One example of cooperative obfuscation is “coin-mixing,” where users pool their transactions together before disseminating them to their intended recipients.

Think of it like a digital secret Santa – each ‘gift’ is placed in a pool of gifts and no one knows who provided what, and the gifts are wrapped so no one knows what each recipient was gifted. As cryptocurrencies become more popular, it will be increasingly difficult for law enforcement and intelligence agencies to trace transactions that fund terrorism or any other crimes. Given the attraction of criminal elements to obfuscation software, it seems that cryptocurrencies are going in two directions: more obfuscation and more regulation.

Those interested in growing their brand and increasing mainstream appeal are unlikely to take the approach of using more obfuscation mechanisms, since they would be more likely targeted by governments and gain a bad reputation for catering to illegality.

Bitcoin seems to be going in this direction. Since 2015, the bitcoin community has taken major steps to legitimise the currency and regulate the market. This has been done through “know your customer” (KYC) regulations. The KYC policy emanated from the 2001 Patriot Act, which required banks operating in the United States to follow identification verification requirements.

In the following two decades, this regulation has become the norm for banking institutions around the globe, eventually reaching crypto exchanges.

These exchanges are incentivised to comply with the KYC requirements because it enables them to enAzani and Liv, “Jihadists’ Use of Virtual Currency,” 5. 555 Jake Frankenfield, “Private Key,” Investopedia, reviewed on Jun. 29, 2020, What Is a Private Key in Cryptocurrency?. 556 Arvind Narayanan and Malte Möser, “Obfuscation in Bitcoin:

Techniques and Politics,” (Princeton, NJ: Princeton University, 2017), 2. 557 Marine Corps Intelligence Officer, interview. 93 gage with traditional banking and exchange bitcoin for fiat currency.558 KYC protocols require that users who wish to trade bitcoin on an exchange have to submit official identity documentation, like a driver’s licence or passport, to the exchange.

This means that while bitcoin transactions are anonymous to other users, the bitcoin exchanges do have access to this information.559 This is how law enforcement agencies are able to investigate cases like that of Zoobia Shahnaz.

Through court subpoenas, law enforcement can work with bitcoin to deanonymise users by cross-referencing user data with blockchain analysis.560 However, it should be noted that there is still a potential for nefarious actors to get around the KYC protocols. As indicated earlier, cryptomarkets sell fraudulent identity documents.

If one were to purchase one, then they could register on a cryptocurrency exchange with fraudulent information. This would still open up the individual to scrutiny, however, because they will need to use cryptocurrency to purchase the fraudulent ID.

This is where altcoins come in, which will be discussed in greater detail later in this chapter. When agencies determine that cryptocurrency funds are being used for illicit activity, they will work with legal representatives to pressure the crypto exchange to close the responsible accounts and freeze their assets.

If the investigation involves more than one country, as they often do, then a joint task force is set up between the involved countries to investigate the illicit activity. Agencies have dramatically increased their crypto cases in recent years, with growing success at shutting down bad actors.

This is in part due to the cooperation of bitcoin exchanges that wish to be seen as legitimate financial markets, and who are willing to assist law enforcement. However, there are cryptocurrencies, exchanges, and services that are ideologically motivated by anarchism or extreme libertarian mindsets that are pursuing complete anonymity.

These will surely continue to become more popular with criminal elements, including terrorists. Currently, bitcoin is still the most prominent cryptocurrency used by terrorist and narcotics operatives.

Given bitcoin’s domination of the cryptocurrency market, it would be too difficult for criminal elements to effectively shift to a different cryptocurrency with higher levels of obfuscation without sacrificing a large customer base. Right now, Bitcoin is the only cryptocurrency that can be converted to fiat currency on a cryptocurrency exchange. This means if one uses a different cryptocurrency, they will need to convert it to bitcoin first and then convert it to fiat currency.

The process of purchasing the alternative cryptocurrency, or altcoin, would also be technically more difficult than bitcoin, which already has a multitude of companies offering easy-to-use mechanisms for buying and trading the cryptocurrency.

This would require a significant level of technical knowledge from donors, buyers and sellers. While shifting to a different cryptocurrency may offer higher levels of protection for a criminal organisation, the trade-off of losing the revenue from less-technically-savvy clientele would not be worth it.

However, this may shift with the growth of altcoins in the coming years. Since bitcoin came out, many altcoins have cropped up that offer more levels of anonymity. Zcash transactions don’t have any identifiers and offer a high level of privacy. Dash (formerly known as DarkCoin) offers the coin mixing cooperative obfuscation mentioned earlier.

It also uses ring signatures, which masks the user’s public key, meaning one would not only need to connect the public key to the private key, but also identify the public key. It would be like trying to open a P.O. box when you don’t know the P.O. box number and you don’t have the key to open it. The fastest growing altcoin is Monero, which touts itself as “secure, private and untraceable.”

Monero offers IP masking, which obfuscates the user’s IP address, adding to the already sig558 Naomi Oba, “What Is KYC and Why Do We Need It?,” Medium, Dec. 3, 2019, . 559 Marine Corps Intelligence Officer, interview. 560 Narayanan and Möser, “Obfuscation in Bitcoin,” 3.
Marine Corps Intelligence Officer, interview. nificant level of obfuscation given the transactions happen on the deep web through encrypted networks like Tor.

Monero’s disadvantage is that, as it does not comply with KYC regulations, it is currently not traded on any marketplaces for fiat currency. This means that if one wants to exchange Monero for fiat currency, they will need to convert it to bitcoin first and then enter the marketplace. However, it is likely Monero access will increase in the near future.

Monero is being increasingly accepted as an alternative to bitcoin in illicit dark web crypto markets that sell narcotics and weapons.564 Despite it being worth a small fraction of bitcoin’s value, once Monero was accepted in crypto markets, its value jumped 700%, indicating it has the potential to compete in the cryptocurrency industry.

While bitcoin remains the most accessible cryptocurrency for now, altcoins like Monero may one day overtake bitcoin as the main cryptocurrency for illicit activity.

That may spell trouble for law enforcement and intelligence agencies if the current surveillance gap remains consistent. Over the past 30 years, we have seen terrorist organisations reach unprecedented levels of sophistication, creating their own corporate empires, investing in global enterprises, and engaging in cutting-edge technologies to protect their financial assets.

Far too little attention has been given to the financial mechanisms that bolster and insulate terrorist activity. Terrorists have taken advantage of the deregulatory trend in the global financial market, hiding their resources in the same locations used as tax havens for multinational corporations.

Many have been able to rely on mutually beneficial arrangements with some countries to escape prosecution. The global community must examine the nature of these relationships and disrupt them if we are to make any substantial impact on terrorist financing.

What once was only a symbiotic relationship between narcotics organisations and terrorist organisations has evolved into hybrid organisations that are motivated by both financial and ideological gain.

These crime-terror hybrids have created ‘Russian doll’ organisations, with empty shells hiding a series of subsidiaries to conceal the insidious nature of their dealings. Early adopters of this practice, like D-Company and the Haqqani network, have guided other terrorist organisations towards diversifying their revenue, hiding their assets, and growing their empires.

There is ample evidence of the mechanisms used to protect and conceal illicit assets. This calls for an international effort to target these enterprises and freeze the assets.

Terrorist and criminal organisations are drawn towards unregulated remittance systems, which makes both hawala and cryptocurrency attractive to nefarious actors.

Both systems are utilised for a multitude of reasons, with most being entirely innocent. However, they help enable the anonymous financing of terrorist organisations through donations and the purchase of illicit goods like narcotics. In both instances, efforts to shut down the networks have mostly failed.

The best course of action seems to be creating incentives for those engaging in these remittance systems to submit to regulation and report illicit transactions. If the avenues for transferring illicit funds are diminished, terrorist organisations will take more risks in their activities, exposing them to prosecution.

Once the international community centres a holistic approach to impeding terrorist financing, we can cut down terrorist organisations at the roots
 
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