For any counter-terrorism expert, including practitioners and academic experts, the field of terror financing has been a subject matter of great interest from both academic and operational points of view. Until 9/11, the main focus in counter-terrorism was on kinetic measures, which included intelligence-based military operations, covert operations, and full-scale military campaigns against the terrorist groups in their strongholds in Afghanistan, Somalia, Palestine, and Kashmir. 

However, the 9/11 attacks revealed a truly international and global face of terrorism, following which emerged a keen interest in the financing of terrorist organizations and operations. Post 9/11, the main focus of international efforts in countering terror financing and money laundering was on asset freezing and blocking the formal methods of moving money through banks and money service businesses. However, groups like Al Qaeda responded by shifting to informal means of moving cash like Hawala—an informal method of money transfers. Further, after fifteen years of war against terror financing, the Islamic State emerged as a far more lethal terrorist group in 2014. The so-called “Caliphate” controlled a vast territorial expanse and a diverse range of funding sources, questioning the efficacy of the global counter-terrorism and anti-money laundering regime. Hence, terrorist groups continue to improvise and innovate and manage to find ways to raise and move money. In this context, a conflict theatre that presents a classic case of one of the most complex and refined systems of terror financing is India’s Jammu and Kashmir. 

Notably, Jammu and Kashmir is a territory contested by India and Pakistan and has reeled under Pakistan-sponsored terrorism for the last three decades. Over time, since the formal beginning of a violent separatist and Islamist insurgency in 1990, Pakistan has created a highly complex, sophisticated, and layered system of terror financing. However, this subject has so far eluded the watchful eyes of the global counter-terrorism community. 

Kashmir’s terror financing landscape presents a classic example of how sustained efforts of three-plus decades in running Islamist militancy have successfully created a highly evolved structure and mechanism of terror funding, ensuring that the sinews of the insurgency ecosystem are not only held intact but strengthened in such a manner to be self-sustaining.

First Phase: 1990–96

In the early 1990s, funds were primarily sent through cash couriers. Since the border was porous, it was convenient to cross the Line of Control (the de facto border between India and Pakistan in Jammu and Kashmir or LoC) to deliver cash inside the Indian territory from where the local handlers collected it. Besides, Jamaat-e-Islami, a Pakistan-supported separatist and Islamist group, collected money through donations and, in several cases, extortion. Most of these efforts were scattered and without central coordination. Initially, Pakistan’s strategic planners had not expected to get a robust response to their proxy war strategy; however, witnessing the massive interest among the youth in joining terrorist groups, they decided to create a proper system, including the financial modules, to run militancy. 

As a result, a political separatist entity, the Hurriyat Conference, was created in 1993 by amalgamating twenty-six secessionist parties. Each one of them had a military wing. Hence, the money was needed to run Hurriyat’s offices, pay its cadres, finance its publicity and media operations, and enable foreign travel. In parallel, existing extremist groups like Jamaat-e-Islami and terrorist groups like Hizbul Mujahideen (HuM) and Jammu-Kashmir Liberation Front (JKLF) needed funds. By 1993, new terrorist groups emerged, such as Harkat-ul-Mujahiddeen. These groups, unlike Hizbul and JKLF, had a firm Pakistani control and religious nature. HuM was a Deobandi terrorist group with strong connections with like-minded groups in Afghanistan. They all needed funds to buy weapons, maintain “over-ground workers” (OGWs), and execute terrorist operations.

With the expansion of militancy, terror funding was also becoming specialized and systematic. Funds came to be centrally distributed from Pakistan and primarily routed through the Hurriyat and the commanders of terrorist groups. Along with cash, narcotics smuggling became a potent method of raising and moving money. As the operational demands increased, more money was needed. However, Indian agencies were firmly pressed into action against terrorism, which made transferring large amounts of cash a very challenging task. Hence, the terrorist organizations started funneling drugs through terrorist cadres and couriers who infiltrated the Indian side of Kashmir. A small packet of cocaine or heroin would sell for millions in the Indian and international markets. Hence, there was no need to carry large amounts of cash. 

Second Phase: 1996–2005

By 1996, the Indian security forces had almost crushed the first wave of militancy in Kashmir. The year 1996 also saw state-level elections in Kashmir, bringing Dr. Farukh Abdullah, the leader of the mainstream political party National Conference, back as the chief minister of the state. However, Pakistan was determined to continue its asymmetric war against India due to the latter’s conventional military superiority. During this phase, Pakistan’s acquisition of nuclear weapons and the beginning of the U.S. “War on Terror” after 9/11 emboldened Islamabad to continue the proxy war against India with more rigor and enthusiasm. New terrorist groups like Lashkar-e-Taiba and Jaish-e-Mohammed, which were under the firm grip of Pakistani intelligence, entered Kashmir’s terror scene. 

When Indian security forces tightened the noose on infiltration and drug smuggling, Islamabad decided to improvise on many fronts. There were several cases of drug recovery from the militants, which led to significant losses. After that, Pakistan-based terror groups separated the drug channels from the terrorist infiltration and weapons smuggling channels to keep the former safe. Secondly, Hawala came to be used as an essential means of routing terror money. Now, the terror financing machinery was not merely confined to the hilly and porous borders of Jammu and Kashmir. The Hawala funds were being routed through West Asian countries, and in India, cities like Mumbai and Delhi became the financial hubs for Kashmir terrorism. 

Third Phase: 2005–

By 2005, India had completed the border fencing and robust counter-infiltration grid. Hence, it became difficult to infiltrate and smuggle drugs and weapons through the LoC. In this phase, militants innovated new methods to raise funds. Raising money by selling medical seats was one such unique and novel means. The separatist leaders of Hurriyat and Jamaat recommend Kashmiri students to medical and engineering colleges in Pakistan. Each leader is allotted a certain number of seats. After the candidates show the recommendation letters from separatist leaders at the Pakistan High Commission in New Delhi, they get the visa, admission, and other relevant documents. The selected students pay the capitation, accommodation, and tuition fees to separatist leaders in Kashmir. The amount ranges from INR 1 million to 2.5 million. This amount is distributed among the various terrorist and separatist groups as per the directions from Islamabad. In Pakistan, the state agencies bear the expenses of the selected students. These students also act as messengers and OGWs for terrorist groups. This method is still in use, though post-2019, the Government of India has introduced some checks by invalidating the degrees awarded in Pakistan-based medical and engineering institutions. 

Another method that continues to be practiced is raising money through Hajj tours and travels. In almost every big and small city in Kashmir, there are hundreds of travel agencies that render services of arranging Hajj and Umra visits for the locals. The amount charged per person ranges from INR 150,000 to INR 300,000, which is then sent to a select few OGWs and coordinators, who in turn send it to separatist leaders and terrorist commanders. In Saudi Arabia, the expenses of the Kashmiri pilgrims are borne by individuals working for Pakistani agencies. While coming back, the pilgrims are asked to carry the gold within the permissible limits. After their return, the gold is taken from them and sold to raise funds, which are then sent to terrorist and separatist groups. 

In the second phase, terrorist organizations used the LoC trade to smuggle weapons, cash, and drugs. This route was used to fund the state-wide public unrest in 2008, 2010, 2013, and 2016. In 2019, after the Pulwama fidayeen attack, the LoC trade was banned by India. 

It is also pertinent to mention that this timeline is not separated into rigid water-tight compartments. The primary underlying idea is that terror financing methods in Kashmir have evolved in terms of diversity, scale, and innovation. The author discusses a range of other ways, such as over-invoicing and under-invoicing, money generated through Zakat and Usra (Islamic taxes), remittances and donations received from the diaspora, money generated by Islamic charities from domestic and international sources, mirror trading, direct allotment of funds by Pakistan’s intelligence, money raised by Jamaat through its schools, orphanages and facilitating government recruitments and appointments. With the advent and rapid rise of Ahl-i-Hadith in Kashmir in the 2000s, there was a massive influx of funds from the Arab world. The money, in turn, was spent on building ornate and lavish Salafi mosques. The Salafi Imams were paid a lot better than the Imams working in Barelwi/Etqadi mosques (Local version of Islam in Kashmir). These mosques became breeding grounds for producing highly radicalized and separatist individuals who were indoctrinated in global Islamism and extreme Wahhabi teachings. The products of Salafi madrasas and seminaries began to see Kashmir as a parallel conflict theatre with Palestine, Chechnya, Kosovo, and other international Islamist terror zones.