INDIA : Links between Criminal Networks and Terrorist Groups

Taking advantage of the anger in some sections of the Indian Muslim community over the demolition of the Babri Masjid in Uttar Pradesh by some Hindus in December,1992, and the subsequent alleged excessive use of force by the Mumbai Police to quell riots by the local Muslims, the ISI organized serial explosions against major economic targets such as the Stock Exchange in Mumbai in March,1993, with the help of an Indian Muslim mafia group headed by Dawood Ibrahim, who was then living in Dubai, and some young Muslims recruited in Mumbai. With the help of Dawood Ibrahim, these recruits were taken to Pakistan for training in the use of explosives. The explosives and other materials required for the IEDs were smuggled into the coastal areas of Maharashtra and Gujarat with his help. The investigation into these explosions and the interrogation of the arrested persons brought out his leadership role in organizing the blasts. He shifted to Karachi and has been given a Pakistani passport under a different name. He has been in regular touch with the ISI and helping the LET and other jihadi terrorist organizations. The Pakistani media has been reporting about his presence and activities in Karachi. Despite this, the Government of Pakistan has been denying his presence in Pakistan and has taken no action on requests from the Govt. of India made directly and through the INTERPOL for his arrest and handing over.

On October 16, 2003, the US Department of Treasury announced that it was
designating him as a Specially Designated Global Terrorist under Executive Order 13224 and that it would be requesting the UN to so list
him as well.

"This designation signals our commitment to identifying and attacking the financial ties between the criminal underworld and terrorism,”
stated Juan Zarate, Deputy Assistant Secretary for Terrorist Financing and Financial Crimes. “We are calling on the international
community to stop the flow of dirty money that kills. For the Ibrahim syndicate, the business of terrorism forms part of their larger criminal
enterprise, which must be dismantled."

A press release of the US Department of Treasury said: "Dawood Ibrahim, an Indian crime lord, has found common cause with Al Qaida, sharing his
smuggling routes with the terror syndicate and funding attacks by Islamic extremists aimed at destabilizing the Indian government. He is
wanted in India for the 1993 Bombay Exchange bombings and is known to have financed the activities of Lashkar-e-Tayyiba (Army of the
Righteous), a group designated by the United States in October 2001 and banned by the Pakistani Government -- who also froze their assets
-- in January 2002. "

A fact sheet attached to the press release said: "Ibrahim's syndicate is involved in large-scale shipments of narcotics in the UK and
Western Europe. The syndicate's smuggling routes from South Asia, the Middle East and Africa are shared with Osama Bin Laden and his
terrorist network. Successful routes established over recent years by Ibrahim's syndicate have been subsequently utilised by bin Laden. A
financial arrangement was reportedly brokered to facilitate the latter's usage of these routes. In the late 1990s, Ibrahim travelled in
Afghanistan under the protection of the Taliban."

It added: "Ibrahim's syndicate has consistently aimed to destabilise the Indian Government through inciting riots, acts of terrorism and
civil disobedience. He is currently wanted by India for the March 12,1993, Bombay Exchange bombings, which killed hundreds of Indians
and injured over a thousand more."

It also said: "Information from as recent as Fall 2002, indicates that Ibrahim has financially supported Islamic militant groups working
against India, such as Lashkar-e-Tayyiba (LET). For example, this information indicates that Ibrahim has been helping finance increasing
attacks in Gujarat by LET. "

Pakistan’s response even to the US notification has been negative. Two other Indian mafia personalities have since come to notice for their links and assistance to jihadi terrorist groups. The first is Aftab Ansari, who was suspected of involvement, in an attack by jihadi elements on the security guards outside the US Consulate in Kolkata in January,2002. The second is Riaz Bhatkal, a mafia figure from Karnataka, who is suspected by the police of helping the IM in some of its recent blasts.




Threats to sea lanes of communication from maritime piracy

Maritime counter-terrorism has received considerable attention in India, but till now the focus was naturally and mostly on maritime
counter-terrorism and security in the waters off Sri Lanka and in the Malacca Strait. There was inadequate attention to terrorist threats of a
strategic nature from the seas to the west of India---- whether from the Gulf, the Arabian Sea, the Strait of Hormuz or the Mediterranean. The major threats to India's maritime security are from the seas to the West of India and not to the East. Ninety per cent of India's foreign trade in terms of volume and 77 per cent in terms of value and practically all its energy imports pass through the seas to the West of India. There are more Indian and foreign ships with Indian crew in the seas to the West of India than to the East.

After a recent increase in the incidents of piracy off the Somali coast and the hijacking of ships with Indian crew by the pirates, the Government of India has taken action to fill up the gaps in India's maritime security in the seas to the West of India. The Government of India announced on October 16, 2008, the
deployment with immediate effect of an Indian naval warship with helicopters and marine commandoes on board in the Gulf of Aden to carry out anti-piracy patrols on the route usually followed by Indian commercial vessels between Salalah ( Oman) and Aden (Yemen). A Government spokesperson said: " The presence of the Indian Navy warship in this area will be significant as the Gulf of Aden is a major strategic choke point in the Indian Ocean region and provides access to the Suez Canal through which a sizable portion of India's trade flows. This anti-piracy patrol will be carried out in co-ordination with the Directorate-General of Shipping , who will keep Indian flagship
vessels informed in case they want to travel in the Indian Ocean along with the Indian Navy ship. The presence of the Indian Navy in the
area will help to protect our seaborne trade and instil confidence in our seafaring community as well as function as a deterrent for pirates."
This statement and other clarifications by the Government spokespersons highlighted the following: (i)This is a permanent measure to
protect vessels with Indian flags and Indian crew carrying goods for India; (ii). It is not a one-shot measure triggered off by the hijacking of a
Japanese ship with Indian crew; (iii).The deployment of more ships for the anti-piracy patrol is not ruled out; (iv).The deployment is not a
prelude to intervention by the Indian ship to rescue the Indian crew.



Border protection challenges



Regional agreements to combat cross boarder threats



Any Other Information:

India and Sri Lanka have the best counter-terrorism co-operation in the South Asian region. This co-operation has been in the form of timely sharing of intelligence and provision of counter-terrorism training facilities and non-lethal, defensive equipment such as radars by India to Sri Lanka and firm action by the Tamil Nadu Police and the Indian Coast Guard against attempts by the LTTE for procurement and smuggling of material required for its terrorist operations. The two countries have a convergence of views on the threat to national and regional security that could arise from the sea and air capabilities of the LTTE. They also have shared perceptions of the dangers of copy-cat emulation of the LTTE’s modus operandi by other terrorist organizations in the region.

India also has excellent co-operation with the Bhutanese authorities in counter-terrorism. Bhutan had put an end to the activities of Bodo tribal militants from its territory.

Nepal has also been responsive to India’s concern over the use of its territory by the ISI and the jihadi groups from Pakistan and India. Nepal is one of the routes used by the ISI and the jihadi groups for their to and fro movement between India and Pakistan. Nepal is also a favoured route for money-laundering by criminal elements and for the dissemination of counterfeit Indian currency notes printed in Pakistan. Nepal is also an important base for the activities of the Dawood Ibrahim-led mafia group. India is keeping its fingers crossed as to whether the Maoist-led Government, which came to power in Kathmandu recently, would extend the same level of co-operation as its predecessors.

Co-operation from Pakistan and Bangladesh has been unsatisfactory. Since India and Pakistan became independent in 1947, Pakistan has never extended any mutual legal assistance to India in respect of any crime if the person wanted by India is a Muslim. In respect of terrorism, it has never extended any mutual legal assistance to India irrespective of the religion of the wanted person. Whenever the terrorist suspect wanted by India is an Indian national, it denies his presence in its territory. Whenever the terrorist suspect is a Pakistani national, it does not deny his presence in its territory, but rejects the evidence presented by the Indian Police. It has had no qualms over picking up informally nearly 200 Muslims---- Arabs as well as its own nationals--- and handing them over to the US without following the due process of law for being taken to the detention centres in Bagram or in the Guantanamo Bay. But it has never arrested a terrorist---Muslim or non-Muslim---wanted by India and handed him over to India. There are presently 20 terrorist suspects----- the accused in aircraft hijacking cases of the 1980s, the Mumbai blasts of March,1993, the attack on the Indian Parliament in New Delhi in December 2001 and others---- living in Pakistan. Islamabad has repeatedly avoided requests from India and the INTERPOL to have them arrested and handed over to India.

Despite the seeming improvement in the bilateral relations, Pakistan continues to use jihadi terrorist organizations as weapons against India for achieving its strategic objectives. Under pressure from the US, Pervez Musharraf banned the LET, the HUM and the JEM as terrorist organisations on January 15,2002, but they continue to operate against India openly from Pakistani territory either under their original names or under changed names.

The same is the case with Bangladesh.

Many mechanisms have been set up to improve counter-terrorism co-operation with Pakistan and Bangladesh such as:

(a). The periodic meetings of the Home Secretaries of India and Pakistan and India and Bangladesh to discuss trans-border security.

(b). The periodic meetings of the senior officials of the para-military forces of India and Pakistan and India and Bangladesh for the same purpose.

( c ). The periodic meetings of the Joint India-Pakistan Counter-Terrorism Mechanism set up by Musharraf and Indian Prime Minister Manmohan Singh in September,2006, to discuss co-operation in counter-terrorism. Its meetings are attended by senior officials of the intelligence agencies of the two countries and officials of other departments concerned with counter-terrorism.

Despite these mechanisms, there has been no improvement in counter-terrorism co-operation either with Pakistan or Bangladesh. As against this, counter-terrorism co-operation with Sri Lanka, Bhutan and Nepal has been good even in the absence of formal mechanisms. This shows that if the desire and the intention to co-operate is not there, no formal mechanism can help.

INDIA : Cross Border Criminal Networks

Maritime Piracy:

India and Sri Lanka face no major problem of maritime piracy in their coastal areas. The main threat to Indian shipping from pirates is off the Somali coast from the pirates operating in those areas. There is piracy along the Bangladesh coast, but this largely consists of cases of theft from ships anchored in the Bangladeshi ports. It is alleged that the captains of ships often project such thefts in ports as acts of piracy in the high seas.


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Illegal Trade in Small Arms

There used to be considerable smuggling of small arms and ammunition by individual and group smugglers across the Indo-Pakistan border in the Punjab and Rajasthan areas during the Afghan jihad against the Soviet troops and during the height of the Khalistani terrorism in Indian Punjab in the1980s and the 1990s. Practically all the smuggling was from Pakistan to India. The problem posed by such smuggling has come down after the erection of a barbed wire fencing along the Indo-Pakistan border in the Indian Punjab and parts of Rajasthan by the Indian Border Security Force (BSF). Smuggling on a smaller scale continues to take place across the desert in the Rajasthan sector and across the Line of Control (LOC) in Jammu and Kashmir. Pakistan’s ISI uses smugglers for having explosives and other items reached to the jihadi terrorist groups operating in J&K and other parts of India. Smuggling through coastal ships and fishing boats is also not uncommon. The mafia gang headed by Pakistan-based Dawood Ibrahim, which orchestrated the serial blasts in Mumbai in March 1993, had large quantities of explosives, detonators and chemical timers and some small arms and ammunition such as AK-47 rifles with ammunition and hand-grenades smuggled into the coastal areas of Maharashtra and Gujarat in boats. These were landed at clandestine landing points with the complicity of some Customs staff and then secretly transported by road to Mumbai.

Trans-border smuggling is a major problem even now across the Indo-Bangladesh border. Active opposition from Bangladeshi para-military forces and Army in the form of firing has frustrated the efforts of the BSF to erect a border fencing in the Indian territory across Bangladesh.

There is considerable smuggling of narcotics across the land borders with Pakistan, Bangladesh and Myanmar. The narcotics smuggled into India across the Myanmar and Bangladesh borders come from the Golden Triangle. The narcotics smuggled from Pakistan originate from the Golden Crescent. The intelligence agencies of Pakistan and Bangladesh close their eyes to the narcotics smuggling in return for their agreeing to smuggle explosives and small arms for the jihadis in India. Americans have been complaining for some years that the chemicals required for refining opium into heroin are smuggled from India into Pakistan across the borders. Alleged complicity by law-enforcing elements in Pakistan, India and Bangladesh has thus come in the way of a 100 per cent effective action to stop the smuggling. There have been instances of smuggling of material required for IEDs by boats from India into the LTTE-controlled areas in Sri Lanka. The recently stepped-up efforts of the Tamil Nadu Police and the Indian Coast Guard to stop this has succeeded to some extent, but not completely as seen from sporadic acts of attempted smuggling.

(b) Smuggling by the LTTE: Next to the Palestinian terrorist groups, the LTTE has the most developed capability for the clandestine procurement of not only small arms and ammunition and explosives, but also more substantial items such as anti-aircraft guns and shells, artillery, surface-to-air missiles and even small aircraft from different parts of the world.

Initially, it used to smuggle these items from the Thai-Cambodian border and other sources in S.E.Asia. Subsequently, in 1993, it managed to get a consignment of arms and ammunition from Pakistan’s ISI, but the ship on which they were loaded at Karachi was tracked by the Indian Navy and sunk with the arms and ammunition in the Bay of Bengal. After the collapse of the communist regimes in East Europe in 1991, it started smuggling from Ukraine and the Czech Republic.

It was running a fleet of commercial ships flying the flags of other countries such as Panama. These were ostensibly used for legitimate commercial shipping, but when needed also for smuggling arms and ammunition.

In 1995, the LTTE agreed to transport a consignment of arms and ammunition given by the HUM (then known as the HUA) to the terrorist elements in Southern Philippines. In return, the HUM donated some anti-aircraft guns to the LTTE. In 2006, the US arrested some supporters of the LTTE for planning to procure some surface-to-air missiles.

The LTTE’s arms smuggling activities by sea have been affected by the post-2001 stationing of a multi-national naval task force in the Gulf area to prevent any smuggling and other activities by Al Qaeda and pro-Al Qaeda organizations. Despite the increased vigilance by Western countries, the LTTE managed to procure from the Czech Republic and smuggle into the Wanni area of the Northern Province of Sri Lanka two to five small aircraft for its so-called air force. The suspicion is that it got them ordered in the name of a flying club in South Africa and then had them transported in a dismantled condition to the Wanni region. There is also reason to suspect that the LTTE got its pilots trained in ground strike operations in South Africa with the help of some ex-White pilots of the South African Air Force. It manages to smuggle in fuel required for these aircraft. During the days of the anti-apartheid struggle of the African National Congress (ANC), the LTTE had developed a good networking with it. This continues to come in handy for the LTTE in its arms smuggling activities. Chandrika Kumaratunge, former Sri Lankan President, and the late Laxman Kadirgamar, former Sri Lankan Foreign Minister, had visited South Africa to request the South African authorities to act effectively against its activities through South Africa. The response has been poor.

In recent months, the Sri Lankan Navy has claimed to have considerably disrupted the sea smuggling activities of the LTTE and destroyed many of its ships----either by acting on their own intelligence or with the help of the intelligence collected by the Indian agencies. Despite this, arms and aviation fuel smuggling by the LTTE continues, but on a reduced scale.

India : Cross Border Terrorist Links

(1). Indian terrorist Groups with links in Pakistan:

(a). The Hizbul Mujahideen (HM): An indigenous Kashmiri group of Jammu & Kashmir (J&K), which advocates the merger of J&K with Pakistan. Its leader, Syed Salahuddin, who was an Indian national, lives in Pakistan and co-ordinates the activities of the organization from Pakistan. Funded, trained and armed by Pakistan’s Inter-Services Intelligence (ISI). Continues to be active in J&K.

(b). The Jammu & Kashmir Liberation Front (JKLF). It has two branches. The Indian branch, which operates from Srinagar, is headed by Yasin Malik. The Pakistani branch, which operates from Rawalpindi, is headed by Amanullah Khan, a native of Gilgit in the Northern Areas of Pakistan. Both the branches advocate an independent Jammu & Kashmir comprising all Kashmiri territory presently under the control of India, Pakistan and China. It was the first to start a violent struggle in J&K in 1989 supported by the ISI. Alarmed by the public support for independence, the ISI cut down its assistance to the JKLF and propped up the HM. The JKLF has given up resort to terrorism and has converted itself into a purely political movement for an independent Kashmir

There are many other terrorist organizations too in J&K with links in Pakistan, but they are not as important as the two mentioned above.

( c ). The Students Islamic Movement of India (SIMI). Formed in Aligarh in Uttar Pradesh in 1977 by some students of the Aligarh Muslim University (AMU) to function as a Muslim Rights Movement among the students. Some of its members went to Pakistan in the late 1980s and were got trained by the Jamaat-e-Islami (JEI) of Pakistan. Took to reprisal terrorism against the Hindus and Hindu nationalist organizations after the demolition of the Babri Masjid in December 1992 by a mob of pro-Bharatiya Janata Party (BJP) Hindus. Its activities have spread to different parts of India since then. Its objectives are partly retaliation for the excesses allegedly committed against the Muslims by the police and Hindu nationalist elements and partly to fight against the wrongs allegedly committed against the Indian Muslims. Acts sometimes on its own and sometimes in tandem with the Lashkar-e-Toiba (LET) of Pakistan and the Harkat-ul-Jihad-al-Islami of Bangladesh (HUJI-B). Some of its cadres were trained in LET/HUJI camps in Pakistan and Bangladesh.

(d). The Indian Mujahideen (IM): It came to notice after serial blasts carried out in three cities of Uttar Pradesh around the same time in November,2007. It projected itself as an organization of purely Indian Muslims with no links to Pakistan or Pakistan-based terrorist groups. It also claimed post-facto responsibility for some previous terrorist strikes including the serial explosions in some suburban trains of Mumbai in July,2006, in which over180 commuters and other civilians were killed. Since November,2007, the IM has also claimed responsibility for the serial blasts in Jaipur in May,2008, in Ahmedabad in July,2008, and in Delhi in September ,2008. Its claims of responsibility were believed to be authentic. Subsequently, there were serial blasts in Agartala and at four towns in Assam in October, 2008. Over 80 persons died due to the blasts in Assam----62 on the spot and the remaining in hospitals while under treatment. A claim of responsibility in respect of the Assam blasts was made by an organization calling itself ISF/IM-----which has been interpreted by the police to mean Islamic Security Force, Indian Mujahideen. This claim is yet to be proved to be authentic. In messages sent before and after the blasts in UP, Jaipur, Ahmedabad and Delhi the IM had referred to the various wrongs allegedly committed against the Muslims by the Indian criminal Justice system. The perpetrators of the blasts in Ahmedabad and Delhi have been identified and arrested. Some members of the IM based in Mumbai, who were allegedly planning to commit acts of terrorism in Mumbai, have also been arrested. The organization has at its disposal educated Muslims, some of whom have had the benefit of secular education. Among those arrested in Mumbai were three trained persons in Information Technology (IT), one of whom was a senior executive in the Indian office of yahoo.com. According to the police, he had visited the US in the past. While many perpetrators and other members have been arrested, the police do not seem to have a clear idea of its structure, leadership and command and control. The indications till now are that the organization has many sleeper cells in different urban centres of India, capable of operating autonomously of each other. The investigations also indicate links between this organization and the world of organized crime. Riaz Bhatkal, still absconding, one of the principal motivators of the IM, is allegedly a mafia operator. Many of those arrested so far have a SIMI background. This would indicate that it is either an off-shoot of SIMI or has drawn many of its members from the SIMI. According to the Delhi Police, the organization has had contacts with Pakistan’s Lashkar-e-Toiba. Contacts with the Harkat-ul-Jihad-al-Islami (HUJI) of Bangladesh are also suspected. The organization itself denies any external links.

(2). Pakistani terrorist groups with links in India:

(a). The Lashkar-e-Toiba (LET) with its headquarters in Muridke, near Lahore. Came into existence during the Afghan Mujahideen’s fight against the Soviet troops in Afghanistan. After the Afghan Mujahideen captured power in Kabul in April,1992, the ISI sent the LET’s trained cadres into J&K to help the HM and other pro-Pakistan groups. From 1999, its cadres have spread to other parts of India too. Wahabi in orientation. Strongly opposed to liberal democracy of the Western model. Describes Kashmir as “the gateway to India” and its objectives as to help in the merger of Kashmir with Pakistan and help the Indian Muslims in other parts of India in their fight against the Hindus and the Government. Its sleeping cells in India have been discovered in many urban towns in the north as well as the south. It operates in India with its own trained cadres, who are Pakistani nationals, as well as Indian Muslims recruited by it through the SIMI and got trained in Pakistan. It is the most-favoured terrorist organization of the ISI. A member of bin Laden’s International Islamic Front (IIF) for jihad against the Crusaders and the Jewish People formed in 1998. It has cells in Saudi Arabia and the United Arab Emirates to recruit members from the Indian Muslim diaspora in West Asia for its operations in India. It has followers and sympathizers in the Western countries too in the local Pakistani diaspora. Abu Zubaidah, projected by the US as the then No.3 of Al Qaeda, was arrested in March,2002, in the house of an LET cadre in Faislabad in Pakistani Punjab. Designated by the US as a Foreign Terrorist Organisation in October,2001

(b).The Harkat-ul-Mujahideen (HUM): Also came into being during the Afghan Mujahideen’s fight against the Soviet troops. It used to be known as the Harkat-ul-Ansar (HUA), but changed its name as the HUM after the US State Department designated the HUA as a Foreign Terrorist Organisation (FTO) in 1997. It was so designated because of its suspected involvement in the kidnapping of some Western tourists, including an American, in J&K under the name Al Faran in 1995. A founding-member of Al-Qaeda led IIF. Its then Amir, Maulana Fazlur Rahman Khalil, was a co-signatory of the fatwa issued by bin Laden in 1998 against the US and Israel. The ISI infiltrated the HUM’s cadres into J&K from 1993 onwards. Quite active in J&K, but does not have much of a presence in the rest of India. Has been focusing on the jihad in J&K. It claims to have helped the terrorists in Southern Philippines, Chechnya and in the Arakan area of Myanmar and to have trained some Afro-Americans in the 1990s in its camps in Pakistan. Was suspected to have been involved in the kidnapping and execution of Daniel Pearl, the US journalist, in Karachi in January-February 2002 under the name HUM (International) along with the Jaish-e-Mohammad (JEM) and Khalid Sheikh Mohammad (KSM) of Al Qaeda, who is under trial before a military tribunal in the Guantanamo Bay for his principal role in orchestrating the 9/11 terrorist strikes in the US. Strongly Wahabi.

( c ). The Harkat-ul-Jihad-al-Islami (HUJI) : Its headquarters are in Pakistan. It has a branch in Bangladesh, which is referred to as HUJI (B). Also came into being during the Afghan jihad of the 1980s. It used to be part of the HUA. There was a split in the HUA after it was designated by the US as an FTO in 1997. One group under Fazlur Rahman Khalil constituted the HUM and another group under Qari Saifullah Akhtar constituted the HUJI. Saifullah was suspected of involvement in an attempted coup by a group of middle and lower level officers of the Pakistan Army led by a Brigadier in 1995. The Army officers were tried by a military court and sentenced to various terms of imprisonment. Surprisingly, Saifullah was released after being kept in custody for some months. He was not prosecuted. After the two failed attempts to kill Pervez Musharraf at Rawalpindi in December 2003, in which the HUJI and the Jaish-e-Mohammad (JEM) were suspected to have participated at the instance of Al Qaeda, he fled to Dubai. The Dubai authorities arrested him in 2006 and handed him over to the Pakistani authorities. He was informally detained for some months, questioned about the HUJI’s role in the failed attempts to kill Musharraf and then released for want of any evidence against him. He was again detained after the failed attempt to kill Benazir Bhutto in Karachi on October 18,2007,following a complaint by her that she suspected his role in the assassination attempt. He was again released after some weeks of interrogation. Recently after the huge explosion outside the Marriot Hotel in Islamabad in September,2008. Amir Mir, the usually well-informed Pakistani journalist, had reported that the HUJI was suspected, but there has been no evidence against it. It is a member of bin Laden’s IIF. Saifullah was considered close to Mulla Mohammad Omar, the Amir of the Taliban.It used to have an extensive network of cells in Tajikistan and Chechnya. The “Friday Times” of Lahore had once described it as the Punjabi Taliban. HUJI prefers to operate in India through HUJI (B) and not directly. HUJI (B) takes advantage of the presence of a large number of illegal Bangladeshi immigrants in different parts of India to recruit Indian Muslims for jihad in Indian territory. It has had links with the SIMI. Links with the IM are suspected, but not yet proved. Wahabi.

(d).The Jaish-e-Mohammad (JEM): Came into existence in Januarey,2000, following a split in the HUM due to differences over funds and property. Its Amir, Maulana Masood Azhar, a resident of Bahawalpur in southern Punjab of Pakistan, used to be in jail in India following his arrest for involvement in terrorism in India. The Govt. of India released him and Omar Sheikh, a terrorist of British origin, in December 1999, in order to save the lives of the passengers of an Indian Airlines aircraft, which was hijacked by some members of the HUM after it had taken off from the Kathmandu airport and taken to Kandahar. On his return to Pakistan from Kandahar, Maulana Azhar developed differences with Maulana Fazlur Rahman Khalil, the then Amir of the HUM, over the division and utilization of the funds collected by the HUM during his absence in an Indian jail. He and his followers left the HUM in January,2000, and formed the JEM. A member of the IIF. Suspected of involvement in the attempted attack on the Indian Parliament along with the LET in December,2001, in the kidnapping and murder of Daniel Pearl along with the HUM in January-February 2002 and in the two attempts to kill Musharraf in December,2003, along with the HUJi and Al Qaeda. Its operations in India are confined to J&K and New Delhi. It is reported to be helping the Tehrik-e-Taliban Pakistan in its operations against the Pakistani security forces in the Swat Valley of the North-West Frontier Province (NWFP). Wahabi. Designated by the US as an FTO in December,2001.

(e).Al Qaeda: Has till now no organizational presence in India, but has admirers in the SIMI. It prefers to operate in Indian territory through its Pakistani surrogates, namely, the LET, the HUM, the HUJI and the JEM. According to the British authorities, Bilal al-Hindi, a Hindu convert to Islam, whose family had migrated to the UK from East Africa, had helped Al Qaeda in collecting target intelligence from the US. He was arrested and prosecuted for his links with Al Qaeda and has been sentenced by a British court to a long term of imprisonment. In his confessional statement before the US military tribunal in the Guantanamo Bay, as released by the Pentagon in an edited form, KSM had stated that Al Qaeda had planned to blow up the Israeli Embassy in New Delhi. He did not say why it could not do so. Abu Zubaidah, referred to above, who is a Palestinian, was reported to have undergone a computer course in Pune in India before crossing over to Pakistan and joining Al Qaeda.

(3). Indian terrorist groups with links in Bangladesh

(a). The United Liberation Front of Asom (ULFA). It is an ethnic terrorist group of some Assamese people, which has been fighting for an independent Assam. It has a capability for urban as well as rural terrorism. Whereas the SIMI and the IM have largely shifted from the use of hand-held weapons to the use of improvised explosive devices (IEDs), the ULFA, like the indigenous Kashmiri terrorist organizations, uses hand-held weapons as well as IEDs for its operations. Targets the security forces, other Government personalities, and non-Assamese working and living in Assam. Targets the economy too with selective attacks on the oil storage and distribution facilities. It regularly indulges in the kidnapping of business executives for ransom. Ransom collection is an important source of revenue. In touch with the intelligence agencies of Bangladesh and Pakistan. Its leader Paresh Barua and some other important cadres operate from sanctuaries in Bangladesh. Its cadres are trained in Bangladesh in its own camps as well as in the camps of the HUJI (B). It is an interesting example of an ethnic terrorist organization, whose leaders and members are largely Hindus, but which is depending on the support of the intelligence agencies of Bangladesh and Pakistan and jihadi terrorist organizations such as the HUJI (B) and the Jamiat-ul-Mujahideen. Because of its dependence on the Bangladesh intelligence and Bangladesh-based jihadi organizations for funds, logistics and training in Bangladesh territory, it avoids targeting the illegal Bangladeshi immigrants in Assam. It is the most well-trained and well-motivated terrorist organization in India’s North-East

(b). There were and there still are some other terrorist/insurgent groups with links in Bangladesh such as the so-called Naga Federal Government (NFG), the National Socialist Council of Nagaland (NSCN), the Mizo National Front (MNF) and some organizations of Tripura and Manipur and an organization of some members of the Bodo tribal community of Assam.. The NFG and the MNF have made peace with the Government of India and have come overground. The others are active off and on.

(4). Bangladeshi terrorist groups with links in India:

(a). HUJI (B). Already covered above. After the LET, it is the second most active jihadi terrorist organization in India, with cells and members found in many parts of India even outside Assam. The statement issued by Al Qaeda in 1998 about the formation of the IIF contained the signature of a person, who was described as from Al Jihad of Bangladesh. It is generally believed that this is actually a reference to the HUJI (B).

(b). The Jamiat-ul-Mujahideen (JUM): This organization, which carried out over 450 simultaneous explosions of low lethality all over Bangladesh on August 17,2005, has not come to notice for any major activity in Indian territory so far, but the Assam Police suspect that it has been trying to extend its activities to Assam through the illegal Bangladeshi immigrants despite its being in a state of disarray following the execution of some of its top leaders by the Bangladesh authorities in 2007 for involvement in terrorism.

(5) Indian terrorist groups with links in Sri Lanka:

None

(6). Sri Lankan terrorist groups with links in India:

(a). The Liberation Tigers of Tamil Eelam (LTTE): The LTTE had sanctuaries in Indian territory till May,1991. Till 1987, Prabhakaran, its leader, used to live in India, After the signing of the Indo-Sri Lankan agreement of 1987 followed by the induction of an Indian Peace-Keeping Force (IPKF) into the Tamil areas in the Eastern and Northern Provinces to disarm the LTTE, he and his followers had to leave Indian territory. After the assassination of Rajiv Gandhi, former Prime Minister, by the LTTE in Chennai in May,1991, the Govt. of India banned the LTTE and put a stop to its activities in Indian territory. Prabhakaran and Pottu Amman, his intelligence chief, are among the principal accused in the assassination case. The LTTE suffered a huge loss of sympathy among the Tamils of Tamil Nadu in India. However, in recent months, it has been trying to rehabilitate its image in Tamil Nadu with the help of a small number of die-hard supporters in Tamil Nadu. While there is no longer any overt activity by the LTTE in Tamil Nadu since 1991, it maintains clandestine contacts with some elements in the coastal areas of Tamil Nadu and uses them for the procurement and smuggling of items such as engines and other parts for boats, ball bearings of bicycles for use in IEDs, detonators for IEDs , medicines etc. The Police of Tamil Nadu has taken strong action against such elements helping the LTTE in its clandestine procurement. Despite this, sporadic acts of clandestine procurement and smuggling to the LTTE-held areas in Sri Lanka continue.

(6) Links between the Maoists of India and Nepal:

Before the Maoists of Nepal came overground in 2006, contested the elections to the Constituent Assembly held subsequently and recently assumed the leadership of a coalition Government, there were strong ideological links not only between the Maoists of the two countries, but also between the Maoists of Nepal and different Communist Parties of India. Many Maoist leaders of Nepal used to take shelter in India when they were under pressure by the Nepalese security forces. These ideological links continue. There were, however, no arms supply and training relationship between the two.

What is hawala?

Hawala is an ancient system originating in South Asia; today it is used around the world to conduct legitimate remittances. Like any other remittance system, hawala can, and does, play a role in money laundering. In addition to serving as a 'tutorial' on hawala transaction, this paper will also discuss the way in which hawala is used to facilitate money laundering.

What is hawala?

Hawala (1) is an alternative or parallel remittance system. It exists and operates outside of, or parallel to 'traditional' banking or financial channels. It was developed in India, before the introduction of western banking practices, and is currently a major remittance system used around the world. It is but one of several such systems; another well known example is the 'chop', 'chit' or 'flying money' system indigenous to China, and also, used around the world. These systems are often referred to as 'underground banking'; this term is not always correct, as they often operate in the open with complete legitimacy, and these services are often heavily and effectively advertised.

The components of hawala that distinguish it from other remittance systems are trust and the extensive use of connections such as family relationships or regional affiliations. Unlike traditional banking or even the 'chop' system, hawala makes minimal (often no) use of any sort of negotiable instrument. Transfers of money take place based on communications between members of a network of hawaladars, or hawala dealers (2).

How does hawala work?

Hawala works by transferring money without actually moving it. In fact 'money transfer without money movement' is a definition of hawala that was used, successfully, in a hawala money laundering case.

An effective way to understand hawala is by examining a single hawala transfer. In this scenario, which will be used throughout this paper, Abdul is a Pakistani living in New York and driving a taxi. He entered the country on a tourist visa, which has long since expired. From his job as a taxi driver, he has saved $5,000 that he wants to send to his brother, Mohammad, who is living in Karachi (3).

Even though Abdul is familiar with the hawala system, his first stop is a major bank. At the bank, he learns several things:

The bank would prefer that he open an account before doing business with them;

The bank will sell him Pakistani rupees (Rs) at the official rate (4) of 31 to the dollar; and

The bank will charge $25 to issue a bank draft.

This will allow Abdul to send Mohammad Rs 154,225. Delivery would be extra; an overnight courier service (surface mail is not always that reliable, especially if it contains something valuable) can cost as much as $40 to Pakistan and take as much as a week to arrive. Abdul believes he can get a better deal through hawala, and talks to Iqbal, a fellow taxi driver who is also a part-time hawaladar.

Iqbal offers Abdul the following terms:

A 5% 'commission' for handling the transaction;

35, instead of 31, rupees for a dollar; and

Delivery is included.

This arrangement will allow Abdul to send Mohammad Rs 166,250. As we will see, the delivery associated with a hawala transaction is faster and more reliable than in bank transactions. He is about to make arrangements to do business with Iqbal when he sees the following advertisement (5) in a local 'Indo-Pak' newspaper (such advertisments are very common):

Abdul calls the number, and speaks with Yasmeen. She offers him the following deal:

A fee of 1 rupee for each dollar transferred;

37 rupees for a dollar; and

Delivery is included.

Under these terms (6), Abdul can send Mohammad Rs 180,000. He decides to do business with Yasmeen.

The hawala transaction proceeds as follows:

Abdul gives the $5,000 to Yasmeen;

Yasmeen contacts Ghulam in Karachi, and gives him the details;

Ghulam arranges to have Rs 180,000 delivered to Mohammad.

This diagram summarizes the transaction:

Even though this is a simple example, it contains the elements of a hawala transaction. First, there is trust between Abdul and Yasmeen. Yasmeen did not give him a receipt, and her recordkeeping, such as it may be, is designed to keep track of how much money she owes Ghulam, instead of recording individual remittances she has made. There are several possible relationships she can have with Ghulam (these will be discussed later); in any case she trusts him to make the payment to Mohammad. This delivery almost always takes place within a day of the initial payment (a consideration here is time differences), arid the payment is almost always made in person. Finally, in some scenarios, he trusts her to repay him the equivalent of either $5,000 or Rs 180,000.

Connections are of equal importance. Yasmeen has to be connected to Ghulam in Karachi to arrange this payment. As her advertisement indicates, she also offers service to India, so she either knows, or has access to, someone who can arrange payment there. Hawala networks tend to be fairly loose, communication usually takes place by phone or fax (but email is becoming more and more common).
To complete this discussion, there are two related issues to be addressed. The first is the relationship between Yasmeen and Ghulam, and the second is how Ghulam 'recovers' the money that he paid to Mohammad on Abdul's behalf.

As was stated above, hawala works through connections. These connections allow for the establishment of a network for conducting the hawala transactions. In this transaction, Yasmeen and Ghulam are part of the same network. There are several possible ways in which this network could have been constructed.

The first possibility is that Yasmeen and Ghulam are business partners (or that they just do business together on a regular basis). For them, transferring money is not only another business in which they are engaged but a part of their normal business dealings with one another. Another possibility is that, for whatever reason, Ghulam owes Yasmeen money. Since many countries make it difficult to move money out of the country, Ghulam is repaying his debt to Yasmeen by paying her hawala customers; even though this is a very 'informal' relationship, it is quite typical for hawala. A third (and by no means the final) possibility is that Yasmeen has a 'rupee surplus' and Ghulam is assisting her in disposing of it.

In the last two cases, Ghulam does not need to recover any money; he is either repaying an existing debt to Yasmeen, or he is handling money that Yasmeen has entrusted to him, but is unable to move out of the country. In the first case, where Yasmeen and Ghulam are partners, a more formal means of balancing accounts is needed.

One very likely business partner scenario is an import/export business. Yasmeen might import CDs and cassettes of Indian and Pakistani music and 22 carat gold (7) jewelry from Ghulam, and export telecommunications devices to Ghulam. In the context of such a business, invoices can be manipulated to 'conceal' the movement of money.

If Yasmeen needs to pay Ghulam the Rs 180,000 that he has given to Mohammad, she can do it by 'under invoicing' a shipment to him. She could, for example, send him $20,000 worth of telecommunications devices, but only invoice him for $15,000. Ghulam pays Yasmeen $15,000 against this invoice. The 'extra' value of goods, in this case $5,000 (the equivalent of Rs 180,000) is the money that she owes him.

In order to move money the other way (in this case, from Pakistan to New York)',over invoicing' can be used. For this example, it is assumed that Ghulam owes Yasmeen $5,000. She could buy $10,000 of telecommunications devices, and send it to Ghulam with an invoice for $15,000. Ghulam would pay her $15,000; this covers the $10,000 for the telecommunications devices as well as the other $5,000.

Since many hawala transactions (legitimate and illegitimate) are conducted in the context of import/export businesses, the manipulation of invoices, as discussed above, is a very common means of settling accounts after the transactions have been made.

Why would anyone bother with hawala?

When compared to a 'traditional' means of remitting money, such as obtaining a check or ordering a wire transfer, hawala seems cumbersome and risky. In this section, we will examine the motivations for using the hawala system.

The primary reason is cost effectiveness. As was shown in this example, Abdul was able to obtain nearly Rs 30,000 more (averaging exchange rates, this is about US$ 880), a significant savings by using the hawala system. Some of the reasons for this cost effectiveness, namely low overhead, exchange rate speculation and integration with existing business activities, will be discussed in the next section of this paper.

The second reason is efficiency. A hawala remittance takes place in, at most, one or two days. This can be contrasted with the week or so required for an international wire transfer involving at least one correspondent bank (as well as delays due to holidays, weekends and time differences) or about the same amount of time required to send a bank draft from North America to South Asia via a courier service (surface mail is not a reliable option where the contents are valuable, and it can also take several weeks to arrive).

The third reason is reliability. Complex international transactions, which might involve the client's local bank, its correspondent bank, the main office of a foreign bank and a branch office of the recipient's foreign bank, have the potential to be problematic. In at least once instance reported to the authors, money for a large commercial transaction (money being sent from the United States to South Asia) was lost 'in transit' for several weeks while trying to conduct such a transaction. When the bank located the money, it was returned to the customer. He enlisted the services of a local hawaladar, who was able to complete the transaction in less than a day.

The fourth reason is the lack of bureaucracy. Abdul is living and working in the United States on an expired student visa; he does not have a social security number (and since he deals almost exclusively in cash, he really does not need one). It would be difficult, if not impossible for him to open a bank account as he does not have adequate identification. In addition, he does not completely trust banks and would prefer not to use them if at all possible. Iqbal and Yasmeen do not operate in a 'bureaucratic' framework, making them a preferable alternative to the bank.

The fifth reason is the lack of a paper trail. Even though Abdul earned the money that he sent to Mohammad legally, he would prefer to remain anonymous (this is a much more important consideration in illicit hawala transactions). Since it is rare for hawaladars to keep records of individual transactions, it is unlikely that Abdul's remittance will ever be identified as part of the business dealings between Yasmeen, Ghulam and their associates.

The sixth reason is tax evasion. In South Asia, the 'black' or parallel economy is 30%-50% of the 'white' or documented economy. Money remitted through official channels might invite scrutiny from tax authorities - hawala provides a scrutiny-free remittance channel.

Why does hawala work?

In brief, hawala 'works' - or competes effectively with other remittance mechanisms - because of its cost effectiveness. A secondary consideration is that hawala is often related or even integral to existing business dealings.

One reason for hawala's cost effectiveness is low overhead. A business like Yasmeen's 'Music Bazaar and Travel Services Agency' operates out of a rented storefront as opposed to a bank building (which has expensive vaults and alarm systems), and may even share space with another business (e.g. a sari or gold shop), further reducing rental expenses. Yasmeen's employees are paid less than bank officers, and they probably do not have insurance or access to a retirement plan. Some hawaladars operate with even less, using a table in a tea shop as an office and having little more than a cellular phone and notebook as overhead expenses.

The second reason is exchange rate speculation. In India, for example, the Foreign Exchange Regulation Act (FERA), 8(2) (8) states that '(e)xcept with the previous general or special percussion of the Reserve Bank, no person, whether an authorised dealer or a moneychanger or otherwise, shall enter into any transaction which provides for the conversion of Indian currency into foreign currency or foreign currency into Indian currency at rates of exchange other than the rates for time being authorised by the Reserve Bank'. Since hawala dealers do not, in many if not most cases comply with such regulations, their transactions may be illegal (a more detailed discussion of the legality of hawala follows).

Depending on one's perspective (and possibly jurisdiction), hawaladars are either engaging in foreign exchange speculation or black market currency dealing. In any case, they exploit naturally occurring fluctuations in the demand for different currencies. This enables them to turn a profit from hawala transactions (which, in addition to being remittances, almost always have a foreign exchange component), and they are also able to offer their customers rates that are better than those offered by banks (most banks will only transact at authorized rates of exchange).

The rates cited in this paper (35 Rs/$ for Iqbal, 37 Rs/$ for Yasmeen and the official rate of 31 Rs/$ as cited by the bank) reflect a difference of 12-19% over the official rate. These may actually be a little high. A U.S. hawaladar (9) involved in the laundering of drug proceeds as well as legitimate remittances told one of the authors of this paper that he could still make a profit on an exchange rate margin as small as 2%, making him much more competitive than a bank.

In addition, since many hawaladars are also involved in businesses where money transfers are necessary, providing remittance services fits well into these businesses' existing activities. Monies from remittances and business transfers are processed through the same bank accounts, and few, if any, additional operational costs are incurred by a business that offers hawala remittance services.

Finally, an important component of hawala is trust. Hawala dealers are almost always honest in their dealings with customers and fellow hawaladars. Breaches of trust are extremely rare. It is worth noting that one of the meanings attached to the word hawala is 'trust'!

Is hawala legal?

Since hawala is a remittance system, this question really addresses regulations governing remittance services (10) and the circumstances of the remittance. The assumption here, of course, is that these remittances are like Abdul's, and 'legitimate'; the illicit use of hawala in money laundering is discussed in the next section of this paper.

Even though hawala is illegal from a regulatory standpoint in some U.S. jurisdictions, hawaladars advertise their services widely in a variety of media (ethnic newspapers have been the traditional place to find them, now some are using the Internet). Enforcement of these regulations is difficult with respect to hawala. The advertisements are often printed in foreign languages, and wording like 'sweet rupee deals' does not necessarily suggest remittance services. Moreover, businesses like Yasmeen's do not conduct remittances as their primary activity.

In South Asia, the situation is more complicated. Many South Asian nations (such as India and Pakistan) have laws that prohibit speculation in the local currency, prohibit foreign exchange transactions at anything other than the official rate of exchange, and impose strict licensing requirements on money remitters and foreign exchange dealers. In addition, there are regulations governing inbound and outbound remittances.

A detailed discussion of these regulations is beyond the scope and intent of this paper. It is, however, possible to state 'hawala is illegal in India and Pakistan' with nearly complete accuracy.

The important point for our purposes is that the existence of these regulations is another reason hawala is still used. Many people in these countries have money that they would like to move to another country due to concerns about stability, to pay for education or medical treatment. Hawala provides a ready means of doing this, and its use as a facilitator of 'capital flight' on both large and small scales is very common. The existence of these laws also explains, in part, the prevalence of invoice manipulation as part of hawala schemes.

Another aspect of these regulations is the use of the United Arab Emirates, specifically Dubai, for hawala transactions. There are two main reasons for this. The first is the large population of expatriate workers from India and Pakistan; they use hawala to send money home. The second is Dubai's large gold market, which is the source of much of the gold sent (licitly and illicitly) to India and Pakistan. Dubai, unlike many other South Asian nations, allows essentially unregulated financial dealings. Because of this, many South Asian businessmen maintain offices in Dubai, and money is often wired there to circumvent regulations elsewhere. In addition, Dubai offers a neutral meeting place for Indian and Pakistani businessmen, as tension between these countries makes travel between them difficult if not impossible.

This paper should not, however, be considered a condemnation of the economic policies of India or Pakistan, both of which have taken concrete steps to combat money laundering. The efficiency and cost effectiveness of hawala make it an attractive means of remitting money under almost any regulatory regime.

How is hawala used to launder money?

Up to this point, no distinction has been made between hawala transactions where the source of the money is legitimate (e.g. Abdul's remittance to his brother) and where the source, and intent, of the transactions is illegitimate. Following Indian and Pakistani usage, the term 'white hawala' is used to refer to legitimate transactions, such as Abdul's. The term 'black hawala' refers to illegitimate transactions, specifically hawala money laundering (11).

This distinction is valuable for money laundering enforcement. Many 'white' hawala transactions are essentially remittances, and, while illegal under Indian and Pakistani law, are not illegal in other jurisdictions. `Black' hawala transactions, however, are almost always associated with some serious offense (e.g. narcotics trafficking, fraud), that is illegal in most jurisdictions.

Money laundering consists of three phases: placement, layering and integration. Since hawala is a remittance system, it can be used at any phase.

In placement, money derived from criminal activities is introduced into the financial system. In many money laundering schemes, the biggest 'problem' here is handling cash. Some jurisdictions, such as the United States, require reporting by financial institutions of cash transactions over a certain amount (in the U.S. it is US$ 10,000) (12), and attempting to circumvent such reporting requirements by making smaller transactions is an offense.

Hawala can provide an effective means of placement. In the example, Abdul gave Yasmeen US$ 5,000 in cash. Since she also operates a business (and also performs remittance services for others), she will make periodic bank deposits consisting of cash and checks. She will justify these deposits to bank officials as the proceeds of her legitimate business. Even though she might prefer it if reports were not filed, she will not object to this as it would arouse suspicion at the bank (and her business provides more than adequate justification). She may also use some of the cash received to meet business expenses, reducing her need to deposit that cash into her bank account.

In the layering stage, the money launderer manipulates the illicit funds to make them appear as though they were derived from a legitimate source. A component of many layering schemes has been seen to be the transfer of money from one account to another. Even though this is done as carefully as possible, when it is done through the 'traditional' banking system it presents two problems to the money launderer. First, there is the possibility that a transaction could be considered to be suspicious and reported as such. Related to this is the paper trail created by these transactions. If any portion of the laundering network is examined, the related paper trails could lead a diligent investigator directly to the source of the criminal proceeds and unravel the money laundering network.

Hawala transfers leave a sparse or confusing paper trail if any. Even when invoice manipulation is used, the mixture of legal goods and illegal money, confusion about `valid' prices and a possibly complex international shipping network create a trail much more complicated than a simple wire transfer.

Both of the authors of this paper have investigated hawala money laundering, and have found that even 'basic' hawala transfers can be difficult to trace and tie to the original, criminal source of money. There is no reason, however, why hawala transfers could not be 'layered' to make following the money even more difficult. This could be done by using hawala brokers in several countries, and by distributing the transfers over time.

In the final stage of money laundering, integration, the launderer invests in other assets, uses the funds to enjoy his ill-gotten gains or to continue to invest in additional illegal activities. The same characteristics of hawala that make it a potential tool for the layering of money also make it ideal for the integration of money. This is when money seems to become legitimate, and, as we have seen, hawala techniques are capable of transforming money into almost any form, offering many possibilities for establishing an appearance of legitimacy.

Given hawala's close ties to business activities, there is no reason why money cannot be 'reinvested' in a legitimate (or legitimate appearing) business. Yasmeen could very easily arrange for the transfer of money from the United States to Pakistan, and then back to the United States, apparently as part of an investment in a business there.

What are some indicators of hawala?

As has been shown in this paper, hawala is actually quite simple; much of the complexity associated with and ascribed to hawala money laundering comes from the nearly infinite number of variations that are encountered in hawala transactions.

This complexity of variation makes it nearly impossible to lay out a straightforward guide to recognizing hawala money laundering as part of a criminal undertaking. It is, however, possible to provide a few indicators that may be useful.

One of the most consistent and valid indicators of hawala activity in investigations conducted in the United States is seen in bank accounts. A 'hawala' bank account almost always shows significant deposit activity, usually in the forms of cash and checks, which are often from one or more ethnic communities (e.g. Afghan, Bangladeshi, Indian, Pakistani, Somali) associated with the hawaladar. These checks may be made out to the primary account holder, or some secondary entity (often outside the United States) somehow associated with the account. These checks may also have some sort of notation, consisting of a name (presumably of the person to whom the money is remitted to) or something supposedly indicating what was 'bought' with the money. In one case, many checks were seen with the word 'bangle' written on them; this was done apparently in order to make it appear as though the checks, which were almost all for even dollar amounts, had been written to purchase jewelry.

These accounts will also almost always show outgoing transfers (usually by wire) to a major financial center known to be involved in hawala. Three of the most common locations are Great Britain, Switzerland, and, as discussed previously, Dubai. Given the flexible and casual nature of the hawala business, hawala accounts will not always be seen to balance. The following diagram summarizes 'hawala account' behavior:

As has been discussed, certain businesses are also more likely than others to be involved in hawala. Once again, it is not possible to give an exhaustive list, but the following is a starting point:

Import/Export
Travel and Related Services
Jewelry (gold, precious stones)
Foreign Exchange
Rugs/Carpets
Used Cars
Car Rentals (usually non-chain or franchise)
Telephones/Pagers

Laws in India, Pakistan and other countries make it difficult to convert foreign currency (or foreign currency instruments, such as travelers' checks). Criminal activities in these countries may often involve foreign currency (especially dollars), which pose something of a problem. A 'solution' that has been seen to this problem is the shipment of these negotiable instruments from South Asia to the United States. Even though such shipments may violate both courier policies and U.S. law, the money launderers accept these risks rather than try to attempting to place these instruments into their local economies.

Appendix A: Origins of hawala, hundi and other related words

This section provides linguistic background on some Arabic, Hindi, Urdu, Gujarati and Farsi (Persian) words associated with hawala.

The words hawala and hundi are both used, correctly and interchangeably, to describe the alternative remittance system discussed in this paper. Since there is only one system, the usage 'the hawala and hundi systems' is incorrect. Either name can be used, or one can say 'the hawala or hundi system'.

The word hawala comes from the Arabic root h-w-l , which has the basic meanings 'change' and 'transform'. The word 'hawala' is defined as a bill of exchange or a promissory note. It is also used in the expression hawala safar , traveler's check.

When the word came into Hindi (13) and Urdu (14) it retained these meanings, but it also gained the additional meanings 'trust' and 'reference' which reflect the manner in which the system operates. Furthermore, in popular usage',hawala' is often used to refer to any sort of financial crime, particularly money laundering or fraud.

A hawala operator is a hawaladar

The word hundi comes from the Sanskrit root meaning 'collect'. In India, one of its most common meanings is for the collection box found in a Hindu temple. In addition to this, it also has the same meanings as hawala: bill of exchange, promissory note, trust, reference and the alternative remittance system.

A hundi operator is a hundiwala , which also means banker or foreign exchange dealer.

Both terms are used; there appears to be some slight geographic preference for the term hundi in northern Pakistan, particularly around Lahore. Hawala, on the other hand, seems to be used almost exclusively in Indian journalism. In Iran, the term havala (also spelled as in Urdu) is used, this is the same as the word 'hawala' due to a difference in pronunciation of the letter (w in Urdu, v in Farsi).

A Hindi word which is of interest for historical reasons (see Appendix B) is potedar , which means 'treasurer' or 'paymaster' and comes from the word pot , which means 'assessment'.

The Arabic root s-r-f has, among other meanings',pay' and 'disburse'. The Arabic word for bank, masrif , comes from this root. It is also the basis for the Farsi words saraf , which means a 'money changer' or 'money remitter (hawala dealer)' and sarafi , which is the name for the business.

Appendix B: The history of hawala

Hawala predates 'traditional' or 'western' banking (the first 'western bank' in India was the Bank of Hindustan, established in Calcutta around 1770) (15). Prior to this, the operations of sarafs and potedars (see appendix A), who were primarily moneychangers (and essentially the predecessors of the hawaladars discussed in this paper) were a fundamental component of the commercial and financial infrastructures.

Contrary to some accounts, hawala did not begin during the Vietnam War. It was, however, during the Vietnam War that many Americans were exposed to hawala through the operations of Indian merchants in Saigon. Americans often took advantage of their hawala service to remit money.

Today, hawala and 'traditional' banking exist as parallel, but intertwined, economic systems in India and Pakistan.

Appendix C: Another hawala pricing scheme

In this scenario, Abdul wants to send 100,000 rupees to his brother Mohammad. This differs from the previous scenario in that he wants to send a fixed amount in rupees, rather than dollars.

The Bank

The bank gives the official exchange rate for rupees (for the purposes of this paper, that is assumed to be 31 Rs/$) and charges $25 for the exchange. The cost of the 100,000 rupees would be $3,125; adding the $25 fee brings the total cost of this transaction to $3,150.

The Hawaladars (Iqbal and Yasmeen)

Iqbal offers his usual rates: 35 rupees for a dollar and five percent commission. The rupees will cost Abdul $2,857, Iqbal's fee is $142, for a total of $2,999.

Yasmeen also offers her typical terms: 37 rupees for a dollar and a fee of one rupee for each dollar remitted. The rupees will cost Abdul $2,702 and Yasmeen's fee is $73. At $2,775, Yasmeen still has the best deal in town!

Appendix D: Hawala bookkeeping

'Hawala bookkeeping' emphasizes keeping track of how much money is owed to whom. The following sample chart is based on records analyzed by one of the authors of this paper during a recent investigation (16), and is representative of the records that might be encountered during a hawala investigation (note that these charts are usually handwritten, and it is not uncommon for English and another language to be used):

16/6/98	Vinod	100000	37.6	2659.57	F-1202
16/6/98	Ashish	250000	39.25	6369.42	F-1203
16/6/98	Nitin Bhai	350000	42.3	8274.23	B-8146
17/6/98	DK	50000	38.75	1290.32	F-1204
17/6/98	Suresh Kumar	300000	39.25	7643.31	B-8147
17/6/98	Anil	200000	40.1	4987.53	S-5428
17/6/98	Vinod	150000	39.75	3773.58	F-1205
18/6/98	Manoj	300000	41.25	7272.72	B-8148
18/6/98	Vinod Bhai	350000	42.2	8293.83	L-2160
18/6/98	Ganesh Trading	200000	38	5263.15
19/6/98	Suresh Kumar	175000	39.5	4430.37	B-8149

The first column indicates the date of the transaction. The second column is the name of the hawala broker to whom the debt is owed; it is very common to use partial names (e.g. 'Vinod') or codes (e.g. 'DK' ). The third column is the amount of the debt. This chart reflects a tendency to do business in multiples of 100,000; so it would not be uncommon to see things like '1.5' for 150,000. The third column indicates the dollar/rupee exchange rate in effect for the transaction. The fourth column is the value of the transaction in dollars. The fifth column reflects the way in which the payment was made. Notations such as 'F-1202' usually represent a bank ('F' might be 'First Bank'; 'B' and 'L' would represent other banks) and the check number. The notation for Ganesh Trading is '52 t' in Hindi. This represents 52 tolas (17) of gold, possibly paid to a local goldsmith or jeweler instead of remitting the money via a bank.

Appendix E: Hawala cases

This section provides brief descriptions of cases where hawala or hawala-like techniques were used to launder proceeds derived from various predicate offenses. If the case has been adjudicated, identifying information is provided. In others, the investigation was ongoing at the time of writing, so particulars are not provided and certain details of the case may be designated as hypothetical.

Narcotics Trafficking (1)

In mid-1997, several people were convicted of conspiracy to launder as well as laundering the proceeds of the sale of Pakistani heroin and opium (18). This case involved a legitimate foreign exchange business, Frankfurt-based MGM Marwex Geldwechsel, its U.S. branch, MGM Marwex International and a hawala network spanning several countries.

Narcotics Trafficking (2)

Several Pakistani and Afghan nationals allegedly importing heroin into a major U.S. metropolitan area are suspected of collaborating with a bank officer to launder the proceeds of the sale of the heroin. This bank officer is believed to open accounts without following appropriate 'know your customer' procedures and also assists the traffickers with the management of these accounts, which are used for hawala-like transfers. Large numbers of checks have been processed through these accounts, and money has then been wired to Dubai and other places. It is also believed that other traffickers have availed themselves of this money laundering scheme. In addition, this bank officer may be handling the receipt of shipments of negotiable instruments from a south Asian country on behalf of suspected criminals in that country. These shipments may represent part of a money laundering scheme as well as potential violations of U.S. laws regarding the import of currency and the source country's laws regarding the export and possession of currency.

Narcotics Trafficking (3)

In 1985, British courts convicted a Mr. Choraria (19) of 'being knowingly concerned in the fraudulent evasion of the prohibition of importation of a Class A controlled drug, namely heroin'. Choraria was described as the 'banker who knowingly enabled payment for heroin imported into this country illegally to be transferred to India from whence the heroin had been sent'.

Choraria operated two legitimate businesses, an import/export financing firm (confirming house) and a remittance business (it is possible that at least part of this remittance business was hawala-based). In this case, Mr. Choraria brokered the transfer of funds between parties in Karachi and Mumbai as part of heroin smuggling.

This case has two somewhat humorous aspects: hawala had to be explained at length during the trial by Mr. Choraria's nephew, as the system was not known to Choraria's bankers. In addition, some of the British criminals involved in the case did not seem to understand how the money was being transferred.

Narcotics Trafficking (4)

The investigation of a Delhi-based hashish trafficking organization revealed that the traffickers had established several false corporate identities. Under the cover of these identities, machinery was shipped to Germany, the United Kingdom, the Netherlands and Australia. Hashish was concealed in this machinery. Hawala was used to repatriate the proceeds of the hashish sales back to the Indian traffickers.

Terrorism (1)

The investigation into the assassination of an important Indian politician revealed that the assassins were, in fact, terrorists. These terrorists used hawala to transfer the proceeds of the sale of narcotics to arms dealers for the purchase of military hardware.

Terrorism (2)

The series of bomb blasts in a major Indian city in 1993 was financed through hawala. The investigation revealed that the funds supporting these bombings (specifically funds used to buy explosives and to pay the bombers) were handled by hawala operators in the United Kingdom, Dubai and India.

Alien Smuggling

A worldwide alien smuggling network is suspected of using hawala banking techniques to move money between North America and South Asia to pay the alien smuggling 'fee' and additional payments (e.g. for lawyers) are also made.

Welfare Fraud

Certain immigrants from a particular country are accused of committing large scale welfare fraud in two major U.S. cities. An employee of a car rental agency deposits large numbers of checks into a personal checking account, and then wires money to a variety of locations, including Dubai (this is documented by Suspicious Activity Reports filed by the bank where the account is held). Since it is known that there are many immigrants from this country working in Dubai, it is suspected that hawala is then being used to remit money (which probably includes proceeds derived from welfare fraud) from Dubai back to this country, which has a poorly developed banking system, via couriers. This is the sanitized text from one of the Suspicious Activity Reports associated with this case:

SUSPECT ONE MAKES FREQUENT LARGE CASH DEPOSITS INTO HIS CHECKING ACCOUNT AND IN A FEW DAYS HE WIRES IT OUT OF THE COUNTRY. HE HAS BEEN SEEN WITH SUSPECT TWO. THIS ACTIVITY SEEMS UNUSUAL FOR HIS OCCUPATION.

Insider Trading

A citizen of a South Asian country, who was an investment banker in a major U.S. financial center is accused of giving 'tips' to various friends and relatives. After some illegal trades took place, the banker resigned and apparently fled the United States for his homeland. At the same time, several of his associates also traveled to this same country as well as several European financial centers. An analysis of seized bank records indicates that money was wired to persons apparently of the same nationality in at least one of these financial centers. It is possible that these wire transfers were the first part of hawala-like transfers of the proceeds from the illicit trades to the investment banker's home country.

Customs and Tax Violations (1)

A Pakistani living in the Washington, D.C. metropolitan area was doing hawala transfers for other expatriates. Large cash transactions at the bank used by some of the defendants were brought to the attention of customs and tax authorities. Their subsequent investigation uncovered a scheme in which surgical instruments manufactured in Pakistan were being imported at inflated prices (over-invoicing) to facilitate the transfer of money from the United States to Pakistan, in apparent violation of Pakistani law. Convictions were obtained for customs violations, making false statements and tax fraud (20).

Customs and Tax Violations (2)

An individual representing himself as being in the gold business in a large U.S. city, specifically as a 'gold broker', is suspected of various customs and tax violations as well as money laundering. This individual has made very large cash deposits at several banks, and at least one bank has closed this individual's account because of these deposits. This individual's bank account was examined in conjunction with a tax investigation. This individual claims to supply various gold shops with gold bullion, and also that he sells gold coins and jewellery to individuals. Interviews with owners of these businesses and alleged clients indicate that this is not the case. It is believed that this individual is acting as a bank for various individuals and businesses, assisting them in evading the payment of taxes.

Gambling

Hawala has been used not only as an alternative remittance system but as an alternative banking system in a South Asian gambling operation. Currency control laws made it nearly impossible for citizens of one country to take money to gamble in another, and there are similar problems with bringing gambling winnings back into the country. The gambling operators have engaged hawaladars to accept money 'on deposit' from gamblers, and pay winnings through them as well. This is something of a testimony to the reliability of hawala. During a conversation with one of the authors of this paper, one of the principals in this gambling operation reported that this had been going on for nearly twenty years without any significant difficulties.

Appendix F: Glossary

This glossary contains certain terms used in this paper as well as others that the reader may encounter while researching hawala and related topics. Where appropriate, Hindi, Gujarati and Urdu spellings are given. 'Hawala', 'hundi ' and other words closely connected to money movement are discussed in detail in Appendix A.

confirming house: in the import/export business, a confirming house acts on behalf of the buyer by dealing directly with the exporter to complete the contract. There is no overseas credit risk or financial burden for the exporter because the confirming house provides short term credit to the overseas buyer, who pays a commission for this service.

crore : 10,000,000 [ten million]; part of the South Asian numbering system, frequently used when discussing money. A crore is 100 lakhs. A billion is often referred to as 100 crore. The South Asian numbering system is based on three units: thousands, lakhs (100,000) and crores. For this reason, 'two crore' will be heard instead of 'twenty million'. The placement of commas reflects the number of crores; 2,00,00,000 would be written instead of 20,000,000 (the first is 'two crores' the second is 'twenty million').

integration: the third and final stage of money laundering In this stage, the launderer invests in other assets, uses the funds to enjoy a luxurious lifestyle or reinvests his profits into criminal activities.

khokha (also spelled koka; khokhu in Gujarati): The literal meaning of this word is 'something hollow', 'bag' or 'paid bill'; it is used colloquially to refer to 10,000,000 [ten million] rupees. When speaking of money, this word is often used interchangeably with crore.

lakh (also spelled lack or lac): 100,000 [one hundred thousand]; part of the South Asian numbering system, frequently used when discussing money. The term 'hundred thousand' is rarely used; instead; 'five lakhs' will be heard instead of 'five hundred thousand'. The placement of commas reflects the number of lakhs; 5,00,000 would be written instead of 500,000 (the first is 'five lakhs' the second is 'five hundred thousand').

layering: the second stage of money laundering. In this stage, the money launderer manipulates the illicit funds to make them appear as though they were derived from a legitimate source.

man (also maund): approximately 40 kg.

money laundering: the process of converting the proceeds of a criminal activity into funds with an apparently legal source. Money laundering may be further divided into three subprocesses or stages: placement, layering and integration.

numerals: for reference, here are the forms of the numerals as written in Hindi, Gujarati, Punjabi, Bengali, Urdu, Arabic and Persian (Farsi/Dari) (21):

peti : The literal meaning of this word is 'box', 'suitcase' or 'belt'; it is used colloquially to refer to 100,000 rupees. When speaking of money, this word is often used interchangeably with lakh.

placement: the first stage of money laundering. In this stage, the money launderer disposes of the proceeds of a criminal activity (which are often in the form of cash).

ser (also seer): approximately 1 kg, 1/40th of a man.

tola (tolo in Gujarati): approximately 11.7 grams (the weight of a silver rupee); this is a common unit used in the precious metals and jewellery businesses in India, Pakistan and Persian Gulf. One twelfth of a tola is a masha