Chandi Haripriya Guduru, Illicit Finance and Economic Threats Team
Week of Monday, November 8, 2021
Cryptocurrency-sponsored terrorist financing is gaining prominence in Jammu and Kashmir
Cryptocurrencies, especially Bitcoin, have become a source of terrorist funding in Jammu and Kashmir for Pakistan-based terrorist groups. The Counterterrorism Group (CTG) assesses that cryptocurrencies will very likely escalate into one of the most prominent sources of terrorist financing in Jammu and Kashmir. Cryptocurrencies will very likely be used by terrorist groups based in Pakistan, Bangladesh, Jammu and Kashmir, and Azad Kashmir, such as Lashkar-e-Toiba (LeT), Ansar Al Islam (AI), Ansarullah Bangla Team (ABT), and Jaish-e-MohammEd (JeM), to sponsor terrorist activities in the Indian-administered Jammu and Kashmir. Jammu and Kashmir is an Indian Union Territory that is under the direct economic and administrative control of the Indian central government. Azad ("Free") Kashmir is the north-western part of the Kashmir region which is economically and administratively associated with Pakistan, although recognized by the latter as an independent region. Usage of cryptocurrencies will very likely increase funding to the terrorist groups based in Jammu and Kashmir in replacement of traditional sources of terrorist financing. As there are no current cryptocurrency regulations, Indian law enforcement authorities will very likely struggle to monitor financial flows through cryptocurrency platforms. Cryptocurrency-sponsored terrorist activities will very likely ignite insurgent activities, leading to violence against civilians and Indian security forces, and fueling political instability in the fragile, newly created Indian Union Territory.
The Indian Ministry of Finance and the Reserve Bank of India (RBI) may enforce a cryptocurrency law backed by strong regulatory and legal frameworks. This will very likely hinder cryptocurrencies from becoming prominent sources of funding for terrorist groups in Jammu and Kashmir. Special divisions within the RBI composed of officials with expertise in cyber security, economic policy, and law and banking, would likely be responsible for monitoring cryptocurrency transactions after the cryptocurrency policy enactment. However, without coordination from various teams of law enforcement directorates and regulatory bodies backing the policy, it is unlikely that Indian authorities will have the capacity to monitor and address crypto-sponsored terrorist financing. While regulations might help in curbing cryptocurrency-sponsored terrorist financing, it is unlikely that cryptocurrencies will completely cease to be a source of terrorist financing in Jammu and Kashmir.
CTG assesses that the rise in cryptocurrency usage such as Bitcoin has very likely created a new avenue for terrorist groups to reinstate their finances. It is very likely that cryptocurrencies will become one of the most prominent sources of financing for terrorist groups in Jammu and Kashmir. Bangladesh-based terrorist groups such as AI and ABT have been using Bitcoin since 2014 to transfer funds from Pakistan and other Middle Eastern countries to terrorist outlets based in Jammu and Kashmir. It is likely that illicit funds flowing into Jammu and Kashmir are associated with the “Azad Kashmir” cause. It is a political ideology for an independent Kashmir comprising Indian-administered Jammu and Kashmir and Pakistan-administered Gilgit-Balochistan and Azad Kashmir. Terrorist groups will very likely use anonymity, non-traceability, and the absence of regulations surrounding cryptocurrencies, to exploit the religious and ideological beliefs of the population to obtain funds.
India currently has no established laws to regulate and curb the use of cryptocurrencies for money laundering and terrorist financing. Established anti-money laundering (AML) measures used for traditional sources of terrorist financing will likely not be sufficient. Traditional sources of finances for terrorist groups in the region include hawala, hundi, and cross-border smuggling of cash, which have been addressed through increased surveillance by Indian authorities. Hawala is an informal, anonymous method of transferring money involving brokers without an actual physical movement of money and no official documentation. Hundi is an unconditional order used as a remittance and credit instrument to borrow money and make trade transactions. Most AML technologies are limited to function within the formal banking systems, while tracing crypto-sponsored illicit finances requires sophisticated technologies that are yet to be established in India. The global and decentralized nature of these cryptocurrencies will likely have implications for intelligence and law enforcement agencies, as finances flow transnationally, likely evading national jurisdictions and laws.
Crypto-sponsored financing has facilitated political instability and violence, such as the alleged use of Bitcoin in funding extremist groups involved in the 2021 Capitol Riots in the US. In Jammu and Kashmir, increased use of cryptocurrencies will likely expand from arms procurement and local recruitment to political and social upheaval during protests such as the ones against the Article 370 revocation in 2020. The Article gave autonomous financial and legislative power to Jammu and Kashmir without interference from the central government. After the revocation in October 2019, Jammu and Kashmir lost its special status and came to be under the direct domain of the central government. Inciting ethnoreligious conflicts and political violence is likely a strategy for the terrorist groups. Illicit finances will likely be used to transform protests, such as the ones against Article 370, into violent conflicts.
Illicit finances will likely also be used to fund Kashmiri political parties and leaders that support Pakistan and Azad Kashmir. This will very likely incite political instability and violence among party followers as well as citizens. While the Indian authorities are struggling to bridge the gap between the government and citizens, such fundings to and from Kashmiri leaders in Jammu and Kashmir to insurgent groups will very likely hinder the ongoing efforts to bring peace and development into the region. These activities will likely have an effect on Jammu and Kashmir’s tourist industry, one of its largest income-generating sectors. Such political instability in Jammu and Kashmir very likely inhibits its economic development. With fears of violence and extortion by terrorist groups, it is unlikely that private capital and investments will flow into the region.
The Indian government and law enforcement authorities recognize the threat posed by the use of cryptocurrencies for terrorist financing. If the Indian Finance Ministry and the RBI introduce laws that regulate cryptocurrencies and their use in terrorist financing, it will likely generate a more effective mechanism to curb cryptocurrency-sponsored terrorist financing in Jammu and Kashmir before it becomes the most prominent source of financing. The Indian government is dedicated to increasing its investments into Information Technology (IT) infrastructural resources that facilitate rapid growth in tech-based surveillance. Such growth in tech-based surveillance technology and IT infrastructure will likely help in monitoring non-traditional financial flows such as cryptocurrency transactions, and help create robust safety systems that facilitate AML programs.
While the proposed Indian cryptocurrency law aims to effectively address crypto-sponsored money laundering and terrorist financing, it is likely that law implementation would face coordination and communication problems. Law enforcement departments such as the National Investigation Agency (NIA), the Central Bureau of Investigation (CBI), the Enforcement Directorate (ED), and security forces like the Indian Army and Border Security Forces (BSF) will likely face issues in addressing crypto-sponsored illicit finances due to technological constraints as well as red-tape induced bureaucratic procedures. Lack of proper hierarchies and division of duties will also likely create further coordination barriers to monitor terrorist financing in Jammu and Kashmir.
Due to the fragile political climate in Jammu and Kashmir, there is likely widespread displeasure among the local populace with the Indian government and the Indian security forces. It is likely that political and economic discontent in this region will increase the local support in Jammu and Kashmir towards Azad Kashmir, as individuals will likely be able to make anonymous contributions using cryptocurrencies. The difficulty of securing and surveilling crypto-sponsored terrorist financing will very likely lead security forces to become hypervigilant. This will likely increase tensions between security and law enforcement authorities and the local population.
Indian authorities will very likely face issues in light of the changing geopolitics in the region, especially the developing bilateral relations between China and Pakistan. The Taliban’s takeover of Afghanistan will likely further enhance the Azad Kashmir cause (see annex). The Taliban-controlled government will likely instigate a revival of terrorist activities in the region, including in Azad Kashmir and Jammu and Kashmir due to the lack of counterterrorism measures in place. Regional geopolitical changes will likely hinder Indian law enforcement’s counterterrorism efforts in the region. If counterterrorist measures are disrupted, it will likely lead to increased terrorist activities in Jammu and Kashmir. India’s revocation of Article 370 and China’s closer relations with Pakistan have increased Chinese intervention in the Kashmir debate significantly. With the presence of new actors in the region, newer funding channels for terrorist groups through traditional sources as well as through the use of cryptocurrencies will likely emerge.
CTG and the Illicit Finance and Economic Threats (IFET) Team will continue to monitor further developments and financial threats relating to crypto-sponsored terrorist financing in Jammu and Kashmir. The IFET Team will collaborate with the PACOM and CENTCOM Teams to determine the level of threat to the neighboring countries, while reporting any imminent threat to the proper channels. Future reports will track and outline developments of threats of terrorist financing using cryptocurrencies, as well as implications for any local, regional, or international groups. CTG’s Worldwide Analysis of Terrorism, Crime, and Hazards (W.A.T.C.H.) Officers and Threat Hunters will continue to provide up-to-date reports on threats or attacks of this nature in the region.
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Map of Pakistan-administered Kashmir, Indian-administered Kashmir, and Chinese-administered Aksai Chin
The Counterterrorism Group (CTG)
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