Day 93 – Q 4.Has demonetisation been able to make a dent in terrorist funding? Critically examine.

4. Has demonetisation been able to make a dent in terrorist funding? Critically examine. 

क्या विमुद्रीकरण आतंकवादी फंडिंग में सेंध लगाने में सक्षम है? समालोचनात्मक जांच करें।

Introduction:

The central government had demonetised the high-value denomination notes in 2016 with objectives to eliminate black money, curb infusion and circulation of fake notes, create deterrence to the funding of terror and left-wing extremism, facilitate the transition of the non-formal economy into a formal economy and boost digitalisation.

Body

• The finance of terrorism in India follows a hybrid model, which includes terror funding from within and beyond the country’s borders. Terrorists have employed a variety of formal and informal channels to fund their activities.
• Since illegally held cash forms the major chunk of terrorist funding, after the Demonetisation, most of the cash held with the terrorists turned worthless.  Demonetisation also led to instant extinguishment of Pak-printed high quality fake Indian currency notes. It also adversely affected the hawala operators.
• While hawala cash transfers to terrorists and separatist elements based in Kashmir, which were mostly in denomination of Rs 500 and Rs 1,000, have come to an abrupt halt, Maoist groups, particularly in states like Bihar and Jharkhand, are at pains to “convert” the extortion money that has been stocked as piles of cash.
• The bigger casualty in terms of sheer volume of funds, however, is Left-wing extremism. Intercepts of recent conversations among CPI(Maoist) leaders based in Bihar and Jharkhand show them discussing the fear of losing their piles of cash collected through extortion and ‘levy’. 
• The financial hit likely to be taken by a terrorist group is closely linked with its cash reserves, the ability to retain liquidity in a business where terror groups choose to invest and the ease of reconverting these assets into liquid money. 
• Groups in Northeast India and the CPI (Maoist) operating in the Naxal affected areas of the country are likely to be hit the most, as a large proportion of their financial reserves are more likely to have been held as cash. Further, investments in property will become relatively difficult to liquidate in order to recreate funds for organisational support mechanisms.
• In contrast, Pakistan and J&K based terror groups, while impacted, will be able to recuperate faster, as they are financed by the Pakistani state, rich donors in West Asia, voluntary collections in Pakistan, FICN or drug money. 
• None of these can be impacted in the long term and to the extent that terror organisations are unable to sustain themselves. However, the impact will certainly be felt in the immediate and midterm future, wherein, the cash available for sustaining activities like civil disobedience in Kashmir Valley, will be sucked out of the terror economy.
• Two of the most vulnerable sectors that have traditionally been exploited for parking crime proceeds and black money is the property, and gems and jewellery market. These sectors have also been used for the temporary investment of terror funds. Unless transactions are made transparent and reflect real market value, black money and terror funds will continue to find their way into these businesses.
• The objective of Demonetisation is linked with removing unaccounted wealth (black money), criminal proceeds (which is different from black money), as well as FICN and Indian currency hoarded and distributed by terrorist groups. There are different estimates of the percentage of cash within the overall share of each of these three categories. However, irrespective of the percentage of cash, it is certain that removing a major portion of cash alone will not resolve any of these challenges. 
• There is a need to take interlinked steps and it is only the sum of these individual initiatives that can impact the larger fight against the financing of terrorism.

Conclusion

Demonetisation was an important step in the fight against the finance of terrorism. However, it should neither be the first nor the last, if the interlinked threats of corruption, crime and the finance of terrorism have to be controlled. These must also not be addressed simply within departmental and ministerial silos. Instead, an all-of government approach is imperative if each of these challenges is to be met.