blackmoney_cppr

By Hormis Tharakan IPS *

Prime Minister Narendra Modi, while announcing that high denomination notes would no longer be legal tender after midnight on November 8, cited the need to curb terrorism financing as one of the prime reasons for taking the drastic step.

Funding of terrorism is a subject that has always generated a great deal of discussion amongst strategic analysts and counter-terrorism professionals. It is generally accepted that financing is a prime driver of terrorism. However, it is doubtful whether this hypothesis has been subjected to rigorous data-based study or research.

For instance, how much of funding through clandestine means would have been required to execute the attack on Mumbai on November 26, 2008, one of the worst terrorist attacks in the history of India? Kaare Sorensen, in his authoritative study ‘The Mind of a Terrorist’, in which he analyses the strange case of David Headley, says that Headley’s Pakistani handler, Major Iqbal gave him USD 25,000 before he made his first visit to India. According to a version of Headley’s interrogation report available on the Internet, before another trip to India, Iqbal gave Headley INR 80,000–90,000 and Indian counterfeit currency of very high quality. It is not clear how much money was given to the terrorists, who actually caused havoc in Mumbai. They would not have needed much money anyway. Obviously, the major part of the operation, including provision of weapons, was done in Pakistan itself, using their currency.

Indications are that most of the terrorist operations within our country are carried out with funding that is not of a high order. Several terrorists, when arrested, have revealed details about how they had been trained to create improvised explosive devices using locally available materials.

This is not to say that foreign intelligence agencies do not play a role in funding and fomenting internal unrest in India. However, we would be making lamentable mistakes in our counter-terrorism policy planning, if we accept, without question, the hypothesis that the sole reason for the growth of terrorism in our country is terrorism financing. Systems are already in place through the Financial Action Task Force mechanism to combat money laundering and terrorism financing. These need to be utilised optimally, while implementing the new measures put in place.

As far as Fake Indian Currency Notes (FICN) is concerned, the real issue is not that it is used for funding terrorism, but that it is calculated to subvert Indian economy. Counterfeit currency has always been used by countries to subvert the economies of enemy nations. The Bolsheviks and the Nazis are said to have resorted to these tactics in the inter-War years, which doubtless, would have been countered by targeted nations. In 1989, the ‘supernote’, an almost perfect USD 100 bill was discovered in London. Variously, Syrian, Iranian and North Korean secret services have been alleged to be generating these perfected fake dollar bills. It is, by now, well established that our unfriendly neighbour has been trying to achieve similar perfection in respect of Indian currency. The current measure would certainly help to disrupt the flow of FICN from Pakistan, but the challenge is to make sure that Pakistan does not use the equipment available with them, presumably from one of the world’s principal manufacturers of intaglio presses, to replicate the new series of high denomination notes that we plan to print.

Professor R T Naylor of McGill University, Montreal, explains in detail in his book ‘Satanic Purses, Money, Myth and Misinformation in the War on Terror’, how several ideas on terrorism financing popular in the current discourse on the subject are not based on facts. Government of India’s unprecedented steps initiated last week afford researchers an opportunity to assess the impact of these measures on terrorism in our country, say, six months or one year from now. It is important that steps for such an evaluation are initiated immediately, either at the Governmental level or in academic institutions of repute.

While no such study based on Indian experience is available so far, a recent report (February 2016) by a team headed by Peter Sands of the Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School, does make out a case for eliminating high denomination notes. Pointing out that the staggering scale of illegal money flow poses a massive challenge to all societies, Sands says that the current strategy of trying to combat such activities by focusing on perpetrators, underlying criminal activities or on detecting illicit transactions through the banking system is not working. In his paper, Sands suggests a different approach, which is exactly what the Indian Government announced last week, eliminating high denomination notes. High denomination notes already play a very limited role in the legitimate economy, Sands says. In the underground economy, the reverse is true. Cash offers anonymity, leaves no transaction record and is universally accepted. From the criminals’ perspective, high denomination notes are far more attractive than bank transactions, Bitcoin, gold or diamonds. In support of his argument, Sands points out that the largest ever cash seizure related to drug trafficking, USD 207 million seized in Mexico in 2007, was almost entirely in USD 100 bills.

It is true, Sands admits, that eliminating high denomination notes would not stop tax evasion, crime or terrorism. But, it would make things more difficult for the bad guys. The daring step taken by the Government of India, I presume, was at least partly based on studies such as this. I hope the Government would also encourage a serious attempt to empirically evaluate how effective these measures turn out to be.

*Hormis Tharakan IPS, Former Chief of Research and Analysis Wing (RAW) and honorary advisor to Centre for Public Policy Research. The views expressed by the author is personal and does not represent that of CPPR.