Terrorism Financing And Anti-Money Laundering Enforcement
1. Introduction
Terrorism Financing (TF)
Definition: Terrorism financing involves providing or collecting funds with the intention or knowledge that they will be used for terrorist acts, whether through legitimate or illegitimate sources.
Key laws in India:
Unlawful Activities (Prevention) Act (UAPA), 1967 – Sections 18, 38, 39
Prevention of Money Laundering Act (PMLA), 2002 – Sections 3, 4, 5
Anti-Money Laundering (AML)
Definition: AML refers to measures to detect, prevent, and prosecute money laundering, which is the process of making illegally obtained money appear legitimate.
Key laws in India:
Prevention of Money Laundering Act (PMLA), 2002 – defines offense, proceeds of crime, and penalties.
Foreign Exchange Management Act (FEMA), 1999 – for illegal foreign currency transfers.
SEBI and RBI regulations for financial institutions.
Connection between TF and AML
Terrorist organizations often use laundered money to finance operations.
AML enforcement helps trace illicit flows, freezing assets, and prosecuting perpetrators.
2. Key Legal Provisions
PMLA, 2002
Section 3: Punishment for money laundering.
Section 4: Confiscation of property involved in money laundering.
Section 5: Offense and punishment for attempting or conspiring to launder money.
UAPA, 1967
Section 18: Punishment for terrorist acts.
Section 38 & 39: Punishment for collecting or providing funds for terrorist purposes.
International Framework
Financial Action Task Force (FATF) – recommends standards to combat ML/TF.
UN Security Council Resolutions 1267 & 1373 – sanctions against financing terrorism.
3. Important Case Laws
Case 1: National Investigation Agency v. Zahoor Ahmad Shah Watali (2019, India)
Facts:
Zahoor Ahmad Shah Watali was accused of collecting funds in India and abroad to finance terrorist activities in Jammu & Kashmir. The funds were channeled through hawala networks and NGOs.
Law Applied:
UAPA Sections 18, 38
PMLA Sections 3, 4
Held:
The NIA secured conviction for terrorist financing.
Court emphasized that both domestic and cross-border fund transfers used for terrorism are punishable.
Importance:
Demonstrates integration of AML and TF laws.
Highlights the use of informal value transfer systems (hawala) in TF.
Case 2: Enforcement Directorate v. Karti Chidambaram (2019, India)
Facts:
Alleged money laundering through shell companies and foreign accounts involving funds from INX Media.
Law Applied:
PMLA, 2002
ED investigation powers
Held:
ED filed charges for money laundering, freezing assets and accounts.
Importance:
Shows high-profile financial investigation under AML framework.
Reinforces powers of ED to attach and confiscate proceeds of crime.
Case 3: SEBI & ED v. Sahara Group (2012-2014, India)
Facts:
Sahara raised funds from millions of investors via OFCDs without proper SEBI approval, with suspicion of money laundering and diversion of funds.
Law Applied:
PMLA
SEBI Act
Section 420 IPC (cheating)
Held:
Supreme Court ordered refund of ₹24,000+ crores with interest.
ED attached properties for proceeds of crime.
Importance:
Illustrates how AML enforcement intersects with securities fraud.
Establishes precedent for recovery of illicitly collected funds.
Case 4: United States v. Holy Land Foundation (HLF) (2008, U.S.)
Facts:
HLF, the largest Islamic charity in the U.S., was accused of financing Hamas terrorists under the guise of charitable donations.
Law Applied:
U.S. Anti-Terrorism Laws
Money Laundering statutes
Held:
HLF executives were convicted for terrorist financing and money laundering.
Over $12 million in funds were traced and confiscated.
Importance:
Demonstrates that charities and NGOs can be misused for TF.
Enforcement requires detailed financial tracking and international cooperation.
Case 5: National Accountability Bureau (NAB) v. Zardari Family Assets (Pakistan, 2015)
Facts:
Alleged laundering of political funds through offshore companies and shell accounts. Part of the funds was suspected to support extremist groups.
Law Applied:
Pakistan Anti-Money Laundering Act
International TF regulations
Held:
Authorities froze multiple properties and accounts, filing charges for money laundering.
Importance:
Demonstrates cross-border enforcement challenges.
Reinforces the global scope of AML and TF laws.
Case 6: Dubai Gold Scandal (UAE/India, 2013)
Facts:
Funds from India were routed through gold imports in Dubai to finance extremist groups.
Banks and importers failed to report suspicious transactions.
Law Applied:
Indian PMLA
UAE AML regulations
Held:
ED attached properties and initiated prosecution under PMLA.
Importance:
Highlights use of trade-based money laundering to finance terrorism.
Shows importance of international banking vigilance.
4. Key Takeaways
AML and TF laws work hand-in-hand to track illicit funds.
Funding terrorism is illegal even if the source is legitimate, as long as it is diverted for terrorist acts.
Regulatory authorities in India:
Enforcement Directorate (ED) – PMLA
National Investigation Agency (NIA) – UAPA
SEBI – for suspicious securities transactions
International cooperation is essential due to cross-border money flows.
Offenses can include:
Freezing and confiscation of assets
Criminal prosecution
International sanctions
5. Conclusion
Terrorism financing and money laundering are serious global threats. Indian laws (UAPA, PMLA) and global frameworks (FATF, UN Resolutions) work together to:
Detect suspicious transactions
Prevent funding of terrorism
Prosecute offenders effectively
The case laws highlight the practical enforcement and judicial approach, showing that both individuals and organizations, domestic or international, can be held liable.
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