Financing terror
A FEW years ago, Karachi police had caught a fellow involved in running a stock market fraud. In collaboration with the manager of a bank branch, he obtained personal details of hundreds of individuals, including copies of their CNICs. He used this information to open trading accounts on the stock market in the name of these individuals, without their knowledge.
Then he offered his services to stock market brokers who wanted to create a large amount of activity in any given stock. He would take money from the stockbroker, and through the many accounts he had control over, start buying the stock he was told to buy.
Within a matter of hours, that stock would show a large volume of turnover and interest would be sparked amongst traders. Then the broker in question would instruct his sales team to try and sell that stock to their clients. He would arrange for his ‘head of research’ to appear on a late morning stock market TV show, in which the said ‘head of research’ would spew a bunch of technical mumbo-jumbo to a clueless anchor about that particular stock and why it was looking like such a great buy at this point in time.
By late afternoon there would be genuine buying activity in that stock and its value would begin to soar, at which point the broker behind the whole affair would start offloading his holdings of that particular stock.
Nobody seems willing to present the facts when it comes to ascertaining the origins of terror financing.
This sort of ‘pump and dump’ scheme has always operated in our capital markets, and at least two authoritative sources have given clear proof of its existence. One was a paper written by a couple of economists based out of Harvard University and the University of Chicago, who closely studied stock market data that was made available to them courtesy the SECP from the time period 1999 till 2001. The other source was the judicial commission that investigated the stock market crash of March 2005.
Both of them identified the same mechanism used to drive up the value of the stocks, then dump them once they had hit their peak. How the buying activity would be generated could vary. In the earlier period, before the capital market reforms, brokers could generate such activity by simply trading amongst themselves. Once their activity came under stricter surveillance, they resorted to using ‘benami accounts’ whose beneficial owner was untraceable.
Once those were outlawed, a small cottage industry appeared of freelancers such as the one the police had apprehended, who could set up large numbers of accounts with seemingly legitimate credentials and use them to generate buying activity at the behest of any given broker.
In this particular case, the police made the mistake of producing the fellow before a camera and had him describe his scheme on TV. The next day, the bank manager he was in partnership with for the data was found shot dead in his vehicle.
When I spoke to the arresting officer in that case, he started asking me questions about the stock market that made it clear to me that the police had little to no understanding about the capital markets. “We hear a lot about speculators who drive the market up and down,” he said to me. “Is this the guy who has been doing it all?” No, he wasn’t the guy doing it all, I told him. There were hundreds of others like him out there, available for rent to any broker.
This week we heard our interior minister duck a question in the Senate about what is being done to trace the funds coming into madressahs from abroad. “Some madressahs are receiving financial support from Muslim countries. However, it is often difficult to trace the transaction of such money,” he is reported to have replied. The law provides “sufficient control and vigilance” to monitor the working of seminaries, he said, but the responsibility to carry out this monitoring now rests with the provincial governments, he added. Frankly, I don’t buy this answer.
Last week, we saw our finance minister host a meeting on terror financing, in which they found that police, FIA or prosecutors “rarely invoked specific provisions relating to funding of terrorism as contained in the Anti-Terrorism Act and anti-money laundering laws”. Given the inability of our legal system and network of regulators to properly curb the ‘pump and dump’ schemes that have turned our capital markets into a casino, I’m not surprised at the level of helplessness displayed by them before the more sophisticated monster of terror financing.
What’s amazing is that all the elements of power — the technology, legislation and institutions — needed to track these funds and locate their beneficial owners exist. What is missing is the will to go after them, the ability to properly analyse the information, the discipline to sustain an investigation of this sort.
But nobody seems properly willing to pull them together and really create a picture of where the money to pay for terrorist activities is coming from and to whom it’s going. Much like the ‘pump and dump’ schemes in the stock markets, these activities use the formal system of payments in substantial measure so they must be leaving a trace.
The meeting also noted that “focus of the security agencies was in nabbing terrorists rather than looking for their sponsors”. It’s astonishing that this would be the case a full five years after the emergence of mass casualty terrorism on Pakistani soil, and more than a decade after the start of the war against terrorism.
Clearly, much needs to be done to trace terror financing. But the track record of successive attempts to uproot ‘pump and dump’ rackets from the capital markets inspires little confidence that our security agencies can muster the brains needed to prevail in this war. Without ending the financing behind it, the fight against militancy will remain an exercise of whack-a-mole.
The writer is a member of staff.
Published in Dawn January 8th , 2014
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