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Kashmir's hawala scand

Print edition : Aug 23, 1997 T+T-
A tale of inept investigation and political apathy.

An investigation by Frontline into a marriage between financial sleaze and secessionism in Kashmir exposes a crucial aspect of terrorism in Kashmir. Through documents and interviews, the following story shows that two top leaders of the Hurriyat Conference, Syed Ali Shah Geelani and Abdul Ghani Lone, were involved in the handling and transmission of enormous sums of money. They have no credible explanation as to where it came from, or proper accounting of how it was spent.

Frontline also explored persistent allegations that the funds received by key Hurriyat leaders through hawala channels were intended to fund terrorist activity, but that they were often siphoned off for personal benefit. No tangible evidence was found to back up this charge. However, new evidence emerged that funds collected for the reconstruction of the Chrar-e-Sharief shrine and the town, destroyed in a confrontation between the Indian Army and forces led by Mast Gul Khan in May 1995, had been mysteriously disbursed in cash, without even a semblance of record-keeping.

The Congress(I) is meanwhile seeking to expand its meagre strength in Jammu and Kashmir by allying itself with some figures in the Hurriyat hierarchy. This political fact may explain perhaps the most startling discovery of this investigation: that despite a mass of evidence unearthed by the Jammu and Kashmir Police and the Intelligence Bureau, the Central Bureau of Investigation appears less than serious about prosecuting those responsible for Kashmir's hawala racket.

The Congress(I)'s opportunism, whatever its short-term political outcome may be, is fraught with danger. If it may serve to erode the authority of the National Conference and Chief Minister Farooq Abdullah, those who recall the Congress(I)'s dangerous initial flirtation with the Bhindranwale phenomenon in Punjab will be fully aware of the dangers.

TERRORISM is possibly Jammu and Kashmir's sole profitable enterprise; although 10 years of violence have ruined the State's people, the protagonists of the crisis appear to have transformed tragedy into sleaze. A Frontline investigation has unearthed evidence that suggests that at least two senior members of the All Party Hurriyat Conference (APHC), which is committed to Kashmir's secession from India, have been siphoning off funds received for their struggle for yet to be investigated ends. People's Conference leader Abdul Ghani Lone and the Jamaat-e- Islami's Amir (chief), Syed Ali Shah Geelani, the investigation discovered, have used proxies and dummy bank accounts to harbour illegally obtained funds. Frontline's five-month investigation also found hard proof that massive sums of money collected for the reconstruction of the Chrar-e-Sharief shrine, and for the relief of the town's residents, have vanished.

There is no hard evidence to show where the enormous sums of money received by the Hurriyat came from; nor could it be established, Frontline found, that the leaders converted the funds into personal assets. The mysteries of where the money came from, and what it was spent on, remain. The Central Bureau of Investigation (CBI) filed First Information Reports (FIRs) charging the two leaders with hawala offences earlier this year, but the Central investigative apparatus is displaying a curious reluctance to go deep into the matter.

UNDERSTANDING the significance of these discoveries requires an understanding of the mechanics of funding terrorism in Kashmir. Since the 1991 arrests of Ashfaq Lone and Shahabuddin Ghowri in New Delhi on charges of channelling hawala funds to Kashmir terrorist groups blew the lid off the Jain brothers' hawala scandal, it has been known that illegal inflows have been central to sustaining terrorism in Kashmir. An internal briefing document of the Intelligence Bureau (I.B.) acquired by Frontline suggests that Pakistan's Inter-Services Intelligence (ISI) routinely uses the West Asian hawala network as well as "Kashmiri pressure groups working from the U.K. and United States" to fund politicians affiliated to terrorist groups (see box). This money is then passed on by these leaders to armed organisations. The I.B. document suggests that much of this money is skimmed off by the Hurriyat leaders, as well as their proxies, who include businessmen and journalists, for personal benefit. It is then laundered through the acquisition of legitimate assets like property and financial assets, which are claimed to be organisational acquisitions rather than personal ones. Thus, international funds arriving through hawala channels have served two purposes: they have not only paid for terror, but created a political vested interest in continued bloodshed.

The need to initiate a meaningful investigation into the Hurriyat's marriage of secession and sleaze should be evident. Hurriyat politicians have frequently been accused by their critics, albeit with little proof, of acting as depositories for these funds and misappropriating them for personal benefit. Although the CBI's FIRs were seen as a sign of the Government's intention to resolve the last remaining strand of the Jain hawala case and to attempt to establish the I.B. proposition that terrorism in Kashmir was sustained through hawala inflows, nothing of the kind has so far happened. At a top-level meeting at the Union Home Ministry on May 5, 1997, the minutes of which Frontline has acquired, the Special Secretary in charge of Jammu and Kashmir affairs, V.S. Mathur, warned that any further delay in the investigations would "affect the credibility of the Government." Many officials believe that influential State Congress(I) leaders, who seek to subvert the authority of the Farooq Abdullah Government by opening a dialogue leading to an electoral arrangement with sections of the Hurriyat, are engineering the demise of Kashmir's hawala investigations. Prime Minister I.K. Gujral's recent revelation in Srinagar that the Hurriyat leadership consisted of his "old friends", too, has done little to enthuse investigators to discover the truth.

1. The Jamaat-e-Islami trail

Syed Ali Shah Geelani's Jamaat-e-Islami has frequently been described as a state within a state, controlling schools, hospitals and charitable trusts, as well as a substantial network of political cadres committed to its fundamentalist politics. The Jamaat's armed wing, the Hizbul Mujahideen, was, until the recent decimation of its top leadership by the Jammu and Kashmir Police, the State's most feared terrorist group. Intelligence officials have long believed, though without hard evidence, that the Hizbul Mujahideen's mysterious Amir-e-Jihad (supreme leader of the Jihad) was in fact Geelani himself. Although rumours that the veteran politician had benefited not inconsiderably from his political empire had for long been in the air, it was only in April 1997 that the CBI acted against him.

An FIR registered in New Delhi by the CBI's Special Investigation Cell II alleged that Geelani had violated Section 23 of the Foreign Contributions (Regulation) Act by receiving 2 million rials (Rs. 19.4 crores at current exchange rates) from Saudi Arabia and a separate donation of Rs. 10 crores from the Kashmir American Council. These payments, the FIR alleged, were collected from hawala dealers in New Delhi. While part of these payments were sent on to terrorist groups, investigators believed, substantial diversions took place to buy property.

Geelani's defence is as follows: he does not deny the allegation that he has been involved in property purchases, but insists that the purchases were made with party funds for the use of the Jamaat-e-Islami.

DOCUMENTS available with Frontline show that on May 4, 1997, the Army's 20 Grenadiers unit stumbled on information that could have explained how funds received by the Jamaat were channelled to terrorist groups on the ground. Abdul Ahad, a Srinagar shopkeeper, was found in possession of 12 bank drafts worth Rs. 5,95,000, all issued in favour of a Sopore company, Riyaz & Co. Army officials discovered that the account was held by Riyaz Ahmad Lone, an employee of the Sopore head office of the Kamraz Rural Bank.

Investigations led to the recovery of more drafts, worth a total of Rs. 11 lakhs. Each had been purchased against payment of cash. One of these drafts (all of them were dated April 24) was worth Rs. 3 lakhs - in violation of the rule that no draft for over Rs. 50,000 can be purchased by any means other than a crossed cheque (Frontline has in its possession copies and details of some of these drafts.) Abdul Ahad told officials of 20 Grenadiers that the drafts were handed over to him by the Jamaat-e-Islami's office clerk, Qazi Ahadullah, and Geelani's predecessor as chief of the Jamaat-e-Islami, Ghulam Mohammad Bhatt. Such drafts, he claimed, were routinely made to be transferred onwards to Jamaat- e-Islami sympathisers across the State. An FIR was filed by the police on May 10, 1997 and Bhatt was arrested. The former Jamaat- e-Islami chief claims to have in fact been picked up earlier, which, though not implausible, is irrelevant to the hawala trail. (Frontline has a copy of the 'Handing Over Certificate' issued by 20 Grenadiers to the Jammu and Kashmir Police, the legal instrument issued by the Army when it fulfils its mandatory duty to turn over all persons it arrests to the local police. It also has a copy of the FIR filed by the police against G.M. Bhatt.)

Subsequent developments can only be described as passing strange. The May 10 FIR made no mention of the recovery of bank drafts from Abdul Ahad, and no FIR was registered against their intended recipient, Riyaz Ahmad Lone. Although Army officials in Srinagar insisted that Riyaz Ahmed Lone was "absconding", Frontline found him at his desk at the Kamraz Bank in Sopore. He told Frontline that he had indeed been receiving the drafts on behalf of a Hizbul Mujahideen unit. "Their leader Irshad Wani approached me," Lone said, "saying that two consignments of cash the Jamaat-e-Islami sent from Srinagar had been captured by the Army. He wanted a safer route for the money to be sent, and told me I would be given drafts to pay into my account."

In April, Riyaz Ahmad received drafts for Rs. 11 lakhs but says that he continued to stall as far as he could. "Before I could encash these drafts," he claims, "Irshad was killed and I decided to hold on to the drafts, because I was afraid I could get into trouble later." This explanation, however, leaves open the question of why the second set of drafts was prepared for him on May 3, for his reluctance to encash the first set should by then have given the Jamaat-e-Islami sufficient reason to look for other conduits. Riyaz Ahmad had no answer to this question, but the Army was satisfied. "They picked me up on May 6," he says, "and I stayed in their camp in Sopore for 40 days. Finally they asked me to write out a cheque for the total value of the drafts and let me go."

The Army was presumably convinced of Riyaz Ahmad's innocence. It had reason to be. The Rs. 16.95 lakhs that he had received, Frontline learnt from local banking sources, was paid by cheque number 1431466 from Riyaz & Co.'s account into account number C-4/8041 of the State Bank of India's Palhalan branch on July 3, 1997. This account is held by the Commanding Officer of 5/9 Gurkha Rifles, the unit operating in Sopore. This action constitutes, on the face of it, an impropriety if not an offence, since all material evidence seized in the course of an investigation belongs to the trial court, and can be altered in any way only with the court's permission. The Army had obtained no such order, for it is not empowered by the Code of Criminal Procedure to carry out investigations in the first place. By law, the Army should have handed over the drafts to the local police after they were recovered and left the business of further investigation to them.

The Criminal Investigation Department of the State police, which should have monitored the affair, found itself helpless in the face of the challenge of pursuing hawala cases outside the State's boundaries. The CBI, too, made no effort to use the evidence on offer in the bank drafts case to substantiate its allegations against Geelani. Just why all these agencies acted as they did, Frontline was unable to ascertain: officials agreed to speak only off the record and then offered nothing of substance.

The Army's inept management of the demand draft affair and the State CID's incompetence have in effect crippled any real chance of arriving at the truth of Geelani's funding sources and their deployment. There was no real evidence to back the central charges in the CBI's FIR, that Geelani received hawala funds from overseas sponsors and that these funds were converted into personal assets in a corrupt manner. Abdul Ahad's bank drafts, properly investigated, might have thrown light on that point. "We could have pursued the leads against Qazi Ahadullah and Bhatt," says a senior State police official, "and tried to establish just where the money had come from, and precisely what it was intended for." "Now," he concludes, "the lack of coordination between investigative agencies has created a situation where even if we find out the truth, our case will most likely be laughed out of the trial court." Syed Ali Shah Geelani, though he may strenuously deny the proposition, could owe his political future to the Indian Government.

2. Abdul Ghani Lone and funds for Chrar-e-Sharief

If the mishandling of the drafts case illustrates the lack of purpose in the Kashmir investigations, recent revelations of proxy accounts allegedly held by People's Conference leader Abdul Ghani Lone illustrate the CBI's apparent proclivity to let otherwise solid hawala cases die through sheer neglect. In April 1997, the CBI Special Investigation Cell II in New Delhi filed an FIR alleging that Lone had, inter alia, received Rs. 30 lakhs a month from the ISI, accepted payments for an overseas trip in 1995 from the Kashmir American Council, and used part of the cash that he received to build homes in Rawalpora and Delhi. Frontline's investigations led to some interesting findings. Although there was substantial evidence that Lone, along with other members of the Hurriyat Conference leadership, had siphoned off or mishandled funds intended for relief and reconstruction at Chrar-e-Sharief, the allegations made by the CBI that these funds were used to acquire personal property and to travel abroad have not been substantiated. Critically, there has been no follow-up action by the CBI on evidence that Lone held a bank account in the name of a neighbour, Majid Dar, into which lakhs of rupees were credited and debited in cash without even an effort at accounting.

Majid Dar, who owns a cloth store opposite Lone's Srinagar home, was arrested on July 9 by the crack Special Operations Group of the Jammu and Kashmir Police. (Majid Dar's bail order, a copy of which is with Frontline, mentions charges of sponsoring terrorism.) One key document was recovered from him. It was the passbook of his account, bearing the number 191/2, at the Jammu and Kashmir Bank's Rawalpore branch in Srinagar. The account showed an exceedingly curious pattern of activity. From October 1994, the period from which Frontline could obtain documentation, large sums of money began to be paid in through demand drafts and in cash.

On October 12, 1994, for example, Rs. 1 lakh was paid in by demand draft, and two cheque withdrawals of Rs. 50,000 were made days later, leaving a balance of just Rs. 455. Heavy deposits and withdrawals continued regularly. These withdrawals and deposits reached a peak in 1995, with Rs. 13,00,000 being deposited in cash on a single day, June 13. Dar told curious bank staff that the money was for the reconstruction of Chrar-e-Sharief. No further questions were asked, even when Rs. 14,10,000 was paid in just weeks later - on August 8. Dar's withdrawals were equally heavy. Self cheques of Rs. 5 lakhs and Rs. 10 lakhs were routinely presented and money was withdrawn, with the quantum of transactions topping a crore of rupees in just seven months of 1995. (See a part of Majid Dar's bank account record reproduced in facsimile.)

IN custody, Dar told his interrogators that he had merely held account No. 191/2 on his politician-neighbour's orders, handing over signed blank cheques as and when they were asked for. Lone merely told him that the heavy transactions of 1995 were for Chrar-e-Sharief and the shopkeeper made no further enquiries. Shortly after a national newspaper carried this story, Dar was released. Speaking to Frontline at Lone's house, he said that his confessions had been made under duress, following sustained torture by the Special Operations Group. The newspaper's correspondent, he said, had interviewed him while he was being tortured. "I did deposit Chrar-e-Sharief money in the account," Dar said, "which we collected from people in Rawalpora and adjoining areas. We collected Rs. 8.5 lakhs between 10 a.m. and 4 p.m. on the first day, and when we asked the Hurriyat leaders what to do with it, they asked me to keep it in my account, to hand over to the Alamdar Fund that had been set up to provide relief."

During his tape-recorded interview with Frontline, however, Dar made several inconsistent statements. One was that while there was a deposit of Rs. 8.5 lakhs in cash into the account, this had been preceded by the larger deposits in cash, of Rs. 13,00,000 and Rs. 14,10,000. Asked how public collections came in such neat figures, rounded off to five zeroes, Dar had no answer. Finally, there is little to explain why residents of middle class Rawalpora were so generous. Frontline obtained records of donations to the Alamdar Fund by professionals from the Psychiatric Diseases Hospital in Srinagar by way of comparison. The highest donor was Dr. M.A. Chesti, who gave Rs. 215.

THE most curious fact about Dar's account is that most of the money deposited in it was not in fact deposited into the Chrar-e- Sharief Alamdar Fund in the first place. Three cheques were paid to the Alamdar Fund in January 1996, months after the money was collected, worth a total of Rs. 30 lakhs. Two other cheques for Rs. 10,00,000 each were encashed in November, and though Dar claims that these too were for the fund, he could provide no proof. Dozens of other self cheques, and cheques to various parties, notably Ghulam Nabi and Ghulam Mohammad, the Kashmiri equivalent of Joe Ordinary, were written out for sums ranging from just a few thousand to several lakhs of rupees.

Lone told Frontline that these cheques, unlike the direct donations to the Alamdar Fund, were withdrawals to meet the immediate cash needs of Chrar-e-Sharief victims (see interview). Asked for proof of these disbursals, he first reacted with hostility, saying that he did not have to answer "the Indian Government and its press." When this correspondent pointed out that as a public figure he did have to answer to the people, he said that the Hurriyat's accounts were deliberately hidden to avoid official reprisals against donors and recipients. The politician also claimed that several of Majid Dar's transactions were undertaken with his own business funds. This proposition, however, is problematic, since business revenues would have seen a steady growth in the account, rather than a pattern of massive deposits followed by equally massive withdrawals.

Despite the breakthrough provided by the discovery of Dar's account, the CBI appears to have done little to investigate the case. Lone dismisses its FIR with more than some degree of conviction: "They say I bought this house with hawala funds, but that's nonsense. Anyone can tell you I bought it in the late 1970s and rented it out for many years."

BY way of evidence, Lone provided Frontline a copy of an income tax notice served on him in 1982-1983 by the Income Tax Officer, Srinagar B ward. The notice pointed out that his returns for that year showed an income of Rs. 5,690 from property, the first such income his returns had ever shown. It demanded details of the consideration for which the property had been purchased, its cost of construction, and the sources from which the investment was made. Lone did not provide Frontline these details, but his case is prima facie plausible. "The CBI also says," he rubs in the point, "that I went abroad in 1995, when the Government they serve took away my passport in 1993. They say I have property in Delhi. Let them point to one and they are welcome to have it, free of cost."

3. The Hurriyat corporate: Milking the people

If there had been an elaborate financial swindle, it would be of a piece with the Hurriyat Conference's collective handling of the Chrar-e-Sharief relief. Internal Hurriyat correspondence obtained by Frontline shows that the supposedly autonomous Alamdar Fund set up by the Muslim Auqaf Trust to administer relief was in fact functioning on the instructions of the secessionist body. Of Rs. 1,50,00,000 disbursed through the Alamdar Fund's account bearing number 7356/74 at the Gole Market, Karan Nagar, Srinagar branch of the Jammu and Kashmir Bank, just Rs. 20 lakhs were actually paid directly to the Sheikh-ul-Alam Relief Committee, which was organising ground-level relief work at Chrar-e-Sharief. (Frontline has obtained details of debits from the Alamdar Fund account.) A sum of Rs. 60 lakhs was paid by cheque to the Committee through People's Conference leader and Lone's deputy, Dr. G.M. Hubbi. Hubbi received three further cheques between October and December 1995 for a total of Rs. 30 lakhs, while his fellow Hurriyat politicians, Ghulam Qadir and Ghulam Nabi Sumji, received Rs. 10 lakhs and Rs. 35 lakhs respectively. None of the recipients of cheques from the Alamdar Fund was a trustee or was formally associated with the organisation.

The Hurriyat Conference's direct involvement in the supposedly apolitical Alamdar Fund began in late May 1995. On May 26 and 27, nine trustees of the Muslim Auqaf Trust, a historic body hijacked by secessionist parties during the years of the Kashmir insurgency, met to discuss the handling of the Alamdar Fund. The trustees decided to maintain a separate bank account for the trust, but only after "a long discussion and persuasion by the executives of the APHC" (according to a resolution of the Muslim Auqaf Trust on the Alamdar Fund, a copy of which Frontline has obtained). The Hurriyat's "persuasion", Lone told Frontline, was merely the insistence that "the Alamdar Fund carry on its relief work separately from the Hurriyat, since we were waging a larger battle for freedom."

In the event, the Alamdar Fund did not maintain even a measure of independence. Large sums of cash were handed over by the Fund to Hurriyat functionaries on the basis of scrawled slips from the organisation's office. On April 12, 1996, for example, the Auqaf Trust's G.Q. Drabu sent a hastily typed note to Hurriyat chairman Mirwaiz Umar Farooq. "Haji G.M. Sumji," the note reads, "appeared in this office today, the 11-4-96, asking for issuance of a cheque for ten lacs from Alamdar Fund. He was asked to produce a letter of authority from your good self, instead of producing a letter of authority he asked me to contact you on phone." In the note, Drabu proceeds to plead for a letter of authority to be issued. (Frontline has obtained a copy of the note.)

Similar casual slips of paper were the basis for several lakhs of rupees being issued out of trust funds. One of them is a letter issued by the Hurriyat office to Drabu on December 2, 1995 instructing the Auqaf Trust chairman to "hand over" Rs. 6 lakhs to the bearer of the letter, G.M. Hubbi, acting for the Sheikh-ul-Alam Relief Committee.

Geelani flatly refused to discuss the Hurriyat's role in Chrar-e- Sharief relief. "I had nothing to do with it," he asserted. "I kept out of it from the beginning." Speaking to Frontline, Lone attempted to defend these transactions: "The funds that were paid by cheque directly to the Alamdar Fund were for the reconstruction of the shrine itself. But the bulk of the money was to provide relief to the victims of the Indian security forces, who destroyed Chrar-e-Sharief. This task, because of the disturbed situation, simply could not be carried out by the Alamdar Fund's trustees. Those discovered with money by the security forces risked having their houses blown up. So the Hurriyat had to become directly involved in the process. The money was taken in cash and given according to a sliding scale to the victims."

Lone, however, acknowledged that no detailed accounts had been kept of disbursals. Asked why many people at Chrar-e-Sharief complained that they had received no compensation, he said: "Ask a Congress supporter there, and he'll tell you the Hurriyat- wallahs are thieves. Ask a National Conference supporter and he'll tell you we ate it all up. Ask our supporters and they'll tell you the truth about how much each one got."

THE truth must be established. The FIRs filed by the CBI's Special Investigative Cell II rest on two central propositions: first, that hawala funds were received by Hurriyat leaders, and secondly, that they misappropriated large parts of these donations. Yet the investigative handling of the Abdul Ahad drafts and the Majid Dar account gives little reason to believe that the CBI intends to follow up its FIRs with prosecutions. In the case of Abdul Ahad, the agency failed to monitor a key discovery and to ensure that the financial point of origin of the drafts and their intended end use were established with evidence that could be introduced in a trial court. In Majid Dar's case, little has been done to establish that the money was received through hawala channels and that Lone had consistently misappropriated funds received in this way.

At the May 5 Union Home Ministry meeting, the CBI, represented by Joint Directors M.L. Sharma and Sharad Kumar, blamed the absence of progress on the lack of "meaningful input from other agencies at this juncture". This argument was evidently designed to deflect responsibility from the organisation in the face of Special Secretary V.S. Mathur's wrath.

The minutes of the meeting, recorded by Under Secretary Chandan Singh in file 13026/54/96-K (M) (Volume II) dated May 13, show that I.B. Deputy Director Kulbir Krishan rebutted the CBI's position, pointing not only to "additional information which has been shared with the CBI in early April," but also to the fact that "several documents which could be useful had been recovered which the CBI may follow up."

The CBI's evident lack of desire to do so was apparently shared by others. All that the Enforcement Directorate's P.K. Roy could contribute to knowledge of the issue was the claim that while his organisation had identified "some properties, telephone numbers and bank accounts," these were "not in the names of the persons charged". Paragraph 10 of the minutes records that the Income Tax authorities - who despite being invited had not sent a representative to the meeting - had earlier sent notices to several banks asking for "information on suspicious accounts," to which the banks "had not responded".

THE lack of progress in the Kashmir cases is of a piece with the CBI's marked lack of enthusiasm in pursuing the Jain hawala discoveries. In a political climate where aggressive investigation of corruption at the top has been labelled a "witch-hunt" by I.K. Gujral himself, CBI officials are evidently unwilling to engage with the possibility that their work may generate unwelcome discoveries. If hawala dealers are indeed behind the cash inflows that Hurriyat leaders have siphoned off, a possibility which, though not established, is certainly probable, their arrest and prosecution could well lead to embarrassing revelations about politicians who have nothing to do with Kashmir or terrorism.

In the short run, the exposure of Hurriyat politicians would also sabotage the electoral strategies of the Congress(I) under State party leader Mufti Mohammad Sayeed; the party has premised its future in Jammu and Kashmir on recruiting second-level secessionist politicians to its ranks. This opportunistic agenda is clearly an insult to the people of the State, who risked death to vote overwhelmingly for the secular-democratic National Conference in last year's elections.

Many in Kashmir, at various locations in the political landscape, frequently argue that the real problem is not that Kashmiris do not consider themselves Indian, but that Indians have never treated Kashmir as a part of India. The apathy and political cynicism evident in the Hurriyat investigations suggest that they may just have a point.