Political India: Engaging America

India faces a burgeoning inflow of high-quality counterfeit currency that is primarily produced in Pakistan and then smuggled to India through multiple international routes, according to a report by the United States State Department.

In the 2011 International Narcotics Control Strategy Report (INCSR), the State Department said criminal networks exchanged counterfeit currency for genuine notes and this facilitated money-laundering on a scale that “represents a threat to the Indian economy.”

While a key focus of the INCSR was the drug and chemical control, a significant section of the report considered the impact of money-laundering and financial crimes in the context of narcotics production and distribution.

Significant target

In that regard, the report argued that India's economic and demographic expansion made the country an “increasingly significant target for money-launderers and terrorist groups,” adding that India's extensive informal economy and remittance systems, porous borders, strategic location, persistent corruption, and historically onerous tax administration contributed to its vulnerability to financial and terrorist-related crimes.

On the subject of the counterfeit currency flows from Pakistan, officials noted that most terrorist activities were conducted by international terrorist groups and entities linked to the global jihad, with the support of both state and non-state external actors, all of whom “often use counterfeit currency and hawaladars, as well as physical cross-border currency smuggling, to move funds from external sources to finance their activities in India.”

‘Particularly prone'

India was particularly vulnerable to such illicit currency flows given its location between heroin producing countries in the Golden Triangle and Golden Crescent, the INCSR explained.

The report also pointed out that India was itself a major producer of licit acetic anhydride, a precursor chemical required to convert morphine base into heroin, and this made producers susceptible to abuse by illicit networks. In any case, India was “a significant target for terrorist groups, both external and domestic,” the State Department said.

Annual report

The INCSR is an annual report supplied to the U.S. Congress and its purpose is to describe the efforts of key countries to attack all aspects of the international drug trade during 2010.