By: Ashreet Acharya | Date: September 26, 2025

In the months following the military escalations in Indian-administered Kashmir in May 2025, which included the high-profile military operations by India and Pakistan, Pakistan-based militant groups like Lashkar-e-Taiba (LeT) and Jaish-e-Mohammad (JeM) quickly evolved their terror funding approach to evade the intensified military and regulatory scrutiny. Already notorious for cross-border operations, these groups rewired their economic pipelines by moving towards more informal systems (hawala), charity fronts and digital assets such as cryptocurrencies and anonymised online crowdfunding and shifting away from traditional donations and bank transfers. This paper analyses the mechanisms that allow LeT and JeM to evade new counter-terrorism laws and international oversight and maintain resilient cash flows despite. It concludes by offering feasible recommendations for policymakers and technology companies that can coordinate to disrupt terrorist financing in the region.

Terrorism Financing and the 2025 Crisis

In May 2025, a terrorist attack in Jammu and Kashmir killed 26 civilians, sharply escalating military tensions between India and Pakistan. The lesser-known Resistance Front (TRF) claimed responsibility before retracting, with Indian authorities attributing the attack to LeT, a Pakistan-based group with decades of cross-border terrorism. This attack prompted intensification of counter-terror financing laws in India and Pakistan. Terror-linked financial flows are covered under India’s Unlawful Activities (Prevention) Act (UAPA) while Pakistan, after pressure from the global Financial Action Task Force (FATF), has introduced stringent transparency and charity oversight. This legal climate has forced innovative funding strategies among terrorist groups.

Informal Transfer Systems

Hawala networks remain active and integral to financing LeT and JeM. Hawala’s trust-based networks allow rapid money movement across borders, evading formal banking and regulation. International bodies report these networks are often exploited for illicit funding due to a lack of transparency. While most hawala transactions are legitimate, large sums in South Asia are still linked to illegal activities, including terror financing. Hawala networks have not been completely penetrated by the FATF which has encouraged domestic reforms, and underscored inadequate transparency, insufficient due diligence, and weak cross-border intelligence sharing.

Charitable Organisations as Financial Fronts

LeT and JeM have long exploited charities for financing. Religious and humanitarian organisations like the Falah-e-Insaniat Foundation (FIF, an LeT-linked organisation) and Al Rehmat Trust (JeM-linked) collect donations—often timed to religious festivals—with funds funnelled to militant operations. Despite sanctions, these fronts persist via complex webs of affiliates and informal fundraising, providing social legitimacy and complicating countermeasures to dismantle financial pipelines. India’s Foreign Contribution (Regulation) Act Foreign Contribution (Regulation) Act (FCRA) and FATF’s charity guidelines target suspicious organisations, but such organisations persist due to inconsistent enforcement and constant rebranding of banned charities. This lack of effective oversight highlights the need for cross-border regulatory harmonisation 

Digital Assets and Crowdfunding

Both groups have recently incorporated digital assets—cryptocurrency and online crowdfunding—diversifying funding and circumventing regulation. These channels enhance anonymity and global reach, making it easier to solicit micro-donations from sympathisers globally. Privacy coins and decentralised transactions evade detection, as highlighted by open-source monitoring of crypto flows linked to terror-funding. Crowdfunding campaigns disguised as humanitarian efforts also tap diaspora and sympathiser capital. Legal frameworks are not evolving as fast as the financing strategies adopted by extremist groups. India’s anti-money laundering laws have now introduced digital assets; Pakistan is also developing protocols regarding crypto surveillance. However, FATF standards for virtual assets are not implemented properly as privacy law-protected platforms hinder law enforcement. 

Hybrid Adaptation under Pressure

Military and regulatory escalation have forced LeT and JeM to hybridise their financial tactics—blending hawala, charity fronts, and digital channels. Indian military operations targeted militant infrastructure while regulators stepped up financial institution scrutiny. Terrorist groups responded by embedding in legitimate social and religious networks to mask illegal transfers, sustaining flows via informal, cross-border remittance chains. FATF reports major obstructions in monitoring hybrid channels due to lack of real-time interoperability and data exchange. Domestic legal tools are inadequate due to absent international cooperation.

Intelligence and Digital Monitoring Challenges

The 2025 crisis exposed major shortfalls in cross-border intelligence sharing. National agencies often operate in silos, hampered by insufficient real-time data and actionable insight. Distrust and political obstacles restrict India-Pakistan cooperation, undermining efforts to disrupt financial networks. Rapid advances in digital assets and encrypted platforms have created new blind spots, thwarting tracing and targeting of illegal fundraising. Legal harmonisation and institutional trust can coordinate to overcome these challenges. There is a clear need for joint regulatory dialogue and intelligence collaboration to develop and use tech-driven disruption effectively.

Disrupting Terrorist Financing: Legal and Policy Recommendations

A coordinated, tech-infused approach would require multiple elements working together. First, efforts regarding cross-border regulatory harmonisation will update regulations enabling real-time intelligence sharing and oversight for charities, remittances, and digital assets among India, Pakistan, and third-party states. Simultaneously, digital monitoring and AI solutions would allow tech platforms to expand AI-driven analytics to identify suspicious flows, proactively freeze or block accounts/campaigns tied to terror-financing, and share best practices via public-private partnerships. Furthermore, capacity building efforts will enable international organisations to provide technical training, access to cutting-edge monitoring tools, and support for regional enforcement agencies. And finally, lawmakers must expand AML(anti-money laundering) and CFT (countering the financing of terrorism) interoperability frameworks and close privacy-innovation gaps, anticipating abuses while safeguarding legitimate financial activity.

FATF Recommendations, National Risk Assessments, and the Future of Terrorist Financing regulation

The global fight against terrorist financing is led by the Financial Action Task Force (FATF), which establishes the standards adopted and adapted by national governments. Recently, it updated its strategies in major reports through 2025.  FATF revealed the consistent weaknesses in jurisdictional investigations, prosecution, and deterring terrorism financing cases: nearly 70% of countries still struggle to address the gaps in enforcement and regulation. These insufficiencies underscore the need for evidence-based comprehension of financing risk and the differentiation between local, state-sponsored, lone-actor and transnational threats. The 2010 FATF membership has advanced Indian reform with its National Risk Assessment for Money Laundering and Terrorist Financing (2022), identifying Pakistan’s state sponsorship of terrorism. This has moulded the Indian AML/CFT legal architecture. The important focal points for this strategy have been proliferation financing, sanctions evasion, and the manipulation of beneficial ownership data. These points are focused upon as networks continue advancing virtual assets, maritime channels, and e-commerce platforms. Pakistan has faced international scrutiny for inadequate charity oversight and the adaptability of militant actors who thrive in its evolving regulatory landscape. 

The 2025 recommendations calls for stronger transnational responses and cross-border cooperation. The recommendations emphasize listing terrorist groups under UN sanctions, and aligning countries’ risk assessments and policy tools. Vulnerabilities are created by practical factors such as territorial proximity, poor governance, porous borders and the existence of informal economies. Furthermore, the growing overlap between organised crime and terror funding is concerning, especially with the exploitation of humanitarian and developmental aid, and digitalisation of informal systems and flow of cash. 

There is a need for collaboration between the private sector and civil society. The FATF-accredited national financial intelligence units collaborate with banks, charities and tech firms to produce timely indicators, detection and risk management strategies. The Indian engagement with FATF is demonstrated via its operational dialogue mechanisms and consistent audits. 

Looking ahead, both countries need to tailor their rules according to local weaknesses, and share intelligence across borders, to be best placed to stop emerging threats.

Conclusion

The 2025 India–Pakistan escalation underscored the resilient, evolving terror-funding networks of LeT and JeM. These groups persist via hybrid tactics combining informal transfer systems, charities, and digital assets. The regulators, FATF bodies, and tech platforms need to achieve real-time coordination and harmonise standards as financing risks will outpace compliance. Legal innovation and collaborative digital monitoring can close gaps and prevent violent extremism in South Asia’s regulatory landscape.