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Are terrorists manipulating Indian stock markets?
B Raman
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February 16, 2007

In his address to the 43rd Munich Conference on Security Policy on February 11, M.K.Narayanan, National Security Adviser of the Government of India, spoke of the various ways in which terrorist activities in India are funded.

While doing so, he said: 'Isolated instances of terrorist outfits manipulating the stock markets to raise funds for their operations have been reported. Stock exchanges in Mumbai and Chennai have, on occasion, reported that fictitious or notional companies were engaging in stock market operations. Some of these companies were later traced to terrorist outfits.'

Stock markets as a likely source of funding for organised crime, terrorism and covert operations of intelligence agencies has been a subject which has been engaging the attention of not only intelligence and security agencies, but also stock market regulating authorities for many years.

Organised criminal mafia, terrorists, and intelligence agencies seek to covertly use the stock markets for earning funds as well as causing economic instability in a target country. They generally use two methods for this purpose: stock market operations and stock market manipulation.

Stock market operations help them to earn money and launder black money, and stock market manipulation helps them to earn and launder money as well as cause economic instability.

For a stock market operation, they use individual stock traders or companies -- either floated by them or their surrogates -- for buying and selling shares and making  profits -- like any other person interested in the stock market.

Their operations are legitimate, but the source of their investments or the ownership of their companies is not. The only effective way of preventing this is by making enquiries about such individuals or companies, identifying those suspected to be acting as a front for crime mafia or terrorists or intelligence agencies and acting against them.

Even before 9/11, it was well documented by the intelligence and security agencies of Western countries that Al Qaeda had an extensive financial and business network operated through surrogates.

Some of them indulged in stock market operations for making profits and laundering black money. Others ran seemingly legitimate businesses such as travel agencies, construction companies, real estate companies etc and earned money.

Are the terrorists also indulging in stock market manipulation -- that is, artificially pushing stock prices up or down either to earn money or to cause economic instability?

Since the terrorists know in advance the dates of their planned terrorist strikes, which often have an impact on the stock market, they can use this advance knowledge to push prices up or down. So it was feared.

In the days before and after the 9/11 terror strikes in the US, there were erratic movements in not only the New York Stock Exchange, but also in the stock exchanges of some European countries.

Some of these erratic movements affected the shares of airline companies. This gave rise to widespread speculation and fears that Al Qaeda, which had advance knowledge of the date of its terrorist strikes, had used this knowledge in an attempt to make money and in a futile attempt to cause an economic collapse.

Some even believed that the real target of Al Qaeda was not the World Trade Centre in New York, but the stock markets of the West. It was alleged that by destroying the towers it was hoping to cause a collapse of the Western stock markets, which did not happen.

Independent enquiries were ordered by the governments of the US and the European Union countries into this matter. The US National Commission, which enquired into the 9/11 terrorist strikes, looked into this speculation also and reported as follows:

'There also have been claims that Al Qaeda financed itself through manipulation of the stock market based on its advance knowledge of the 9/11 attacks. Exhaustive investigations by the Securities and Exchange Commission, FBI, and other agencies have uncovered no evidence that anyone with advance knowledge of the attacks profited through securities transactions.Unquote (pp.171-2) 

'Highly publicised allegations of insider trading in advance of 9/11 generally rest on reports of unusual pre-9/11 trading activity in companies whose stock plummeted after the attacks.

'Some unusual trading did in fact occur, but each such trade proved to have an innocuous explanation. For example, the volume of put options -- investments that pay off only when a stock drops in price -- surged in the parent companies of United Airlines on September 6 and American Airlines on September 10 -- highly suspicious trading on its face.

'Yet, further investigation has revealed that the trading had no connection with 9/11. A single US-based institutional investor with no conceivable ties to Al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10...

'The SEC and the FBI, aided by other agencies and the securities industry, devoted enormous resources to investigating this issue, including securing the cooperation of many foreign governments. These investigators have found that the apparently suspicious consistently proved innocuous.'

The EU enquiries also could not unearth any credible evidence to show that there was market manipulation by Al Qaeda before and after the 9/11 terrorist strikes. However, these enquiries in the US and the EU brought out the need for further strengthening stock market regulations to detect and prevent any future attempt at manipulation and the capability of the intelligence and investigative agencies to detect and prevent such attempts at manipulation.

It is noticed that Narayanan has used the expressions stock market 'manipulation' as well as 'operation'. Does it mean that the terrorists had used their advance knowledge of the dates of planned terrorist strikes in India to make money from the stock market?

Another danger, which has been engaging the attention of intelligence and security agencies, is criminal mafia and terrorists organising stock price bettings in order to fund their operations. There has so far been no proved instance of such betting.

The writer is Additional Secretary (retd), Cabinet Secretariat, Government of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. E-mail: itschen36@gmail.com


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