For decades a shadow economy of drugs, counterfeit currency and illicit cash flows has threaded its way across South Asia, North Africa and beyond. What makes this underground economy especially dangerous is not only its scale but the way statecraft, organized crime and violent Islamist militancy appear to intersect - creating a self-reinforcing funding loop for groups that seek to destabilize societies and export terror. At the center of recent concerns are two names often linked - Pakistan’s Inter-Services Intelligence (ISI) and India’s most notorious fugitive, Dawood Ibrahim. Together, analysts and media reports say, they help sustain a transnational “narco-jihad” aimed as much at financing jihadi networks as at undermining rival states.

A business model of violence

The modern toolkit for financing insurgency and terror is diverse: heroin and cocaine profits, protection rackets and extortion, hawala transfers, counterfeit notes and smuggling corridors. Where these revenue sources meet disciplined criminal networks and permissive or complicit institutions, the result is an extremely resilient terror economy. Observers say narcotics trafficking -sometimes routed through criminal outfits with political protection - has long been a major revenue stream used to arm, train and sustain militants across multiple theatres.

The pattern is simple and frighteningly effective. Farmers or traffickers produce or source drugs; organized groups refine, move and launder the proceeds; militant cells take a cut for protection and logistics; corrupt officials, brokers and false-front businesses recycle the money back into operations. When one finds links running between a state’s security apparatus, an organized crime syndicate and jihadi organizations, the possibilities for both funding and strategic deniability multiply.

Dawood Ibrahim’s Role And Global Reach

Dawood Ibrahim - long linked in open-source reporting to organized crime, extortion rackets and alleged support for violent extremist activity - heads a network (frequently referred to as “D-Company”) that has been tied to smuggling and trafficking routes spanning South Asia, the Middle East and parts of Africa. Investigations and long-running coverage by security analysts indicate D-Company’s role in narcotics and other illicit trades has helped it build logistical reach that can be exploited by militant elements.

There are also reported intersections between D-Company’s global crime contacts and Islamist militants in Africa and West Asia. Indian media coverage from 2014, for example, cited concerns in security circles about emerging links between Nigerian militant networks and elements of Dawood’s organization for smuggling and distribution routes into India. These connections, if true, demonstrate how criminal and extremist groups can mirror each other’s networks to mutual advantage.

Indian and international intelligence agencies have repeatedly linked D-Company’s drug profits to terrorist financing, including Lashkar-e-Taiba and Jaish-e-Mohammed. Dawood’s younger brother, Anees Ibrahim, reportedly established contacts with extremist commanders in Africa and West Asia, enabling D-Company to utilize Boko Haram and Al Qaeda networks to move cocaine and heroin. Nigerian couriers were initially used to smuggle narcotics into India before local collaborators took over distribution.

Terror groups, drug routes and new corridors

Several extremist organizations have long used criminal revenue streams to fund operations: from conventional smuggling to drug production, and from hawala networks to extortion. In parts of Africa, jihadi groups and criminal syndicates have reportedly moved cocaine and other drugs along routes that ultimately reach Asian and European markets, often with local and regional facilitation. Similarly, the “southern route” for Afghan heroin - which flows through Pakistan and Iran toward Gulf and European markets - remains a key artery in the narcotics economy despite periodic interdictions and policy shifts.

UN agencies report that, while global opium production has seen major swings since the Taliban’s 2022 ban, cultivation in some years has rebounded in new forms and localities, keeping pressure on transit states and widening the reach for smugglers.

Meanwhile, porous borders in South and Southeast Asia - and criminal links into Myanmar and the Golden Triangle - have made India’s northeastern states and coastal hubs attractive for traffickers seeking alternative transit corridors. Analysts warn that as enforcement tightens in older routes, criminal networks adapt, shifting trade to weaker-policed borderlands and urban distribution nodes.

The state question: complicity, tolerance or rogue actors?

Perhaps the most troubling allegation is not that criminals and militants trade with one another - that has long been documented worldwide - but that elements within Pakistan’s state security apparatus may either tolerate or actively facilitate parts of the system for strategic objectives. Historical reporting and some insider claims have suggested that, at various times, Pakistan’s establishment viewed narcotics profits as a possible source to underwrite covert operations. Whether this is formal policy or the work of “rogue” networks embedded within the institutions, the operational effect is similar: an expanded, semi-protected hinterland for illicit finance.

These allegations are highly sensitive and politically charged. International bodies and watchdogs have repeatedly emphasized the need for robust, transparent financial controls precisely because permissive environments allow malign actors to exploit grey areas. Pakistan’s removal from the Financial Action Task Force (FATF) grey list in October 2022 did not, experts warned, mean the underlying vulnerabilities vanished - rather, it made continued vigilance even more important.

Economic warfare: fake currency and destabilization

Beyond drugs, counterfeit currency and forgery can be used as tools of economic sabotage. Incidents of near-perfect Fake Indian Currency Notes (FICN) seizures in the region over recent years have raised alarms about networks that manufacture and move counterfeit notes to destabilize neighboring economies or to fund black-market operations. When such operations are tied into smuggling chains that also carry narcotics and contraband, the criminal economy becomes a multi-headed threat that is hard to starve without coordinated regional action. (Investigations in the past decade have pointed to seizures and routes that merit close scrutiny by investigators).

Why This Matters 

The security implications are immediate and multi-layered:

• Terror financing. Illicit proceeds from drugs, extortion and counterfeit cash can sustain militancy, helping groups buy weapons, bribe officials and maintain cross-border logistics.

• Social disorder. A flood of narcotics into vulnerable communities undermines public health, fuels crime and corrodes social cohesion.

• Political leverage. When shadow networks penetrate political or administrative structures, they can be used to coerce policy outcomes or to keep adversaries perpetually off-balance.

• Regional spillover. Criminal networks do not respect borders; refugee flows, porous frontiers and diasporic smuggling link crises across countries.

For Bangladesh - with a long coastline, large diaspora communities and densely interconnected land borders with India and Myanmar - the danger is tangible. Similarly, northeastern Indian states with porous borders and long, hard-to-police stretches are susceptible to becoming transit or distribution zones if criminal networks pivot eastwards.

Required Political Will

Stopping a transnational narco-terror nexus requires a combination of hard law enforcement, financial transparency and political will.

Strengthen cross-border intelligence sharing. Information on trafficking trends, suspect financial flows and interdictions must be shared in real time among India, Bangladesh and regional partners.

Target the financial networks. Freezing assets, prosecuting money-laundering intermediaries and following the money often delivers more impact than arresting low-level couriers alone.

Harder enforcement at transit chokepoints. Ports, land crossings and coastal estuaries are obvious weak links: stepped-up maritime interdiction and coastal surveillance are essential.

Reduce local demand and harm. Public health investments to reduce addiction and drug dependence shrink the markets that traffickers exploit.

International observers and civil society must press for transparency and accountability where state institutions are suspected of complicity. The FATF’s warnings about remaining vulnerabilities after grey-list removal are a reminder that formal compliance is not the same as de-radicalizing criminal ecosystems.

Coordinated Regional Action

Transnational organized crime and violent extremism have long fed off one another. When state actors or powerful criminal bosses sit between the two, the scale of the threat grows - from local markets harmed by cheap drugs to national economies threatened by counterfeit currency and the financing of terrorist operations. The alleged ISI–Dawood axis is a stark example of how overlapping interests can create a durable, adaptable and dangerous political economy of crime.

Containing this scourge is possible but will require coordinated regional action, ruthless targeting of financial conduits, and the political courage to investigate allegations wherever they lead - even when they point toward powerful actors. Left unchecked, the narco-militant networks that flourish in shadow will continue to undermine social stability across South Asia and beyond; confronted decisively, they can be fragmented and their appetite for funding starved. The choice, for policymakers in Washington, New Delhi, Dhaka and capitals across Europe, is to treat the problem as a criminal, financial and geopolitical threat - and respond with the seriousness it demands.

(The author is a journalist, writer, and editor of the Blitz. He specializes in counterterrorism and regional geopolitics. He can be contacted at salahuddinshoaibchoudhury@yahoo.com, follow him on X: @Salah_Shoaib )