Though Jammu and Kashmir Government has admitted that foreign funds were being routed through various channels including Hawala to spread terrorist activities in the State the relations between the two–terrorism and illegal fund flow-has been the oldest. Both Governments–State and Union-have been devising methods to check the inflow of such funds but still have not been able to plug the routes completely. Not only this such cross-border fund transfers are also taking place for tax frauds, according to global inter-governmental body Financial Action Task Force (FATF). India has been highlighting the funds flow through Hawala and Other Similar Service Providers (HOSSP) mentioning that there have been quite a few cases where the funds from abroad by the terrorist organisations were received in the country through HOSSPs. FATF, which has 34 member jurisdiction, develops policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. Hawala and other similar service providers arrange for transfer and receipt of funds, through non-bank settlement methods. This is an invisible channel for large chunk of money where no questions are raised. Though there has been decline in terrorist activities of late in Jammu and Kashmir the fund flow channels for Jihadis continue to remain intact. One of the major sources of funding for militancy in J and K is the Fake Indian Currency Notes (FICN) being pumped into the State by the ISI and Pakistan Army. Besides Karachi, the high quality fake currency is also being printed in Lahore, Quetta and Peshawar. The high quality fake currency is routed through Gulf countries and far east sent through unclaimed baggage carried by airlines and shipping companies which makes way into India and whatever amount is seized is trickle of the big money transfers. With security tightened on the borders because of the multi-layer fencing the funds are being routed in small amount through trans-border drug smugglers and there is change in modus operandi with separatists and militants getting the funds through different Hawala channels from Middle East and a few European countries. Now, separatists are laying lot of emphasis on collecting the funds at local level and top notch businessmen are being asked to contribute to save their lives. Lot of activity is going on at the money front. If steps are not taken to curb it there is every possibility of violence escalating in coming days and militants re-emerging and re-grouping.