Washington: India is confronting an increasing inflow of counterfeit money from Pakistan and terrorists and criminal networks are using this money to finance their activities in the country, an official US report has said.

"India faces an increasing inflow of high-quality counterfeit currency, which is produced primarily in Pakistan but smuggled to India through multiple international routes," the International Narcotics Control Strategy of the State Department in its 2011 report said.

"Criminal networks exchange counterfeit currency for genuine notes, which not only facilitates money laundering, but also represents a threat to the Indian economy," it said.

The report warned against the mushrooming black money, remittance systems and porous border triggering money laundering at an alarming pace in the country and asked the Indian government to facilitate development of money transfer services like mobile banking.

The State Department report said the tax avoidance and the proceeds of economic crimes (including fraud, cyber crime and identity theft) are still the basis of money launderers
in India.

And laundered funds are also drawn from human and narcotics trafficking, transnational organised crime, illegal trade in endangered wildlife and illegal gems and corruption.

Majority of terrorist activities are conducted by international terrorist groups and entities linked to the global jihad, with the support of both state and non-state external actors, the report said.

The State Department report recommended that the Indian Government should press for presidential approval to implement the Foreign Contribution (Regulation) Act 1976.

The Indian Government should also extend the Prevention of Money Laundering Act to include gem and precious-metals dealers, real estate agents, lawyers, notaries, other independent legal professionals, accountants, and commodity futures brokers and to clearly add a safe harbour provision for those filing STRs in good faith.