How the Arakan Army Pays For Its War

The Arakan Army (AA), through its political wing, the United League of Arakan (ULA), has established de facto governance in the majority of Myanmar’s Rakhine State, creating parallel civil administrative structures centered on taxation and local authority. Following the formation of the Rakhine People’s Authority in December 2019, the AA levies taxes on businesses, administers territory under its control, finances its armed and political wings, and has begun supplanting official courts with a parallel judicial system under the Arakan People’s Government. These governance practices emerged amid active conflict, displacement, and the withdrawal or arrest of state administrators, creating an administrative vacuum that the AA has increasingly filled while overseeing a population of over one million people.

To fund its administration and provide for nearly 600,000 internally displaced persons, the AA relies on local taxation, trade duties at border crossings with India and Bangladesh, and occasionally labor or substitute payments from residents. While officially designated a terrorist organization by the Myanmar government, the AA frames its governance mechanisms as legitimate steps toward ethnic Rakhine autonomy, drawing comparisons to other ethnic armed organizations with autonomous administrations.

The group faces significant challenges, including a military blockade cutting off electricity, internet, and banking, financial constraints to pay civil servants, intercommunal tensions with the Rohingya minority, and near-total dependence on central Myanmar for essential commodities. Despite these hurdles, the AA’s taxation and administrative system remains a critical instrument for asserting territorial control, political legitimacy, and institutional authority within a fragmented and conflict-affected governance environment. [Radio Free Asia], [ International Crisis Group]

Cross-border trade & “protection fees”

Conflict in Myanmar’s Rakhine State has long impacted Bangladesh, but the rise of drug terrorism linked to the Arakan Army (AA) now poses a direct national security threat. Controlling roughly 80% of Rakhine, the AA has leveraged the drug trade to fund its military and political operations, making Bangladesh a primary market for yaba, crystal meth, and other high-value narcotics. Established in 2009, the AA has grown into one of Myanmar’s most powerful non-state actors, with success against the Tatmadaw underpinned by this lucrative revenue stream.

Although not directly producing drugs, the AA has implemented a systematic “taxing” mechanism, collecting protection fees from drug syndicates and labs operating in Myanmar’s Golden Triangle and Shan State. This allows the AA to secure income while controlling smuggling routes and syndicates near Tatmadaw positions. Key trafficking corridors into Bangladesh include the Naf River and maritime boundaries, the Teknaf-Hnila-Whykong route, and marine paths along St. Martin’s Island and Chattogram coast, with Rohingya refugee camps increasingly used as logistic hubs. Exploiting poverty and repatriation uncertainty, the AA recruits refugees as carriers, expanding both reach and profits.

The Teknaf region of Cox’s Bazar has seen major seizures: from 2020–2025, 358.95 million yaba tablets and 149.9 kg of crystal meth were confiscated, valued at over 1,826 crore BDT (18+ billion), $149.3 million USD. These operations involved 2,755 cases and 1,975 prosecutions, highlighting the scale of the cross-border drug economy. Analysts warn that if unchecked, the AA’s network could trigger long-term social, economic, and security crises in Bangladesh, including youth addiction, black money flows, enhanced armament, and potential international reputational damage.

The AA operates within broader ethnic armed alliances such as the Three Brotherhood and the Northern Alliance, linking with groups including the KIA, MNDAA, and TNLA. These alliances strengthen access to resources, smuggling networks, and protection fees across borders. The AA’s model shows how cross-border trade and taxing of illicit actors serve both to finance operations and assert control over regional syndicates. Technological surveillance, strict enforcement, regional diplomatic pressure, and improved intelligence in refugee camps to disrupt the AA’s network, as failure to act threatens Bangladesh’s security, economy, and social stability. [Daily Sun], [Geopolitical Monitor]

The Arakan Army (AA) has also come to rely heavily on supplies from Bangladesh due to a near-complete cutoff of supply lines by Myanmar’s military after fighting intensified in November 2023. Essential goods such as rice, fertiliser, and medicines are being smuggled into AA-controlled areas in Rakhine State via maritime routes, while yaba, crystal meth, and other narcotics flow back into Bangladesh.

The blockade has shifted smuggling operations from land and river routes to the sea, with around 80% of trafficking now maritime-based, tracked using radar and monitored by the Bangladesh Coast Guard and Navy. Multiple trawlers depart regularly from Cox’s Bazar, Chattogram, and nearby coastal districts to supply the AA, bypassing checkpoints and creating a complex smuggling network involving Rohingya carriers.

The blockade-induced scarcity has made the AA dependent on these maritime corridors, turning essential goods into barter commodities for narcotics. Seizures in 2024–2025 indicate large-scale movement of both supplies and drugs, showing how a maritime blockade can both disrupt conventional supply chains and incentivize illicit maritime networks. [The Daily Star]

The foreign support angle

As The Arakan Army (AA) finances its operations through a mix of local taxation, trade duties, “protection fees” from drug syndicates, and informal control over cross-border commerce, maintaining both its military campaigns and civil administration in Rakhine State requires substantial resources, which naturally raises questions about external influence.

China has a longstanding presence in Myanmar’s border regions and has historically engaged with various ethnic armed organizations, including the Kachin Independence Army (KIA) and the United Wa State Army (UWSA), for strategic and commercial reasons. Analysts note that this regional engagement through access to trade corridors, cross-border networks, and economic activity creates conditions that can indirectly support groups like the AA, enhancing their operational resilience and logistical reach.

While direct Chinese funding for the AA has never openly been confirmed, however, the group’s sophisticated cross-border operations, including trade routes into India and Bangladesh and the enforcement of protection fees, reflect patterns observed in other well-resourced insurgent organizations. In effect, the AA’s self-generated revenue model operates within a regional context where strategic, commercial, and logistical dynamics bolster its capabilities, allowing it to maintain territorial control and sustain its administrative and military functions.

China’s interest in the Arakan Army is strategic and multifaceted, to be understood within the following framework:

[Burma Library]

Thailand’s potential support for the Arakan Army (AA) through the lens of its historical relationship with the Karen National Liberation Army (KNLA) offers a unique perspective on regional power dynamics. While it is vital to acknowledge that any discussion of direct Thai support for the AA remains purely speculative, especially since the AA operates in Rakhine State and does not share a land border with Thailand, the “KNLA blueprint” provides a logical framework for how such influence might function.

The effectiveness of speculative Thai support for the AA would likely be channeled through the AA’s deep integration into the “Northern Alliance” and the Brotherhood Alliance. Although the AA is geographically distant from Thailand, its closest allies including the Kachin Independence Army (KIA), the Myanmar National Democratic Alliance Army (MNDAA), and the Ta’ang National Liberation Army (TNLA) maintain sophisticated networks that occasionally intersect with Thai-influenced diplomacy and trade. By supporting the broader resistance ecosystem, Thailand can exert “soft support” that reaches the AA indirectly. This multilateral approach allows Bangkok to strengthen the AA’s position against the central junta without requiring a shared border, effectively using its established relationships with groups like the KNLA and KIA as a bridge to influence the conflict in Rakhine State.

Thailand’s foreign policy is frequently driven by protecting the status quo as much as possible and the need to protect vital infrastructure. Currently, the KNLA sits atop critical trade arteries like the Asian Highway 1 (AH1), which facilitates millions of dollars in daily cross-border commerce through the Myawaddy hub. While the AA is far from these land routes, they now exert significant control over Rakhine State, the site of the Kyaukphyu deep-sea port and the pipelines that are central to regional energy security. Given that Thailand imports roughly 15% of its natural gas from Myanmar (primarily from the Yadana and Zawtika fields), the Thai government can be expected to have a vested interest in maintaining a rapport with any group, including the AA, that may be capable of guaranteeing the stability of energy flows apart from the Tatmadaw. Just as it hedges with the KNLA to secure its land borders, Thailand may speculate on the AA’s future success to safeguard its long-term maritime and energy interests.

Potential support for ethnic armed organizations (EAOs), including the Arakan Army (AA), can take multiple forms, though each comes with varying feasibility and risks. Politically and diplomatically, Thailand could mediate between the Tatmadaw and EAOs through ASEAN-led channels or elite-level meetings, providing legitimacy and negotiation leverage, but official support remains constrained by ASEAN’s non-interference principles, making this moderately feasible. Logistically, Thailand’s porous borders and cooperation with local civil society groups allow covert movement of personnel, supplies, and resources, making such support highly feasible if conducted discreetly.

Material support is possible through indirect channels, such as non-lethal supplies including medical kits, radios, and fuel funnelled via sympathetic intermediaries, NGOs, or diaspora networks, though direct state involvement carries high diplomatic risk, giving it moderate feasibility. Economic and humanitarian support, such as granting legal work rights, integrating refugee communities, and providing access to remittances, can indirectly strengthen EAO recruitment and morale, and are highly feasible because Myanmar is not overtly and publicly antagonized.

Finally, Thailand can facilitate information sharing, alliance-building, and strategic coordination by hosting communication platforms that link the AA with other EAOs or amplify their international narrative; this is moderately feasible but limited by geographic distance and political sensitivities. Overall, Thailand’s support is a careful balancing act between providing practical assistance and avoiding direct confrontation with Myanmar’s government.

The AA has demonstrated strong command cohesion, effective local intelligence penetration, and capable territorial administration, all of which mean that foreign logistics and munitions support, while not altering the group’s ideology or objectives, could substantially affect the tempo, scale, and durability of its campaign against the Tatmadaw. Reliable logistical support ensures that victories are not merely episodic but can become strategically enduring, maintaining pressure across multiple fronts, reducing operational pauses, and potentially accelerating the collapse of isolated Tatmadaw units.

Standardized munitions and equipment can streamline unit rotation, facilitate integration of new recruits, and improve coordination with allied forces, gradually shifting the AA from a guerrilla-style force toward a more proto-conventional actor. Sustained logistical backing also enables the maintenance of prolonged sieges without rushing assaults, minimizes civilian casualties, and imposes psychological attrition on the junta, forcing risky relief operations and dependency on air resupply.

Beyond the battlefield, logistics function as a political tool by stabilizing civil administration, reinforcing the AA’s legitimacy as a governing authority, and sending deterrent signals that encourage local elites and other EAOs to cooperate. Small arms standardization has generally been accomplished, with most AA fighters seen operating Type 56 AKs and Type 81s that the Kachin Independence Army are known to produce. Both platforms utilize the same 7.62x39mm Soviet cartridge.

At a broader level, dependable AA logistics compel the Tatmadaw to divert resources across multiple fronts, indirectly aiding resistance groups and PDFs, and can transform an attritional conflict into a scenario where territorial losses become permanent and reoccupation is politically and militarily unviable. Its strategic value lies less in the quantity of materiel provided and more in how consistently it enables the AA to operate as a resilient governing actor rather than merely an armed group.

Comparing the Arakan Army (AA) and the LTTE based on the logistics framework

The Liberation Tigers of Tamil Eelam (LTTE), founded in 1976 by Velupillai Prabhakaran, evolved from the radicalization of Tamil youth into a uniquely sophisticated “proto-state” that waged a 26-year civil war for an independent Tamil Eelam in northern and eastern Sri Lanka. This organization distinguished itself as the only militant group in the world to possess a comprehensive three-tier military hierarchy, comprising a disciplined infantry, the Sea Tigers naval wing, and the Air Tigers aerial wing, all directed by a centralized governing committee.

To sustain a massive annual budget of $200 million to $300 million, the LTTE functioned with the efficiency of a multinational corporation, managed by specialized departments like the “KP Branch” under Kumaran Pathmanathan for procurement and the “Aiyanna Group” for financial monitoring. Their revenue portfolio was heavily skewed toward external sources, with over 80% of funding derived from a global diaspora network spanning 54 countries. This included monthly contributions of approximately $2 million, largely from the Tamil diaspora UK, Canada, and Norway, often funnelled through front organizations and humanitarian shells to bypass international sanctions.

Beyond legitimate fundraising, the LTTE maintained a robust criminal enterprise that included money laundering, credit card skimming, and high-seas piracy, such as the hijacking of vessels like the MV Farah III. They were particularly adept at utilizing a “Pan-Ho-Lib” fleet of ten merchant freighters to dual-purpose legitimate trade with the smuggling of surface-to-air missiles and explosives. Furthermore, the group was linked to international narco-terrorism, with estimates suggesting that affiliated cartels moved $250 million worth of narcotics from the Golden Crescent to Western markets annually.

Internally, the LTTE administered a parallel state in the Wanni region, featuring its own police, judiciary, and a rigorous double-taxation regime that levied up to 24% on sales and 8% on government salaries. This financial resilience allowed them to pioneer lethal asymmetric tactics, most notably through the elite Black Tigers unit, which invented the suicide vest and assassinated heads of state, including Rajiv Gandhi and Ranasinghe Premadasa. Despite their technological innovation, which extended to cyber-warfare via the “Internet Black Tigers” who hacked university systems for covert fundraising, the group faced global condemnation for the systemic recruitment of child soldiers, who at times comprised 60% of their front-line forces.

The LTTE’s territorial control, which once covered nearly one-fourth of the island, began to erode following a critical internal split in 2004 when Eastern Commander Colonel Karuna defected with thousands of cadres. This loss of intelligence and manpower, combined with a final all-out military offensive by the Sri Lankan government in 2006, culminated in the group’s total collapse. By May 2009, the military dismantled the LTTE’s command structure in Mullaitivu, resulting in the death of Prabhakaran and his top commanders, effectively ending one of the most well-funded and organized insurgencies in modern history. [South Asia Terrorism Portal], [Mapping Militants Project ]

Dimension	LTTE	Arakan Army (AA)	Relevance
Logistics Model	Transnational, semi-covert, self-financed	Local support and captured materiel, limited external logistics	Both rely on diversified sources rather than a single patron
Supply Diversification	High	Medium	AA needs to expand diversification to avoid fatal supply shocks
Operational Independence	Strong, avoids reliance on one actor	Moderate, somewhat dependent on local and allied support	LTTE maintained flexibility; AA partially mirrors this
Reliance on External Patron	Low	Low	Neither has a state-backed sponsor, making them vulnerable if isolated
Internal Control Over Supply Chains	Strong	Moderate	AA faces a similar risk if local supply or allies are disrupted
Vulnerability to Interdiction	High if isolated	Medium–high	AA faces similar risk if local supply or allies are disrupted
Adaptability/Flexibility	High; maritime & land domain	Moderate; relies on local terrain and captured materiel	AA can operate locally but lacks LTTE’s broader transnational reach

Narco-trafficking allegations

The Arakan Army’s alleged evolution into a major player in the regional narcotics trade has unfolded over several years, but developments since late 2023 have sharply intensified scrutiny of the group’s activities. After renewed fighting broke out between Myanmar’s military and ethnic armed groups in November 2023, supply lines into Rakhine State were severely disrupted, creating acute shortages of food, medicine, and construction materials in areas under Arakan Army (AA) control. According to Bangladeshi intelligence and security officials, the AA responded by deepening cross-border smuggling arrangements with Bangladeshi syndicates, trading yaba, crystal meth, and other narcotics for essential goods, cash, and materials needed to sustain both its civilian administration and armed wing.

By mid-2024 and into 2025, authorities in Bangladesh reported a marked shift in trafficking patterns. With tighter controls along land borders and the Naf River, nearly 80 percent of smuggling moved to maritime routes. Intelligence sources and Border Guard Bangladesh (BGB) officials said four to five trawlers were departing daily from jetties in Chattogram and Cox’s Bazar for AA-controlled areas of Rakhine, often using Rohingya carriers familiar with the sea routes. Radar surveillance detected frequent incursions by Bangladeshi fishing vessels into Myanmar waters, sometimes in large groups, delivering rice, fertiliser, medicines, cement, rods, and other supplies and returning with narcotics destined for Bangladesh’s coastal and inland markets.

Between May and September 2025, the Bangladesh Coast Guard said it thwarted multiple smuggling attempts in Cox’s Bazar and Chattogram waters, arresting dozens of suspects and seizing large quantities of essential goods and construction materials bound for Myanmar. Security agencies warned that at least 17 cross-border routes were being used by networks linked to the AA and transnational syndicates, with intelligence estimates suggesting a significant portion of drug revenues was being channelled back into the purchase of firearms and ammunition. Officials described the expanding drug-and-arms pipeline as a growing national security concern for Bangladesh.

The scale and sophistication of the network came into sharper focus in November 2025, when investigators in Myanmar documented the seizure of 4,000 kilograms of high-purity crystal methamphetamine valued at USD 57.1 million. Evidence from checkpoints, arrest records, and shipping logs indicated the drugs originated in Shan State and moved through a coordinated corridor via Mandalay, Yangon, and the Ayeyarwady coastal belt before entering southern maritime routes. Arrests of AA-linked operatives, logistics coordinators, and ship personnel, alongside the recovery of military-grade firearms, reinforced allegations of a close link between narcotics trafficking and the group’s armed operations.

A gang apparently connected to AA economic leaders was apprehended in Yangon earlier in 2025, around March, with approximately 1.2 tons of crystal meth and substantial amounts of other drugs that were also headed for foreign markets like Malaysia. State Administration Council (SAC) and Tatmadaw officials maintain their stance regarding the Arakan Army as a drug trafficking organization. Such has also been echoed by Rohingya militant groups.

Taken together, official seizure records, court documents, and regional security assessments now depict the Arakan Army as embedded in transnational drug networks stretching from Myanmar’s interior to Bangladesh and onward to Southeast Asian maritime routes. Analysts and officials warn that as long as narcotics remain central to the AA’s financing model, the trade will continue to fuel armed violence, corruption, and civilian hardship in Rakhine, while posing an escalating cross-border security challenge for Bangladesh and the wider region. [NPNews], [The Daily Star], [Daily Sun]

The Arakan Army (AA) has rejected allegations from Bangladeshi authorities that it is trafficking narcotics across the Myanmar–Bangladesh border in exchange for food, construction materials, and other supplies, calling the claims “baseless and politically motivated.” Responding to a Sept. 9 report in Bangladesh’s Daily Sun that cited coast guard and intelligence sources, the AA accused the Border Guard Bangladesh (BGB) of deflecting blame to conceal its own involvement in the drug trade. Bangladeshi officials have alleged that dozens of syndicates use at least 17 routes to supply the AA, that most trafficking occurs by sea, and that a large share of drug revenues is used to buy weapons, citing recent seizures and arrests along coastal areas. AA spokesperson Khaing Thukha dismissed the accusations as implausible, arguing that strict BGB controls prevent cross-border movement and claiming drug trafficking ceased after the AA took control of the frontier in late 2024.

He countered that narcotics seized in Bangladesh originate from junta-controlled areas of Myanmar and accused Bangladeshi security personnel of profiteering while restricting humanitarian supplies to Rakhine. The AA also leveled broader accusations against the BGB, including alleged support for militant groups near refugee camps, warning that such actions threaten border stability, even as clashes continue along the 271-kilometer frontier. [The Irrawady]

The United League of Arakan/Arakan Army (ULA/AA) has rejected allegations published on 19 March in a junta-affiliated newspaper linking it to a major drug seizure in Yangon, calling the claims politically motivated defamation. The report alleged that 14 people were arrested with narcotics worth more than 96 billion kyats and accused a fugitive, Ye Win, of running the AA’s business operations, a claim the group firmly denied.

The AA accused the military junta, which it says is suffering battlefield setbacks, of reviving a familiar tactic of discrediting opponents through misinformation, and countered that activities such as online gambling linked to drug money are concentrated in junta-controlled areas like Naypyidaw, Mandalay, and Yangon.

The denial comes as the AA expands its military campaign, having taken control of 15 towns in Rakhine State and Paletwa in Chin State, while pressing offensives in remaining junta-held areas of Rakhine as well as in Bago and Ayeyarwady regions, where reports indicate intense fighting in multiple townships. [Mizzima]

KEY TAKEAWAYS

1. De Facto Governance and Legitimacy– The AA’s political wing, the United League of Arakan (ULA), has successfully established a parallel administration for over one million people. By creating the “Arakan People’s Government,” they provide a judiciary, police force, and essential services like health programs, effectively supplanting the Myanmar junta’s authority and framing their rule as a legitimate step toward ethnic autonomy.
2. Strategic Maritime Shift– Following a near-total land blockade by the Myanmar military in late 2023, the AA shifted 80% of its smuggling operations to the sea. This maritime transition utilizes radar-monitored trawlers to bypass checkpoints, turning the Bay of Bengal into a critical lifeline for both military supplies and commercial trade.
3. The Narcotics-Barter Economy– A “narcotics-for-essentials” trade has emerged along the Bangladesh border. Faced with severe scarcity, the AA facilitates the flow of yaba and crystal meth into Bangladesh in exchange for vital commodities like rice, medicine, and fuel. This barter system sustains their civil administration despite the junta’s economic strangulation.
4. Massive Revenue Scale– The financial impact of this cross-border trade is immense. Between 2020 and 2025, authorities in the Teknaf region alone seized drugs valued at over $149.3 million USD. This lucrative revenue stream allows the AA to fund its military campaigns and pay civil servants in an environment where traditional banking is non-existent.
5. Exploitation of Refugee Hubs– Rohingya refugee camps in Bangladesh have increasingly become logistical hubs for the AA’s operations. By exploiting poverty and the uncertainty of repatriation, the AA and linked syndicates recruit refugees as carriers, expanding the reach and safety of their drug and arms pipelines.
6. Regional Military Alliances– The AA operates as a core member of the Brotherhood Alliance alongside the KIA, MNDAA, and TNLA. This partnership provides the AA with deep strategic depth, shared intelligence, and access to sophisticated weaponry and munitions across Myanmar’s northern and western fronts.
7. China’s Strategic Pragmatism– China maintains a “soft” influence over the AA to safeguard its $8.9 billion Kyaukphyu Deep-Sea Port and energy pipelines. By ensuring the AA does not disrupt Belt and Road Initiative (BRI) projects, China indirectly bolsters the group’s operational resilience and regional political leverage.
8. Speculative Thai Framework– Although no land border is shared, Thailand’s need for energy security (importing 15% of its gas from Myanmar) provides a “KNLA-style” blueprint for indirect support. Thailand has a vested interest in maintaining a rapport with any authority, including the AA, capable of guaranteeing stable energy flows from Rakhine’s offshore fields.
9. Military Professionalization– Logistical support is transforming the AA from a guerrilla force into a proto-conventional army. They have standardized their munitions, primarily using the 7.62x39mm cartridges for Type 56 and Type 81 rifles, which allows for better coordination with allies and more effective sieges against junta outposts.
10. Strategic Denial and Tension– The AA officially rejects all trafficking allegations as “politically motivated defamation.” They counter-accuse the Border Guard Bangladesh (BGB) of profiteering from the drug trade, highlighting the deep-seated mistrust and the complex security challenges along the 271-kilometer international frontier.

Verification Note: Information is collected and cross-verified through multiple channels, including official information desks, credible social media sources, and established news outlets. Each source is assessed for reliability, with unsubstantiated or irrelevant claims excluded. The validated information is then systematically analyzed to derive conclusions.