ISLAMABAD -- One of the deadliest militant groups in Afghanistan, the Haqqani network, has developed a sophisticated, "mafia"-style financing operation that relies on extortion, kidnapping, smuggling and ties to legitimate businesses, according to a new report by a U.S.-based think tank.

The report by the Combating Terrorism Center in West Point, N.Y., suggests the system has become so lucrative that maintaining it could be as much of a goal for the group as driving foreign forces out of Afghanistan. That could complicate U.S. efforts to negotiate an end to the war since much of the network's cash flow is dependent on instability and lawlessness bred by the conflict.

"Life at war has become lucrative – even if highly risky – while an end to the fighting would almost certainly produce a decline in wealth and power," said the report, which was released Tuesday and was based on archival records, documents captured in Afghanistan and interviews with Western, Afghan and Pakistani officials, as well as locals in areas where the Haqqani network operates.

The U.S. has identified the Haqqani network, allied with al-Qaida and the Taliban, as one of its most potent enemies in Afghanistan, partly because of its record of carrying out high-profile attacks on the capital Kabul. The leaders of the group are based in Pakistan's North Waziristan tribal area, having fled there from their homeland in eastern Afghanistan following the U.S.-led invasion in 2001.

The U.S. has repeatedly demanded that Pakistan prevent Haqqani fighters from using North Waziristan as a base to attack troops in Afghanistan, but Islamabad has refused, saying it is stretched too thin fighting domestic militants. Most analysts believe Pakistan is reluctant to target a group with which it has strong historical ties and could be a useful ally in Afghanistan after foreign forces withdraw.

The diplomat nominated to be Washington's next ambassador to Pakistan, Richard Olson, said during a Senate confirmation hearing Tuesday that getting Islamabad to crack down on the Haqqani network would be his "most urgent" responsibility.

The group's founder, Jalaluddin Haqqani, began developing his financial support network in earnest decades ago following the Soviet invasion of Afghanistan in 1979. During the decade-long war, he was largely reliant on money, weapons and supplies provided by Pakistani intelligence, which received billions of dollars from the U.S. and Saudi Arabia.

Foreign assistance dropped sharply after the Soviets withdrew in 1989, prompting Haqqani to search for new sources of funding, including Arab donors in the Gulf and proceeds from protecting drug traffickers and extorting businessmen in eastern Afghanistan and areas across the border in Pakistan, said the think tank report.

Haqqani's ability to earn money from drug trafficking and other smuggling activities increased after the Taliban seized control of Afghanistan in 1996 and named him minister of tribal and border affairs.

Following the fall of the Taliban in 2001 and relocation to Pakistan, the group continued its outreach to Arab donors, with senior leaders making regular trips to the Gulf, and deepened involvement in illegal activities by broadening the types of businesses it extorted and kidnapping local businessmen and their relatives, said the report.

"Local sources ... say it is virtually impossible to conduct business in Haqqani areas of operations unless the network approves and profits off that business in some way," said the report.

The most lucrative target for extortion is NATO and other foreign-funded construction projects in Afghanistan and Pakistan, said the report. Although it is impossible to pinpoint a precise figure the group earns, multiple sources say extortion has become the network's largest source of income. But this type of predation risks turning locals against the group.

The network's reliance on illicit sources of financing reportedly increased after Haqqani had a stroke in 2005 and handed over responsibility for day-to-day operations to his son, Sirajuddin. The son is credited by some analysts with expanding into the smuggling of minerals and timber, said the report. The group is also believed to be deeply involved into importing chemicals needed to process opium into heroin, it said.

The Haqqani network also maintains a portfolio of legal business interests, although leaders appear to disguise their ownership through front men and companies, said the report. The group is believed to own real estate from Kabul to Dubai and to run transport and trucking firms, construction companies and import-export operations – some of which appear to exist mainly to launder illicit profits.

The report suggested that targeting the group's financial infrastructure could be a key way to hamper the network.

"In partnership with the ongoing tactical campaign, a stepped-up U.S. effort to identify and disrupt Haqqani business activities and logistical supply lines, modeled on previous successful campaigns against other transnational crime networks around the globe, could significantly degrade the network's capacity to cause trouble," said the report.