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Hawala system is main source, IMF says
By Javed Mahmood
KARACHI – The International Monetary Fund (IMF) has revealed that every year smugglers transfer hundreds of millions of dollars from Pakistan to Dubai through Afghanistan. The Pakistani government is now investigating ways to curb this drain on the country's economy.
A hawaladar, or informal money transfer agent, in Afghanistan told the IMF he transfers such amounts annually along that route, the IMF said in a November 7 report titled Islamic Republic of Afghanistan: Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism.
Those transferring funds depend on Afghanistan’s hawala dealers because “strict exchange control restrictions in Pakistan ... were reportedly easier to circumvent through the border between Pakistan and Afghanistan,” the dealer said, according to the report.
Pakistan responds to problem
Pakistanis have deposited US $125 billion (Rs. 10.8 trillion), including tainted money, in foreign banks, Pakistani economist Shahid Hassan Siddiqui said.
The unlawful flight of capital is cutting into Pakistan’s foreign exchange reserves and affecting the rupee-dollar exchange rate, he added.
It also makes it difficult to identify and prosecute those making money from smuggling and drug trafficking and those who are involved in financing terrorism.
Reserves, which exceeded US $18.6 billion (Rs. 1.6 trillion) a few months ago, had shrunk by about US $1 billion (Rs. 86 billion) as of early November, he said, adding that dollar smuggling could be a major factor behind the loss and the recent plunge in the rupee’s exchange rate.
Cash smuggling has reached an alarming level that could not occur without connivance of government officials, Siddiqui said, urging the government to curb capital flight and to fight corruption and tax evasion to strengthen the economy.
Pakistan is making every possible effort to curb smuggling of cash, Interior Minister Rehman Malik told Central Asia Online. The government has decided to form a commission to probe the assets of the parliamentarians, he said.
The commission could be tasked to develop a strategy to retrieve the money illegally transferred to foreign banks, he said.
If the Parliament approves, the government would amend laws to pursue cases in different countries to return the illegal money, Malik added.
Instead of seeking loans from the IMF and other international organisations, the government should recover tainted money deposited in foreign banks, Siddiqui said.
But first, the government would have to collect solid evidence against Pakistanis who have deposited money in foreign banks, Malik said.
Retrieving such money would not be an easy task, he added, as the government would have to go through the legal system in foreign countries and to present strong evidence that the money was illegally earned or transferred.
Once the commission is formed, it should be easy to track down the ill-gotten money, to retrieve it and to take strict action against corrupt elements and tax evaders, he said.
The State Bank of Pakistan (SBP)’s senior officials are unaware of cash smuggling, SBP chief spokesman Syed Wasimuddin said, adding that smuggling falls under the purview of the Federal Investigation Agency (FIA).
FIA busts network of smugglers
“We have busted a gang ... involved in smuggling foreign exchange in different countries,” Khurshid Marwat, director of the banking department of the FIA, said.
The FIA accuses the suspects of operating a network in Pakistan, Afghanistan, Sri Lanka and some other countries and of smuggling foreign exchange.
About 10 suspected smugglers of cash are in FIA custody and are undergoing investigation for alleged involvement in illegal transactions of money in different countries, Marwat said.
The FIA has asked Interpol and those countries’ governments to track down the smugglers’ network and to obtain details on the trans-national smuggling of cash, Marwat added.
Echoing other observers about the effectiveness of Pakistani exchange control restrictions, he said improved FIA monitoring at airports had forced cash smugglers to start using Afghanistan as a conduit for shipments to Dubai and other countries.
That situation represents a major change from just a few years ago, when smugglers could move cash through Pakistani airports largely unchallenged.
The FIA will work with the rest of the Pakistani government to shut down the Pakistan-Afghanistan-Dubai cash-smuggling menace, he said.
The FIA is unable to estimate how much foreign exchange smugglers move out of Pakistan yearly, since it is still investigating.
Why the hawala system works for smugglers
The hawala system in Afghanistan is convenient and facilitates legitimate remittances, but it is poorly regulated and vulnerable to misuse by those seeking to conceal the origin or destination of large sums, the IMF pointed out. Many hawaladars in Afghanistan are unlicensed and unsupervised, the IMF added.
Investigators recently “designated the New Ansari Money Exchange (NAME), as a major money laundering vehicle for Afghan narcotics trafficking organizations, along with 15 affiliated individuals and entities,” according to the report.
NAME apparently stands “at the center of an unofficial network of individuals, money exchange houses and other businesses operating throughout Afghanistan and in the United Arab Emirates,” the investigators said, according to the IMF.
They suspect that “between 2007 and 2010, (NAME) ... concealed illicit narcotics proceeds among the billions of dollars it transferred in and out of Afghanistan.”
Pakistanis sitting on ill-gotten gains from corruption and tax evasion send their cash abroad, said Siddiqui.
“A few years ago the illegitimate money was sent to Dubai directly from Pakistan by air and by sea, but now the money (goes) through Afghanistan because of strict vigilance and tight monetary measures in Pakistan,” Siddiqui said.
About 3m Afghan refugees, who settled in Pakistan to escape their homeland’s wars and became Pakistani nationals, also send their money to Dubai through hawala dealers in Afghanistan.