Dirty money and the war in Afghanistan
In a long report on the war in Afghanistan for the U.S. Senate’s Committee on Foreign Relations last summer, one sentence stood out: “If we don’t get a handle on the money, we will lose this war to corruption.”
The money in this context meant the funds, from multiple illicit sources, that finance the Taliban who are fighting the United States and its allies in a war that is now in its ninth year. Dirty money is greasing corruption on a scale so monumental that Afghanistan ranks 179 (out of 180) on the latest index compiled by Transparency International, a watchdog group based in Berlin.
Part of the reason for the country’s dismal standing: for much of the war the U.S. military ignored the booming drug trade (Afghanistan accounts for around 90 percent of the world’s opium, the raw material for heroin) and the drug money flowing to the insurgents, estimated at up to $400 million a year. Add kickbacks contractors pay directly to the Taliban to avoid having their projects blown up or their workers kidnapped, add money diverted from development funds and soon you talk about serious money.
“There is a realization now that the best way to stop the conflict is to cut the flow of money,” Gary Haff, the chief financial investigator with the U.S. Drug Enforcement Administration (DEA) told a conference of anti-money laundering experts in Hollywood, Florida, this week. “We need to identify and disrupt the financial infrastructure that supports the Taliban and al-Qaeda.”
That falls under the heading of better late than never and is easier said than done. An important new weapon in the assault on the financial infrastructure was only deployed last summer, initially with a skeleton staff. It is now growing rapidly and by the end of the year, according to Haff, the DEA alone will have 85 agents in the new unit, the Afghan Threat Finance Cell (ATFC), working alongside financial specialists from the Departments of Defense, Treasury and Justice.
That is a big step forward from the days, earlier in the war, when planes were loaded with bales of opium at the Kabul airport in full view of U.S. troops manning the perimeter. It is also a long way from the days when military commanders argued that neither going after the drug lords nor trying to deny financing to the enemy was part of their brief.
It is now one of the pillars of the counter-insurgency strategy but how successful it can be is an open question. “Is it possible to slow the flow of drug money to the insurgency, particularly in a country where most transactions are conducted in cash and hidden behind an ancient and secretive money transfer system?” the Senate Committee report wondered.
The money transfer system in question, known as hawala, goes back to the 8th century and is as ideally suited for moving illicit money as Afghanistan’s craggy mountains are suited for guerrilla warfare. Entirely based on trust, it is a remittance system that has been defined as “money transfer without money movement” by Interpol, the international police agency.
How does it work? A customer in one country (or city) gives money to a hawala dealer who charges a small commission and instructs a hawaladeer in another country (or city) to give an equal amount of money to a recipient on the strength of a identification number or password. The transaction leaves no paper trail and is invariably faster than a wire transfer through a bank.
In Afghanistan, a country of 28 million people, there are only 17 banks and no culture of banking. Around 90 percent of financial transactions run through the hawala system, experts estimate. Hawala dealers in Kandahar, the country’s second biggest city, and the opium-producing province of Helmand, are thought to handle $1 billion in drug money per year.
The Americans’ problems of throttling financing for the insurgents don’t end with a difficult-to-penetrate parallel money transfer system. “So far, not enough attention has been given to trade-based money laundering and to the misuse of the Afghan transit trade agreement,” according to Dennis Lormel, one of the speakers at the anti-money laundering meeting.
Lormel, who now runs a consultancy, DML Associates, was chief of the FBI’s Financial Crimes Program until he retired. In his view, the over- or under-invoicing of goods – trade fraud – yield millions of dollars that can filter back to the insurgents.
Success on the financial front, and for the ATFC, obviously depends on the political will of key players in the Afghan government, led by President Hamid Karzai. In November, he was declared the winner of disputed elections and promptly faced exhortations from U.S. President Barack Obama and Secretary of State Hillary Clinton to open a new chapter of good governance and fighting corruption.
Let’s see how Afghanistan will rank on Transparency International’s 2010 index.