In Kandahar currency market, the money trail proves elusive

December 23, 2012

Beneath the din of shouted exchange rates, trilling mobiles and the clink-clink of tea glasses ricocheting around Kandahar’s money market, there is a barely-audible backbeat: the electric purr of counting machines gobbling dollars, Afghanis and rupees.

In dozens of cramped shops crowding the galleries of the echoey exchange, a clannish brotherhood of currency dealers oils the wheels of Afghanistan’s cash-based economy, sending funds across borders, swapping foreign bills or taking deposits in the manner of conventional banks.

With no map to guide them, a small circle of U.S. and European law enforcement and intelligence officials have ventured into this bewildering financial landscape, hoping to chart the ever-shifting pathways that keep the Taliban flush with cash.

It doesn’t take much time wandering around the currency bazaar in the city of Kandahar, the movement’s spiritual home, to appreciate that the line between what NATO calls “Threat Finance” and the core business of many Afghan money men will be difficult to draw.

Perched cross-legged on cushions, or overseeing glass cabinets engorged with neatly-stacked blocks of cash, the merchants operate a centuries-old system known as hawala, from the Arabic word for ‘transfer’. Equipped with little more than calculators, mobile phones, hand-written ledgers and an inexhaustible supply of rubber bands (used to restrain bulging wads of notes), the dealers handle transactions worth hundreds of millions of dollars a year.

In the past six months, the U.S. Treasury Department has designated at least four Afghan hawala dealers as suspected Taliban financiers, slapping freeze orders on any assets they may hold in the United States. (Perhaps the most notable is Haji Khairullah Barakzai, featured in a Reuters special report published today on U.S. attempts to shut down his businesses). Though hawala merchants – known as hawaladars – are not likely to have any assets in American banks, the designations aim to ruin their reputations in the eyes of their customers. A sudden stampede to withdraw deposits can rapidly drive a dealer into bankruptcy.

Arrayed in the towering turbans and flowing dress favoured by any respectable Kandahari, the hawaladars make their profits through commissions on money transfers and via fluctuating exchange rates. They may hold relatively little cash at any one time, often in a safe at the back of their shop. Their most valuable assets, however, are their reputations.

Hawaladars are expert keepers of secrets. Businesses are primarily family concerns, while inter-marriage between big hawala clans cement ties of trust. Penetrating such networks is virtually impossible for outsiders. It is no surprise then that even when account books are seized in raids, investigators often struggle to discern precisely who is sending what money on behalf of whom.

The case of Haji Agha Jan, a hawaldar in the Kandahar exchange, embodies the uncertainties.

A wiry middle-aged man with soft eyes and a shoulder-shrugging resilience to misfortune, Jan tells a persuasive tale. One night in October last year, he heard sounds outside his house. Instinctively, he reached for his pistol, before rapidly realising he was outgunned – a squad of Afghan police and U.S. troops had come knocking. The visitors bound his wrists with plastic cuffs and slipped a hood over his head. According to Jan’s account, he was soon en route to the nearby military base at Kandahar Airfield along with his son, who was also arrested.

Jan says his interrogators were obsessed with the contents of his books – ledgers stretching back years with hundreds of names, amounts and phone numbers scrawled in black ball-point. (Recipients who cannot read or write sign their signatures with thumbprints dabbed in blue ink).

Questions came by day and night. Jan could only tell the time by glancing at his captors’ watches or when guards shouted reminders of Islamic prayer hours through the door of his one-man cell.

“I told them, ‘Yes, I am sending money through hawala, but not Taliban money’,” Jan said, speaking in his uncomfortably-quiet shop on the first-floor of the Kandahar exchange. Fearing he will be arrested again, customers rarely call.

“It doesn’t have ‘Taliban’ written on the money’,” Jan said, chewing on green tobacco and occasionally availing himself of a spittoon.

His son was released first, then Jan himself was freed after 25 days in detention, his captors presumably satisfied that he was not channelling cash to the insurgents.

Indeed, Jan produced a copy of a hand-written Taliban death threat issued some months before his arrest. The movement had declared him a marked man due to his friendship with a police chief from Kakrez, one of the rural districts in Kandahar Province. Jan had later discovered a landmine buried outside his home, which he summoned police to defuse.

Jan maintains that coalition forces still owe him monies including 2.3 million Pakistani rupees ($24,000) seized during his arrest, and four gold necklaces. (ISAF, the NATO-led force in Afghanistan, said it could neither confirm nor deny that Jan had been held).

Was Jan telling the whole truth? Investigators freely admit the difficulty of tracing flows through the hawala system, where book-keeping systems – though thorough – are not designed for the ready comprehension of inquisitive strangers. Nonetheless, the U.S. Treasury is sufficiently satisfied with its evidence to make some definitive declarations about certain hawaladars, including Khairullah, was sanctioned on June 29, along with his business partner, Haji Abdul Sattar Barakzai.

What can be said with some certainty is that licit and illicit commerce in Afghanistan are so intimately entwined that the distinction can often seem almost meaningless.

Edwina Thompson, a researcher who conducted extensive interviews with hawaldars in 2005, points out that the trade plays a vital role in facilitating economic development in Afghanistan, where few people trust banks. Kandahar’s exchange is also central to the mechanics of the heroin trade.

(Thompson’s 2011 book, Trust is the Coin of the Realm, is the most authoritative account of the hawala system in Afghanistan; some of her research can be found in a report on Afghanistan’s opium industry by the United Nations Office on Drugs and Crime).

Afghan drug cartels run a sophisticated system of agricultural credit and payment to poppy farmers that could not function without the hawaladars in Kandahar, the largest city in the south.

Thompson found that hawaladars in Kandahar experienced a huge influx of funds for advance payments from traffickers to farmers during the poppy cultivation months of October to December.

She discovered a similar surge in payments from the end of April to June when opium harvested from the poppy crop was ready for purchase. One in four hawaladar in Kandahar might be considered significant facilitators of drug payments, Thompson estimated, handling up to $810 million of opium-related funds in 2005. She made similar findings in neighbouring Helmand Province, the epicentre of the drug industry in Afghanistan, which supplies an estimated 90 per cent of a global market for heroin and other opiates worth some $68 billion a year, according to U.N. estimates.

Individual transactions can be substantial. A report released by Congress in 2009 reported that U.N. officials in Kabul had inspected records of drug-related transactions involving $1 million and had seen evidence of a $15 million hawala transfer.

Pakistan launders much of the money. Unlike in Afghanistan, where hawala is – in theory – regulated, the entire system is officially outlawed in Pakistan. In practise, Pakistani hawaladars are central to the country’s vast informal sector and handle billions of dollars a year while police turn a blind eye.

U.S. officials are particularly suspicious of certain hawala shops in the south-western Pakistani city of Quetta, which has long served as a rear base for members of the Taliban’s high command.

In November, the U.S. Treasury Department slapped sanctions on Rahat, an Afghan hawala shop, saying the Taliban had deposited $500,000 in its Quetta office. Its owner, a hawaladar named Haji Mohammed Qasim, had been arrested in Afghanistan on September 15. (He was also sanctioned, along with his Quetta branch manager, Musa Kalim).

While Afghanistan’s hawala network might seem like one of the more exotic branches of the financial system, its tendrils ultimately terminate in the more familiar hubs of London and New York. Recent U.S. investigations into allegations of money-laundering against banks such as Standard Chartered and HSBC raise the question of whether the real rewards from an ever-more globalised illicit economy may be reaped by tie-wearing lenders in the West.

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