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Businesses of illegal money changers found involved in financially supporting terrorists.

Oct 15 - 21, 2001

According to press reports, the United States, Pakistan, Britain and Middle Eastern countries have agreed to launch a crackdown on worldwide illegal business of financial transactions. Called hundi or hawala, running into billions of dollars annually.

The issue had come up during a meeting with Pakistani President General Pervez Musharraf and US Ambassador to Pakistan Wendy Chamberlain in Islamabad last week. The investigations conducted by the US authorities into the bombing of New York and Washington on September 11, strengthened the suspicion that terrorist outfits transfer huge amounts of money through hundi or hawala. The US Federal Bureau of Investigation, commonly known as FBI, has already launched a thorough probe into the dollar accounts being maintained in Middle Eastern banks by foreigners particularly Pakistanis. The bank accounts and the businesses of illegal money changers found involved in financially supporting terrorists outfits would be shut down immediately in the Middle East, Europe, and the US. "We should not be far behind", Pakistan government's chief spokesman, Major General Rashid Qureshi, said when asked whether Pakistan was planning a crackdown on illegal money transaction businesses. "It (crackdown on hundi business) is in favour of the government", Qureshi said.

The issue also came up for discussion in the cabinet meeting as the Finance Minister Shaukat Aziz told the participants that an FBI probe into the bank accounts had increased the inflow of foreign exchange into the country. "In just one day Pakistan received record US$ 45 million in remittances through official banking channel," the cabinet was told. The cabinet was informed that an estimated four billion were routed through the hundi system in the country every year against less then a billion through official channels.

The United Arab Emirates, at the behest of the United States, has tightened money transactions in and outside the country. A circular issued to all money changers by the Central Bank of UAE said "Within the frame of the efforts exerted to Combat Money Laundering and Suspicious Fund transfer, you are kindly requested to immediately record details of persons or institutions that transfer UAE dirham two thousand (2,000) or equivalent in other currencies". Instructions were issued to note the ID number, passport number, labour card number, driving licence number, phone numbers etc.. Severe punishment has also been announced for those not following the new instructions.

According to Pakistani officials, the government is focusing on the hundi transactions and preparing for a major crackdown. A senior government official said local financial authorities have been tightly monitoring the foreign exchange markets in an effort to prevent money laundering. "We have asked exchange houses to ensure that these funds are legitimate workers money," a central-bank official said.

Much of the focus for international investigations to track down hundi transactions will be on Dubai in the United Arab Emirates. The Emirate functions as the most important centre for the funds of money changers from across the Muslim world. But the trail is likely to extend far beyond the Arab world to banks in Hong Kong, Malaysia and Indonesia.

Banking officials said that hundi got a big international push in the 1970s and 1980s with an exodus of millions of Pakistan to better-paying jobs abroad. The system found its largest echo in the Bank of Credit & Commerce International. A number of Western countries used BCCI through the 1980s to channel billion of dollars in covert aid to Afghan rebels fighting Soviet occupation. BCCI collapsed in 1991. When after such cover operations come to an end.

In view of US war against terrorism, the Western interest in eliminating this "business" is quite understandable. They believe that terrorists and their networks channelise their funds through this informal system. For us this is a God-given opportunity to get rid of the menace that eats up a major portion of our economy. While Pakistan has been knocking at the doors of one donor or the other to get a few hundred thousand dollars and that too on stringent terms, some estimates say that five to seven billion dollars change hands in Pakistan through Hundi. It is because this system is 80 well knitted that it has overshadowed our formal banking system. In seventies Pakistan used to receive remittances in the range of 3 to 4 billion dollars annually from overseas workers through normal banking channels but the figure dropped to as low as 450 million dollars despite the fact that during all these years more and more Pakistanis went abroad. However, because of the significant difference in exchange rate between kerb market and banks, people prefer to send their money through Hundi. The successive governments have been trying to tap this resource by offering various kinds of incentives including increased duty allowance, privileged treatment on arrival in Pakistan, tax exemptions as well as instructions to banks to ensure prompt disbursal of the money sent from abroad but none of them could produce desirable results. There was a strong and urgent need to put curbs on this activity but no government could do that either because of vested interests or lack of will. Now that some powerful agencies of some countries are offering assistance in this regard, we must ensure that the drive is taken to its logical conclusions for the benefit of our economy.